<PAGE> 1
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, 1999.
[ ] 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)
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<S> <C>
DELAWARE 84-0923659
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
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<CAPTION>
<S> <C>
650 MASSACHUSETTS AVENUE NW, WASHINGTON, DC 20001
(Address of principal executive office) (Zip Code)
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(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 20,274,411.
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TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Statements of Operations
For the Three and Nine Months Ended September 30, 1999 and 1998 4
Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Default upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Report on Form 8-K 13
Exhibit 27 - Financial Data Schedule 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE NOSTALGIA NETWORK, INC.
BALANCE SHEETS
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(Unaudited)
September 30, 1999 December 31, 1998
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 614,103 $ 539,371
Accounts receivable, less allowance of $156,000
and $302,000, respectively 943,582 935,230
Prepaid expenses 231,263 168,362
Cablecast rights 8,065,594 7,300,000
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TOTAL CURRENT ASSETS 9,854,542 8,942,963
Programming and cablecast rights - net 3,756,977 2,788,129
Property and equipment - net 1,028,064 1,191,879
Other assets 51,740 56,740
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TOTAL ASSETS $ 14,691,323 $ 12,979,711
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of programming and cablecast fees $ 4,327,411 $ 5,085,827
Accounts payable 1,950,907 2,255,174
Accrued expenses and other liabilities 492,486 377,254
------------- -------------
TOTAL CURRENT LIABILITIES 6,770,804 7,718,255
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LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES
Notes and interest payable - related parties 81,970,561 66,214,998
Other 348,308 335,416
Cablecast licenses and fees payable 2,864,538 114,465
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TOTAL LONG-TERM LIABILITIES 85,183,407 66,664,879
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TOTAL LIABILITIES 91,954,211 74,383,134
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' 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, 20,274,411 and 20,241,037 shares
issued and outstanding in 1999 and 1998 811,015 810,975
Additional paid-in capital 30,213,584 30,213,554
Deficit (108,293,987) (92,434,452)
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TOTAL STOCKHOLDERS' DEFICIT (77,262,888) (61,403,423)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 14,691,323 $ 12,979,711
============= =============
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THE NOSTALGIA NETWORK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
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OPERATING REVENUES
Affiliate revenue $ 518,272 $ 584,444 $ 1,681,827 $ 1,972,421
Advertising sales revenue 720,754 569,634 2,267,090 2,001,668
------------ ------------ ------------ ------------
Total operating revenues 1,239,026 1,154,078 3,948,917 3,974,089
------------ ------------ ------------ ------------
OPERATING EXPENSES
Programming, production and transmission 1,091,814 1,534,693 3,643,449 4,405,975
Programming amortization 2,275,208 1,767,510 6,516,270 5,366,178
Sales and marketing 828,930 1,934,913 2,645,641 5,904,085
Finance, general and administration 758,967 764,591 2,623,069 2,264,577
------------ ------------ ------------ ------------
Total operating expenses 4,954,919 6,001,707 15,428,429 17,940,815
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (3,715,893) (4,847,629) (11,479,512) (13,966,726)
------------ ------------ ------------ ------------
OTHER INCOME AND (EXPENSE)
Interest and other - net (1,496,752) (1,188,750) (4,380,023) (3,210,819)
------------ ------------ ------------ ------------
NET LOSS ($ 5,212,645) ($ 6,036,379) ($15,859,535) ($17,177,545)
============ ============ ============ ============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.26) $ (0.30) $ (0.78) $ (0.85)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 20,274,371 20,274,371 20,274,382 20,274,371
============ ============ ============ ============
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THE NOSTALGIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Nine Months
Ended September 30,
--------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($15,859,535) ($17,177,545)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,735,043 5,580,937
Provision for losses on accounts receivable 288,731 234,000
Net change in operating assets and liabilities:
Increase in accounts receivable (297,083) (444,552)
Increase in prepaid expenses & other assets (57,901) (120,597)
Increase (decrease) in accounts payable (304,268) 1,829,878
Increase in accrued expenses
and other liabilities 3,640,919 2,484,144
------------ ------------
Net cash used in operating activities (5,854,094) (7,613,735)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of programming and cablecast rights (2,463,837) (4,466,858)
Purchases of property and other assets (54,958) (33,565)
------------ ------------
Net cash used in investing activities (2,518,795) (4,500,423)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term obligations (3,552,450) (3,659,975)
Proceeds from financing obtained from related
parties 12,000,000 15,000,000
------------ ------------
Net cash provided by financing activities 8,447,550 11,340,025
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 74,661 (774,133)
CASH AND CASH EQUIVALENTS - BEGINNING 539,371 1,803,189
------------ ------------
CASH AND CASH EQUIVALENTS - ENDING $ 614,032 $ 1,029,056
============ ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Vendor financing of programming rights $ 5,786,875 $ 743,750
============ ============
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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. These
unaudited financial statements should 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,
1998 of The Nostalgia Network, Inc. (the "Company"), filed with the
Securities and Exchange Commission on March 31, 1999 and 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 and cash equivalents include highly liquid debt instruments
with a maturity of three months or less.
