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 June 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 of incorporation) (I.R.S. Employer
Identification No.)
650 Massachusetts Avenue NW Washington, DC 20001
(Address of Principal executive office) (Zip Code)
(202) 289-6633
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares of the Registrant's common Stock, $.04 par value as of the
close of the period covered by this Report was 20,274,371.
<PAGE>
<TABLE><CAPTION>
TABLE OF CONTENTS
-----------------
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
For the Three and Six Months Ended June 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 - 12
PART II. OTHER INFORMATION
Item 1. Legal proceedings 13
Item 4. Submission of Matters to a Vote of Securities Holders 13
Item 5. Other Information 13-14
Exhibits 16-17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE><CAPTION>
THE NOSTALGIA NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 1995 December 31, 1994
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $882,188 $2,782,683
Accounts receivable, less allowance of $1,843,000
and $1,291,000, respectively 1,566,106 1,928,086
Prepaid legal fees 294,000 316,494
Prepaid expenses 310,061 190,563
Cablecast rights 5,050,000 3,283,700
------------- -------------
Total current assets 8,102,355 8,501,526
Programming and cablecast rights - net 7,690,038 839,856
Property and equipment - net 1,655,961 1,660,790
Other assets 27,757 26,757
------------- -------------
Total assets $17,476,111 $11,028,929
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term obligations $4,053,634 $3,498,460
Accounts payable 1,955,289 2,024,344
Accrued expenses and other liablilities 425,978 455,951
------------- -------------
Total current liabilities 6,434,901 5,978,755
------------- -------------
LONG-TERM OBLIGATIONS, less current maturities
Notes payable - related parties 6,919,986 2,872,048
Accrued interest payable and other 111,841 109,145
Cablecast licenses and fees payable 6,199,996 115,347
------------- -------------
13,231,823 3,096,540
------------- -------------
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 (33,221,642) (29,077,395)
------------- -------------
(2,045,613) 2,098,634
Treasury stock - 21,994 shares at cost (145,000) (145,000)
------------- -------------
Total stockholders' equity (deficit) (2,190,613) 1,953,634
------------- -------------
Total liabilities and stockholders' equity (deficit) $17,476,111 $11,028,929
------------- -------------
------------- -------------
See accompanying notes to the consolidated financial statements. -3-
</TABLE>
<PAGE>
<TABLE><CAPTION>
THE NOSTALGIA NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six months
Ended June 30, Ended June 30,
--------------------- -----------------------
1995 1994 1995 1994
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Affiliate revenue $1,105,854 $1,344,096 $2,225,347 $2,770,695
Advertising sales revenue 1,523,780 1,833,998 3,107,014 3,726,604
Other 348,390 126,199 594,516 185,840
--------- ---------- --------- ----------
Total operating revenues 2,978,024 3,304,293 5,926,877 6,683,139
--------- ---------- --------- ----------
OPERATING EXPENSES
Programming, production and transmission 926,722 1,143,530 2,052,004 2,265,827
Programming amortization 1,591,450 214,333 3,175,237 489,244
Sales and marketing 1,297,201 850,210 2,390,808 1,651,412
Finance, general and administration 1,218,352 888,406 2,263,820 2,122,771
Relocation, litigation settlement and other 545,000 545,000
--------- ---------- --------- ----------
Total operating expenses 5,033,725 3,641,479 9,881,869 7,074,254
--------- ---------- --------- ----------
LOSS FROM OPERATIONS (2,055,701) (337,186) (3,954,992) (391,115)
--------- ---------- --------- ----------
OTHER INCOME AND (EXPENSE)
Interest income (expense) - net (108,910) (24,116) (189,255) 35,462
--------- ---------- --------- ----------
LOSS BEFORE PROVISION FOR
FEDERAL INCOME TAXES (2,164,611) (361,302) (4,144,247) (355,653)
PROVISION FOR FEDERAL INCOME TAXES - - - -
--------- ---------- --------- ----------
NET LOSS $(2,164,611 $(361,302) $(4,144,247) $(355,653)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
NET LOSS PER COMMON SHARE $(0.11) $(0.01) ($0.20) ($0.01)
--------- ---------- --------- ----------
--------- ---------- --------- ----------
WEIGHTED AVERAGE SHARES OUTSTANDING 20,274,371 19,238,035 20,245,260 19,174,785
--------- ---------- --------- ----------
--------- ---------- --------- ----------
See accompanying notes to the consolidated financial statements. -4-
</TABLE>
<PAGE>
<TABLE><CAPTION>
THE NOSTALGIA NETWORK, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
-------------------------
1995 1994
<S> <C> <C>
