Outdoor Channel 10Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2009


o		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: 000-17287

Outdoor Channel Holdings, Inc.

(Exact name of Registrant as specified in its charter)


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

43445 Business Park Drive, Suite 103
Temecula, California 92590
(Address and zip code of principal executive offices)

(951) 699-6991
(Issuer’s telephone number, including area code)

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

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.þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filero		Accelerated filerþ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yes þ No

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


Class		Number of Shares Outstanding at November 1, 2009
Common Stock, $0.001 par value		25,647,705

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For the Period Ended September 30, 2009

Table of Contents


Part I. Financial Information			3

Item 1.Financial Statements			3

Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008			3

Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008			4

Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2009			5

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008			6

Notes to Unaudited Condensed Consolidated Financial Statements			7

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations			21

Item 3.Quantitative and Qualitative Disclosures About Market Risk			32

Item 4.Controls and Procedures			33

Part II. Other Information			34

Item 1.Legal Proceedings			34

Item 1A.Risk Factors			34

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds			44

Item 3.Defaults Upon Senior Securities			44

Item 4.Submission of Matters to a Vote of Security Holders			44

Item 5.Other Information			44

Item 6.Exhibits			45

Signatures			45
EX-31.1
EX-31.2
EX-32.1
EX-32.2

* * *

PART I—FINANCIAL INFORMATION


ITEM 1.		Financial Statements.

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except per share data)


	September 30,			December 31,
	2009			2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	23,223		$	60,257
Investments in available-for-sale securities		31,990			—
Accounts receivable, net of allowance for doubtful accounts of $743 and $891		13,681			9,448
Income tax refund receivable		251			—
Deferred tax assets, net		1,524			1,524
Prepaid programming and production costs		7,239			3,997
Other current assets		1,698			1,333

Total current assets		79,606			76,559


Property, plant and equipment, net		15,049			10,042
Amortizable intangible assets, net		892			142
Goodwill		43,160			43,160
Investments in auction-rate securities		5,945			6,456
Deferred tax assets, net		5,614			4,949
Deposits and other assets		5,507			1,646

Totals	$	155,773		$	142,954


Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	13,432		$	5,923
Accrued severance payments		43			25
Deferred revenue		2,721			205
Current portion of deferred obligations		136			126
Current portion of unfavorable lease		133			—
Income taxes payable		—			30

Total current liabilities		16,465			6,309

Deferred obligations		193			236
Unfavorable lease		1,029			—

Total liabilities		17,687			6,545


Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000 shares authorized; none issued		—			—
Common stock, $0.001 par value; 75,000 shares authorized; 25,664 and 25,246 shares issued and outstanding		26			25
Additional paid-in capital		165,793			163,300
Accumulated other comprehensive loss		(462	)		(327	)
Accumulated deficit		(27,271	)		(26,589	)

Total stockholders’ equity		138,086			136,409

Totals	$	155,773		$	142,954

See Notes to Unaudited Condensed Consolidated Financial Statements.

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009			2008
Revenues:
Advertising	$	9,881	$	10,472	$	24,780		$	26,594
Subscriber fees		4,427		4,484		14,428			13,089
Production services		9,322		—		20,611			—


Total revenues		23,630		14,956		59,819			39,683


Cost of services:
Programming		875		1,437		3,983			5,133
Satellite transmission fees		400		398		1,195			1,573
Production and operations		9,155		1,454		23,960			4,477
Other direct costs		175		98		382			290


Total cost of services		10,605		3,387		29,520			11,473


Other expenses:
Advertising		676		567		2,032			2,593
Selling, general and administrative		9,328		6,592		26,998			21,342
Depreciation and amortization		1,010		672		2,897			1,904


Total other expenses		11,014		7,831		31,927			25,839


Income (loss) from operations		2,011		3,738		(1,628	)		2,371

Interest and other income, net		15		454		66			1,400


Income (loss) from operations before income taxes		2,026		4,192		(1,562	)		3,771

Income tax provision (benefit)		643		1,798		(663	)		1,887


Net income (loss)	$	1,383	$	2,394	$	(899	)	$	1,884


Earnings (loss) per common share data:
Basic	$	0.06	$	0.10	$	(0.04	)	$	0.07

Diluted	$	0.05	$	0.09	$	(0.04	)	$	0.07


Weighted average common shares outstanding:
Basic		24,426		25,114		24,434			25,719

Diluted		25,819		25,890		24,434			26,287

See Notes to Unaudited Condensed Consolidated Financial Statements.

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Stockholders’ Equity
For the Nine Months Ended September 30, 2009
(In thousands)


									Accumulated
						Additional			Other
	Common Stock					Paid-in			Comprehensive			Accumulated
	Shares			Amount		Capital			Income (Loss)			Deficit			Total
Balance, December 31, 2008		25,246		$	25	$	163,300		$	(327	)	$	(26,589	)	$	136,409

Comprehensive income (loss):
Net loss		—			—		—			—			(899	)		(899	)
Cumulative effect of adoption of ASC 320		—			—		—			(217	)		217			—
Change in fair value of auction-rate securities		—			—		—			82			—			82

Total comprehensive loss																(817	)


Issuance of restricted stock to employees and service providers for services to be rendered, net of forfeited shares		555			1		—			—			—			1

Share-based employee and service provider compensation expense		—			—		3,322			—			—			3,322

Purchase and retirement of treasury stock related to employee and service provider share-based compensation activity		(73	)		—		(482	)		—			—			(482	)

Purchase and retirement of treasury stock related to the stock repurchase program		(64	)		—		(347	)		—			—			(347	)


Balance, September 30, 2009		25,664		$	26	$	165,793		$	(462	)	$	(27,271	)	$	138,086

See Notes to Unaudited Condensed Consolidated Financial Statements.

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)


	Nine Months Ended
	September 30,
	2009			2008
Operating activities:
Net income (loss)	$	(899	)	$	1,884
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,897			1,904
Amortization of subscriber acquisition fees		553			367
Loss on sale of equipment		21			41
Gain on sale of available-for-sale securities		(7	)		(75	)
Other-than-temporary impairment on auction-rate securities		—			336
Provision for doubtful accounts		335			589
Share-based employee and service provider compensation		3,322			2,704
Deferred tax provision (benefit), net		(665	)		1,885

Changes in operating assets and liabilities:
Accounts receivable		1,122			(1,459	)
Income tax refund receivable		(281	)		(12	)
Prepaid programming costs		(1,683	)		(551	)
Other current assets		400			(218	)
Deposits and other assets		(4,203	)		(209	)
Accounts payable and accrued expenses		87			1,469
Deferred revenue		2,000			139
Customer deposits		—			(14	)
Accrued severance payments		18			(239	)
Deferred obligations		(33	)		(74	)
Unfavorable lease obligations		(89	)		—

Net cash provided by operating activities		2,895			8,467


Investing activities:
Purchases of property, plant and equipment		(2,075	)		(644	)
Proceeds from sale of equipment		111			15
Cash paid to purchase assets of Winnercomm, net of cash acquired		(5,746	)		—
Purchases of available-for-sale and auction-rate securities		(31,990	)		(27,181	)
Proceeds from sale of available-for-sale and auction-rate securities		600			65,952

Net cash provided by (used in) investing activities		(39,100	)		38,142


Financing activities:
Proceeds from exercise of stock options		—			11
Purchase of treasury stock		(482	)		(389	)
Purchase and retirement of treasury stock related to stock repurchase program		(347	)		(14,174	)

Net cash used in financing activities		(829	)		(14,552	)


Net increase (decrease) in cash and cash equivalents		(37,034	)		32,057
Cash and cash equivalents, beginning of period		60,257			25,260

Cash and cash equivalents, end of period	$	23,223		$	57,317


Supplemental disclosure of cash flow information:

Income taxes paid	$	381		$	13


Supplemental disclosures of non-cash investing and financing activities:

Effect of net increase (decrease) in fair value of auction-rate securities	$	82		$	(157	)

Property, plant and equipment costs incurred but not paid	$	168		$	37

Retirement of treasury stock	$	482		$	389

See Notes to Unaudited Condensed Consolidated Financial Statements.

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

NOTE 1—ORGANIZATION AND BUSINESS

Description of Operations

Outdoor Channel Holdings, Inc. (“Outdoor Channel Holdings”) is incorporated under the laws of the State of Delaware. Collectively, with its subsidiaries, the terms “we,” “us,” “our” and the “Company” refer to Outdoor Channel Holdings, Inc. as a consolidated entity, except where noted or where the context makes clear the reference is only to Outdoor Channel Holdings, Inc. or one of our subsidiaries. Outdoor Channel Holdings, Inc. wholly owns OC Corporation which in turn wholly owns The Outdoor Channel, Inc. (“TOC”). Outdoor Channel Holdings is also the sole member of 43455 BPD, LLC, the entity that owns the building that houses our broadcast facility. TOC operates Outdoor Channel, which is a national television network devoted to traditional outdoor activities, such as hunting, fishing and shooting sports, as well as off-road motor sports and other related lifestyle programming.

On January 12, 2009, the Company entered into and completed an asset purchase agreement with Winnercomm, Inc., an Oklahoma corporation and wholly-owned subsidiary of Winnercomm Holdings, Inc., a Delaware corporation, Cablecam, LLC, an Oklahoma limited liability company, and Skycam, LLC, an Oklahoma limited liability company (collectively, the “Sellers”), pursuant to which the Company purchased certain assets and assumed certain liabilities of the Sellers and formed Winnercomm, Inc., a Delaware corporation, CableCam, Inc., a Delaware corporation and Skycam, Inc., a Delaware corporation. Outdoor Channel Holdings wholly owns Winnercomm, Inc., which in turn wholly owns CableCam, Inc. and Skycam, Inc. (collectively referred to as “Winnercomm”). The Winnercomm businesses relate to the production, development and marketing of sports programming and aerial camera systems.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2009 and its results of operations and cash flows for the three and nine months ended September 30, 2009 and 2008. Pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these financial statements. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2008.

Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the dates of the condensed consolidated balance sheets and reported amounts of revenues and expenses for the periods presented. Accordingly, actual results could materially differ from those estimates.

Our revenues include advertising fees from advertisements aired on Outdoor Channel, including fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel and subscriber fees paid by cable and satellite service providers that air Outdoor Channel. Production Services revenue includes revenue from advertising fees, revenue from production services for customer-owned telecasts, revenue from camera services for customer-owned telecasts and revenue from web page design and marketing.

NOTE 2—ACQUISITION

On January 12, 2009, we completed an asset purchase agreement and formed the Winnercomm entities as noted above. We have included the financial results of Winnercomm in our 2009 consolidated results from the acquisition date. The total cash purchase price was $5,944 plus the assumption of certain liabilities. The initial allocation of the purchase price was based upon a preliminary valuation which might result in the recording of a gain on this transaction. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 805, “Business Combinations” paragraph 805-30-25-4, we are currently reassessing whether our preliminary valuation has correctly identified all of the assets acquired and all of the liabilities assumed, and their related tax impact, before we finalize the purchase price allocation and record any gain associated with the acquisition. The preliminary allocation of the fair market values as of January 12, 2009 is set forth below.


	January 12, 2009
Fair value of the net tangible assets acquired and liabilities assumed:
Cash and cash equivalents	$	198
Receivables		5,690
Other current assets		2,324
Property, plant and equipment		5,429
Other assets		211
Accounts payable and accrued liabilities		(7,255	)
Deferred revenues		(516	)
Unfavorable leases		(1,251	)

Total net tangible assets acquired and liabilities assumed				$	4,830

Fair value of identifiable intangible assets acquired:
Customer relationships		970
Patents		90
Programming library		54

Total identifiable intangible assets acquired					1,114


Total purchase price					5,944

Less cash acquired					(198	)

Net purchase price				$	5,746

We adopted the provisions of FASB ASC 805, “Business Combinations” (“ASC 805”) effective January 1, 2009. The fair values set forth above are based on preliminary valuation estimates of Winnercomm’s tangible and intangible assets, based in part on third party appraisals in accordance with ASC 805. The final valuation, and any interim updated preliminary valuation estimates, may differ materially from these preliminary valuation estimates and, as a result, the final allocation of the purchase price may result in reclassifications of the allocated amount that are materially different from the purchase price allocation reflected above.

The Company recognized $0 and $680 of acquisition and integration related costs that were expensed in the three and nine months ended September 30, 2009, respectively.

Intangible Assets

In performing our preliminary purchase price allocation, we considered, among other factors, our intention for future use of acquired assets, analyses of historical financial performance and estimates of future performance of Winnercomm’s services. The preliminary fair values of intangible assets were estimated with the assistance of third party valuation specialists. The following table sets forth the preliminary components of intangible assets associated with the Winnercomm acquisition:


			Weighted
	Preliminary		Average
	Fair Value		Useful Life
Customer relationships	$	970	3.5 years
Patents		90	5 years
Programming library		54	1 year

Total intangible assets	$	1,114

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Winnercomm as though the companies were combined as of the beginning of fiscal 2008. The pro forma financial information for all periods presented also includes the business combination accounting effects resulting from these acquisitions including amortization charges from acquired intangible assets. The pro forma financial information as presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2008.


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
Total revenues	$	23,630	$	26,360		$	60,767		$	72,598
Net income (loss)	$	1,383	$	(2,566	)	$	(1,617	)	$	(11,259	)
Basic earnings (loss) per share	$	0.06	$	(0.10	)	$	(0.07	)	$	(0.44	)
Diluted earnings (loss) per share	$	0.05	$	(0.10	)	$	(0.07	)	$	(0.43	)

NOTE 3—STOCK INCENTIVE PLANS

The measurement and recognition of compensation expense is recognized in the financial statements over the service period for the fair value of all awards granted after January 1, 2006 as well as for existing awards for which the requisite service had not been rendered as of the January 1, 2006. Our stock incentive plans provide for the granting of qualified and nonqualified options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and performance units to our officers, directors and employees. Outstanding options generally vest over a period from 90 days to four years after the date of the grant and expire no more than ten years after the grant. We satisfy the exercise of options and awards of restricted stock by issuing previously unissued common shares. Currently we have not awarded any RSUs or SARs but have awarded performance units.

We have two stock option plans: 2004 Long-Term Incentive Plan (“LTIP Plan”) and Non-Employee Director Stock Option Plan (“NEDSOP”). No more options can be issued under the NEDSOP Plan. We also may grant stock options that are not covered under any of the stock option plans, with appropriate shareholder approvals. Options and stock grants are subject to terms and conditions as determined by our Board of Directors. Stock option grants are generally exercisable in increments of 25% during each year of employment beginning three months to one year from the date of grant. Generally, stock options expire five years from the date of grant. Options issued under our NEDSOP Plan are generally exercisable 40% after the first 3 months of service and 20% on the first anniversary of appointment and each anniversary thereafter until 100% are vested. These options generally have 10 year lives.

Our Board of Directors has discretion to allow our employees to forego shares in lieu of paying requisite withholding taxes on vested restricted shares. In turn, we remit to the appropriate taxing authorities the U.S. Federal and state withholding on the total compensation the employees have realized as a result of the vesting of these shares. During the three and nine months ended September 30, 2009, approximately 12,000 and 73,000 shares were repurchased with a market value of approximately $84 and $482, respectively.

