FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from .................... to ....................
Commission File Number 0-13102
THE NOSTALGIA NETWORK, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-0923659
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
650 Massachusetts Avenue NW Washington, DC 20001
(Address of Principal executive office) (Zip Code)
(202) 289-6633
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of the Registrant's common Stock, $.04 par value as of the
close of the period covered by this Report was 20,274,371.
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TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
For the Three and Nine Months Ended September 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 13
PART II. OTHER INFORMATION
Item 1. Legal proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Exhibits 16-17
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE NOSTALGIA NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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(Unaudited)
Sep. 30, 1995 December 31, 1994
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ASSETS
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CURRENT ASSETS
Cash and cash equivalents $947,011 $2,782,683
Accounts receivable, less allowance of $2,145,000
and $1,291,000, respectively 1,304,077 1,928,086
Prepaid legal fees 155,000 316,494
Prepaid expenses 176,053 190,563
Cablecast rights 5,100,000 3,283,700
Total current assets 7,682,141 8,501,526
Programming and cablecast rights - net 15,689,116 839,856
Property and equipment - net 1,644,150 1,660,790
Other assets 19,800 26,757
Total assets $25,035,207 $11,028,929
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term obligations $5,354,600 $3,498,460
Accounts payable 1,582,960 2,024,344
Accrued expenses and other liablilities 573,046 455,951
Total current liabilities 7,510,606 5,978,755
LONG-TERM OBLIGATIONS, less current maturities
Notes and interest payable - related parties 8,701,216 2,872,048
Accrued interest payable and other 153,975 109,145
Cablecast licenses and fees payable 13,491,067 115,347
Total long-term liabilities 22,346,258 3,096,540
Total liabilities 29,856,864 9,075,295
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: $2 par value, 125,000 shares authorized,
3,250 issued and outstanding 6,500 6,500
Common stock subscribed, net - 16,000
Common stock: $0.04 par value, 30,000,000 shares
authorized, 20,274,371 and 20,241,037 shares issued
and outstanding, respectively 810,975 809,641
Additional paid-in capital 30,358,554 30,343,888
Retained deficit (35,852,686) (29,077,395)
(4,676,657) 2,098,634
Treasury stock - 21,994 shares at cost (145,000) (145,000)
Total stockholders' equity (deficit) (4,821,657) 1,953,634
Total liabilities and stockholders' equity (deficit) $25,035,207 $11,028,929
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See accompanying notes to the consolidated financial statements.
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For the Three Months For the Nine months
Ended September 30, Ended September 30,
1995 1994 1995 1994
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OPERATING REVENUES
Affiliate revenue $1,011,044 $1,145,771 $3,236,391 $3,916,466
Advertising sales revenue 1,239,588 1,693,408 4,346,602 5,420,012
Other 314,580 28,311 909,096 214,151
Total operating revenues 2,565,212 2,867,490 8,492,089 9,550,629
OPERATING EXPENSES
Programming, production and transmission 1,287,816 943,011 3,339,820 3,208,838
Programming amortization 1,494,350 803,933 4,669,587 1,293,177
Sales and marketing 1,075,094 545,281 3,465,902 2,196,693
Finance, general and administration 1,202,659 925,497 3,466,479 3,048,268
Relocation, litigation settlement and other - 370,000 - 915,000
Total operating expenses 5,059,919 3,587,722 14,941,788 10,661,976
LOSS FROM OPERATIONS (2,494,707) (720,232) (6,449,699) (1,111,347)
OTHER INCOME AND (EXPENSE)
Interest income (expense) - net (136,337) (183,802) (325,592) (148,340)
LOSS BEFORE PROVISION FOR
FEDERAL INCOME TAXES (2,631,044) (904,034) (6,775,291) (1,259,687)
PROVISION FOR FEDERAL INCOME TAXES - - - -
NET LOSS $(2,631,044) $(904,034) $(6,775,291) $(1,259,687)
NET LOSS PER COMMON SHARE $(0.13) $(0.05) ($0.33) ($0.07)
WEIGHTED AVERAGE SHARES OUTSTANDING 20,274,371 19,308,971 20,266,038 19,199,018
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THE NOSTALGIA NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Nine Months
Ended September 30,
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(6,775,291) $(1,259,687)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,716,187 1,404,665
Provision for losses on accounts receivable 854,000 19,200
Net change in operating assets and liabilities:
(Increase) in accounts receivable (229,991) (755,169)
Decrease in prepaid expenses & other assets 182,961 93,966
