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 %

(percentages may not add due to rounding)

Comparison of Operating Results for the Nine 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                $ 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 . . .