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 March 31, 1996.
[ ] 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 (I.R.S. Employer Identification
incorporation) 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 OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Statements of Operations
For the Three Months Ended March 31, 1996 and 4
1995
Statements of Cash Flows
For the Three Months Ended March 31, 1996 and 5
1995
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7 - 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Securities Holders 11
Item 5. Other Information 11
Index to Exhibits 13
Exhibit 27 - Financial Data Schedule 14
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE NOSTALGIA NETWORK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,162,326 $ 855,739
Accounts receivable, less allowance
of $2,204,000 and $2,258,000,
respectively 1,081,485 1,304,596
Prepaid legal fees 75,000 75,000
Prepaid expenses 68,305 106,265
Cablecast rights 6,800,000 6,800,000
___________ ___________
Total current assets 9,187,116 9,141,600
Programming and cablecast rights
- net 11,537,160 13,185,348
Property and equipment - net 1,584,932 1,612,562
Other assets 16,031 16,031
___________ ___________
Total assets $22,325,239 $23,955,541
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term
obligations $ 6,814,178 $ 6,355,493
Accounts payable 1,122,771 1,406,840
Accrued expenses and other
liablilities 842,185 834,306
___________ ___________
Total current liabilities 8,779,134 8,596,639
___________ ___________
LONG-TERM OBLIGATIONS, less current
maturities
Notes and interest payable - related
parties 13,112,819 10,925,346
Accrued interest payable and other 49,408 54,747
Cablecast licenses and fees payable 10,072,507 11,901,542
___________ ___________
Total long-term liabilities 23,234,734 22,881,635
___________ ___________
Total liabilities 32,013,868 31,478,274
___________ ___________
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: $0.04 par value,
30,000,000 shares authorized,
20,274,371 and 20,274,371 shares
issued and outstanding,
respectively 810,975 810,975
Additional paid-in capital 30,213,554 30,213,554
Deficit (40,719,658) (38,553,762)
___________ ___________
Total stockholders' equity
(deficit) (9,688,629) (7,522,733)
___________ ___________
Total liabilities and
stockholders' equity (deficit) $22,325,239 $23,955,541
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
- 3 -
<PAGE>
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING REVENUES
Affiliate revenue $1,100,063 $1,119,493
Advertising sales revenue 1,700,292 1,583,234
Other 5,363 246,126
__________ __________
Total operating revenues 2,805,718 2,948,853
__________ __________
OPERATING EXPENSES
Programming, production and
transmission 1,396,143 1,125,282
Programming amortization 1,648,188 1,583,787
Sales and marketing 1,129,885 1,093,607
Finance, general and administration 765,400 1,045,948
__________ __________
Total operating expenses 4,939,616 4,848,624
__________ __________
LOSS FROM OPERATIONS (2,133,898) (1,899,771)
__________ __________
OTHER INCOME AND (EXPENSE)
Interest and Other - net (31,997) (80,345)
__________ ___________
NET LOSS $(2,165,895) $(1,980,116)
=========== ==========
NET LOSS PER COMMON SHARE $(0.11) $(0.10)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 20,274,371 20,255,704
========== ==========
</TABLE>
See accompanying notes to the financial statements
- 4 -
<PAGE>
THE NOSTALGIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,165,896) $(1,979,636)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 1,726,788 1,599,492
Provision for losses on accounts
receivable (54,000) 132,000
Net change in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 277,311 (76,760)
Decrease in prepaid expenses &
other assets 37,960 71,353
(Decrease) in accounts payable (284,069) (553,754)
Increase in accrued expenses
and other liabilities 189,815 318,073
__________ __________
Net cash used in operating
activities (272,091) (489,232)
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of programming and
cablecast rights - (138,722)
Purchases of property and other
assets (50,972) -
__________ __________
Net cash used in investing
activities (50,972) (138,722)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term obligations (1,370,350) (1,586,180)
Proceeds from bridge financing 2,000,000 4,000,000
__________ __________
Net cash provided by financing
activities 629,650 2,413,820
__________ __________
NET INCREASE IN CASH AND CASH
EQUIVALENTS 306,587 1,785,866
CASH AND CASH EQUIVALENTS - beginning 855,739 2,782,683
__________ __________
CASH AND CASH EQUIVALENTS - ending $1,162,326 $4,568,549
========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of subscribed stock $ - $16,000
========== ==========
</TABLE>
See accompanying notes to the financial statements
- 5 -
<PAGE>
The Nostalgia Network, Inc.
