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

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

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 filer o		Accelerated filer þ		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

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.

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.

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.

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.

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

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

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.

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 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 rental payments are $19 with a 3% per year escalation clause.

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

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.

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 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.

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.

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	%