4. On March 27, 1999, the Company issued two substitution and
replacement notes to Crown Communications Corporation ("Crown") and
Concept Communications, Inc. ("Concept") (together, the "Majority
Stockholders") in the amount of $50,571,503 (which includes
$4,500,000 of additional financing received in the first quarter),
and $20,598,036, respectively, at an interest rate of 7.75%, with
the principal and unpaid interest due January 1, 2000. These notes
require minimum monthly interest payments in the aggregate of
$60,000 and replace previously issued notes in the principal amounts
of $47,810,006 and $19,217,867 plus $2,761,497 and $1,380,169 in
accrued and unpaid interest, respectively. On March 22, 1999, and on
June 9, 1999, the Company issued two promissory notes to Crown in
the principal amounts of $3,500,000 and $2,000,000 respectively, at
an interest rate of 7.75%, each due January 1, 2000. On August 24,
1999, and on September 10, 1999, the Company issued two promissory
notes to Crown in the principal amounts of $1,000,000 each, with
interest rates of 8.00% and 8.25%, respectively, each due
January 1, 2000. These notes are secured by substantially all of the
Company's assets pursuant to certain Security Agreements between the
Majority Stockholders and the Company, as amended.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-Q contains certain "forward-looking
statements" which represent expectations or beliefs of the Company, including,
but not limited to, statements concerning the Company's operations, performance,
financial condition, plans, growth and strategies. Any statements contained in
this Form 10-Q that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may," "will," "expect," "anticipate," "intend," "could,"
"estimate," or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
including, but not limited to, those relating to development of the Company's
network, the impact of internal and external problems caused by the Year 2000
computer problem, and dependence on existing management, leverage and debt
service (including sensitivity to fluctuations in interest rates). Certain of
these risks and uncertainties are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors,
including those described in this Form 10-Q.
For a discussion of the risks that may have an impact on the Company's results,
see the Company's Annual Report on Form 10-K for the year ended December 31,
1998, filed with the Securities and Exchange Commission on March 31, 1999.
Results of Operations
Total revenues decreased $25,172, or .6% (from $3,974,089 to $3,948,917) for the
nine months ended September 30, 1999 (the "1999 Period") as compared with the
nine months ended September 30, 1998 (the "1998 Period") and increased $84,948,
or 7.4% (from $1,154,078 to $1,239,026) for the three months ended September 30,
1999 (the "1999 Quarter") as compared with the three months ended September 30,
1998 (the "1998 Quarter"). The decline resulted principally from affiliate
revenue decreases offset by increases in advertising revenue.
Overall advertising revenue increased $265,422 or 13.3% (from $2,001,668 to
$2,267,090) for the 1999 Period and increased $155,120, or 26.5% (from $569,634
to $720,754) for the 1999 Quarter. Infomercial sales decreased $375,126, or
35.3% (from $1,061,310 to $686,184) for the 1999 Period and decreased $272,939,
or 96.1% (from $283,985 to $11,046) for the 1999 Quarter. The decrease in
Infomercial revenue is due to the Company's decision to shift from selling
Infomercial time during the overnight block to selling Nested Programs, which
combines all of the available time during the overnights and allows the Company
to sell it as a block of time which has been designated as Nested Programs.
Revenue from Nested Programs amounted to $331,499, for the 1999 Period and the
1999 Quarter. Conventional advertising increased $321,091 or 35.5% (from
$904,893 to $1,225,984) for the 1999 Period and increased $97,069, or 35.6%
(from $272,454 to $369,523) for the 1999 Quarter. This was primarily as a result
of increased national spot buys. Other revenue decreased by $12,042, or 34.0%
(from $35,465 to $23,423) for the 1999 Period and decreased by $4,509, or 34.2%
(from $13,195 to $8,686) for the 1999 Quarter.