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,144,247) $(355,653)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,207,737 563,523
Provision for losses on accounts receivable 552,000 300,000
Net change in operating assets and liabilities:
(Increase) in accounts receivable (190,020) (774,395)
(Increase) in prepaid expenses & other assets (98,004) (111,748)
(Decrease) in accounts payable (69,055) (448,158)
Increase (decrease) in accrued relocation costs - 462,263
Increase in accrued expenses
and other liabilities 20,661 23,444
------------ -----------
Net cash used in operating activities (720,928) (340,724)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of programming and cablecast rights (2,170,719) (99,193)
Purchases of property and other assets (27,671) (56,238)
------------ -----------
Net cash used in investing activities (2,198,390) (155,431)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable (2,981,177) (281,427)
Proceeds from bridge financing 4,000,000 -
Proceeds from issuance of common stock
through exercise of warrants and additional
paid in capital - 300,000
------------ -----------
Net cash provided by financing activities 1,018,823 18,573
------------ -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,900,495) (477,582)
CASH AND CASH EQUIVALENTS - beginning 2,782,683 1,021,712
------------ -----------
CASH AND CASH EQUIVALENTS - ending $882,188 $544,130
============ ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of transponder leasehold interest $- $460,000
============ ===========
Programming acquisition $9,621,000 $228,000
============ ===========
See accompanying notes to the consolidated financial statements. -5-
</TABLE>
<PAGE>
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 these
unaudited consolidated financial statements 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 six months ended June 30, 1995, the Company entered into
contracts totaling $10,690,000 for cablecast rights to certain series
to air between May 1995 and August 1999. Additionally, the Company is
negotiating to acquire approximately $10,000,000 for the cablecast
rights to additional series to air between May 1996 and April 2000.
5. A significant customer of the Company, representing 9.6% of operating
revenues for the six months ended June 30, 1995, 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. 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
significantly reserved the related receivable.
6. In March, 1995 the Company received $4,000,000 in bridge financing from
Concept Communications, Inc. Subsequently in July the Company received
an additional $1,500,000 in Bridge financing. Both notes mature in
February 1996 and bear interest at 6.09%
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
---------------------
Total revenues decreased $756,262, or 11% (from $6,683,139 to $5,926,877) for
the six months ended June 30, 1995 (the "Period") and $326,269, or 10% (from
$3,304,293 to $2,978,024) for the three months ended June 30, 1995 (the
"Quarter"). Advertising Revenues decreased $619,590, or 17% (from $3,726,604 to
$3,107,014) for the Period and $310,218, or 17% (from $1,833,998 to 1,523,780)
for the Quarter. Affiliate Revenue decreased $545,348, or 20% (from $2,770,695
to $2,225,347) for the Period and $238,242, or 18% (from $1,344,096 to
$1,105,854) for the Quarter. Partially offsetting those decreases was an
increase in Other Revenue of $408,676, or 220% (from $185,840 to $594,516) for
the Period and $222,191, or 176% (from $126,199 to $348,390) for the Quarter.
Advertising revenue decreased principally due to decreased hours available for
long-format ("infomercial") sales. Infomercial sales decreased $671,734, or 25%
(from $2,692,759 to $2,021,025) for the Period and $241,845, or 18% (from
$1,352,728 to $1,110,883) for the Quarter. As part of its improvements to
programming, the Company implemented plans in the Third Quarter of 1994
decreasing by one-half hour the amount of time it allots to daytime
infomercials. Effective January, 1995, the hours available to infomercials were
further reduced by eliminating an additional hour during the daytime, which has
resulted in a decline in infomercial advertising revenue. Additionally,
beginning January, 1995 two hours per day of weekday and three hours per day of
weekend infomercials were converted into shopping programming. Accordingly,
during the first two quarters of 1995 total hours available for infomercial
programming decreased an average of 47%. During that same time Period the
average rate per hour for infomercial programming increased by approximately
55%.
In July, 1995 the Company further reduced daytime infomercials by an additional
hour. 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.