2004 Long-Term Incentive Plan (“LTIP Plan”).During 2005 through September 30, 2009, all options to purchase common stock, restricted stock awards, and performance units to our employees, service providers, and Board of Directors were issued under the LTIP Plan. Options granted under the LTIP Plan expire five years from the date of grant and typically vest equally over four years. Restricted stock awards granted under the LTIP plan do not expire, but are surrendered upon termination of employment if unvested. These awards generally vest annually over three to five years, however, some awards vest monthly or quarterly. Performance units vest based upon criteria established at the time of grant. Options or awards that are surrendered or cease to be exercisable continue to be available for future grant under the LTIP Plan. There are 4,050,000 shares of common stock reserved for issuance under the LTIP Plan. As of September 30, 2009, options to purchase 545,000 shares of common stock, 1,180,858 restricted shares, and 700,000 performance unit shares were outstanding. There were 844,053 shares of common stock available for future grant as of September 30, 2009.

Non-Employee Director Stock Option Plan (“NEDSOP”).Under the NEDSOP, nonqualified stock options to purchase common stock were granted to three prior non-employee directors during periods of their appointment and to two of our current non-employee directors. Options granted under the NEDSOP expire 10 years from the date of grant. These grants are generally exercisable 40% after the first 3 months of service and 20% on the first anniversary of appointment and each anniversary thereafter until 100% vested. If an option is surrendered or ceases to be exercisable, the shares continue to be available for future grant. The NEDSOP has 1,000,000 shares of common stock reserved for issuance. As of September 30, 2009, options to purchase 250,000 shares of common stock were outstanding and no further option grants can be issued under this plan.

The fair value of the shares and options, adjusted for a forfeiture assumption, at the respective dates of grant (which represents deferred compensation not required to be recorded initially in the consolidated balance sheet) will be amortized to share-based compensation expense as the rights to the restricted stock and options vest with an equivalent amount added to additional paid-in capital. Changes to forfeiture assumptions are based on actual experience and are recorded in accordance

with the rules related to accounting for changes in estimates. For grants to service providers, except for the performance shares, the future charge will be remeasured to reflect the fair market value at the end of each reporting period until the shares vest when the related charge will be remeasured for the final time. Restricted shares issued to service providers that vest upon specific performance have been excluded from compensation expense recognition until and if such shares vest upon achievement of the performance goals.

The following tables summarize share-based compensation expense for the three and nine months ended September 30, 2009 and 2008:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Nature of Award:
Restricted stock	$	1,094	$	854	$	2,945	$	2,285
Options		105		138		377		419

Total share-based compensation expense	$	1,199	$	992	$	3,322	$	2,704


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Classification of Compensation Expense:
Cost of services:
Production and operations	$	22	$	155	$	236	$	330

Other expenses:
Selling, general and administrative		1,177		837		3,086		2,374

Total share-based compensation expense	$	1,199	$	992	$	3,322	$	2,704

During the three months ended March 31, 2008 one employee transitioned to being an independent service provider. As of the transition date, the fair value of the stock options granted to this employee was estimated to be $0.12 per share. No options were issued and no employees transitioned to independent service provider status during the nine months ended September 30, 2009. The estimated values were derived by using the Black-Scholes option pricing model with the following assumptions:


	Nine Months Ended
	September 30,
	2009		2008
Risk-free interest rate		—	1.4 – 2.3%
Dividend yield		—	0.0%
Expected life of the option		—	0.1 – 0.3 years
Volatility factor		—	33.6 – 52.6%
Weighted average volatility factor		—	45.4%

The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. We have not paid dividends in the past and do not plan to pay any dividends in the foreseeable future.

Issuances of Common Stock by the Company

For the three and nine months ended September 30, 2009 and 2008, we received cash from the exercise of options as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Number of options exercised		—		—		—		2
Cash proceeds	$	—	$	—	$	—	$	11
Tax benefit from options exercised	$	—	$	—	$	—	$	2

During the nine months ended September 30, 2009 and 2008, we issued 611,000 and 424,000 shares, respectively, of restricted stock to employees while 56,000 and 40,000 shares of restricted stock, respectively, were canceled due to employee turnover.

Stock Options

A summary of the status of the options granted under the Company’s stock option plans and outside of those plans as of September 30, 2009 and the changes in options outstanding during the nine months then ended is as follows:


						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual		Aggregate
Options	Shares			Price		Term (Yrs.)		Intrinsic Value
	(in thousands)							(in thousands)
Outstanding at beginning of period		830		$	12.90
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(35	)		14.84

Outstanding at end of period		795		$	12.82		2.34	$	—

Vested or expected to vest at end of period		791		$	12.81		2.34	$	—

Exercisable at end of period		774		$	12.80		2.36	$	—

Additional information regarding options outstanding for all plans as of September 30, 2009 is as follows:


	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Term (Yrs.)		Price		Exercisable		Price
	(in thousands)						(in thousands)
$10.19 — $10.19		10		1.51	$	10.19		8	$	10.19
$12.10 — $12.10		300		2.04		12.10		300		12.10
$12.50 — $12.58		160		3.66		12.52		151		12.51
$12.80 — $13.90		250		2.25		13.35		250		13.35
$14.86 — $14.86		50		1.30		14.86		40		14.86
$14.95 — $14.95		25		0.67		14.95		25		14.95

Total		795		2.34	$	12.82		774	$	12.80

There were no options granted during the nine months ended September 30, 2009 or 2008.

Restricted Stock

A summary of the status of Outdoor Channel Holdings’ nonvested restricted shares as of September 30, 2009 and the changes in restricted shares outstanding during the nine months then ended is presented as follows:


	As of September 30, 2009
				Weighted
				Average
				Grant-Date
	Shares			Fair Value
	(in thousands)
Nonvested at beginning of period		849		$	8.46
Granted		611			6.97
Vested		(273	)		8.98
Forfeited		(6	)		8.95

Nonvested at end of period		1,181		$	7.57

The fair value of nonvested shares for grants made during open market hours is determined based on the closing trading price of our shares on the trading day immediately prior to the grant date. The fair value of nonvested shares for grants made after the market closes is determined based on the closing trading price of our shares on the grant date.

Expense to be Recognized

Expense associated with our stock based compensation plans yet to be recognized as compensation expense over the employees’ remaining requisite service periods as of September 30, 2009 are as follows:


	September 30, 2009
			Weighted Average
	Expense Yet		Remaining
	to be		Requisite Service
	Recognized		Periods
Stock options	$	63	0.4 years
Restricted stock		7,061	2.7 years


Total	$	7,124	2.7 years

NOTE 4—EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per common share reflects the potential dilution of securities by including common stock equivalents, such as stock options and performance units in the weighted average number of common shares outstanding for a period, if dilutive.

The following table sets forth a reconciliation of the basic and diluted number of weighted average shares outstanding used in the calculation of earnings (loss) per share for the three and nine months ended September 30 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
Weighted average shares used to calculate basic earnings (loss) per share		24,426		25,114		24,434		25,719
Dilutive effect of potentially issuable common shares upon exercise of dilutive stock options and performance units		1,393		776		—		568

Weighted average shares used to calculate diluted earnings (loss) per share		25,819		25,890		24,434		26,287

For the three months ended September 30, 2009 and 2008 outstanding options and performance units to purchase a total of 1,495,000 and 2,031,000 shares of common stock, respectively, were not included in the calculation of diluted earnings per share because their effect was antidilutive. For the nine months ended September 30, 2009 and 2008 outstanding options and performance units to purchase a total of 1,510,000 and 2,068,000 shares of common stock, respectively, were not included in the calculation of diluted earnings per share because their effect was antidilutive.

NOTE 5—INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES

Assets recorded at fair value in the balance sheet as of September 30, 2009 are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets are as follows:

Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3 — Unobservable inputs developed using estimates and assumptions developed by management, which reflect those that a market participant would use.

We measure the following financial assets at fair value on a recurring basis. The fair value of these financial assets was determined using the following inputs at September 30, 2009:


			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents⁽¹⁾	$	23,223	$	23,223	$	—	$	—
Investments in available-for-sale securities⁽²⁾		31,990		31,990		—		—
Non-current investments in available-for-sale securities⁽³⁾		5,945		—		—		5,945

Total	$	61,158	$	55,213	$	—	$	5,945


⁽¹⁾		Cash and cash equivalents consist primarily of treasury bills and money market funds with original maturity dates of three months or less, for which we determine fair value through quoted market prices.

⁽²⁾		Investments in available-for-sale securities consist of treasury bills with original maturity dates in excess of three months, for which we determine fair value through quoted market prices.

⁽³⁾		Investments in available-for-sale securities consist of one auction-rate municipal security and two closed end perpetual preferred auction-rate securities (“PPS”). The fair value of PPS securities are calculated using a discounted cash flow analysis to more accurately measure possible liquidity discounts.

As of September 30, 2009, our investments in auction-rate securities (“ARS”) consisted of one auction-rate municipal security collateralized by federally backed student loans and two closed end perpetual preferred securities which have redemption features which call for redemption at 100% of par value and have maintained at least A3 credit ratings despite the failure of the auction process. To date, we have collected all interest due on all of our ARS in accordance with their stated terms. Historically, the carrying value (par value) of the ARS approximated fair market value due to the frequent resetting of variable interest rates. Beginning in February 2008, however, the auctions for ARS began to fail and were largely unsuccessful, requiring us to hold them beyond their typical auction reset dates. As a result, the interest rates on these investments reset to the maximum based on formulas contained in the securities. The rates are generally equal to or higher than the current market for similar securities. The par value of the ARS associated with these failed auctions will not be available to us until a successful auction occurs, a buyer is found outside of the auction process, the securities are called or the underlying securities have matured. Due to these liquidity issues, we performed a discounted cash flow analysis to determine the estimated fair value of these investments. The assumptions used in preparing the models include, but are not limited to, interest rate yield curves for similar securities, market rates of returns, and the expected term of each security. In making assumptions of required rates of return, we considered risk-free interest rates and credit spreads for investments of similar credit quality. Based on these models, we recorded a temporary unrealized gain on our PPS of $12 and $82 in the three and nine month periods ended September 30, 2009, respectively. As a result of the lack of liquidity in the PPS market, we have an unrealized loss on our PPS of $462, which is included in accumulated other comprehensive loss on our balance sheet as of September 30, 2009. We deemed the loss to be temporary because we do not plan to sell any of the PPS prior to maturity at an amount below the original purchase value and, at this time, do not deem it probable that we will receive less than 100% of the principal and accrued interest. Based on our cash and cash equivalents balance of $23,223 and our expected operating cash flows, we do not believe a lack of liquidity associated with our PPS will adversely affect our ability to conduct business, and believe we have the ability to hold the securities throughout the currently estimated recovery period. We will continue to evaluate any changes in the market value of the failed ARS that have not been liquidated subsequent to year-end and in the future, depending upon existing market conditions, we may be required to record additional other-than-temporary declines in market value. We are not certain how long we may be required to hold each security. However, given our current cash position, liquid cash equivalents and cash flow from operations, we believe we have the ability and we intend to hold the failed PPS as long-term investments until the market stabilizes.

In April 2009, the FASB issued new guidance on the recognition of other-than-temporary impairments of investments in debt and equity securities. The recognition provision applies only to fixed income securities that are other than temporarily impaired. If the Company intends to sell or it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, the security is other than temporarily impaired and the full amount of the impairment is recognized as a loss through earnings. If the Company asserts that it does not intend to sell and it is more likely than not that it will not be required to sell an other than temporarily impaired security before recovery of its cost basis, the impairment must be separated into credit and non-credit components with the credit portion of the other than temporary impairment recognized as a loss through earnings and the non-credit portion recognized in other comprehensive income. The Company

recognized a cumulative effect adjustment of $217 to retained earnings for all other-than-temporary impairments on investments in available-for-sale securities which were deemed to be non-credit in nature with a corresponding adjustment to accumulated other comprehensive loss.

All of our assets measured at fair value on a recurring basis using significant Level 3 inputs as of September 30, 2009 were auction-rate securities. The two closed end perpetual preferred auction-rate securities totaling $3,355 have a weighted average interest rate of 1.29% and an auction reset of 28 days. The municipal security has an interest rate of 0.88%, matures on December 1, 2045 and as of September 30, 2009 the next auction reset date was October 27, 2009. The following table summarizes our fair value measurements using significant Level 3 inputs, and changes therein, for the three and nine month periods ended September 30, 2009:


	Three Months Ended		Nine Months Ended
	September 30, 2009		September 30, 2009
Auction-Rate Securities:
Balance at beginning of period	$	5,933	$	6,456
Transfers into Level 2 and redeemed		—		(500	)
Redeemed		—		(100	)
Realized gain on redemption		—		7
Unrealized gain included in accumulated other comprehensive loss		12		82

Balance as of September 30, 2009	$	5,945	$	5,945

We consider the yields we recognize from auction-rate securities and from cash held in our treasury bills and money market accounts to be interest income. Yields we recognize from our investments in equity securities we consider to be dividend income. Both are recorded in interest and other income, net, for the three and nine months ended September 30, 2009 and 2008 as follows:


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009			2008		2009			2008
Interest income	$	42		$	335	$	138		$	1,629
Interest expense		(27	)		—		(79	)		—
Dividend income		—			—		—			32
Loss on sale of equity securities		—			—		—			(44	)
Gain on redemption of auction-rate securities		—			119		7			119
Other-than-temporary impairment on auction-rate securities		—			—		—			(336	)

Total interest and other income, net	$	15		$	454	$	66		$	1,400

NOTE 6—COMPREHENSIVE INCOME (LOSS)

The following table provides the composition of other comprehensive income (loss):


	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2009		2008			2009			2008
Net income (loss), as reported	$	1,383	$	2,394		$	(899	)	$	1,884
Unrealized gain (loss) on available-for-sale securities		12		(216	)		82			(157	)

Comprehensive income (loss)	$	1,395	$	2,178		$	(817	)	$	1,727

NOTE 7—GOODWILL AND INTANGIBLE ASSETS

value of the net assets assigned to any of our reporting unit exceeds the fair value, then we must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we must record an impairment loss equal to the difference.

The Company currently has two reporting units, TOC and Production Services. The Production Service reporting unit consists of Winnercomm, CableCam and Skycam businesses which were acquired on January 12, 2009. All of the Company’s goodwill is currently attributed to our TOC reporting unit. There were no other changes to our reporting units or allocation of goodwill by reporting units during 2009.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The estimate of fair value of each of our reporting units is based on our projection of revenues, cost of services, other expenses and cash flows considering historical and estimated future results, general economic and market conditions as well as the impact of planned business and operational strategies. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. The valuations employ present value techniques to measure fair value and consider market factors.

Key assumptions used to determine the fair value of each reporting unit as of our annual assessment date were: (a) expected cash flow for the period from 2010 to 2014 plus a terminal year; (b) a discount rate of 10%, which is based on marketplace participant expectations; and (c) a debt-free net cash flow long-term growth rate of 4% which is based on expected levels of growth for nominal GDP and inflation.

As of September 30, 2009, if forecasted debt-free net cash flow growth had been 10% lower than estimated, sensitivity calculations indicate that goodwill attributed to TOC would not be impaired. As of September 30, 2009, if the discount rate applied in our analysis had been 10% higher than estimated, sensitivity calculations indicate that goodwill attributed to TOC would not be impaired. As of September 30, 2009, the Company would be required to perform the second step of the implied fair value analysis had the projected cash flow growth rate been less than negative four percent. Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including expected future cash flows and discount rate, could result in a significantly different estimate of the fair value of the reporting units in the future and could result in the impairment of goodwill.

During 2008, the Company relied on the guideline company method under the market approach to determine the fair value of our TOC reporting unit. In 2009, the income approach replaced the market approach methodology utilized in the previous year as the Company believes that the income approach is a more accurate basis for measuring the fair value of a public company with multiple reporting units.