NOTES TO 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
financial statements be read in conjunction with the
financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year
ended December 31, 1995 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 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. On January 4, 1996, and February 26, 1996, the Company
executed promissory notes in favor of Concept
Communications, Inc. ("Concept") in the amount of $1,000,000
each bearing interest at 5.28% and 4.89%, respectively.
Subsequent to March 31, 1996, the Company executed an
additional promissory note to Concept in the amount of
$4,500,000 at 5.31%. The proceeds of these notes are to
provide bridge financing for working capital purposes until
such time as Concept and the Company can agree upon a price
at which the Company will sell its securities to Concept.
These notes are covered by the terms of a certain Security
Agreement between Concept and the Company dated January 4,
1996, as amended. Concept has stated it does not intend
to call its outstanding notes prior to February 1, 1997
unless replaced by an equity investment.
- 6 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This report contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may
differ significantly from the results discussed in the forward-
looking statements. For a discussion of the risks that may
have an impact on the Company's results, see the Company's report
on Form 10-K for the year ended December 31, 1995.
Results of Operations
Total revenues decreased $143,135 or 5% (from $2,948,853 to
$2,805,718) for the First Quarter. The decline resulted
principally from decreases in other revenues of $240,763, or 98%
(from $246,126 to $5,363), and affiliate revenue decreases of
$19,430, or 2% (from $1,119,493 to $1,100,063) for the Quarter.
Partially offsetting those decreases was an increase in
Advertising Revenue of $117,058, or 7% (from $1,583,234 to
$1,700,292).
Other revenues decreased by $240,763, or 98%, due to the December
1995 termination of the Company's contract for interactive home
shopping services. During 1995 the Company had allotted
approximately 30 hours a week to interactive home shopping.
Contractual problems with RSTV Inc., which provided the service
under the name Via TV! ("Via"), coupled with Via's poor product
mix and services, caused the Company to not renew the contract.
The air time allotted home shopping during 1995 has temporarily
reverted to infomercials while the Company examines alternative
programming models for that time period, including potential new
providers of interactive home shopping.
Advertising revenue increased principally due to increased hours
available for long-format ("infomercial") sales. Infomercial
sales increased $181,046, or 20% (from $910,142 to $1,091,188.
During third quarter 1995 the Company completed its efforts to
eliminate infomercials during its mid-day programming and no
longer airs infomercials during the period from 10 am to 3 am,
Monday through Friday. While this change reduced the number of
hours devoted to infomercials, the reversion of interactive home
shopping to infomercials during the overnight hours of 3 am to 7
am, Monday through Sunday, has increased the total hours of
infomercials. Although the amount of time devoted to infomercials
was almost doubled, the effective average hourly rate was reduced
by approximately 38%. This rate reduction is due to a
combination of eliminating mid day infomercials, which demand the
highest rate, and adding a higher concentration of lower rate
overnight infomercial hours. Management's plan is to identify
alternative programming models for its overnight block to replace
the hours reverted to infomercials. Management currently has
no intentions to air infomercials during the hours from 10 am to
3 am, Monday through Friday.
- 7-
<PAGE>
Partially offsetting the increase in infomercial revenues is a
decrease in conventional advertising of $64,000 or 10% (from
$673,000 to $609,000). This decrease is due principally to an
effective rate reduction of approximately 12% as the Company
establishes itself in national advertising markets and moves away
from direct response advertising. This effective rate decrease
was partially offset with a 2% increase in commercial time
available due to elimination of mid day infomercials.
Increased competition and the continuing effect of The Cable
Television Consumer Protection Act of 1992 (the "Act") were the
major causes of the decrease in affiliate revenue of $19,430, or
2% (from $1,119,493 to $1,100,063). The "Must Carry" and
"Retransmission Consent" provisions of the Act have continued to
reduce the number of channels available for independent cable
networks, and the system of rate regulation adopted by the FCC
pursuant to the Act has materially reduced the economic
incentives for cable system operators to carry such networks.
Additionally, competition from new programming services which
have strong strategic alliances has placed additional economic
pressures on system operators to make available already scarce
channel capacity. Compounding these factors, technological
advances which were heralded to expand channel capacity have not
yet developed to commercially feasible standards within the time
frame originally anticipated, creating additional competition.
Lingering perceptions of the Company's past programming and
former management have continued to make the Network vulnerable
to being dropped due to channel capacity issues.