(Decrease) in accounts payable (441,384) (287,161)
Increase in accrued expenses
and other liabilities 161,925 750,854
ADJUST 1992 FOR NOTE PAYABLE ACCRUED INTEREST
Increase in long-term interest payable - related parties 329,168 -
Net cash used in operating activities (1,202,425) (33,332)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of programming and cablecast rights (1,847,747) (1,430,311)
Purchases of property and other assets (166,140) (137,212)
Net cash used in investing activities (2,013,887) (1,567,523)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term obligations (4,119,360) (122,962)
Proceeds from bridge financing 5,500,000 -
Proceeds from issuance of common stock
through exercise of warrants and additional
paid in capital - 1,509,473
Net cash provided by financing activities 1,380,640 1,386,511
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,835,672) (214,344)
CASH AND CASH EQUIVALENTS - beginning 2,782,683 1,021,712
CASH AND CASH EQUIVALENTS - ending $947,011 $807,368
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of transponder leasehold interest $- $460,000
Programming acquisition $19,387,500 $3,198,667
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See accompanying notes to the consolidated financial statements.
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The Nostalgia Network, Inc.
and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial information included herein is submitted pursuant to the
requirements of Form 10-Q and does not include all disclosures
required by generally accepted accounting principles. It is suggested
that tThese unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1994 filed with the Securities and
Exchange Commission, which are incorporated herein by reference. The
accompanying interim financial statements reflect all adjustments
(consisting of normal recurring accruals only) which are, in the
opinion of management, necessary for a fair statement of the results
for the interim periods presented. The results of operations for
interim periods are not necessarily indicative of the results to be
obtained for the entire year.
2. Certain reclassifications have been made to the consolidated financial
statements for the comparative period of the prior fiscal year for
consistency with the presentation for the current period.
3. Cash Flow - Cash equivalents include highly liquid debt instruments
with a maturity of three months or less.
4. During the nine months ended September 30, 1995, the Company entered
into contracts for television series, movies and other programs
totaling $21,000,000 to air between May 1995 and April 2000.
5. A significant customer of the Company, representing 10.7% of operating
revenues for the nine months ended September 30, 1995, has ceased
making contractually obligated payments to the Company. The Company
has filed for arbitration in the matter, claiming breach of contract,
fraud and damages and is vigorously pursuing the matter. The
customer has filed a counter claim for breach of contract and
damages. Although the potential outcome of this matter can not
currently be determined, management has reason to believe the customer
does not have the financial capability to make its contractually
obligated payments and, accordingly, has fully reserved the $660,000
related receivable.
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6. Concept Communications, Inc.("Concept") the Company's majority
shareholder has provided Through September 30, 1995 the Company
received $5,500,000 in bridge financing to date during 1995 from
Concept Communications, Incin addition to $2,500,000 received in
December, 1994. Subsequently in October 1995 the Company received an
additional $2,000,000 in Bridge financing. The notes mature in
February 1996 and bear interest at rates ranging from 6.09% to 6.43%.
Based on Concept's stated intention to convert these loans to equity,
these amounts are reflected as long-term debt.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
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Total revenues decreased $1,058,540, or 11% (from $9,550,629 to $8,492,089) for
the nine months ended September 30, 1995 (the "Period") and $302,278, or 10%
(from $2,867,490 to $2,565,212) for the three months ended September 30, 1995
(the "Quarter"). Advertising revenues decreased $1,073,410, or 20% (from
$5,420,012 to $4,346,602) for the Period and $453,820, or 27% (from $1,693,408
to $1,239,588) for the Quarter. Affiliate revenue decreased $680,075, or
17% (from $3,916,466 to $3,236,391) for the Period and $134,727, or 12% (from
$1,145,771 to $1,011,044) for the Quarter. Partially offsetting those
decreases was an increase in other revenue of $694,945, or 324% (from $214,151
to $909,096) for the Period and $286,269, or 1011% (from $28,311 to $314,580)
for the Quarter.