The Company performs an annual impairment analysis of its goodwill and indefinite lived intangible assets or more frequently if events or changes in circumstances arise that might indicate potential impairment. During the second quarter of 2009, the Company changed the date of its annual goodwill impairment test from the last day of its third quarter (September 30) to the first day of its fourth quarter (October 1). The Company selected this date to perform its annual goodwill impairment test because it believes the new date is preferable in these circumstances as it better aligns the timing of the impairment test with the Company’s long-range planning process, giving it more visibility. In addition, the October 1 test date is preferable because it allows additional time for management to plan and execute its review of the completeness and accuracy of the impairment testing process. This change is not expected to delay, accelerate or avoid an impairment charge. The annual impairment analysis performed as of September 30, 2008 and 2007, respectively, did not indicate any impairment. In accordance with this change, the Company conducted its annual impairment test as of September 30, 2009. The annual impairment analysis performed as of September 30, 2009 did not indicate any impairment. We will perform an annual impairment test as of October 1, 2009.

Intangible assets that are subject to amortization consist of the following as of September 30, 2009:


	September 30, 2009
			Accumulated
	Gross		Amortization		Net
Trademark	$	219	$	185	$	34
Internet domain names		97		36		61
Customer relationships		970		265		705
Patents		90		13		77
Programming library		54		39		15

Total intangible assets	$	1,430	$	538	$	892

As of September 30, 2009, the weighted average amortization period for the above intangibles is 3.0 years. Based on our most recent analysis, we believe that no impairment exists at September 30, 2009 with respect to our goodwill and intangible assets.

Estimated future amortization expense related to intangible assets at September 30, 2009 is as follows:


Years Ending December 31,	Amount
2009 (remaining 3 months)	$	126
2010		348
2011		177
2012		122
2013 and thereafter		119

Total	$	892

NOTE 8—LINES OF CREDIT

On September 15, 2009, the Board of Directors approved the renewal of the revolving line of credit agreement (the “Revolver”) with U.S. Bank N.A. (the “Bank”), extending the maturity date to September 5, 2010 and renewing the total amount which can be drawn upon under the Revolver at $10,000,000. The Revolver provides that the interest rate per annum as selected by the Company shall be prime rate plus 0.25% or LIBOR plus 2.25%. The Revolver is unsecured. This credit facility contains customary financial and other covenants and restrictions, as amended, including a change of control provision and minimum liquidity metrics. As of September 30, 2009, we did not have any amounts outstanding under this credit facility. This Revolver is guaranteed by TOC.

NOTE 9—INCOME TAX PROVISION (BENEFIT)

The income tax provision (benefit) reflected in the accompanying unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2009 and 2008 is different than that computed based on the applicable statutory Federal income tax rate of 34% primarily due to state taxes and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m).

We file income tax returns in the United States and various state and local tax jurisdictions. We have net operating loss and credit carryforwards that will be subject to examination beyond the year in which they are ultimately utilized. Our policy is to record interest and penalties on uncertain tax positions as income tax expense.

NOTE 10—RELATED PARTY TRANSACTIONS

We lease our administrative facilities from Musk Ox Properties, LP, which in turn is owned by Messrs. Perry T. Massie, Chairman of the Board and Thomas H. Massie, both of whom are principal stockholders and directors of the Company. The lease agreement has a five-year term, expiring on December 31, 2010, with 2 renewal options (between 2 and 5 years) exercisable at our discretion. Monthly rent payments under this lease agreement were approximately $19 with a 3% per year escalation clause. We paid Musk Ox Properties, LP approximately $56 and $54 in the three months ended September 30, 2009 and 2008, respectively, and approximately $167 and $162 in the nine months ended September 30, 2009 and 2008, respectively. We recognized rent expense related to this lease of $53 and $53 in the three months ended September 30, 2009 and 2008, respectively, and $160 and $160 in the nine months ended September 30, 2009 and 2008, respectively.

We have engaged Narrowstep, Inc. to assist us in developing our broadband capabilities. Roger L. Werner, Chief Executive Officer, is a shareholder and member of the board of directors of Narrowstep. During the three and nine months ended

September 30, 2009, we paid Narrowstep $0 and $28, respectively. We believe the terms of the contract reflect market rates for similar services.

We lease our Skycam facility from Case and Associates Properties, Inc., which in turn is partially owned by a stockholder and officer of the Company. The lease agreement has a ten year term expiring in May 2016. Monthly rent payments under this lease agreement were $43. We paid Case and Associates Properties, Inc., approximately $128 and $339 in the three and nine months ended September 30, 2009, respectively. We recognized rent expense related to this lease of $86 and $0 in the three months ended September 30, 2009 and 2008, respectively, and $248 and $0 in the nine months ended September 30, 2009 and 2008, respectively.

NOTE 11—COMMITMENTS AND CONTINGENCIES

From time to time we are involved in litigation as both plaintiff and defendant arising in the ordinary course of business. In the opinion of management, the results of any pending litigation should not have a material adverse effect on our consolidated financial position or operating results.

In February 2008, the Company entered into a Supplemental Compensation Agreement with its Chief Executive Officer, Mr. Roger L. Werner, providing for an increase in Mr. Werner’s base annual salary from $300 to $450, effective February 4, 2008, and an increase from $450, to $500, effective October 16, 2008. The Supplemental Compensation Agreement also provides for target annual incentive bonuses for Mr. Werner of not less than $225 and $250 for 2008 and 2009, respectively. In addition, under the terms of the Supplemental Compensation Agreement, Mr. Werner is eligible to receive up to $950 for the renewal of seven major affiliation agreements on commercially reasonable terms. Mr. Werner is also eligible to receive an incentive bonus for incremental growth of the Company’s subscriber base over the existing base as reported by all companies distributing the Outdoor Channel in their December 2007 reports as follows: $300 for each incremental increase of 1 million paying subscribers, or portion thereof, for up to 5 million incremental subscribers; $400 for each incremental increase of 1 million paying subscribers, or portion thereof, for between 5 million and 10 million incremental subscribers; and $500 for each incremental increase of 1 million paying subscribers, or portion thereof, for incremental subscribers in excess of 10 million, with no maximum amount. Further, Mr. Werner is entitled to receive a cash bonus of 5% of the annual increase in advertising revenue from continuing operations of Outdoor Channel compared to the prior year, for both 2008 and 2009. During the three and nine months ended September 30, 2009, we have recognized $1,186 and $1,954, respectively, of expense related to Mr. Werner’s Supplemental Compensation Agreement. Mr. Werner’s Supplemental Compensation Agreement expires at the end of 2009.

The Company entered into an Amended and Restated Employment Agreement with its Chief Executive Officer Roger L. Werner, Jr., and Employment Agreements with each of Thomas E. Hornish, Chief Operating Officer and General Counsel and Shad L. Burke, Chief Financial Officer on April 14, 2009, and an Employment Agreement with James E. Wilburn on May 6, 2009 (each an “Agreement,” and collectively, the “Agreements”). Each individual who has entered into an Agreement with the Company is referred to herein as an “Executive.” The Agreements supersede in their entirety all prior employment or severance agreements between the Company and each of the Executives (with the exception of the Company’s standard form of confidential information and intellectual property agreement, the Executives’ standard forms of equity award agreements and Mr. Werner’s Supplemental Compensation Agreement, dated February 1, 2008).

The Agreements with Messrs. Werner, Hornish and Burke expire on December 31, 2012, and the Agreement with Mr. Wilburn expires on December 31, 2011. Thereafter, the Agreements will automatically renew for additional one (1) year terms, unless either party provides 60-day prior written notice.

Mr. Werner’s annual salary was continued at $500 for 2009 and will increase a maximum of 5% each year thereafter, and he will be eligible for an annual targeted cash bonus of 50% of his annual salary in 2009 (in addition to any bonuses paid under his Special Compensation Arrangement, dated February 1, 2008, which expires after 2009) and 80% of his annual salary in the remaining years of his Agreement.

Mr. Hornish’s annual salary was increased to $350 for the remainder of 2009 and will increase a maximum of 5% each year thereafter, and he will be eligible for an annual targeted cash bonus of 60% of his annual salary during the term of his Agreement.

Mr. Burke’s annual salary was increased to $300 for the remainder of 2009 and will increase a maximum of 5% each year thereafter, and he will be eligible for an annual targeted cash bonus of 45% of his annual salary during the term of his Agreement.

Mr. Wilburn’s annual salary was continued at $300 for 2009 and will increase a maximum of 5% each year thereafter, and he will be eligible for an annual targeted cash bonus of 50% of his annual salary during the term of his Agreement.

In addition, under the Agreements (subject to certain conditions such as executing a release and agreeing to not compete against the Company during the period in which payments are made) each of the Executives may receive the following severance payments:

	•		If the Company terminates Mr. Werner’s employment without cause, or Mr. Werner resigns for good reason, Mr. Werner will receive (i) severance payments (less taxes) which shall result in an aggregate severance payment of $1,250 (payable over a period of twelve (12) months if such event occurs prior to October 17, 2009, or eighteen (18) months if such event occurs after October 16, 2009), and (ii) accelerated vesting with respect to 50% of the then unvested portion of his outstanding equity awards, except for the performance units awards previously issued to Mr. Werner;

	•		If the Company terminates Mr. Hornish’s employment without cause, or Mr. Hornish resigns for good reason, Mr. Hornish will receive (i) monthly severance payments of approximately $31 for 12 months (resulting in an aggregate severance payment of $375) if such termination or resignation is not in connection with a change in control of the Company; and (ii) monthly severance payments of approximately $42 for 18 months (resulting in an aggregate severance payment of $750) if such termination or resignation is in connection with a change in control of the Company;

	•		If the Company terminates Mr. Burke’s employment without cause, or Mr. Burke resigns for good reason, Mr. Burke will receive (i) monthly severance payments of approximately $21 for 12 months (resulting in an aggregate severance payment of $250) if such termination or resignation is not in connection with a change in control of the Company; and (ii) monthly severance payments of approximately $28 for 18 months (resulting in an aggregate severance payment of $500) if such termination or resignation is in connection with a change in control of the Company; and

	•		If the Company terminates Mr. Wilburn’s employment without cause, or Mr. Wilburn resigns for good reason, Mr. Wilburn will receive monthly severance payments of $25 for 16 months (resulting in an aggregate severance payment of $400).

In addition, on April 15, 2009, Messrs. Werner, Hornish, Burke and Wilburn each received a restricted stock grant of 195,000 shares, 80,000 shares, 70,000 shares, and 150,000 shares respectively. The vesting of all restricted shares held by the Executives accelerates 100% upon a change in control of the Company.

On October 3, 2008 a prior employee, who had been terminated on or about July 17, 2008, filed a complaint against the Company and one of its employees in the Superior Court of California in Riverside, California. Such complaint was served on the Company on or about October 23, 2008 and on the Company’s employee on or about November 2, 2008. This complaint alleges wrongful termination, violation of the California Family Rights Act, unfair business practices, discrimination, failure to accommodate, failure to engage in interactive process, failure to take reasonable steps to prevent discrimination, retaliation, and intentional infliction of emotional distress. This complaint seeks aggregate general damages in excess of $10,000 plus other indeterminable amounts plus fees and expenses. Pursuant to a prior agreement between the Company and this plaintiff, this complaint will be processed in binding arbitration, with the Superior Court of Riverside having the ability to enforce any settlement or judgment. We intend to vigorously defend this lawsuit.

We are aware that in the first quarter of 2009, a prior employee, who had been terminated in January 2007, presented a demand for binding arbitration, and requested to join the above arbitration proceeding, against the Company and one of its employees. Such demand for arbitration was mailed to the Company on or about July 2, 2009. This arbitration demand alleges wrongful termination, unfair business practices, discrimination, failure to take reasonable steps to prevent discrimination, retaliation, and intentional infliction of emotional distress. This complaint seeks aggregate general damages in excess of $10,000 plus other indeterminable amounts plus fees and expenses. Pursuant to a prior agreement between the Company and this plaintiff, this complaint will be processed in binding arbitration. We intend to vigorously defend this lawsuit.

On February 25, 2009, the Company announced a stock repurchase plan to repurchase up to $10 million of its stock at specified prices. All repurchases under the plan shall be in accordance with Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program commenced March 3, 2009 and will cease upon the earlier of December 31, 2009 or completion of the program. As of September 30, 2009, 64,000 shares had been repurchased for $347.

On April 7, 2009, we filed a complaint in the U.S. District Court, Central District of California against Actioncam, LLC and

a former employee of Skycam, LLC now working at Actioncam, LLC seeking damages for unfair competition, false designation of origin, copyright infringement, misappropriation of trade secrets, breach of written contract, and unfair competition. This complaint seeks aggregate general damages in excess of $75 plus other indeterminable amounts plus fees and expenses. On May 18, 2009 this case transferred from the U.S. District Court, Central District of California to the U.S. District Court, Northern District of Oklahoma.

On September 9, 2009, we filed a complaint in the Superior Court for the State of California, County of Riverside, against Barrett Productions, Inc. seeking damages for breach of written contract and unjust enrichment. This complaint presently seeks aggregate general damages of less than $75 plus court costs and expenses.

Operating Leases

We lease facilities and equipment, including access to satellites for television transmission, under non-cancelable operating leases that expire at various dates through 2012. Generally, the most significant leases are satellite leases.

We lease our Skycam facility from Case and Associates Properties, Inc., which in turn is partially owned by a stockholder of the Company. The lease agreement has a ten year term expiring in May 2016. Monthly rent payments under this lease agreement are $43.

Rent expense, including rent paid to Musk Ox Properties, LP, Case and Associate Properties, Inc., and satellite and transponder expense, aggregated to approximately $922 and $498 for the three months ended September 30, 2009 and 2008, respectively, and approximately $2,797 and $1,909 for the nine months ended September 30, 2009 and 2008, respectively.

NOTE 12—SEGMENT INFORMATION

We report segment information in the same format as reviewed by our chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. Following the acquisition of Winnercomm in January 2009, we have established two reporting segments, TOC and Production Services. TOC is a separate business activity that broadcasts television programming on Outdoor Channel 24 hours a day, seven days a week. TOC generates revenue from advertising fees (which include fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel) and subscriber fees. Production Services is a separate business activity that relates to the production, development and marketing of sports programming and aerial camera systems. Production Services generates revenue from advertising fees, production services for customer-owned telecasts, from aerial camera services for customer-owned telecasts and from web page design and marketing. Intersegment revenues and cost of services generated by Production Services of approximately $874 and $659, respectively for the three months ended September 30, 2009 and approximately $1,714 and $1,432, respectively for the nine months ended September 30, 2009, have been eliminated within the Production Services segment.

Information with respect to these reportable segments as of and for the three and nine months ended September 30, 2009 is as follows:


			Income (Loss)					Depreciation
			Before Income			Total		and
	Revenues		Taxes			Assets		Amortization
As of and for the Three Months Ended:
September 30, 2009
TOC	$	14,308	$	6,586		$	91,066	$	515
Production Services		9,322		(314	)		11,183		495

Subtotals of Segments		23,630		6,272			102,249		1,010
Corporate*		—		(4,246	)		53,524		—

Totals	$	23,630	$	2,026		$	155,773	$	1,010


			Income (Loss)					Depreciation
			Before Income			Total		and
	Revenues		Taxes			Assets		Amortization
As of and for the Nine Months Ended:
September 30, 2009
TOC	$	39,208	$	14,649		$	91,066	$	1,524
Production Services		20,611		(5,259	)		11,183		1,373

Subtotals of Segments		59,819		9,390			102,249		2,897
Corporate*		—		(10,952	)		53,524		—

Totals	$	59,819	$	(1,562	)	$	155,773	$	2,897


*		We capture corporate overhead that is applicable to both segments, but not directly related to operations in a separate business unit, as “Corporate.” The expenses allocated to Corporate consisted primarily of executive, legal and administrative functions not associated directly with either TOC or Production Services. Corporate assets consist primarily of cash not held in our operating accounts and available-for-sale securities.