Partially offsetting the declines in infomercial revenue is an increase in
conventional advertising of $52,144, or 5% (from $1,033,845 to $1,085,989) for
the Period and decreasing $68,373, or 14% (from $481,270 to $412,897) for the
Quarter. The increase for the Period is due principally to increased
availability of commercial spots as programming time is shifted from
infomercials to entertainment and other programming forms and, to a lesser
degree, due to increased revenue per spot during prime time as a result of
increased ratings. The decrease in the Quarter is attributed to an increase in
the airing of lower rate per inquiry advertising over more profitable national
and direct response advertising as a result of a pricing strategy which proved
to be too high.
7
<PAGE>
Management has changed the pricing strategy as well as placed limits on the
sales of per inquiry advertising and believes the current strategy will result
in a return to a greater mixture of more profitable advertising. Additionally,
the Company is selling more national advertising with increases due to "scatter"
purchases and other commitments already occurring in the third quarter 1995. The
"up front" season for national advertising annual purchase commitments is in
process for sales commencing the fourth quarter 1995 and ending in the third
quarter 1996. To date advertising agencies have placed contractual committments
for approximately $1,100,000 in ad purchases for the 1995 - 1996 "up front"
season. These advertisers include such product families as Proctor & Gamble,
Kraft, Birdseye and General Mills. Introduction of such advertisers to the
network should further strengthen advertising sales trends. The above figures do
not reflect anticipated growth in "scatter" sales as a result of the strong up
front commitments.
Management anticipates as a result of further reductions in daytime infomercials
in the Third Quarter of 1995, revenues from conventional advertising will
increase in that quarter from current levels due to increased availability of
commercial spots, but not nearly in proportion to the anticipated decrease in
infomercial revenues.
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 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.
The Company has responded 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,"
and "Marcus Welby, MD." The Company has revitalized its 50's TV block and has
launched a morning entertainment block. Additional series, including the
"Rockford Files" and "Streets of San Francisco" are scheduled to commence later
in 1995 and 1996, along with other classic series. The Company has improved it's
weekday afternoon lifestyle programming by adding crafts and gardening
programming and, through the third quarter of 1995, eliminating two and a half
hours of daytime infomercials. In addition it has begun producing original
programming that is both of interest to its audience and profitable, in the long
term, to the Company. To date the Company has produced a big band and a cabaret
special, both one hour in length, and has plans for additional cabaret and big
band 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. A weekly
series covering issues of importance to our audience is planned for the
8
<PAGE>
fall of 1995. Recently, the Network announced the formation of an alliance with
the Lions clubs International to promote Lions Club Week on Nostalgia, a
campaign in October 1995 to aid in the fight against preventable and reversible
blindness These efforts have not gone unnoticed by the viewing public. Average
ratings for full 24 hour days Monday through Sunday were .2 for June 1995
compared to .1 for June 1994, a 100% increase. Average ratings for Monday
through Friday Prime-Fringe Combo, which is defined as 7 pm to 1 am, were .5 for
June 1995 compared to .3 for June 1994, a 67% increase.
The Company is continuing discussions with cable system operators and other
potential providers of distribution. Currently the Company is in the advanced
stages of discussions with several of the largest multiple system operators and
has contracts under review with some of them. In both the first and second
quarters of 1995, the Company's subscriber base has shown slow but steady
growth. Currently the Network has a backlog of approximately 500,000 subscribers
scheduled to launch during the second half of 1995 and one confirmed drop of
38,000 subscribers pending. Based upon these trends, management believes the
Network has begun an upward subscriber growth pattern. Although the Company
expects growth in the number of affiliates, it remains uncertain as to the
ultimate effect of industry conditions on average revenue per affiliate.
Other revenue increased by $408,676, or 220% (from $185,840 to $594,516) for the
Period and $222,191, or 176% (from $126,199 to $348,390) for the Quarter. This
increase is a result of increased time allotted to an interactive home shopping
program wherein the Company receives 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 9.6% of operating
revenues for the Period and 11% for the Quarter. The customer providing the
service 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. The customer 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 the
customer does not have the financial capability to make its contractually
obligated payments and, accordingly, has significantly reserved the related
receivable.