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Affiliate revenues decreased by $290,594, or 14.7% (from $1,972,421 to
$1,681,827) for the 1999 Period and decreased by $66,172, or 11.3% (from
$584,444 to $518,272) for the 1999 Quarter. This was primarily as a result of
the acquisition of new subscribers having upfront zero fee carriage arrangements
for the first several years of their contract periods. These arrangements
provide for long-term carriage for the Network with various multiple system
operators with the intent to generate higher revenue streams from advertising in
the future. Management firmly believes that the Company's niche, the nation's
Boomer and over audience, is a valuable market, which currently is not being
served by any other network. Government statistics show that this demographic is
the fastest growing population segment and will account for nearly 30% of the
population in the year 2000. As delivery technology continues to change,
management believes the Company's best approach is to increase branding of the
Network and build consumer demand for its product. For the remainder of 1999,
the Company plans to continue its efforts to develop new original programming
specifically targeted to America's Boomer and over audience and build upon the
programming ideas developed in 1998.
Operating expenses decreased $2,512,386, or 14.0% (from $17,940,815 to
$15,428,429) for the 1999 Period and decreased $1,054,379, or 17.6% (from
$6,001,707 to $4,947,328) for the 1999 Quarter. The decrease for the 1999 Period
was primarily a result of a decrease of $762,526, or 17.3% (from $4,405,975 to
$3,643,449) in programming, production and transmission costs, a decrease in
sales and marketing costs of $3,258,444, or 55.2% (from $5,904,085 to
$2,645,641), and offset in part by an increase in finance, general and
administrative costs of $358,492, or 15.8% (from $2,264,577 to $2,623,069). The
decrease for the 1999 Quarter was primarily the result of a decrease in
programming, production and transmission costs of $442,879, or 28.9% (from
$1,534,693 to $1,091,814), a decrease in sales and marketing costs of
$1,113,572, or 57.6% (from $1,934,913 to $821,341), and a decrease in finance,
general and administrative costs of $5,630 or .7% (from $764,591 to $758,961).
Programming, production and transmission costs decreased by $762,535, or 17.3%
(from $4,405,984 to $3,643,449) for the 1999 Period and decreased by $442,877,
or 28.9% (from $1,534,691 to $1,091,814) for the 1999 Quarter. The decrease is a
result of a decrease in programming costs of $2,621,423, or 49.0% (from
$5,349,143 to $2,727,720) for the 1999 Period, and a decrease of $621,322 or
38.4% (from $1,618,067 to $996,745) for the 1999 Quarter, a decrease in
production and traffic costs of $52,903, or 12.9% (from $408,996 to $356,093)
for the 1999 Period, and a decrease of $38,253, or 26.2% (from $146,171 to
$107,918) for the 1999 Quarter. These decreases were offset in part by an
increase in transmission costs of $223,014, or 9.8% (from $2,284,703 to
$2,507,717) for the 1999 Period, and an increase of $80,128, or 10.3% (from
$781,427 to $861,555) for the 1999 Quarter. Programming amortization costs
increased by $1,150,092 or 21.4% (from $5,366,178 to $6,516,270) for the 1999
Period and increased $507,698 or 28.7% (from $1,767,510 to $2,275,208) for the
1999 Quarter primarily as a result of changes in the Network's programming
lineup and programming contracts. The Company expects to incur additional
increases in future programming and studio production costs as a consequence of
the Network's programming initiatives and the creation of new original programs
which has continued in 1999. These additional future expenditures will adversely
impact the Company's results of operations in the short-term; however,
management believes they are critical to the Company's long-term survival and
growth.
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The Company continues its schedule of new and original productions in 1999,
including the following programs: GTV DanceSport which spotlights the rapidly
growing trend in America of ballroom and performance dancing, and which is
slated to become a recognized Olympic sport; More Money with The Dolans,
starring Ken and Daria Dolan, the "first family of finance," which provides an
entertaining program on money issues; Flea Market Movie, with collectibles
aficionado Christopher Kent appraising viewer's attic treasures during movie
breaks; The Bull & The Bear, stock market reports by a "Siskel and Ebert" type
pair of hosts, Llewellyn King and Linda Gasparello; The Real Me Autobiographies,
true stories of famous people told in their own words; and American Soldier,
which features interviews with World War II veterans as wraparounds to the
dramatic series, Combat!, Garrison's Gorillas and 12 O'Clock High.
New programs for 1999 include American Couples, hosted by Nancy Glass, an hour
long show which celebrates the family values, love, commitment and partnership
of famous couples; Heroes & Sheroes, profiling ordinary men and women who have
performed heroic tasks for the benefit of their fellow man; American Families,
spotlighting regular families discussing contemporary solutions to issues raised
in episodes of classic family programs of Ozzie & Harriet and Make Room for
Daddy; Cookbook Cooking with Christopher Kent, which features the Network's Flea
Market Movie host, Christopher Kent, who also is an accomplished chef, preparing
dishes from famous cookbooks; and the classic family western series Bonanza.