NOTE 13—RECENT ACCOUNTING PRONOUNCEMENTS

In the third quarter of 2009, the Company adopted the FASB ASC. The ASC is the single official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC. The adoption of the ASC did not have any impact on the financial statements included herein.

In April 2009, the FASB issued new guidance on the recognition of other-than-temporary impairments of investments in debt securities, as well as financial statement presentation and disclosure requirements for other-than-temporary impairments of investments in debt and equity securities. We adopted the provisions of this guidance for the quarter ended June 30, 2009. The cumulative effect of adoption increased the Company’s retained earnings with an offsetting decrease to accumulated other comprehensive income of $217, with no overall change to shareholders’ equity. See Note 5 for information on the Company’s other-than-temporary impairments including additional required disclosures.

In April 2009, the FASB issued guidance regarding the determination of fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. The new guidance provides for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity. Additionally, the new guidance identifies circumstances that indicate a transaction is not orderly. The new guidance requires interim disclosures of the inputs and valuation techniques used to measure fair value reflecting changes in the valuation techniques and related inputs. The guidance is effective for interim and annual reporting periods ending after June 15, 2009, and is to be applied prospectively. The adoption of the guidance did not have a material impact on the Company’s results of operations or financial position.

In May 2009, the FASB issued authoritative guidance on subsequent events. This guidance establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective for interim or annual financial periods ending after June 15, 2009. The adoption of the guidance did not have an impact on the Company’s consolidated results of operations or financial position.

In August 2009, the FASB issued authoritative guidance regarding accounting and disclosures related to the fair value measurement of liabilities. The new guidance establishes valuation techniques in circumstances in which a quoted price in an active market for the identical liability is not available. Additionally, it clarifies appropriate valuation techniques when restrictions exist that prevent the transfer of liabilities measured at fair value. Finally, it provides further guidance on the classification of liabilities measured at fair value within the fair value hierarchy. The new guidance is effective for interim periods ending after August 2009. The adoption of the guidance did not have a material impact on the Company’s results of operations or financial position.

NOTE 14—SUBSEQUENT EVENT

The Company has completed an evaluation of all subsequent events through November 5, 2009, which is the issuance date of these consolidated financial statements and concluded no subsequent events occurred that required recognition or disclosure.

* * *


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

Safe Harbor Statement

The information contained in this report may include forward-looking statements. Our actual results could differ materially from those discussed in any forward-looking statements. The statements contained in this report that are not historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements, without limitation, regarding our expectations, beliefs, intentions or strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provisions contained in those sections. Such forward-looking statements relate to, among other things: (1) expected revenue and earnings growth and changes in mix; (2) anticipated expenses including advertising, programming, personnel, integration costs and others; (3) Nielsen Media Research, which we refer to as Nielsen, estimates regarding total households and cable and satellite homes subscribing to and viewers (ratings) of Outdoor Channel; and (4) other matters. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

These statements involve significant risks and uncertainties and are qualified by important factors that could cause our actual results to differ materially from those reflected by the forward-looking statements. Such factors include but are not limited to risks and uncertainties which are included in Part II, Item 1A Risk Factors below and other risks and uncertainties discussed elsewhere in this report. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-Q and in our other filings with the Securities and Exchange Commission. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements in Section 27A of the Securities Act and Section 21E of the Exchange Act.

General

We are organized into two operating segments, Outdoor Channel or TOC and Production Services. Each of these operating segments has unique characteristics and faces different opportunities and challenges. An overview of our two operating segments follows.

The Outdoor Channel or TOC is a national television network devoted primarily to traditional outdoor activities, such as hunting, fishing and shooting sports, as well as off-road motor sports and other outdoor related lifestyle programming. TOC revenues include advertising fees from advertisements aired on Outdoor Channel and fees paid by third-party programmers to purchase advertising time in connection with the airing of their programs on Outdoor Channel and subscriber fees paid by cable and satellite service providers that air Outdoor Channel.

Production Services is comprised of our wholly owned subsidiary, Winnercomm, Inc. which in turn wholly owns CableCam, Inc. and Skycam, Inc. These businesses are involved in the production, development and marketing of sports programming and aerial camera systems. Production Services revenues include revenue from sponsorship and advertising fees from company ad inventory, revenue from production services for customer-owned telecasts, revenue from camera services for customer-owned telecasts and revenue from web page design and marketing.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions. We believe that our estimates, judgments and assumptions made when accounting for items and matters such as customer retention patterns, allowance for bad debts, useful lives of assets, asset valuations including cash flow projections, recoverability of assets, potential unasserted claims under contractual obligations, income taxes, reserves and other provisions and contingencies are reasonable, based on information available at the time they are made. These estimates, judgments and assumptions can affect reported amounts of assets and liabilities as of the dates of the consolidated balance sheet and reported amount of revenues and expenses for the periods presented. Accordingly, actual results could materially differ from those estimates.

We believe that the policies set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements.

Subscriber Acquisition Fees

Subscriber acquisition fees are paid to obtain carriage on certain pay television distributors’ systems. Under certain of these agreements with pay television distributors, TOC is obligated to pay subscriber acquisition fees to the pay television

distributors if they meet defined criteria for the provision of additional carriage for Outdoor Channel on the pay television distributors’ systems. Such costs are accrued when TOC receives appropriate documentation that the distributors have met the contractual criteria and have provided the additional carriage.

Subscriber acquisition fees included in other assets, are amortized over the contractual period that the pay television distributor is required to carry the newly acquired TOC subscriber, generally 3 to 5 years. The amortization is charged as a reduction of the subscriber fee revenue that the pay television distributor is obligated to pay us. If the amortization expense exceeds the subscriber fee revenue recognized on a per incremental subscriber basis, the excess amortization is included as a component of cost of services. We assess the recoverability of these costs periodically by comparing the net carrying amount of the subscriber acquisition fees to the estimates of future subscriber fees and advertising revenues. We also assess the recoverability when events such as changes in distributor relationships occur or other indicators suggest impairment.

Prepaid Programming Costs

We produce a portion of the programming we air on our channels in-house. The cost of production is expensed when the show airs. As such, we have incurred costs for programming that is yet to air. These costs are accumulated on the balance sheet as “Prepaid programming costs.” Costs of specific shows will be charged to programming expense based on anticipated airings, when the program airs and the related advertising revenue is recognized. At the time it is determined that a program will not likely air, we charge to programming expense any remaining costs recorded in prepaid programming costs.

Revenue Recognition

We generate revenues through advertising fees from advertisements and infomercials aired on Outdoor Channel, fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel and from subscriber fees paid by cable and satellite service providers that air Outdoor Channel.

Advertising revenues are recognized when the advertisement is aired and the collectability of fees is reasonably assured. Subscriber fees are recognized in the period the programming is aired by the distributor.

Production revenue includes revenue from sponsorship and advertising fees from company ad inventory, revenue from production services for customer-owned telecasts, revenue from aerial camera services for customer-owned telecasts and revenue from web page design and marketing. Advertising revenues are recognized when the advertisement is aired and the collectability of fees is reasonably assured. Revenue from production services for customer-owned telecasts is recognized upon completion and delivery of the telecast to the customer. Costs incurred prior to completion and delivery are reflected as prepaid production costs in the accompanying condensed consolidated balance sheets. Advances of contract fees prior to completion and delivery are shown as deferred revenue in the accompanying condensed consolidated balance sheets.

Revenue from aerial camera services for customer-owned telecasts is recognized upon completion and delivery of the telecast to the customer. Revenue from each event is based on an agreed upon contracted amount plus allowed expenses.

Revenue from web page design and marketing is recognized upon the completion of services.

Commission revenue from the marketing of program advertising, and commercial air time is recognized when the advertising or commercial air time occurs. In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties. Certain transactions are recorded on a gross or net basis depending on whether we are acting as the principal in a transaction or acting as an agent in the transaction. We serve as the principal in transactions in which we have substantial risks and rewards of ownership and, accordingly, record revenue on a gross basis. For those transactions in which we do not have substantial risks and rewards of ownership, we are considered an agent in the transaction and, accordingly, record revenue on a net basis. To the extent that revenues are recorded on a gross basis, any commissions or other payments to third parties are recorded as expense so that the net amount (gross revenues less expense) is reflected in the consolidated statements of operations. Accordingly, the impact on operating income is the same whether we record revenue on a gross or net basis.

Broadcast and national television network advertising contracts may guarantee the advertiser a minimum audience for its advertisements over the term of the contracts. We provide the advertiser with additional advertising time if we do not deliver the guaranteed audience size. The amount of additional advertising time is generally based upon the percentage of shortfall in audience size. This requires us to make estimates of the audience size that will be delivered throughout the terms of the contracts. We base our estimate of audience size on information provided by ratings services and our historical experience. If we determine we will not deliver the guaranteed audience, an accrual for “make-good” advertisements is recorded as a reduction of revenue. The estimated make-good accrual is adjusted throughout the terms of the advertising contracts.

Revenues recognized do not exceed the total of the cash payments received and cash received in excess of revenue earned is recorded as deferred revenue.

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness and trade publications regarding the financial health of our larger customers and changes in customer payment terms when making estimates of the uncollectability of our trade accounts receivable balances. If we determine that the financial condition of any of our customers deteriorated or improved, whether due to customer specific or general economic conditions, we make appropriate adjustments to the allowance.

Valuation of Goodwill

We review goodwill for impairment annually and whenever events or changes in circumstance indicate the carrying value of an asset may not be recoverable, accounting guidance requires that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of each of our reporting units to its carrying value. We determine the fair values of our reporting units using the income approach. If the fair value of any of our reporting units exceeds the carrying values of the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to any of our reporting unit exceeds the fair value, then we must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we must record an impairment loss equal to the difference.

As of September 30, 2009, if forecasted debt-free net cash flow growth had been 10% lower than estimated, sensitivity calculations indicate that goodwill attributed to TOC would not be impaired. As of September 30, 2009, if the discount rate applied in our analysis had been 10% higher than estimated, sensitivity calculations indicate that TOC goodwill attributed to would not be impaired. As of September 30, 2009, the Company would be required to perform the second step of the implied fair value analysis had the projected cash flow growth rate been less than negative four percent. Changes in the judgments and estimates underlying our analysis of goodwill for possible impairment, including expected future cash flows and discount rate, could result in a significantly different estimate of the fair value of the reporting units in the future and could result in the impairment of goodwill.

During 2008, the Company relied on the guideline company method under the market approach to determine the fair value of our TOC reporting unit. In 2009, the income approach replaced the market approach methodology utilized in the previous year as the Company believes that the income approach is a more accurate basis for measuring the fair values of a public company with multiple reporting units.

accuracy of the impairment testing process. This change is not expected to delay, accelerate or avoid an impairment charge. The annual impairment analysis performed as of September 30, 2008 and 2007, respectively, did not indicate any impairment. In accordance with this change, the Company conducted its annual impairment test as of September 30, 2009. The annual impairment analysis performed as of September 30, 2009 did not indicate any impairment. We will perform an annual impairment test as of October 1, 2009.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

We follow the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Stock Incentive Plans

We record stock compensation expense for equity based awards granted, including stock options, for which expense will be recognized over the service period of the equity based award based on the fair value of the award, at the date of grant.

We account for stock options granted to non-employees using the fair value method. Compensation expense for options granted to non-employees has been determined as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense for options granted to non-employees is periodically remeasured as the underlying options vest and is recorded as expense in the consolidated financial statements.

Comparison of Operating Results for the Three Months Ended September 30, 2009 and September 30, 2008

The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change, percentage change and as a percent of total revenue (all dollar amounts are in thousands):


					Change						% of Total Revenue
	2009		2008		$			%			2009			2008
Revenues:
Advertising	$	9,881	$	10,472	$	(591	)		(5.6	)%		41.8	%		70.0	%
Subscriber fees		4,427		4,484		(57	)		(1.3	)		18.7			30.0
Production services		9,322		—		9,322			100.0			39.5			—

Total revenues		23,630		14,956		8,674			58.0			100.0			100.0


Cost of services:
Programming		875		1,437		(562	)		(39.1	)		3.7			9.6
Satellite transmission fees		400		398		2			0.5			1.7			2.7
Production and operations		9,155		1,454		7,701			529.6			38.7			9.7
Other direct costs		175		98		77			78.6			0.7			0.7

Total cost of services		10,605		3,387		7,218			213.1			44.9			22.6


Other expenses:
Advertising		676		567		109			19.2			2.9			3.8
Selling, general and administrative		9,328		6,592		2,736			41.5			39.5			44.1
Depreciation and amortization		1,010		672		338			50.3			4.3			4.5

Total other expenses		11,014		7,831		3,183			40.6			46.6			52.4


Income (loss) from operations		2,011		3,738		(1,727	)		(46.2	)		8.5			25.0

Interest and other income, net		15		454		(439	)		(96.7	)		0.1			3.0


Income (loss) from operations before income taxes		2,026		4,192		(2,166	)		(51.7	)		8.6			28.0

Income tax provision (benefit)		643		1,798		(1,155	)		(64.2	)		2.7			12.0


Net income (loss)	$	1,383	$	2,394	$	(1,011	)		(42.2	)%		5.9	%		16.0	%

(percentages may not add due to rounding)

Comparison of Operating Results for the Nine Months Ended September 30, 2009 and September 30, 2008


						Change						% of Total Revenue
	2009			2008		$			%			2009			2008
Revenues:
Advertising	$	24,780		$	26,594	$	(1,814	)		(6.8	)%		41.4	%		67.0	%
Subscriber fees		14,428			13,089		1,339			10.2			24.1			33.0
Production services		20,611			—		20,611			100.0			34.5			—

Total revenues		59,819			39,683		20,136			50.7			100.0			100.0


Cost of services:
Programming		3,983			5,133		(1,150	)		(22.4	)		6.7			12.9
Satellite transmission fees		1,195			1,573		(378	)		(24.0	)		2.0			4.0
Production and operations		23,960			4,477		19,483			435.2			40.1			11.3
Other direct costs		382			290		92			31.7			0.6			0.7

Total cost of services		29,520			11,473		18,047			157.3			49.3			28.9


Other expenses:
Advertising		2,032			2,593		(561	)		(21.6	)		3.4			6.5
Selling, general and administrative		26,998			21,342		5,656			26.5			45.1			53.8
Depreciation and amortization		2,897			1,904		993			52.2			4.8			4.8

Total other expenses		31,927			25,839		6,088			23.6			53.4			65.1


Loss from operations		(1,628	)		2,371		(3,999	)		(168.7	)		(2.7	)		6.0

Interest and other income, net		66			1,400		(1,334	)		(95.3	)		0.1			3.5


Loss from operations before income taxes		(1,562	)		3,771		(5,333	)		(141.4	)		(2.6	)		9.5

Income tax provision (benefit)		(663	)		1,887		(2,550	)		(135.1	)		(1.1	)		4.8


Net loss	$	(899	)	$	1,884	$	(2,783	)		(147.7	)%		(1.5)	%		4.7	%

(percentages may not add due to rounding)

Overview— On January 12, 2009 we acquired Winnercomm (see Note 2) and began operating in two segments, Production Services and TOC. The unaudited condensed consolidated statements of operations include the financial results of the Production Services segment from the date of acquisition. For additional information regarding business segments, refer to Note 12 — Segment Information of the financial statements.