Advertising revenue decreased principally due to decreased hours available for
long-format ("infomercial") sales. Infomercial sales decreased $1,122,445, or
29% (from $3,870,177 to $2,747,732) for the Period and $450,711, or 38% (from
$1,177,418 to $726,707) for the Quarter. As part of its improvements to
programming, the Company implemented plans in the third quarter of 1994
decreasing over the subsequent three quarters the amount of time it allots to
daytime infomercials, resulting in a decline in infomercial advertising
revenues. Additionally, beginning January, 1995 two hours per day of weekday
and three hours per day of weekend infomercials were converted into shopping
programming. Accordingly, total hours available for infomercial programming
in 1995 decreased an average of 50%. During that same time period the
average rate per hour for infomercial programming increased by approximately
42%. In the longer term, the Company's strategy is that improved programming
will result in higher ratings and subscribership, which will bring about a rise
in revenue from short-format (2 minute or less) ( "conventional") advertising.
Sales of conventional advertising remained relatively flat at $1,598,870
compared to $1,459,835 for the Period and $512,881 compared to $515,990 for the
Quarter. The "up front" sales season for national advertising to air
commencing the fourth quarter 1995 and ending in the third quarter 1996 closed
successfully, with advertising agencies placing contractual commitments for
approximately $1,100,000 in ad purchases. These advertisers include such
product families as Proctor & Gamble, Kraft, Birdseye and General Mills.
Introduction of such advertisers to the network should strengthen advertising
sales trends. The above figures do not reflect anticipated growth in
"scatter" sales as a result of the strong up front commitments.
The Cable Television Consumer Protection Act of 1992 (the "Act") was the major
cause of the decrease in affiliate revenue. The "Must Carry" and
"Retransmission Consent" provisions of the Act reduced the number of channels
available for independent cable networks, and the system of rate regulation
adopted by the FCC pursuant to the Act materially reduced the economic
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incentives for cable system operators to carry such networks. While the impact
of the Act affected the industry generally, the Network was particularly
vulnerable to that impact due to its previously weak programming, uncertainties
over the outcome of a control struggle between its major stockholder and its
former chairman and CEO, and lack of confidence by cable system operators over
former management direction.
As previously reported, Tthe Company has responded to these issues by replacing
its former management with a known and respected former Showtime executive and
by upgrading its entertainment programming with the addition of "Love Boat,"
"Ironside," "It Takes a Thief," "Paper Chase," and "Marcus Welby, MD," "Streets
of San Francisco" and, beginning in 1996, "The Rockford Files" along with other
classic television series. The Company has revitalized its 50's TV block and
has launched a morning entertainment block. The Company has improved it's
weekday afternoon lifestyle programming by adding crafts and gardening
programming and eliminating daytime infomercials. In addition it has begun
producing original programming of interest to its audience. To date the
Company has produced three big band and two cabaret specials, each one hour in
length, and has plans for additional cabaret shows during the remainder of the
year. In connection with Nostalgia's relationship with the National Archives
the Network has produced six two-hour specials on World War II commemorating
both VE and VJ days, as well as a one hour documentary on the ratification of
the Women's Suffrage Amendment. "Nostalgia Television's Issues & Answers" a
weekly series covering issues of importance to our audience begins airing in the
fall of 1995. The Network announced the formation of an alliance with the Lions
Clubs International to promote Lions Club Week on Nostalgia, a campaign in
NovemberOctober 1995 to aid in the fight against preventable and reversible
blindness. These efforts have not gone unnoticed by the viewing public.