Sales and marketing expenses decreased by $3,258,444, or 55.2% (from $5,904,085
to $2,645,641) for the 1999 Period and decreased $1,113,572, or 57.6% (from
$1,934,913 to $821,341) for the 1999 Quarter. This decrease is a result of the
Company's decision in March 1999 to more closely align its sales and marketing
activities by consolidating these efforts at its headquarters in Washington,
D.C. Salaries and wages decreased by $355,706, or 27.6% (from $1,289,594 to
$933,888) for the 1999 Period and decreased by $234,149, or 48.6% (from $481,768
to $247,619) for the 1999 Quarter. Travel and entertainment expenses decreased
by $243,507, or 66.2% (from $367,877 to $124,370) for the 1999 Period and
decreased by $60,858, or 58.7% (from $103,744 to $42,886) for the 1999 Quarter.
Both of these decreases were primarily due to the departure of personnel who
have not been replaced. Convention expenses decreased by $957,441, or 93.9%
(from $1,019,463 to $62,022) for the 1999 Period and decreased by $408,801, or
93.5% (from $437,252 to $28,451) for the 1999 Quarter. Advertising expenditures
decreased by $1,088,665, or 90.7% (from $1,200,059 to $111,394 for the 1999
Period and decreased $92,709, or 71.4% (from $129,814 to $37,105) for the 1999
Quarter. Sales and Marketing materials decreased by $117,804, or 80.1% (from
$147,105 to $29,301) for the 1999 Period and decreased by $61,530, or 85.7%
(from $71,758 to $10,228) for the 1999 Quarter. Premium expenditures decreased
by $109,941, or 97.0%, (from $113,286 to $3,345) for the 1999 Period and
decreased by $15,124, or 100% (from $15,124 to $0) for the 1999 Quarter. These
decreases also were due to the Company's efforts to reduce marketing costs.
Professional fees decreased by $402,237, or 44.0% (from $914,028 to $511,791)
for the 1999 Period and decreased by $206,622, or 55.1% (from $374,991 to
$168,369) for the 1999 Quarter primarily as a result of reduced expenditures on
the Network's affinity and new media efforts, as well as bringing the Network's
public relations operations in house. These decreases were offset in part by an
increase in marketing allowance costs of $138,429, 61.3% (from $225,799 to
$364,228) for the 1999 Period and an increase of $9,114, or 6.5% (from $140,222
to $149,336) for the 1999 Quarter and an increase in affiliate events of
$107,526, or 100.0% (from $0 to $107,526) for the 1999 Period and $7,592, or
100.0% (from $0 to $7,592) for the 1999 Quarter.
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Finance, general and administrative costs increased by $358,492, or 15.8% (from
$2,264,577 to $2,623,069) for the 1999 Period and decreased by $5,624, or .7%
(from $764,591 to $758,967 for the 1999 Quarter. This increase was primarily as
a result of an increase in consolidation and retention costs of by $359,518, or
100.0% (from $0 to $359,518) for the 1999 Period and an increase of $93,394, or
100.0% (from $0 to $93,394) for the 1999 Quarter. Bad debt expense increased by
$54,731, or 23.4% (from $234,000 to $288,731) for the 1999 Period and increased
by $6,731, or 22.4% (from $30,000 to $36,731) for the 1999 Quarter. These
increases were offset by decreases in salaries and wages of $51,286, or 5.9%
(from $865,213 to $813,927) for the 1999 Period and a decrease of $21,594, or
6.9% (from $311,391 to $289,797) for the 1999 Quarter. Legal and professional
fees increased by $20,702, or 5.5% (from $376,421 to $397,123) for the 1999
Period and decreased by $94,837, or 64.4% (from $147,234 to $52,397) for the
1999 Quarter. Office expenses decreased by $48,063, or 36.3% (from $132,269 to
$84,206) for the 1999 Period and decreased by $13,783, or 33.3% (from $41,429 to
$27,646) for the 1999 Quarter.