The Network has responded by continuing to improve its
programming content through acquisitions and has commenced
producing additional original programming, such as Issues &
Answers, a political panel discussion program hosted by Ron
Nessen. Two new original programs are premiering in May.
America with Dennis Wholey features a penetrating look at the
political, cultural and social issues of the day, while Health
and Wellness will uncover the latest breakthroughs in medicine,
nutrition and physical fitness. The Network continues to produce
additional original music programs, including "Too Marvelous for
Words, a Singer/Songwriter Salute to Johnny Mercer" honoring the
1996 Mercer Foundation scholarship award winners at the
Smithsonian Institute in Washington DC. The Company has also
continued discussions with cable system operators and other
potential providers of distribution. The Company expects these
measures will result in growth in the number of affiliates, but
remains uncertain as to the effect the Act, competition and
technology will ultimately have on average revenue per affiliate.
Total operating expenses increased $90,992, or 2% (from
$4,848,624 to $4,939,616). This increase was primarily a result
of an increase of $270,861, or 24% in programming, production and
transmission costs; $64,401, or 4% in programming amortization
costs; and $36,278, or 3% in sales and marketing costs.
Offsetting these increases was a decrease in finance, general and
administrative costs of $280,548, or 27%.
- 8 -
<PAGE>
Programming, production and transmission costs have increased by
$270,861, or 24%, (from $1,125,282 to $1,396,143) primarily as a
result of costs associated with production of new original
programs such as Issues & Answers, as well as increased costs
associated with improving the Network's on-air look.
Programming amortization costs have increased by $64,401, or 4%
(from $1,583,787 to $1,648,188) 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 and creation of new original programs.
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 expenses have increased by $36,278, or 3%
(from $1,093,607 to $1,129,885). Premium purchases increased
by $85,100, or 216% (from $39,400 to $124,500) primarily as a
result of timing of bulk purchases. Salaries, wages and
benefits increased $35,200 or 10% (from $368,800 to $404,000) and
travel and entertainment increased by $8,900, or 10% (from
$92,000 to $101,900) due to filling staff vacancies open during
the first quarter of 1995. National events increased to
$27,200 due to the Network's sponsoring of Life Stage Matrix
Marketing programs to assist affiliates in attracting persons in
the 50 plus demographics to become subscribers. Convention
expenses decreased $25,400, or 88% (from $28,700 to $3,300) due
to timing of convention events. Program guide costs decreased
$33,400, or 44% (from $76,100 to $42,700) due to production
revisions resulting in cost savings. Professional fees
decreased $57,300, or 51% (from $111,100 to $53,800) primarily as
a result of decreased consumer and advertising sales research.
Finance, general and administrative costs decreased by $280,548,
or 27% (from $1,045,948 to $765,400). This decrease was
primarily attributed to legal and professional fees which
decreased by $275,680, or 65% (from $420,625 to $144,945) due to
resolution of various legal matters which were outstanding in the
first quarter of 1995.
As a result of increased programming, production and traffic
costs ($270,861); decreased revenues ($143,135); increased
programming amortization costs ($64,401); increased sales and
marketing expenses ($36,278); offset by decreased finance general
and administrative expenses ($280,548); the Company's loss from
operations increased $234,127, or 12%.
Other income and expense decreased $48,348, or 60% (from
$(80,345) to $(31,997)). Interest expense increased by
$102,000, or 127% (from $80,000 to $182,000) primarily as a
result of interest on bridge loans provided by Concept
Communications, Inc., ("Concept"), the Network's majority
shareholder. Other income increased to $150,000 from $0 as a
result of recoveries in legal settlements.
- 9 -
<PAGE>
Liquidity and Capital Resources
Cash increased from $855,739 at December 31, 1995 to $1,162,326
at March 31, 1996, principally due to $2,000,000 bridge financing
received in first quarter 1995, reduced by cash outlays to cover
increased operating losses and repayments of certain debts.
Working capital decreased from $544,961 at December 31, 1995 to
$407,982 at March 31, 1995 principally as a result of increased
cash from long-term bridge financing, reductions of accounts
payable and repayments of certain debts. Cablecast rights have
decreased by $1,648,188 (8%) since year-end as a result of
amortization of the Network's investment in its prime-time line
up. Total liabilities increased primarily due to $2,000,000 in
bridge financing reduced by payments on liabilities related to
programming and reduction of other payables.
Cash flows from operating activities increased $217,141, or 44%
from using $489,232 to using $272,091, principally as a result of
reductions in accounts receivable.