Our Production Services segment revenue is primarily project-based with the majority of these projects generally being scheduled during the second half of the year and are expected to account for approximately 70% of Production Services total annual revenues. Consequently, the results from operations for this segment during the first half of the year are not expected to be profitable.

The Company’s total revenue increased 58.0% and 50.7% for the three and nine months ended September 30, 2009, respectively, as compared to the same periods in 2008. This increase was primarily due to the inclusion of approximately $9.3 and $20.6 million for the three and nine month periods ended September 30, 2009, respectively, in production services revenue from our Production Services segment. The advertising revenue decrease from our TOC segment of 5.6% and 6.8% for the three and nine months ended September 30, 2009, respectively, was due primarily to a decrease in demand caused by current economic conditions. The decrease in subscriber fees from our TOC segment of 1.3% for the three months ended September 30, 2009 was primarily caused by adding a significant number of subscribers during the quarter. The increase in subscriber fees from our TOC segment of 10.2% for the nine months ended September 30, 2009, was primarily due to rate increases and an increase in subscribers from new subscription agreements.

Our total cost of services increased 213.1% for the three months ended September 30, 2009 as compared to the same period in 2008 and increased 157.3% for the nine months ended September 30, 2009 as compared to the same period in 2008. This increase was primarily due to the inclusion of approximately $7.9 and $19.8 million in production and operations costs from our Production Services segment for the three and nine month periods ended September 30, 2009, respectively. Cost of services from our TOC segment to provide our broadcast signal, programming and production services decreased 2.2% for the three months ended September 30, 2009 as compared to the same period in 2008 due primarily to decreases in personnel compensation costs and decreased 3.3% for the nine months ended September 30, 2009 as compared to the same period in 2008 due primarily to decreases in programming expense and satellite transmission fees.

Other expenses increased 40.6% for the three months ended September 30, 2009 as compared to the same period in 2008 and increased 23.6% for the nine months ended September 30, 2009 as compared to the same period in 2008. This increase was primarily due to the inclusion of approximately $2.4 and $7.5 million in selling, general and administrative expenses and depreciation and amortization related to our Production Services segment for the three and nine month periods ended September 30, 2009, respectively. Other expenses from our TOC segment increased 11.0% for the three months ended September 30, 2009 due primarily to increased executive compensation expenses associated with the increase in subscribers from new subscriber agreements as compared to the same period in 2008. Other expenses from our TOC segment decreased 5.0% for the nine months ended September 30, 2009 as compared to the same period in 2008 due primarily to reduced legal and accounting fees, reduced marketing expenditures and a reduction in our provision for doubtful accounts, partially offset by revised compensation plans for our senior executives.

Revenues

Our revenues include revenues from advertising fees, subscriber fees and production services. Advertising revenue is generated from the sale of advertising time on Outdoor Channel including advertisements shown during a program (also known as short-form advertising) and infomercials in which the advertisement is the program itself (also known as long-form advertising). Advertising revenue is also generated from fees paid by third party programmers that purchase advertising time in connection with the airing of their programs on Outdoor Channel. Subscriber fees are generated from cable and satellite service providers who pay monthly subscriber fees to us for the right to broadcast our channel. Production Services revenue is generated from production services for customer-owned telecasts, aerial camera services for customer-owned telecasts and revenue from web page design and marketing.

Total revenues for the three months ended September 30, 2009 were $23,630,000, an increase of $8,674,000, or 58.0%, compared to revenues of $14,956,000 for the three months ended September 30, 2008. Total revenues for the nine months ended September 30, 2009 were $59,819,000, an increase of $20,136,000, or 50.7%, compared to revenues of $39,683,000 for the nine months ended September 30, 2008. The net increases were the result of changes in several items comprising revenue as discussed below.

Advertising revenue for the three months ended September 30, 2009 was $9,881,000, a decrease of $591,000 or 5.6% compared to $10,472,000 for the three months ended September 30, 2008. Advertising revenue for the nine months ended September 30, 2009 was $24,780,000, a decrease of $1,814,000 or 6.8% compared to $26,594,000 for the nine months ended September 30, 2008. For September 2009, Nielsen estimated that Outdoor Channel had 31.2 million subscribers compared to 29.8 million for the same period a year ago. The decrease in advertising revenue for the three and nine months ended September 30, 2009 principally reflects decreased demand for our advertising inventory caused by the current economic conditions. We expect demand for our advertising inventory will fluctuate within our programming genre niche due primarily to current economic conditions. These conditions make it harder to estimate future revenues because the advertisers are generally buying inventory much closer to the actual time of airing instead of contracting for the advertising inventory in advance.

Nielsen revises its estimate of the number of subscribers to our channel each month, and for November 2009 Nielsen’s estimate was at 33.1 million subscribers. Nielsen is the leading provider of television audience measurement and advertising information services worldwide, and its estimates and methodology are generally accepted and used in the advertising industry. Although we realize Nielsen’s estimate is typically greater than the number of subscribers on which a network is paid by the service providers, we are currently experiencing a greater difference in these two different numbers of subscribers than we would expect. We anticipate this difference to decrease as we grow our total subscriber base, and we have seen it decrease over the past year. There can be no assurances that Nielsen will continue to report growth of its estimate of our subscribers and in fact at some point Nielsen might report declines in our subscriber estimate. If that were to happen, we could suffer a reduction in advertising revenue.

Subscriber fees for the three months ended September 30, 2009 were $4,427,000, a decrease of $57,000 or 1.3% compared to $4,484,000 for the three months ended September 30, 2008. This decrease was primarily due to the effect of some

distributors obtaining a lower subscriber fee under the terms of our standard rate card for all prior subscribers in connection with adding significant new subscribers during the three months ended September 30, 2009. For the new subscribers added during the three months ended September 30, 2009, we paid launch support fees to the distributors which was capitalized and will be amortized over the remaining period of the agreement we have with each such distributor. Thus, for the foreseeable future we will receive little to no net incremental subscriber fees from such incremental subscribers, and we currently expect our subscriber fee revenue to remain relatively constant for the immediate future, except for contractual, annual rate increases established in our long-term agreements with the distributors. However, we continue to plan to increase our subscriber base and may utilize various means including deployment of rate relief for new and existing subscribers and payment of subscriber acquisition or launch support fees among other tactics. As discussed above, such launch support fees are capitalized and amortized over the period that the pay television distributor is required to carry Outdoor Channel to the newly acquired TOC subscriber. To the extent revenue is associated with the incremental subscribers, the amortization is charged to offset the related revenue. Any excess of launch support amortization over the related subscriber fee revenue is charged to other direct costs. As a result of a combination of these tactics, our net subscriber fee revenue may decrease if we choose to deploy this strategy.

Subscriber fees for the nine months ended September 30, 2009 were $14,428,000, an increase of $1,339,000 or 10.2% compared to $13,089,000 for the nine months ended September 30, 2008. The increase in subscriber fees was primarily due to rate increases and an increase in subscribers.

Production services revenue for the three months ended September 30, 2009 was $9,322,000, a decrease of $2,305,000 or 19.8% as compared to $11,627,000 for the three months ended September 30, 2008 which was prior to our acquisition of Winnercomm. Production services revenue for the nine months ended September 30, 2009 was $20,611,000, a decrease of $13,118,000 or 38.9% as compared to $33,729,000 for the nine months ended September 30, 2008 which was prior to our acquisition of Winnercomm. The decrease for the three and nine months ended September 30, 2009 was due primarily to the non-renewal of several production contracts which expired prior to our acquisition of Winnercomm and revenue from several one-time production events which did not occur in the corresponding current year periods.

Cost of Services

Our cost of services consists primarily of the cost of providing our broadcast signal and programming to the distributors for transmission to the consumer. Cost of services includes programming costs, satellite transmission fees, production and operations costs, and other direct costs. In addition, cost of services includes production related labor and other costs related to our Production Services segment. Total cost of services for the three months ended September 30, 2009 was $10,605,000, an increase of $7,218,000 or 213.1%, compared to $3,387,000 for the three months ended September 30, 2008. Total cost of services for the nine months ended September 30, 2009 was $29,520,000, an increase of $18,047,000 or 157.3%, compared to $11,473,000 for the nine months ended September 30, 2008. As a percentage of revenues, total cost of services was 44.9% and 22.6% in the three months ended September 30, 2009 and 2008, respectively. As a percentage of revenues, total cost of services was 49.3% and 28.9% in the nine months ended September 30, 2009 and 2008, respectively.

Programming expenses for the three months ended September 30, 2009 were $875,000, a decrease of $562,000 or 39.1% compared to $1,437,000 for the three months ended September 30, 2008. Programming expenses for the nine months ended September 30, 2009 were $3,983,000, a decrease of $1,150,000 or 22.4% compared to $5,133,000 for the three months ended September 30, 2008. The decrease was principally a result of a higher proportion of shows being aired over 4 quarters (versus two quarters) for the three and nine months ended September 30, 2009 as compared to the corresponding periods ended September 30, 2008 as well as lower expenses incurred with some programs being produced internally by the Production Services segment.

Our policy is to amortize costs of specific show production to programming expense over the expected airing period beginning when the program first airs. The cost of programming is generally first recorded as prepaid programming costs and is then amortized to programming expense based on the anticipated airing schedule. The anticipated airing schedule has typically been over 2 or 4 quarters that generally does not extend over more than 2 years. As the anticipated airing schedule changes, the timing and amount of the charge to expense is prospectively adjusted accordingly. At the time we determine a program is unlikely to air or re-air, we amortize programming expense with the remaining associated cost recorded in prepaid programming. We do not make any further expense or asset adjustments if in subsequent periods demand brings episodes to air that had previously been fully expensed, rather, we consider such events when we review our expected airings prospectively. Our programming costs per show are expected to increase as we continue to improve the quality of our in-house produced shows, and we expect our aggregate programming costs to increase somewhat from prior year levels. As our programming strategy evolves, we will reconsider the appropriate timing of the charge to expense of our programming costs.

Satellite transmission fees for the three months ended September 30, 2009 were $400,000, an increase of $2,000, or 0.5%, compared to $398,000 for the three months ended September 30, 2008. Satellite transmission fees for the nine months ended September 30, 2009 were $1,195,000, a decrease of $378,000, or 24.0%, compared to $1,573,000 for the nine months ended September 30, 2008. This decrease was primarily due to lower monthly fees associated with our new satellite agreement which became effective during the three months ended June 2008.

Production and operations costs for the three months ended September 30, 2009 were $9,155,000, an increase of $7,701,000, or 529.6%, compared to $1,454,000 for the three months ended September 30, 2008. Production and operations costs for the nine months ended September 30, 2009 were $23,960,000, an increase of $19,483,000, or 435.2%, compared to $4,477,000 for the nine months ended September 30, 2008. The increase in costs relates primarily to the inclusion of costs associated with our Production Services segment. Production and operations costs for the three months ended September 30, 2009 from our TOC segment were $1,382,000, a decrease of $72,000, or 5.0%, compared to $1,454,000 for the three months ended September 30, 2008. Production and operations costs for the nine months ended September 30, 2009 from our TOC segment were $4,588,000, an increase of $111,000, or 2.5%, compared to $4,477,000 for the nine months ended September 30, 2008. The decrease in costs for our TOC segment for the three ended September 30, 2009 relates primarily to lower personnel and related compensation costs of approximately $33,000 and decreased broadband services. The increase in costs for our TOC segment for the nine months ended September 30, 2009 relates primarily to higher personnel and related compensation costs of approximately $164,000 and increased professional fees of approximately $105,000 partially offset by a decrease in production costs associated with an annual marketing event of approximately $84,000 and a decrease in signal receivers, computers and software, and equipment rentals of approximately $79,000. Production and operation expenses for our Production Services segment primarily consist of costs directly associated with producing and providing services for customer-owned telecasts as well as web site design and marketing. Production and operations costs for the three months ended September 30, 2009 from our Production Services segment were $7,773,000, a decrease of $1,895,000 or 19.6% as compared to $9,668,000 for the three months ended September 30, 2008 which was prior to our acquisition of Winnercomm. Production and operations costs for the nine months ended September 30, 2009 from our Production Services segment were $19,372,000, a decrease of $7,181,000 or 27.0% as compared to $26,553,000 for the nine months ended September 30, 2008 which was prior to our acquisition of Winnercomm. The decrease for the three and nine months ended September 30, 2009 was due primarily to production costs incurred on several one-time production events and contractual events during the three and nine months ended September 30, 2008 which did not occur in the corresponding current year periods.

Other direct costs for the three months ended September 30, 2009 were $175,000, an increase of $77,000, or 78.6%, compared to $98,000 for the three months ended September 30, 2008. Other direct costs for the nine months ended September 30, 2009 were $382,000, an increase of $92,000, or 31.7%, compared to $290,000 for the nine months ended September 30, 2008. We anticipate other direct costs will increase over the foreseeable future due to the amortization of subscriber acquisition fees, also referred to as launch support fees, where the costs are in excess of the related subscriber revenue.

Other Expenses

Other expenses consist of the cost of advertising, selling, general and administrative expenses and depreciation and amortization.

Total other expenses for the three months ended September 30, 2009 were $11,014,000, an increase of $3,183,000 or 40.6%, compared to $7,831,000 for the three months ended September 30, 2008. Total other expenses for the nine months ended September 30, 2009 were $31,927,000, an increase of $6,088,000 or 23.6%, compared to $25,839,000 for the nine months ended September 30, 2008. As a percentage of revenues, total other expenses were 46.6% and 52.4% in the three months ended September 30, 2009 and 2008, respectively. As a percentage of revenues, total other expenses were 53.4% and 65.1% in the nine months ended September 30, 2009 and 2008, respectively.

Advertising expenses for the three months ended September 30, 2009 were $676,000, an increase of $109,000 or 19.2% compared to $567,000 for the three months ended September 30, 2008. The increase for the three months ended September 30, 2009 was primarily due to increased promotions in magazines and other print media of current and future programming in connection with our strategic marketing partnership. Advertising expenses for the nine months ended September 30, 2009 were $2,032,000, a decrease of $561,000 or 21.6% compared to $2,593,000 for the nine months ended September 30, 2008. The decrease for the nine months ended September 30, 2009 was primarily due to management’s decision to reduce overall spending on advertising materials, programs and campaigns.