Average ratings for totalfull 24 hour days Monday through Sunday were .22 for
Third QuarterSeptember 1995 compared to .1 for Third QuarterSeptember 1994, a
100100% increase. Average ratings for Monday through Friday Prime-Fringe
Combo, which is defined as 7 pm to 1 am, were .54 for Third QuarterSeptember
1995 compared to .3 for Third Quarter 1994September 1994, a 3367% increase.
The Company is continuing discussions with cable system operators and other
potential providers of distribution. Currently the Company is in the process
of signing a four year agreement with Corporate Media Partners, a partnership
including Disney TeleVentures and subsidiaries of Ameritech Media Ventures,
Inc., Bell South Media Ventures, Inc., GTE Media Ventures Incorporated and SBC
Interactive, Inc. Additionally, the Company is in advanced stages of
discussions with several of the largest multiple system operators and has
contracts under review with some of them. The Company's subscriber base has
remained relatively stable during the Period. Currently the Network has a
backlog of approximately 1600,000 subscribers scheduled to launch during the
fourth quarter of 1995 and is unaware of any pending subscriber drops. A Time
Warner launch of approximately 225,000 subscribers originally planned for 1995
has been postponed until 1996 due to an a "stand still" agreement between Time
Warner and the Federal Communications Commission (FCC) and a Multimedia Cable
launch of 50,000 subscribers has been postponed until the 1st quarter 1996 due
to a pending sale of that system.
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Although the Company expects growth in the number of affiliates, there can
be no guarantee that such growth will occur. Furthermore, the Company remains
uncertain as to the ultimate effect of industry conditions on average revenue
per affiliate.
Other revenue increased by $694,945, or 325% (from $214,151 to $909,096) for the
Period and $286,269, or 1011% (from $28,311 to $314,580) for the Quarter.
This increase is a result of increased time allotted to an interactive home
shopping program wherein the Company is to receive a guaranteed minimum amount
for the allotted air time as well as receiving a commission for sales in excess
of certain base levels. This programming service represents 10.7% of
operating revenues for the Period and 13% for the Quarter. The customer
providing the service, RSTV Inc., doing business as Via TV, has ceased making
contractually obligated payments to the Company. The Company has filed for
arbitration in the matter, claiming breech of contract and damages and is
vigorously pursuing the matter. RSTV has filed a counter claim for breech of
contract and damages. Although the potential outcome of this matter can not
currently be determined, management has reason to believe RSTV does not have the
financial capability to make its contractually obligated payments and,
accordingly, has fully reserved the related $660,000 receivable.
Total operating expenses increased $4,279,812, or 40% (from $10,661,976 to
$14,941,788) for the Period and $1,472,198, or 41% (from $3,587,721 to
$5,059,919) for the Quarter. This increase was primarily as a result of an
increase of $3,376,410, or 261% (from $1,293,177 to $4,669,587) in programming
amortization costs for the Period and $690,417, or 86% (from $803,933 to
$1,494,350) for the Quarter. Sales and marketing costs increased $1,269,209,
or 58% (from $2,196,693 to $3,465,902) for the Period and $529,813, or 97% (from
$545,281 to $1,075,094) for the Quarter. Finance, general and administration
costs increased $418,211, or 14% (from 3,048,268 to $3,466,479) for the Period
and $277,163, or 30% (from $925,496 to $1,202,659) for the Quarter.
Programming, production and transmission costs increased $130,982, or 4% (from
$3,208,838 to $3,339,820) for the Period and $344,805, or 37% (from 943,011 to
$1,287,816) for the Quarter. Relocation, litigation settlement and other
decreased by $915,000 and $370,000, or 100% for the Period and the Quarter,
respectively.
Programming amortization costs have increased dramatically as a result of the
Company's commitment to improved programming. The Company expects to incur
additional increases in future programming amortization and studio production
costs as a consequence of upgrading the Network's programming. These
anticipated increased costs will be for further enhancements to the Network's
prime time line up as well as for new programs to air in place of daytime
infomercials. These additional future expenditures will adversely impact the
Company's results of operations in the short-term but are critical to the
Company's long-term survival and growth.