Cash used in investing activities decreased $87,750 from $138,722
to $50,972, principally due to an increase in purchase of other
assets of $50,972, offset by a $138,722 decrease in purchases of
programming and cablecast rights.
Cash flows from financing activities decreased $1,784,170, or 74%
due principally to bridge financing reduction of $2,000,000, or
50% (from $4,000,000 to $2,000,000) offset by reduced repayment
of long-term obligations of $215,830, or 14% (from $1,586,180 to
$1,370,350).
The Company received $12,000,000 in bridge financing through
March 31, 1996, with rates varying from 4.89% to 8.59%, and an
additional $4,500,000 at 5.31% in April, 1996 from Concept.
Concept has committed to provide up to an additional $4,500,000
in debt financing during the balance of the calendar year.
Management believes that these funds will be sufficient to
satisfy its operating needs for 1996. In connection with the
additional borrowings and Concept's agreement to extend the due
dates on the bridge financing to February 1, 1997, the Company
has entered into a security agreement covering substantially all
the Company's assets in favor of Concept. Concept has stated
its intention that such financing be converted to equity once
Nostalgia and Concept are able to reach a mutual agreement as to
the terms at which such additional shares are to be sold to
Concept, although there can be no assurance such a conversion
will be achieved.
The Company believes that, in order to survive in the highly
competitive market for cable television programming, the Company
will need significant additional investment over the next four to
five 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. Management
has considered various steps the Company might take to achieve
profitability. It now believes that the Company's best
alternative would be to form an alliance with a strategic
partner, such as a cable
- 10 -
<PAGE>
company or a diversified media company. By entering into an
alliance, the Company would have greater bargaining power in its
dealings with cable system operators, programming providers and
advertisers. It might also gain better access to distribution.
The Company's Board of Directors has directed its Executive
Committee to study the question of whether the Company should
enter into a strategic alliance, and to make recommendations to
the full Board regarding this proposal. The Executive
Committee is now actively engaged in this study.
Because of the unpredictable factors involved in the search for a
strategic alliance, and the dynamic changes taking place in the
industry, there is considerable uncertainty about what the
Company's needs will be in future years. There can be no
assurance either that the Company will be able to locate
sufficient funding in excess of the funds committed for 1996, or
that it will be able to achieve a strategic alliance.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the first quarter 1996.
Item 5. Other Information
On May 13, 1996, the Company entered into an Employment
Agreement with former ABC programming veteran Squire Rushnell to
become the Company's President and Chief Executive Officer.
Mr. Rushnell's appointment takes effect June 5, 1996, and
retiring President and Chief Executive Officer Jack Heim will be
working with Mr. Rushnell during a transition period. Mr.
Rushnell is best known for his 20 years as a top programming
executive at the ABC Television Network where he led Good Morning
America to record setting ratings and profits. He also held
the positions of Vice President, ABC Late Night Programming, ABC
Children's Programming and Long Range Planning for the ABC
Entertainment Division.
The Employment Agreement is for three years commencing May 13,
1996, and provides for an initial base salary of $200,000, annual
Benchmark bonuses of $50,000 plus additional profit incentive
bonuses. In addition, the contract calls for the grant of
stock options covering 839,840 shares of the Company's Common
Stock at an exercise price of $0.35 per Share vesting 25% each
nine months commencing February 12, 1997.
- 11 -
<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 May 15, 1996
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, Vice President,
Treasurer and Chief Financial Officer
- 12 -
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description Page No.
27 Financial Data Schedule as required by Item 601 (c)
of Regulation S-K 14
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted
from Form 10-Q for the quarter ended March 31, 1996, and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CIK> 0000747178
<NAME> Nostalgia Network Inc
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,162,326
<SECURITIES> 0
<RECEIVABLES> 3,285,485
<ALLOWANCES> 2,204,000
<INVENTORY> 18,337,160
<CURRENT-ASSETS> 9,187,116
<PP&E> 2,805,777
<DEPRECIATION> 1,220,845
<TOTAL-ASSETS> 22,325,239
<CURRENT-LIABILITIES> 8,779,134
<BONDS> 29,999,504
<COMMON> 810,975
0
6500
<OTHER-SE> (10,506,014)
<TOTAL-LIABILITY-AND-EQUITY> 22,325,239
<SALES> 0
<TOTAL-REVENUES> 2,805,718
<CGS> 0
<TOTAL-COSTS> 4,939,616
<OTHER-EXPENSES> 31,997
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 182,000
<INCOME-PRETAX> (2,165,895)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,165,895)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,165,895)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