Selling, general and administrative expenses for the three months ended September 30, 2009 were $9,328,000, an increase of $2,736,000 or 41.5% compared to $6,592,000 for the three months ended September 30, 2008. Selling, general and administrative expenses for the nine months ended September 30, 2009 were $26,998,000, an increase of $5,656,000 or 26.5% compared to $21,342,000 for the nine months ended September 30, 2008. As a percentage of revenues, selling,

general and administrative expenses were 39.5% and 44.1% for the three months ended September 30, 2009 and 2008, respectively. As a percentage of revenues, selling, general and administrative expenses were 45.1% and 53.8% for the nine months ended September 30, 2009 and 2008, respectively. The increase in selling, general and administrative expenses relates primarily to the inclusion of expenses of our Production Services segment. Selling, general and administrative expenses for the three months ended September 30, 2009 from our TOC segment were $7,472,000, an increase of $880,000, or 13.3%, compared to $6,592,000 for the three months ended September 30, 2008. Selling, general and administrative expenses for the nine months ended September 30, 2009 from our TOC segment were $20,985,000, a decrease of $357,000, or 1.7%, compared to $21,342,000 for the nine months ended September 30, 2008. The increase during the three months ended September 30, 2009 was primarily due to revised compensation plans for our executives and increased executive bonus compensation related to the increases in subscribers from new subscriber agreements of approximately $1,053,000, partially offset by reductions in legal and accounting fees of approximately $218,000. The decrease during the nine months ended September 30, 2009 was primarily due to reduced legal and accounting fees of approximately $874,000 associated with the elimination of duplicate audit and tax service providers incurred in connection with the transition of audit and tax service providers and reduced use of outside legal services compare to the corresponding period in 2008. In addition, expenses related to annual marketing events decreased approximately $1,096,000 and our provision for doubtful accounts decreased approximately $244,000 as compared to the corresponding period of the prior year. These decreases were partially offset by revised compensation plans for our executives and increased executive bonus compensation related to the increases in subscribers from new subscriber agreements which increased approximately $1,894,000 during the nine months ended September 30, 2009 as compared to the same period in 2008.

Selling, general and administrative expenses related to our Production Services segment for the three months ended September 30, 2009 were $1,856,000, a decrease of $1,649,000 or 47.0% as compared to $3,505,000 for the three months ended September 30, 2008 which was prior to our acquisition of Winnercomm. Selling, general and administrative expenses related to our Production Services segment for the nine months ended September 30, 2009 were $6,013,000, a decrease of $4,641,000 or 43.6% as compared to $10,654,000 for the nine months ended September 30, 2008 which was prior to our acquisition of Winnercomm. The decrease for the three and nine months ended September 30, 2009 was due primarily to reductions in personnel and related compensation expenses which were terminated and not included in our acquisition of Winnercomm.

We have added to our professional and support staff across all departments over the past year to support our initiatives in subscriber growth and in other areas such as accounting and finance. In addition to base salaries and bonuses, we utilize share-based compensation packages as incentives for our employees. We have generally utilized restricted stock grants as opposed to stock options or performance units. For tax purposes, the tax deduction for restricted stock, subject to the limitations on the deductibility of employee remuneration of Internal Revenue Code Section 162(m), is the fair market value of the Company’s stock on the date the restrictions lapsed (e.g. vesting). Although we may find it necessary to motivate prospective or current employees with additional cash and or equity awards, we anticipate that selling, general and administrative costs will remain relatively consistent over the foreseeable future.

Depreciation and amortization for the three months ended September 30, 2009 were $1,010,000, an increase of $338,000 or 50.3% compared to $672,000 for the three months ended September 30, 2008. Depreciation and amortization for the nine months ended September 30, 2009 were $2,897,000, an increase of $993,000 or 52.2% compared to $1,904,000 for the nine months ended September 30, 2008. The increase in depreciation and amortization primarily relates to increases in fixed and intangible assets from the acquisition of our Production Services segment.

Income (Loss) from Operations

Income (loss) from operations for the three months ended September 30, 2009 was income of $2,011,000, a decrease of $1,727,000 compared to income of $3,738,000 for the three months ended September 30, 2008. Income (loss) from operations for the nine months ended September 30, 2009 was a loss of $1,628,000, a decrease of $3,999,000 compared to income of $2,371,000 for the nine months ended September 30, 2008. As discussed above, the increase in our loss from operations was driven by losses in our Production Services segment. This loss was partially offset by growth in our subscriber fees and reduced programming, satellite, production, advertising and selling, general and administrative expenses in our TOC segment. As we continue to strive to grow our subscriber base which involves increased advertising expenditures, subscriber rate relief for our carriage partners and the ongoing and planned payment of launch or advertising support, we will continue to incur increased expenses such as broadband, marketing and advertising that are unlikely to be immediately offset by revenues. As a result, we anticipate our operating margins will be constrained for the short-term future until scale is achieved. There can be no assurance that these strategies will be successful.

Interest and Other Income, Net

Interest and other income, net for the three months ended September 30, 2009 was $15,000, a decrease of $439,000 compared to $454,000 for the three months ended September 30, 2008. Interest and other income, net for the nine months ended September 30, 2009 was $66,000, a decrease of $1,334,000 compared to $1,400,000 for the nine months ended September 30, 2008. This decrease was primarily due to lower interest rates and lower average balances of cash and cash equivalents and investments in available-for-sale securities. We anticipate these trends to continue in the near-term, and therefore we expect a decline in interest earned in future periods.

Income (Loss) from Operations Before Income Taxes

Income (loss) from operations before income taxes as a percentage of revenues was 8.6% for the three months ended September 30, 2009 compared to 28.0% for the three months ended September 30, 2008. We generated income before income taxes for the three months ended September 30, 2009 amounting to $2,026,000, a change of $2,166,000 compared to income of $4,192,000 for the three months ended September 30, 2008. The loss from operations from our Production Services segment for the three months ended September 30, 2009 was $314,000. Income (loss) from operations before income taxes as a percentage of revenues was (2.6)% for the nine months ended September 30, 2009 compared to 9.5% for the nine months ended September 30, 2008. We incurred a loss before income taxes for the nine months ended September 30, 2009 amounting to $1,562,000, a change of $5,333,000 compared to income of $3,771,000 for the nine months ended September 30, 2008. The loss from operations from our Production Services segment for the nine months ended September 30, 2009 was $5,259,000.

Income Tax Provision (Benefit)

Income tax provision (benefit) for the three months ended September 30, 2009 was a provision of $643,000, a change of $1,155,000 as compared to a provision of $1,798,000 for the three months ended September 30, 2008. Income tax provision (benefit) for the nine months ended September 30, 2009 was a benefit of $663,000, a change of $2,550,000 as compared to a provision of $1,887,000 for the nine months ended September 30, 2008. The income tax provision (benefit) reflected in the accompanying unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2009 and 2008 is different than that computed based on the applicable statutory Federal income tax rate of 34% primarily due to state taxes and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m).

The income tax provision (benefit) reflected in the accompanying unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2009 included a discrete tax expense of $10,000 and $229,000, respectively, related to option tax deductions upon exercise or lapse of restrictions on restricted stock that is less than the book compensation previously recorded. In addition, a discrete tax expense of $74,000 related to a change in the future statutory tax rate for the state of California was reflected in the accompanying unaudited condensed consolidated statement of operations for the nine months ended September 30, 2009.

Net Income (Loss)

Net income (loss) for the three months ended September 30, 2009 was income of $1,383,000, a decrease of $1,011,000 compared to income of $2,394,000 for the three months ended September 30, 2008. Net income (loss) for the nine months ended September 30, 2009 was a loss of $899,000, a decrease of $2,783,000 compared to income of $1,884,000 for the nine months ended September 30, 2008. The larger loss was due to the reasons stated above.

Liquidity and Capital Resources

We generated $2,895,000 of cash in our operating activities in the nine months ended September 30, 2009, compared to generating cash of $8,467,000 in the nine months ended September 30, 2008 and had a cash and cash equivalent balance of $23,223,000 at September 30, 2009, a decrease of $37,034,000 from the balance of $60,257,000 at December 31, 2008. The decrease in cash flows from operating activities in the nine months ended September 30, 2009 compared to the same period in 2008 was due primarily to increases in operating expenses associated with our Production Services segment. Net working capital decreased to $63,141,000 at September 30, 2009, compared to $70,250,000 at December 31, 2008, primarily due to the acquisition of Winnercomm.

As of September 30, 2009, we held $5,945,000 of auction-rate securities. Auction-rate securities are investment vehicles with long-term or perpetual maturities which pay interest monthly at current market rates reset through a Dutch auction. Beginning in February 2008, the majority of auctions for these types of securities failed due to liquidity issues experienced in global credit and capital markets. Our auction-rate securities followed this trend and experienced multiple failed auctions due to

insufficient investor demand. As there is a limited secondary market for auction-rate securities, we have been unable to convert our positions to cash. We do not anticipate being in a position to liquidate all of these investments until there is a successful auction or the security issuer redeems their security, and accordingly, have reflected our investments in auction-rate securities as non-current assets on our balance sheet. Due to these liquidity issues, we performed a discounted cash flow analysis to determine the estimated fair value of these investments. The assumptions used in preparing the models include, but are not limited to, interest rate yield curves for similar securities, market rates of returns, and the expected term of each security. In making assumptions of required rates of return, we considered risk-free interest rates and credit spreads for investments of similar credit quality. Our auction-rate security investments continue to pay interest according to their stated terms, are fully collateralized by underlying financial instruments (primarily closed end preferred and municipalities) and have maintained at least A3 credit ratings despite the failure of the auction process. We believe that based on the Company’s current cash, cash equivalents and investments in available-for-sale securities balances at September 30, 2009, the current lack of liquidity in the credit and capital markets will not have a material impact on our liquidity, cash flow, financial flexibility or our ability to fund our operations.

We continue to monitor the market for auction-rate securities and consider its impact (if any) on the fair value of our investments. If the current market conditions deteriorate further, or the anticipated recovery in fair values does not occur, we may be required to record additional impairment charges in future periods.

Net cash used by investing activities was $39,100,000 in the nine months ended September 30, 2009 compared to cash provided of $38,142,000 for the nine months ended September 30, 2008. The increase in cash used by investing activities related principally to the purchases of short-term available-for-sale securities, our acquisition of Winnercomm and an increase in capital expenditures for fixed asset replacements. The cash provided for the nine months ended September 30, 2008 related primarily to the net proceeds received from the sale of available-for-sale and auction-rate securities.

Cash used by financing activities was $829,000 in the nine months ended September 30, 2009 compared to cash used of $14,552,000 in the nine months ended September 30, 2008. The cash used by financing activities in the nine months ended September 30, 2009 was principally the cash used for the purchase and retirement of our common stock in connection with the stock repurchase plan and the purchase and retirement of treasury stock as employees used stock to satisfy withholding taxes related to vesting of restricted shares. For the nine months ended September 30, 2008, cash used by financing activities was principally the purchase of stock in connection with the stock repurchase plan and the purchase and retirement of treasure shares as employees used stock to satisfy withholding taxes related to vesting of restricted shares.

As of September 30, 2009, we had sufficient cash on hand and expected cash flow from operations to meet our short-term cash flow requirements. Management believes that our existing cash resources including cash on-hand and anticipated cash flows from operations will be sufficient to fund our operations at current levels and anticipated capital requirements through at least the next twelve months. To the extent that such amounts are insufficient to finance our working capital requirements or our desire to expand operations beyond current levels, we could seek additional financing. There can be no assurance that equity or debt financing will be available if needed or, if available, will be on terms favorable to us.


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

At September 30, 2009, our investment portfolio included available-for-sale securities of $31,990,000 and auction-rate securities with long-term maturities of $5,945,000. At December 31, 2008, our investment portfolio included auction-rate securities of $6,456,000. These securities are subject to interest rate risk and will decline in value if interest rates increase. However, due to the interest yield of our investment portfolio, an immediate 10% change in interest rates would have no material impact on our financial condition, operating results or cash flows. Declines in interest rates over time will, however, reduce our interest income while increases in interest rates over time may increase our interest expense.

We intend and have the ability to hold our auction-rate securities until the market recovers. We do not anticipate having to sell these securities in order to operate our business. We believe that, based on our ability to access our cash and other short-term investments, our expected operating cash flows, and our other sources of cash, we do not anticipate the lack of liquidity on these investments will affect our ability to operate our business as usual.

We have very few transactions denominated in currencies other than U.S. dollars and as a result we have little to no foreign currency exchange rate risk. The effect of an immediate 10% change in foreign exchange rates would have no material impact on our financial condition, operating results or cash flows.

As of September 30, 2009 and as of the date of this report, we did not have any outstanding borrowings. The rate of interest on our line-of-credit is variable, but we currently have no outstanding balance under this credit facility. Because of these reasons, an immediate 10% change in interest rates would have no material, immediate impact on our financial condition, operating results or cash flows.


ITEM 4.		CONTROLS AND PROCEDURES.

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

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2009, the end of the period covered by this report. Based on this evaluation, we have concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, completely and accurately, within the time periods specified in SEC rules and forms.

Changes in internal control over financial reporting.There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION


ITEM 1.		Legal Proceedings.

On October 3, 2008 a prior employee, who had been terminated on or about July 17, 2008, filed a complaint against the Company and one of its employees in the Superior Court of California in Riverside, California. Such complaint was served on the Company on or about October 23, 2008 and on the Company’s employee on or about November 2, 2008. This complaint alleges wrongful termination, violation of the California Family Rights Act, unfair business practices, discrimination, failure to accommodate, failure to engage in interactive process, failure to take reasonable steps to prevent discrimination, retaliation, and intentional infliction of emotional distress. This complaint seeks aggregate general damages in excess of $10,000,000 plus other indeterminable amounts plus fees and expenses. Pursuant to a prior agreement between the Company and this plaintiff, this complaint will be processed in binding arbitration, with the Superior Court of Riverside having the ability to enforce any settlement or judgment. We intend to vigorously defend this lawsuit.

We are aware that in the first quarter of 2009, a prior employee, who had been terminated in January 2007, presented a demand for binding arbitration, and requested to join the above arbitration proceeding, against the Company and one of its employees. Such demand for arbitration was mailed to the Company on or about July 2, 2009. This arbitration demand alleges wrongful termination, unfair business practices, discrimination, failure to take reasonable steps to prevent discrimination, retaliation, and intentional infliction of emotional distress. This complaint seeks aggregate general damages in excess of $10,000,000 plus other indeterminable amounts plus fees and expenses. Pursuant to a prior agreement between the Company and this plaintiff, this complaint will be processed in binding arbitration. We intend to vigorously defend this lawsuit.

On April 7, 2009, we filed a complaint in the U.S. District Court, Central District of California against Actioncam, LLC and a former employee of Skycam, LLC now working at Actioncam, LLC seeking damages for unfair competition-false designation of origin, copyright infringement, misappropriation of trade secrets, breach of written contract, and unfair competition. This complaint seeks aggregate general damages in excess of $75,000 plus other indeterminable amounts plus fees and expenses. On May 18, 2009 this case transferred from the U.S. District Court, Central District of California to the U.S. District Court, Northern District of Oklahoma.

In addition, from time to time we are involved in other litigation as both plaintiff and defendant arising in the ordinary course of business. In the opinion of management, the results of any pending litigation should not have a material adverse effect on our consolidated financial position or operating results


ITEM 1A.		Risk Factors.

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

Service providers could discontinue or refrain from carrying Outdoor Channel, or decide to not renew our distribution agreements, which could substantially reduce the number of viewers and harm our operating results.