Sales and marketing costs increased as a result of management's continued
efforts to promote and grow the network compared to the cost cutting survival
mode of the Company during the first half of 1994. Additional staff for the
departments as well as increased health care costs have resulted in an increase
in personnel costs of $491,244, or 75% (from $657,590 to
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$1,148,834) for the Period and $285,251, or 185% (from $154,033 to
$439,284) for the Quarter. Similarly, travel and entertainment costs have
increased $212,229, or 162% (from $131,298 to $343,527) for the Period and
$86,172, or 251% (from $34,397 to $120,569) for the Quarter. Advertising
has increased $228,552, or 565% (from $40,440 to $268,992) for the Period
and $67,190, or 1543% (from $4,354 to $71,544) for the Quarter. Marketing
research has increased $141,436 for the Period and $30,572 for the Quarter
compared to no expenditures for the same periods in the prior year.
Sales materials expenses have increased $33,842 for the Period and the Quarter
compared to no expenditures for the same periods in the prior year.
Finance, general and administrative expenses increased principally due to an
increase in bad debt expense of $612,637, or 138% (from $442,659 to $1,055,296)
for the Period and $276,296, or 130% (from $213,002 to $489,298) for the
Quarter. A significant portion of that increase is attributable to increased
reserves necessitated by the uncertainty surrounding the ability of the
Company's shopping service programmer to fulfill its contractual payment
obligations. As a result of filling vacant positions and increased health
care costs, personnel costs have increased $173,883, or 33% (from $522,604 to
$696,487) for the Period and are relatively flat at $125,164 for the Quarter.
Continued cost management has allowed the departments to reduce their travel and
entertainment expenses by $66,046, or 48% (from $137,231 to $71,185) for the
Period but increased by $21,032 compared to no costs in the same quarter in the
prior year. Most significantly, professional fees have decreased by
$235,211, or 20% (from $1,196,117 to $960,906) for the Period and are relatively
flat at $277,520 for the Quarter, primarily as a result of resolution of many
previously outstanding law suits early in the second quarter of 1994. Public
relations costs have decreased $100,686, or 84% (from $119,678 to $18,992) for
the Period and $16,797, or 100% for the Quarter due to special public relations
efforts in 1994 relating to changes in management and direction of the Network.
Programming, production and transmission costs increased primarily as a result
of programming expense increases of $54,632, or 7% (from $761,833 to $816,465)
for the Period and $289,625, or 170% (from $170,106 to $459,731) for the
Quarter. These increases were the result of staff efforts during the Period
being focused on new program promotion and changes to the Network's on-air look.
Personnel expenses decreased $131,135, or 34% (from $381,381 to $250,246) for
the Period and increased $26,256, or 48% (from $54,764 to $81,020) for the
Quarter. The period reduction was primarily the result of elimination of an
executive level position during the second half of 1994 and a one-time bonus
awarded in 1994, offset by health care benefits cost increases. The increase
in personnel expenses in the quarter are due to increased staffing levels
necessary to improve the Network's on-air look Transmission costs increased
$220,821, or 11% (from $1,934,729 to $2,155,550) for the Period and $22,350, or
3% (from $668,850 to $691,200) for the Quarter primarily as a result of the
Network's transition to a new, more expensive satellite in mid March of 1994.
Relocation, litigation settlement and other decreased $915,000, or 100% for the
Period and $370,000, or 100% for the Quarter as a result of costs in 1994
related to relocating the
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Company's headquarters from Los Angeles to Washington DC and settlement of
certain litigation during the third quarter of 1994.
As a result principally of significantly increased programming amortization
costs ($3,376,410), increased sales and marketing expenses ($1,269,209),
decreased revenues ($1,058,540), and increases in finance, general and
administrative expenses due principally to bad debt reserve increases
($418,211), offset by a reduction in relocation, litigation settlement and other
of $915,000, the Company's loss from operations increased $5,338,352, or 480%.