Total Operating Expenses increased $2,807,615, or 40% (from $7,074,254 to
$9,881,869) for the Period and $1,392,246, or 38% (from $3,641,479 to 5,033,725)
for the Quarter. This increase was primarily as a result of an increase of
$2,685,993, or 549% in programming amortization costs for the Period and
$1,377,117, or 643% (from $214,333 to $1,591,450) for the Quarter. Sales and
marketing costs increased $739,396, or 45% (from $1,651,412 to $2,390,808) for
the Period and $446,991, or 53% (from $850,210 to $1,297,201) for the Quarter.
Finance, general and administration costs increased $141,049, or 7% (from
2,122,771 to $2,263,820) for the Period and $329,946, or 37% (from $888,406 to
$1,218,352) for the Quarter. Programming, production and transmission costs
decreased $213,823, or 9% (from $2,265,827 to $2,052,004) for the Period and
$216,808, or 19% (from 1,143,530 to $926,722) for the Quarter. Relocation,
Litigation Settlement and Other decreased by $545,000, or 100%.
9
<PAGE>
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. Staffing for the departments
has increased and health care costs have increased, resulting in an increase in
personnel costs of $237,698, or 52% (from $453,009 to $690,698) for the Period
and $128,069, or 66% (from $193,830 to $321,899) for the Quarter. Similarly,
travel and entertainment costs have increased $126,057, or 130% (from $96,901 to
$222,958) for the Period and $84,003, or 179% (from $46,968 to $130,971) for the
Quarter. Advertising has increased $183,279, or 508% (from $36,086 to $219,365)
for the Period and $111,902, or 874% (from $12,806 to $124,708) for the Quarter.
Marketing research has increased $110,864 for the Period and $49,858 for the
Quarter compared to no expenditures for the same Periods in the prior year.
Sales materials expense 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 to an
increase in bad debt expense of $336,593, or 147% (from $229,657 to $566,250)
for the Period and $265,744, or 172% (from $154,256 to $420,000) 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 obligations. As
a result of filling vacant positions and increased health care costs, personnel
costs have increased $176,394, or 62% (from $284,929 to $461,323) for the Period
and $124,275, or 125% (from 99,155 to $223,430) for the Quarter. Continued cost
management has allowed the departments to reduce their travel and entertainment
expenses by $87,078, or 63% (from $137,943 to $50,865) for the Period and
$54,277, or 69% (from $79,081 to $24,804) for the Quarter. Most significantly,
professional fees have decreased by $290,774, or 33% (from $878,980 to $588,206)
for the Period and $6,523, or 3% (from $242,598 to $236,075) for the Quarter,
primarily as a result of resolution of many previously outstanding law suits
early in the second Quarter of 1994.
Programming, production and transmission costs decreased primarily as a result
of programming expense reductions of $234,888, or 40% (from $591,768 to
$356,880) for the Period and $202,697, or 65% (from $312,715 to $$110,018) for
the Quarter. These reductions were the result of staff efforts during the Period
being focused on new original productions and other long-term projects, the
costs of which are capitalized. Personnel expenses decreased $157,391, or 48%
(from $326,617 to $169,226) for the Period and $32,551, or 28% (from $114,559 to
$82,008) for the Quarter. This was the result of a temporary elimination of an
executive level
10
<PAGE>
position during the second half of 1994 and a one-time bonus
awarded in 1994. Transmission costs increased $198,471, or 16% for the Period
and $14,155, or (from $680,420 to $694,575) 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 $545,000, or 100% for the
Period and the Quarter as a result of costs in 1994 related to relocating the
Company's headquarters from Los Angeles to Washington DC.
As a result principally of significantly increased programming amortization
costs ($2,685,993), decreased revenues ($756,262), increased sales and marketing
expenses ($739,396), offset by a reduction in relocation, litigation settlement
and other of $545,000, the Company's loss from operations increased $3,563,877,
or 911%.
Interest and other expense increased by $224,717, or 634% (from $35,462 income
to $(189,255) expense) for the Period and $84,794, or 352% (from $24,116 to
$108,910) for the Quarter primarily as a result of interest on bridge loans
provided by Concept Communications, Inc., ("Concept"), the Network's majority
shareholder
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 are receiving 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 rebuild the network and increase subscribers, but management
anticipates the process will ultimately result in a stronger, successful
Network.