The success of Outdoor Channel is dependent, in part, on our ability to enter into new carriage agreements and maintain existing agreements or arrangements with, and carriage by, satellite systems, telephone companies, which we refer to as telcos, and multiple system operators’, which we refer to as MSOs, affiliated regional or individual cable systems. Although we currently have arrangements or agreements with, and are being carried by, all the largest MSOs, satellite and telco service providers, having such relationship or agreement with an MSO does not always ensure that an MSOs affiliated regional or individual cable systems will carry or continue to carry Outdoor Channel or that the satellite or telco service provider will carry our channel. Under our current contracts and arrangements, our subsidiary The Outdoor Channel, Inc. or TOC typically offers the service providers the right to broadcast Outdoor Channel to their subscribers, but not all such contracts or arrangements require that Outdoor Channel be offered to all subscribers of, or any tiers offered by, the service provider or a

specific minimum number of subscribers. Because many of our carriage arrangements do not specify on which service levels Outdoor Channel is carried, such as analog versus basic digital, expanded digital or specialty tiers, or in which geographic markets Outdoor Channel will be offered, in many cases we have no assurance that Outdoor Channel will be carried and available to viewers of any particular service provider. In addition, under the terms of some of our agreements, the service providers could decide to discontinue carrying Outdoor Channel. Lastly, we are currently not under any long-term contract with one of the major service providers as of September 30, 2009, although we continue to distribute our channel via such service provider on a month-to-month basis. If we are unable to renew this distribution agreement for a committed number of subscribers or for a multi-year term, we could lose, or be subject to a loss of, a substantial number of subscribers. If a service provider discontinues or refrains from carrying Outdoor Channel, or decides to not renew our distribution agreement with them, this could reduce the number of viewers and harm our operating results.

If our channel is placed in unpopular program packages by our service providers, or if service fees are increased for our subscribers, the number of viewers of our channel may decline which could harm our business and operating results.

We do not control the channels with which our channel is packaged by providers. The placement by a service provider of our channel in unpopular program packages could reduce or impair the growth of the number of our viewers and subscriber fees paid by service providers to us. In addition, we do not set the prices charged by the service providers to their subscribers when our channel is packaged with other television channels or offered by itself. The prices for the channel packages in which our channel is bundled, or the price for our channel by itself, may be set too high to appeal to individuals who might otherwise be interested in our network. Further, if our channel is bundled by service providers with networks that do not appeal to our viewers or is moved to packages with fewer subscribers, we may lose viewers. These factors may reduce the number of subscribers and/or viewers of our channel, which in turn would reduce our subscriber fees and advertising revenue.

We could have an aerial camera fall, harming our reputation and possibly causing damage exceeding our liability insurance limits.

The cables or rigging supporting our aerial cameras could fail for a variety of reasons, causing an aerial camera to drop onto the venue in which it is suspended. If such an event were to happen, damages could be significant which may have an adverse effect on our ability to continue our aerial camera business. In addition, if the damages caused by such event exceed our liability and property damage insurance, such an event could have a detrimental effect on our financial resources.

A deterioration in general economic conditions may cause a decrease in, or hinder our ability to grow, our advertising revenues.

A slowing economy or recession may impact our advertisers’ business activities which in turn could have an adverse effect on our advertising revenues. During prior economic slowdowns, many advertisers have reduced or slowed their advertising spending. If our advertisers decide to do so, our growth in advertising revenues may slow or our advertising revenues could decrease.

We may not be able to effectively manage our future growth or the integration of acquisitions, and our growth may not continue, which may substantially harm our business and prospects.

We have undergone rapid and significant growth in revenue and subscribers over the last several years, including our very recent expansion of our operations to include the production of various television programs and live events. There are risks inherent in rapid growth and the pursuit of new strategic objectives, including among others: investment and development of appropriate infrastructure, such as facilities, information technology systems and other equipment to support a growing organization; hiring and training new management, sales and marketing, production, and other personnel and the diversion of management’s attention and resources from critical areas and existing projects; and implementing systems and procedures to successfully manage growth, such as monitoring operations, controlling costs, maintaining effective quality and service, and implementing and maintaining adequate internal controls. We expect that additional expenditures, which could be substantial, will be required as we continue to upgrade our facilities or to significantly accelerate the growth of any of our lines of business, such as the aerial camera service, if we decide to pursue such a strategy. In addition, we may acquire other companies to supplement our business and the integration of such other operations may take some time in order to fully realize the synergies of such acquisitions or for us to implement cost savings such as reduced real estate lease rates. We cannot assure you that we will be able to successfully manage our growth, that future growth will occur or that we will be successful in managing our business objectives. We can provide no assurance that our profitability or revenues will not be harmed by future changes in our business or that capital investments for future growth will have an immediate return, if ever. Our operating results could be harmed if such growth does not occur, or is slower or less profitable than projected.

We may not be able to maintain sufficient revenue relating to our production business to offset its fixed costs, and as a result our profitability may decrease.

Some of the costs relating to our recently acquired production operations cannot be immediately reduced for various reasons, particularly because some of such costs relate to long-term contracts that we have assumed. As a result, if the projected revenue from such operations is not generated, we may not be able to react quickly enough to decrease our expenses to sufficiently offset the decreased revenue, and as a result we may not be as profitable as we currently project, if at all.

We may not be able to grow our subscriber base of Outdoor Channel at a sufficient rate to offset planned increased costs, decreased revenue or at all, and as a result our revenues and profitability may not increase and could decrease.

A major component of our financial growth strategy is based on increasing the number of subscribers to our channel. Growing our subscriber base depends upon many factors, such as the success of our marketing efforts in driving consumer demand for our channels; overall growth in cable, satellite and telco subscribers; the popularity of our programming; our ability to negotiate new carriage agreements, or amendments to, or renewals of, current carriage agreements, and maintain existing distribution; plus other factors that are beyond our control. There can be no assurance that we will be able to maintain or increase the subscriber base of our channel on cable, satellite and telco systems or that our current carriage will not decrease as a result of a number of factors or that we will be able to maintain our current subscriber fee rates. In particular, negotiations for new carriage agreements, or amendments to, or renewals of, current carriage agreements, are lengthy and complex, and we are not able to predict with any accuracy when such increases in our subscriber base may occur, if at all, or if we can maintain our current subscriber fee rates. If we are unable to grow our subscriber base or we reduce our subscriber fee rates, our subscriber and advertising revenues may not increase and could decrease. In addition, as we plan and prepare for such projected growth in our subscriber base, we plan to increase our expenses accordingly. If we are not able to increase our revenue to offset these increased expenses, and if our subscriber fee revenue decreases, our profitability could decrease.

We do not control the methodology used by Nielsen to estimate our subscriber base or television ratings, and changes, or inaccuracies, in such estimates could cause our advertising revenue to decrease.

Our ability to sell advertising is largely dependent on the size of our subscriber base and television ratings estimated by Nielsen. We do not control the methodology used by Nielsen for these estimates, and estimates regarding Outdoor Channel’s subscriber base made by Nielsen is theirs alone and does not represent opinions, forecasts or predictions of Outdoor Channel Holdings, Inc. or its management. Outdoor Channel Holdings, Inc. does not by its reference to Nielsen or distribution of the Nielsen Universe Estimate imply its endorsement of or concurrence with such information. In particular, we believe that we may be subject to a wider difference between the number of subscribers as estimated by Nielsen and the number of subscribers reported by our service providers than is typically expected because we are not fully distributed and are sometimes carried on poorly penetrated tiers. In addition, if Nielsen modifies its methodology or changes the statistical sample it uses for these estimates, such as the demographic characteristics of the households, the size of our subscriber base and our ratings could be negatively affected resulting in a decrease in our advertising revenue.

If we offer favorable terms or incentives to service providers in order to grow our subscriber base, our operating results may be harmed or your percentage of the Company may be diluted.

Although we currently have plans to offer incentives to service providers in an attempt to increase the number of our subscribers, we may not be able to do so economically or at all. If we are unable to increase the number of our subscribers on a cost-effective basis, or if the benefits of doing so do not materialize, our business and operating results would be harmed. In particular, it may be necessary to reduce our subscriber fees in order to grow or maintain our subscriber base. In addition, if we make any upfront cash payments to service providers for an increase in our subscriber base, our cash flow could be adversely impacted, and we may incur negative cash flow for some time. In addition, if we were to make such upfront cash payments or provide other incentives to service providers, we expect to amortize such amounts ratably over the term of the agreements with the service providers. However, if a service provider terminates any such agreement prior to the expiration of the term of such agreement, then under current accounting rules we may incur a large expense in that quarter in which the agreement is terminated equal to the remaining un-amortized amounts and our operating results could accordingly be adversely affected. In addition, if we offer equity incentives, the terms and amounts of such equity may not be favorable to us or our stockholders.

If, in our attempt to increase our number of subscribers, we structure favorable terms or incentives with one service provider in a way that would require us to offer the same terms or incentives to all other service providers, our operating results may be harmed.

Many of our existing agreements with service providers contain “most favored nation” clauses. These clauses typically provide that if we enter into an agreement with another service provider on more favorable terms, these terms must be offered to the existing service provider, subject to some exceptions and conditions. Future agreements with service providers may also contain similar “most favored nation” clauses. If, in our attempt to increase our number of subscribers, we reduce our subscriber fees or structure launch support fees or other incentives to effectively offer more favorable terms to any service provider, these clauses may require us to offer similar incentives to other service providers or reduce the effective subscriber fee rates that we receive from other service providers, and this could negatively affect our operating results.

We may become constrained in our programming content if some organizations are successful in obtaining legal restrictions on certain content in our programming which may increase our production expenses, and cause our viewers to decrease their viewing time which in turn could cause decreased advertising revenue.

Some organizations and individuals are seeking legal restrictions on certain aspects regarding the depiction of hunting and fishing. If such efforts are successful, it could significantly restrict our ability to air some of the content we currently have on Outdoor Channel plus much of the content which we hold in our library which could require significant, additional production and editing expense. In addition, altering such content may cause our viewers to decrease their viewing time, resulting in decreased ratings, which in turn would cause our advertising revenues to decrease, and this could negatively affect our operating results

Consolidation among service providers may harm our business.

Service providers continue to consolidate, making us increasingly dependent on fewer operators. If these operators fail to carry Outdoor Channel, use their increased distribution and bargaining power to negotiate less favorable terms of carriage or to obtain additional volume discounts, our business and operating results would suffer.

The cable, satellite and telco television industry is subject to substantial governmental regulation for which compliance may increase our costs, hinder our growth and possibly expose us to penalties for failure to comply.

The pay television industry is subject to extensive legislation and regulation at the federal and local levels, and, in some instances, at the state level, and many aspects of such regulation are currently the subject of judicial proceedings and administrative or legislative proposals. Similarly, the satellite television industry is subject to federal regulation. Operating in a regulated industry increases our cost of doing business as a video programmer, and such regulation may in some cases also hinder our ability to increase our distribution. The regulation of programming services is subject to the political process and has been in constant flux over the past decade. Further, material changes in the law and regulatory requirements are difficult to anticipate and our business may be harmed by future legislation, new regulation, deregulation or court decisions interpreting laws and regulations.

The FCC has adopted rules to ensure that pay television subscribers continue to be able to view local broadcast television stations during and after the transition to digital television. Federal law initially required that analog television which occurred on June 12, 2009. In September 2007, the FCC established rules which will require operators make local television broadcast programming available to all subscribers. They may do so either by carrying each local station’s digital signal in analog format or in digital format, provided that all subscribers are provided with the necessary equipment to view the station signals. This requirement will remain in effect until February 2012, and possibly longer, depending on a FCC review of the state of technology and the marketplace in the year prior to that date. These broadcast signal carriage requirements could reduce the available capacity on systems to carry channels like Outdoor Channel. We cannot predict how these requirements will affect the Company.

The FCC may adopt rules which would require service providers to make available programming channels on an a la carte basis or as part of packages of “family friendly” programming channels. We cannot predict whether such rules will be adopted or how their adoption would impact our ability to have the Outdoor Channel carried on multichannel programming distribution systems.

Our investments in auction-rate securities are subject to risks which may affect the liquidity of these investments and could cause additional impairment charges.

As of September 30, 2009, our investments in auction-rate securities included $5.9 million of high-grade (at least A3 rated) auction-rate securities issued primarily by closed end preferred and municipalities. Beginning in February 2008, we were informed that there was insufficient demand at auction for our high-grade auction-rate securities. As a result, these affected securities are currently not liquid, and we could be required to hold them until they are redeemed by the issuer or to maturity. We may experience a similar situation with our remaining auction-rate securities. In the event we need to access the funds

that are in an illiquid state, we will not be able to do so without a loss of principal, until a future auction on these investments is successful, the securities are redeemed by the issuer or they mature. The market for these investments is presently uncertain. If the credit ratings of the security issuers deteriorate and any decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an impairment charge. As of September 30, 2009, we had investments in three auction-rate securities which totaled $5.9 million, net.

We may not be able to secure sufficient or additional advertising revenue, and as a result, our profitability may be negatively impacted.

Our ability to secure additional advertising accounts relating to our Outdoor Channel operations depends upon the size of our audience, the popularity of our programming and the demographics of our viewers, as well as strategies taken by our competitors, strategies taken by advertisers and the relative bargaining power of advertisers. Competition for advertising accounts and related advertising expenditures is intense. We face competition for such advertising expenditures from a variety of sources, including other networks and other media. We cannot assure you that our sponsors will pay advertising rates for commercial air time at levels sufficient for us to make a profit or that we will be able to attract new advertising sponsors or increase advertising revenues. If we are unable to attract advertising accounts in sufficient quantities, our revenues and profitability may be harmed.

In addition, in some projects relating to our recently acquired production capabilities and relationships with television channels other than Outdoor Channel, we may agree to absorb the production costs of a program and retain the rights to sell the advertising in, or sponsorships relating to, such programming. If we are not able to sell sufficient advertising or sponsorships relating to such programs, we may lose money in such project, and our operating results may be significantly harmed.

We cannot be certain in the future that we will be able to report that our controls are without material weakness or to complete our evaluation of those controls in a timely fashion.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), and the rules and regulations promulgated by the SEC to implement Section 404, we are required to include in our Form 10-Q a report by our management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. As of September 30, 2009, based on management’s evaluation, our internal control over financial reporting was effective. However, if we fail to maintain an effective system of disclosure controls or internal control over financial reporting, we may discover material weaknesses that we would then be required to disclose. We may not be able to accurately or timely report on our financial results, and we might be subject to investigation by regulatory authorities. This could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which may have an adverse effect on our stock price.

In addition, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Expenses relating to programming and production costs are generally increasing and a number of factors can cause cost overruns and delays, and our operating results may be adversely impacted if we are not able to successfully recover the costs of developing, acquiring and producing new programming.

The average cost of programming has increased for the pay TV industry and production companies, and such increases are likely to continue. We plan to build our programming library through the acquisition of long-term broadcasting rights from third party producers, in-house production and outright acquisition of programming, and this may lead to increases in our programming costs. The development, production and editing of television programming requires a significant amount of capital and there are substantial financial risks inherent in developing and producing television programs. Actual programming and production costs may exceed their budgets. Factors such as labor disputes, death or disability of key spokespersons or program hosts, damage to master tapes and recordings or adverse weather conditions may cause cost overruns and delay or prevent completion of a project. If we are not able to successfully recover the costs of developing or acquiring programming through increased revenues, whether the programming is produced by us or acquired from third-party producers, our business and operating results will be harmed.

Our operating results may vary significantly, and historical comparisons of our operating results are not necessarily meaningful 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 future and our operating results may not meet the expectations of securities analysts or investors. If this occurs, the price of our stock may decline. Factors that can cause our results to fluctuate include, but are not limited to:

	•		carriage decisions of service providers;

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

	•		changes in the growth rate of cable, satellite and telco subscribers;

	•		service providers’ capital and marketing expenditures and their impact on programming offerings and penetration;

	•		seasonal trends in viewer interests and activities;

	•		our advertising sales, for both Outdoor Channel and our Production Services, tend to be more robust during the second half of each year, while expenses remain relatively constant throughout the year;

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

	•		the mix of cable television, satellite-delivered and telco programming products and services sold and the distribution channels for those products and services;

	•		our ability to react quickly to changing consumer trends;

	•		increased compensation expenses resulting from the hiring or promotion of highly qualified employees;

	•		our need to retain some employees on a full-time basis throughout the year so that we have the minimally necessary personnel available during the busiest seasons;

	•		the necessity to do some projects that may be minimally profitable, if at all, in order to establish a business relationship with a strategic customer;

	•		specific economic conditions in the pay television and related industries; and

	•		changing regulatory requirements.