Interest and other expense increased by $177,252, or 119% (from $148,340 to
$325,592) for the Period and decreased $47,465, or 26% (from $183,802 to
$136,337) for the Quarter primarily as a result of interest on bridge loans
provided by Concept Communications, Inc., ("Concept"), the Network's majority
shareholder, offset by lower vendor financing costs in the third quarter of
1995.
In summary, the adverse results reflected in the Statement of Operations were
anticipated as a result of a long range plan for growth and prosperity of the
Network. Before growth could occur the Network needed to deliver programming
which will be well received by our subscribers and affiliates. Management
believes, as evidenced in the ratings growth and response from our affiliates,
that we have identified and are delivering those programs. This conclusion is
further supported by the up front advertising commitments we received from
national advertisers who now find us a viable alternative for selling their
products. Additionally, in order to grow we needed to build a visible sales
force and prominent presence at trade shows and in trade periodicals, which
Nostalgia has now accomplished. Thus, we are in the early stages of a process
that will span several years but which is progressing in accordance with the
plan. Management anticipates continued significant losses over the next few
years as we attempt to rebuild the Network and increase subscribers.,
Although but management believes that this anticipates the process will
ultimately strengthen the result in a stronger, successful Network, there can be
no assurance that the Company will increase subscribers or be able to operate
profitably.
Liquidity and Capital Resources
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Cash decreased from $2,782,683 at December 31, 1994 to $947,011 at September 30,
1995, principally as a result of $4,119,360 in repayments of primarily
programming related debts and $1,847,747 in purchases of and down payments for
programming and cablecast rights, offset by receipt of $5,500,000 in bridge
loans. Working capital decreased from $2,522,771 at December 31, 1994 to
$171,535 at September 30, 1995 principally as a result of payments of
programming related debts, purchases of programming and increased operating
costs. Cablecast rights have increased by $16,666,000 (404%) since year-end as
a result of further investment in the Network's prime-time line up. Current
liabilities and long-term obligations increased primarily due to incurance of
$19,387,000 in additional programming obligations and $5,500,000 in bridge
financing, reduced by payments on liabilities related to programming.
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Cash used in operating activities increased $1,169,093, from $33,332 to
$1,202,425, principally as a result of increased operating expenses.
Cash used in investing activities increased $446,364 from $1,567,523 to
$2,013,887, principally due to increased purchases of programming and cablecast
rights.
Cash flows from financing activities remained relatively flat at $1,380,640
principally to receipt of $5,500,000 in bridge financing offset by $4,119,360
repayment of long-term obligations in 1995 compared to $1,509,473 in proceeds
from issuance of common stock offset by $122,962 repayment of long term
obligations in 1994.
From December, 1994 through September 1995 the Company has received $8,000,000
in bridge financing at rates from 6.09% to 6.43% from Concept. Subsequently,
the Company received an additional $2,000,000 at 6.09% in October, 1995 from
Concept. Concept has stated its intention that these loans be converted to
equity once Nostalgia and Concept are able to reach a mutual agreement as to the
price at which additional shares of the Company's stock are to be sold to
Concept. Negotiations between Concept and the Company concerning the
conversion of Concept's bridge financing into equity have been underway since
February, 1995. There can be no assurances that Concept and the Company will
reach agreement on the terms of a debt to equity conversion. The Company
believes that, in order to survive in the highly competitive market for cable
television programming, the Company will need in excess of $1620 million in
additional investment over the next two to three years. Such additional
investment is necessary to improve programming and increase distribution which
the Company anticipates will ultimately increase advertising revenues and result
in substantial long term revenue increases. The Company believes it can obtain
this funding through equity investment, and the Company's major shareholder has
indicated a willingness to make additional investments. Concept has indicated
its willingness to provide sufficient additional debt or equity financing to the
Company on mutually acceptable terms for the remainder of fiscal 1995. On
this basis the Company has entered into programming commitments which will cause
its expenses to substantially exceed its anticipated revenues. However, there
can be no assurance that the Company will be able to obtain the financing
necessary to implement its plan, whether from Concept or other sources. The
failure to reach agreement with Concept on the conversion of its existing debt
investment into equity or the investment of additional funds will have a
material adverse effect on the Company's business.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
RSTV Inc., which operates under the name Via TV, is a significant customer of
the Company representing 10.7% of operating revenues for the nine months ended
September 30, 1995. RSTV has ceased making contractually obligated payments to
the Company. The Company has filed for arbitration in the matter, claiming
breach of contract and damages and is vigorously pursuing the matter. RSTV
has filed a counter claim for breach of contract and damages. Although the
potential outcome of this matter can not currently be determined, management has
reason to believe RSTV does not have the financial capability to make its
contractually obligated payments and, accordingly, has fully reserved the
related $660,000 receivable.