Liquidity and Capital Resources
-------------------------------
Cash decreased from $2,782,683 at December 31, 1994 to $882,188 at June 30,
1995, principally as a result of $2,170,719 in purchases of programming and
cablecast rights, $2,981,177 in repayments of certain debts and $1,169,000
downpayment on new programming acquisitions, offset by $4,000,000 of bridge
loans. Working capital decreased from $2,522,771 at December 31, 1994 to
$1,667,454 at June 30, 1995 principally as a result of cash down payments for
long-term programming commitments. Cablecast rights have increased by $8,616,482
(209%) 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 $9,621,000 in
11
<PAGE>
additional programming obligations and $4,000,000 in bridge financing received
in March, 1995, reduced by payments on liabilities related to programming.
Cash used in operating activities increased $380,204, or 111% from $340,724 to
$720,928, principally as a result of increased operating expenses.
Cash used in investing activities increased $2,042,959 from $155,431 to
$2,198,390, principally due to increased purchases of programming and cablecast
rights.
Cash flows from financing activities increased $1,000,250 due principally to
receipt of $4,000,000 in bridge financing offset by $2,981,177 repayment of
long-term obligations.
The Company believes that, in order to survive in the highly competitive market
for cable television programming, the Company will need approximately $16
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. On
this basis the Company has entered into programming commitments which will cause
its expenses to substantially exceed its anticipated revenues.
The Company received $2,500,000 in bridge financing at 6.43% in December, 1994
and an additional $4,000,000 at 6.09% in March, 1995 from Concept. Subsequently,
the Company received an additional $1,500,000 at 6.09% in July, 1995 from
Concept. It is Concept's 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 are to be sold to Concept. Concept has indicated its
willingness to provide sufficient additional debt or equity financing to the
Company on mutually acceptable terms for fiscal 1995. Management feels
reasonably confident that adequate financing will be available from Concept or
other outside sources to meet its foreseeable financial requirements, although
no assurances can be made that such financing will materialize.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A significant customer of the Company, representing 9.6% of operating revenues
for the six months ended June 30, 1995, 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. 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 significantly reserved the related receivable.
Item 4. Submission of Matters to a Vote of Security Holders
The 1995 Annual Meeting of Stockholders was held on June 1, 1995. The nominees
for Director elected at the meeting were as follows:
Votes Cast
Nominee For Withheld
Christopher A. Cates 17,758,072 80,590
Floyd Christopherson 17,758,072 80,590
Diane M. Faure 17,758,072 80,590
John G. Heim 17,758,072 80,590
Dong Moon Joo 17,758,072 80,590
Masahisa Kobayashi 17,758,072 80,590
William H. Lash, III 17,758,072 80,590
Ambassador Phillip Sanchez 17,758,072 80,590
Josette Shiner 17,758,072 80,590
Robert J. Wussler 17,758,072 80,590
The appointment of BDO Seidman as independent accountants for 1995 was ratified
with 17,795,967 votes for, 42,695 votes withheld or abstained.
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 has been eliminated in third quarter 1995. Additionally, the
Company has entered into contracts totaling $10,690,000 for cablecast rights to
air The Rockford Files, Marcus Welby, MD
13
<PAGE>
and Ironsides for various periods between May 1995 and August 1999.
Additionally, the Company is negotiating to acquire exclusive rights to the
initial basic cable airing of The Paper Chase, The Streets of San Francisco as
well as the first six seasons of The Love Boat at a total cost in excess of
$10,000 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.
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 August 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 August 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
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 JUNE 30, 1995, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 882,188
<SECURITIES> 0
<RECEIVABLES> 3,409,106
<ALLOWANCES> 1,843,000
<INVENTORY> 12,740,038
<CURRENT-ASSETS> 8,102,355
<PP&E> 2,689,790
<DEPRECIATION> 1,033,829
<TOTAL-ASSETS> 17,476,111
<CURRENT-LIABILITIES> 6,434,901
<BONDS> 17,173,616
<COMMON> 810,975
0
6,500
<OTHER-SE> (3,008,088)
<TOTAL-LIABILITY-AND-EQUITY> 17,476,111
<SALES> 0
<TOTAL-REVENUES> 5,926,877
<CGS> 0
<TOTAL-COSTS> 9,881,869
<OTHER-EXPENSES> 189,255
<LOSS-PROVISION> 552,000
<INTEREST-EXPENSE> 189,255
<INCOME-PRETAX> (4,144,247)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,144,257)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,144,257)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