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

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

We prepare our financial statements to conform to accounting principles generally accepted in the United States of America which are subject to interpretations by the Financial Accounting Standards Board, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. Accounting policies affecting many other aspects of our business, including rules relating to business combinations and employee share-based compensation, have recently been revised or are under review. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. In addition, our preparation of financial statements in accordance with GAAP requires that we make estimates, judgments and assumptions that affect the recorded amounts of assets and liabilities, disclosure of those assets and liabilities at the date of the financial statements and the recorded amounts of revenue and expenses during the reporting period. A change in the facts and circumstances surrounding those estimates, including the interpretation of the terms and conditions of our contractual obligations, could result in a change to our estimates and could impact our operating results.

Our expansion into international operations has inherent risks, including currency exchange rate fluctuations, possible governmental seizure of property, and our inability or increased costs associated with enforcing our rights, including intellectual property rights.

We have international operations relating to our aerial camera services, and are exploring the distribution of our outdoor programming internationally. In some countries, we may be able to do business only in that country’s currency which may cause us to accept the risk relating to that country’s currency exchange rate. In addition, we may not be able to legally enforce our contractual and property rights in such countries, and even if a country is party to an international treaty relating to such legal procedures, the cost of doing so may be prohibitive.

If we fail to develop and distribute popular programs, our viewership would likely decline, which could cause advertising and subscriber fee revenues to decrease.

Our operating results depend significantly upon the generation of advertising revenue. Our ability to generate advertising revenues is largely dependent on our Nielsen ratings, which estimates the number of viewers of Outdoor Channel, and this directly impacts the level of interest of advertisers and rates we are able to charge. If we fail to program popular shows that maintain or increase our current number of viewers, our Nielsen ratings could decline, which in turn could cause our advertising revenue to decline and adversely impact our business and operating results. In addition, if we fail to program popular shows the number of subscribers to our channel may also decrease, resulting in a decrease in our subscriber fee and advertising revenue.

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

We compete for viewers with other established pay television and broadcast networks, including Versus (formerly OLN), Spike TV, ESPN2 and others. If these or other competitors, many of which have substantially greater financial and operational resources than us, significantly expand their operations with respect to outdoor-related programming or their market penetration, our business could be harmed. In addition, certain technological advances, including the deployment of fiber optic cable, which are already substantially underway, are expected to allow systems to greatly expand their current channel capacity, which could dilute our market share and lead to increased competition for viewers from existing or new programming services. In addition, the satellite and telco service providers generally have more bandwidth capacity than cable service providers allowing them to possibly provide more channels offering the type of programming we offer.

We also compete with television network companies that generally have large subscriber bases and significant investments in, and access to, competitive programming sources. In some cases, we compete with service providers that have the financial and technological resources to create and distribute their own television networks, such as Versus, which is owned and operated by Comcast. In order to compete for subscribers, we may be required to reduce our subscriber fee rates or pay either launch fees or marketing support or both for carriage in certain circumstances in the future which may harm our operating results and margins. We may also issue our securities from time to time in connection with our attempts for broader distribution of Outdoor Channel and the number of such securities could be significant. We compete for advertising sales with other pay television networks, broadcast networks, and local over-the-air television stations. We also compete for advertising sales with satellite and broadcast radio and the print media. We compete with other networks for subscriber fees from, and affiliation agreements with, cable, satellite and telco service providers. Actions by the Federal Communications Commission, which we refer to as the FCC, and the courts have removed certain of the impediments to entry by local telephone companies into the video programming distribution business, and other impediments could be eliminated or modified in the future. These local telephone companies may distribute programming that is competitive with the programming provided by us to cable and satellite service providers.

In addition, we face competition in our television production operations. In particular, there are a few other domestic and international aerial camera services with which we compete. If any of these competitors were able to invent improved technology, or we are not able to prevent them from obtaining and using our proprietary technology and trade secrets, our business and operating results, as well as our future growth prospects, could be negatively affected.

Changes in corporate governance and securities disclosure and compliance practices have increased and may continue to increase our legal compliance and financial reporting costs.

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

The satellite infrastructure that we use may fail or be preempted by another signal, which could impair our ability to deliver programming to our service providers.

Our ability to deliver programming to service providers, and their subscribers, is dependent upon the satellite equipment and software that we use to work properly to distribute our programming. If this satellite 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 could lose our signal for a period of time. A loss of our signal could harm our reputation and reduce our revenues and profits.

Natural disasters and other events beyond our control could interrupt our signal.

Our systems and operations may be vulnerable to damage or interruption from earthquakes, tornadoes, floods, fires, power loss, telecommunication failures and similar events. They also could be subject to break-ins, sabotage and intentional acts of vandalism. Since our production facilities for Outdoor Channel are all located in Temecula, California, our CableCam, Inc. operations are located in Chatsworth, California, and all of our Winnercomm, Inc. and Skycam, Inc. operations are in Tulsa, Oklahoma, the results of such events could be particularly disruptive because we do not have readily available alternative facilities from which to conduct our respective businesses. Our business interruption insurance may not be sufficient to compensate us for losses that may occur. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities could result in interruptions in our services. Interruptions in our services could harm our reputation and reduce our revenues and profits.

Seasonal increases or decreases in advertising revenue may negatively affect our business.

Seasonal trends are likely to affect our viewership, and consequently, could cause fluctuations in our advertising revenues. Our business reflects seasonal patterns of advertising expenditures, which is common in the broadcast industry. For this reason, fluctuations in our revenues and net income could occur from period to period depending upon the availability of advertising revenues. Due, in part, to these seasonality factors, the results of any one quarter are not necessarily indicative of results for future periods, and our cash flows may not correlate with revenue recognition.

We may be unable to access capital, or offer equity as an incentive for increased subscribers or for acquisitions, on acceptable terms to fund our future growth and operations.

Our future capital and subscriber growth requirements will depend on numerous factors, including the success of our efforts to increase advertising revenues, the amount of resources devoted to increasing distribution of Outdoor Channel, acquiring and producing programming and our aerial camera business. As a result, we could be required to raise substantial additional capital through debt or equity financing or offer equity as an incentive for increased distribution or in connection with an acquisition. To the extent that we raise additional capital through the sale of equity or convertible debt securities, or offer equity incentives for subscriber growth or acquisitions, the issuance of such securities could result in dilution to existing stockholders. If we raise additional capital through the issuance of debt securities, the debt securities would have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. We cannot assure you that additional capital, if required, will be available on acceptable terms, or at all. If we are unable to obtain additional capital, or offer equity incentives for subscriber growth or acquisitions, our current business strategies and plans and ability to fund future operations may be harmed.

We may not be able to attract and retain key personnel.

Our success depends to a significant degree upon the continued contributions of the principal members of our sales, marketing, production and management personnel, many of whom would be difficult to replace. Generally, all of our employees are “at-will”, however, we have entered into employment agreements with employees in key positions, including our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and Chief Executive Officer of our wholly owned subsidiary, Winnercomm, Inc. Any of our officers or key employees could leave at any time, and we generally do not have “key person” life insurance policies covering our employees. The competition for qualified personnel has been strong in our industry. This competition could make it more difficult to retain our key personnel and to recruit new highly qualified personnel. The loss of Perry T. Massie, our Chairman of the Board, Roger L. Werner, Jr., our CEO and President, Thomas E. Hornish, our COO and General Counsel, Shad L. Burke, our Chief Financial Officer or James E. Wilburn, CEO of our wholly owned subsidiary Winnercomm, Inc., could adversely impact our business. To attract and retain qualified personnel, we may be required to grant large option or other share-based incentive awards, which may be highly dilutive to existing stockholders. We may also be required to pay significant base salaries and cash bonuses to attract and retain these individuals, which payments could harm our operating results. If we are not able to attract and retain the necessary personnel we may not be able to implement our business plan.

Cable, satellite and telco television programming signals have been stolen or could be stolen in the future, which reduces our potential revenue from subscriber fees and advertising.

The delivery of subscription programming requires the use of conditional access technology to limit access to programming to only those who subscribe to programming and are authorized to view it. Conditional access systems use, among other things, encryption technology to protect the transmitted signal from unauthorized access. It is illegal to create, sell or otherwise distribute software or devices to circumvent conditional access technologies. However, theft of programming has been widely reported, and the access or “smart” cards used in service providers’ conditional access systems have been compromised and could be further compromised in the future. When conditional access systems are compromised, we do not receive the potential subscriber fee revenues from the service providers. Further, measures that could be taken by service providers to limit such theft are not under our control. Piracy of our copyrighted materials could reduce our revenue from subscriber fees and advertising and negatively affect our business and operating results.

Because we expect to become increasingly dependent upon our intellectual property rights, our inability to protect those rights could negatively impact our ability to compete.

We currently produce and own approximately 20% of the programs we air on Outdoor Channel (exclusive of infomercials). In order to build a library of programs and programming distribution rights, we must obtain all of the necessary rights, releases and consents from the parties involved in developing 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 rights on acceptable terms, or at all or properly maintain and document such rights. We also possess significant proprietary information relating to our aerial camera services. Protecting our intellectual property rights by pursuing those who infringe or dilute our rights can be costly and time consuming. If we are unable to protect our portfolio of patents, trademarks, service marks, copyrighted material and characters, trade names and other intellectual property rights, our business and our ability to compete could be harmed.

We may face intellectual property infringement claims that could be time-consuming, costly to defend and result in our loss of significant rights.

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

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

Our current officers, directors and greater than 5% stockholders together currently control a very high percentage of our outstanding common stock. As a result, these stockholders, acting together, may be able to exert significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of our company, even when a change may be in the best interests of stockholders. In addition, the interests of these stockholders may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or agreements that you would not approve.

The market price of our common stock has been and may continue to be subject to wide fluctuations.

Our stock has historically been and continues to be traded at relatively low volumes and therefore has been subject to price volatility. Various factors contribute to the volatility of our stock price, including, for example, low trading volume, quarterly variations in our financial results, increased competition and general economic and market conditions. While we cannot predict the individual effect that these factors may have on the market price of our common stock, these factors, either individually or in the aggregate, could result in significant volatility in our stock price during any given period of time. There can be no assurance that a more active trading market in our stock will develop. As a result, relatively small trades may have a significant impact on the price of our common stock. Moreover, companies that have experienced volatility in the market price of their stock often are subject to securities class action litigation. If we were the subject of such litigation, it could result in substantial costs and divert management’s attention and resources. On February 25, 2009, the Company entered into a Rule 10b5-1 stock repurchase plan to repurchase up to $10 million of its stock. The program will be effective March 3,

2009 through December 31, 2009 and all repurchases under the plan shall be in accordance with Rule 10b-18 of the Securities Exchange Act of 1934.

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

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

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

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

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

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

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

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

	•		except as provided by law, allow only our board of directors to call a special meeting of the stockholders; and

	•		require a 66 2/3% stockholder vote to amend our certificate of incorporation or bylaws.

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

Technologies in the pay television industry are constantly changing, and our failure to acquire or maintain state-of-the-art technology may harm our business and competitive advantage.

The technologies used in the pay television industry are rapidly evolving. Many technologies and technological standards are in development and have the potential to significantly transform the ways in which programming is created and transmitted. We cannot accurately predict the effects that implementing new technologies will have on our programming and broadcasting operations. We may be required to incur substantial capital expenditures to implement new technologies, or, if we fail to do so, may face significant new challenges due to technological advances adopted by competitors, which in turn could result in harming our business and operating results.

If our goodwill becomes impaired, we will be required to recognize a noncash charge which could have a significant effect on our reported net earnings.

A significant portion of our assets consists of goodwill. We test goodwill for impairment on October 1 of each year, and on an interim date if factors or indicators become apparent that would require an interim test. A significant downward revision in the present value of estimated future cash flows for a reporting unit could result in an impairment of goodwill and a noncash charge would be required. Such a charge could have a significant effect on our reported net earnings.

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

We are authorized to issue up to 25,000,000 shares of preferred stock. The issuance of any preferred stock could adversely affect the rights of the holders of shares of our common stock, and therefore reduce the value of such shares. No assurance can be given that we will not issue shares of preferred stock in the future.

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

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will also depend on our financial condition, operating results, capital requirements and other factors and will be at the discretion of our board of directors. Furthermore, at the time of any potential payment of a cash dividend we may subject to contractual restrictions on, or prohibitions against, the payment of dividends.


ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds.

A summary of the Company’s share repurchase activity is as follows:


					Total Number		Maximum
					of Shares		Approximate Dollar
					Purchased as		Value that May Yet
	Total Number				Part of Publicly		Be Used to Purchase
	of Shares		Average Price		Announced		Shares Under the
Period	Purchased		Paid per Share		Program		Program
March 3, 2009 through March 31, 2009		57,000	$	5.33		57,000	$	9,694,412

April 1, 2009 through April 30, 2009		—		—		—

May 1, 2009 through May 31, 2009		—		—		—

June 1, 2009 through June 30, 2009		7,500		5.50		7,500		9,652,937

July 1, 2009 through July 31, 2009		—		—		—

August 1, 2009 through August 31, 2009		—		—		—

September 1, 2009 through September 30, 2009		—		—		—


Total		64,500	$	5.42		64,500

The stock repurchase program commenced March 3, 2009 and will cease upon the earlier of December 31, 2009 or completion of the program.


ITEM 3.		Defaults Upon Senior Securities.

None.


ITEM 4.		Submission of Matters to a Vote of Security Holders.

None.


ITEM 5.		Other Information.

None.


ITEM 6.		Exhibits.


Exhibit
Number		Description

3.1		Certificate of Incorporation of Outdoor Channel Holdings, Inc, a Delaware corporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 20, 2004 and incorporated herein by reference)

3.2		By-Laws of Outdoor Channel Holdings, Inc., a Delaware corporation (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on September 20, 2004 and incorporated herein by reference)

4.1		Instruments defining the rights of security holders, including debentures (see Exhibits 3.1 and 3.2 above and Exhibit 4.1 to the Company’s Form 10-Q for the period ended June 30, 2005)

10.36		Amended and Restated Employment Agreement with Roger L. Werner, Jr. dated April 14, 2009 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on April 20, 2009 and incorporated herein by reference)

10.37		Employment Agreement with Thomas E. Hornish dated April 14, 2009 (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on April 20, 2009 and incorporated herein by reference)

10.38		Employment Agreement with Shad L. Burke dated April 14, 2009 (filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on April 20, 2009 and incorporated herein by reference)

10.39		Employment Agreement with James E. Wilburn dated May 6, 2009 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on May 8, 2009 and incorporated herein by reference)

10.40		Amendment to Loan Agreement and Note dated September 14, 2009 by and between U.S. Bank N.A. and Outdoor Channel Holdings, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 24, 2009 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


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

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.


	OUTDOOR CHANNEL HOLDINGS, INC.
	/s/ Shad L. Burke
	Shad L. Burke
	Authorized Officer, Chief Financial Officer and Principal Accounting Officer Date: November 5, 2009

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Outdoor Channel (OUTD) Inactive 10-Q2009 Q3 Quarterly report

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