Pursuant to an agreement between the parties, the case of Michael E. Marcovsky
v. The Nostalgia Network, Inc. et al. which had claimed wrongful termination and
demanded in excess of $1,000,000 and Nostalgia's counter claims against Mr.
Marcovsky have been dismissed with prejudice.
Item 5. Other Information
Beginning January 1995 the Company continued its long-term plan for improving
its programming by eliminating an additional hour of daytime infomercials. The
remaining hour was eliminated in third quarter 1995. Additionally, the Company
has entered into contracts totaling $21,000,000 for exclusive rights to the
initial basic cable airing of The Paper Chase, as well as cablecast rights to
The Rockford Files, Marcus Welby, MD, Ironsides, The Streets of San Francisco as
well as the first five seasons of The Love Boat for various periods between May
1996 and April 2000. The Company feels that these licenses and reduced
infomercials are critical in demonstrating to its affiliates the Company's
continued commitment toward providing high profile and time proven entertainment
products of interest to the Company's targeted audience.
Item 6. Exhibits and Reports on Form 8-K
(a) Those exhibits required to be filed by Item 601 of Regulation S-K are
listed in the Index to Exhibits immediately preceding the exhibits filed
herewith and such listing is incorporated herein by reference.
b) No reports on Form 8-K have been filed by the Company during the
quarter ended September 30, 1995
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated November 14, 1995
THE NOSTALGIA NETWORK, INC.
By:
-----------------------------
John G. Heim, President and
Chief Executive Officer
By:_____________________________
Martin A. Gallogly, Treasurer and
Chief Financial Officer
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated November 14, 1995
THE NOSTALGIA NETWORK, INC.
By: /s/ John G. Heim
----------------------------
John G. Heim, President and
Chief Executive Officer
By: /s/ Martin A. Gallogly
----------------------------
Martin A. Gallogly, Treasurer and
Chief Financial Officer
15
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
- ---------- ----------- --------
27 Financial Data Schedule as required by Item 601 (c) of
Regulation S-K
This Schedule contains summary financial information
extracted from Form 10-Q for the quarter ended September
30, 1995, and is qualified in its entirety by reference
to such financial statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 947,011
<SECURITIES> 0
<RECEIVABLES> 3,449,077
<ALLOWANCES> 2,145,000
<INVENTORY> 20,789,116
<CURRENT-ASSETS> 7,682,141
<PP&E> 2,624,696
<DEPRECIATION> 980,545
<TOTAL-ASSETS> 25,035,207
<CURRENT-LIABILITIES> 7,510,606
<BONDS> 27,546,883
<COMMON> 810,975
0
6,500
<OTHER-SE> (5,639,132)
<TOTAL-LIABILITY-AND-EQUITY> 25,035,207
<SALES> 0
<TOTAL-REVENUES> 8,492,089
<CGS> 0
<TOTAL-COSTS> 14,941,788
<OTHER-EXPENSES> 325,592
<LOSS-PROVISION> 1,055,296
<INTEREST-EXPENSE> 325,592
<INCOME-PRETAX> (6,775,291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,775,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,775,291)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