As a result of decreased revenues ($25,172), increased programming amortization
costs ($1,150,092), and increased finance, general and administrative costs
($358,492) which were offset by decreased programming, production and
transmission costs ($762,535), and decreased sales and marketing costs
($3,258,444), the Company's loss from operations decreased $2,487,214, or 17.8%
(from $13,966,726 to $11,479,512) for the 1999 Period. As a result of increased
revenues of ($84,948) and increased programming amortization costs ($507,698)
which were offset by decreased programming, production and transmission costs
($442,877), decreased sales and marketing costs ($1,113,572), and decreased
finance, general and administrative costs ($5,624), the Company's loss from
operations decreased $1,139,327, or 23.5% (from $4,847,629 to $3,708,302) for
the 1999 Quarter.
Other expenses increased $1,169,204 or 36.4% (from $3,210,819 to $4,380,023) for
the 1999 Period and increased $308,002, or 25.9% (from $1,188,750 to $1,496,752)
for the 1999 Quarter, primarily as a result of interest on outstanding debt.
Liquidity and Capital Resources
Cash increased from $539,371 at December 31, 1998 to $614,103 at September 30,
1999, principally due to $12,000,000 in financing received during the 1999
Period, offset by cash outlays to cover operating losses and repayments of
certain debts. Working capital increased from $1,224,708 at December 31, 1998 to
$3,083,738 at September 30, 1999, principally as a result of $12,000,000 in
financing received, netted against purchases of programming and cablecast
rights, and cash outlays to cover operating losses and repayment of certain
debt. Cablecast rights have increased by $1,734,442, since December 31, 1998 as
a result of the Company's investment in its primetime line-up. Total liabilities
increased primarily due to $12,000,000 in additional financing.
Cash used in operating activities decreased $1,759,642, or 23.1% (from
($7,613,735) to $(5,854,093)), for the 1999 Period compared to the 1998 Period,
principally as a result of decreases in accounts payable of $2,134,145, or
116.6% (from $1,829,878 to ($304,267)), offset in part by increases in
depreciation of $1,154,106, or 20.7% (from $5,580,937 to $6,735,043), and
increases in accrued expenses of $1,156,775, or 46.6% (from $2,484,144 to
$3,640,919), primarily as a result of interest on additional borrowings.
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Cash used in investing activities decreased $1,981,628, or 44.0% (from
($4,500,423) to ($2,518,795)) principally due to an decrease in purchases of
programming and cablecast rights of $2,003,021, or 44.8% (from $4,466,858 to
$2,463,837).
Cash flows from financing activities decreased $2,892,405, or 25.5% (from
$11,340,025 to $8,447,620) due principally to decreases in financing of
$3,000,000, or 20.0% (from $15,000,000 to $12,000,000) and decreased repayment
of long-term obligations of $107,525, or 2.9% (from $3,659,975 to $3,552,450).
Since 1990, the Majority Stockholders have been the principal source of the
Company's capital. The Majority Stockholders have invested $2,300,000 and
provided $70,500,000 in financing since 1994, of which $12,000,000 was provided
during the 1999 Period. Additionally, the Majority Stockholders have committed
to advance, as needed, an additional $3,000,000 in debt financing for the
remainder of 1999. Management believes that these funds will be sufficient to
satisfy the Company's operating needs for 1999. In connection with the
additional borrowings, the Company has entered into security agreements, as
amended, pledging substantially all the Company's assets as security for its
indebtedness to the Majority Stockholders.
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 ultimately will increase advertising revenues and result in
substantial long-term revenue increases.
The Company's Board of Directors has directed its Executive Committee and
management to study the question of whether the Company should enter into, and
the potential opportunities for, a strategic alliance, and to make
recommendations to the full Board of Directors. The Executive Committee and
management have been actively engaged in this pursuit. 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 the Company's future needs. There can be no assurance either that the
Company will be able to locate sufficient funding in excess of the funds
committed for 1999, or that it will be able to achieve a strategic alliance.
Year 2000 Issues
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. As a result, those
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business.
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 issue. Based upon
its review, the Company believes that all of its systems are Year 2000
compliant.
-11-
<PAGE> 12
The Company is in the process of contacting its significant suppliers and
affiliates that do not share information systems with the Company as to their
Year 2000 compliance. To date, the Company is not aware of any external agent
with a Year 2000 issue that would materially impact the Company's results of
operations, liquidity or capital resources. However, the Company has no means of
ensuring that external agents will be Year 2000 compliant. The inability of
external agents to complete their Year 2000 compliance in a timely fashion could
materially impact the Company. The effect of noncompliance by external agents is
not determinable. Possible Year 2000 related problems due to external agents
could include loss of electrical power and telephone service and supply
shortages.
In the event the Company experiences difficulties with its systems or with
material external agents, the Company has contingency plans for certain critical
applications and is working on such plans for others. Contingency plans
generally consist of performing mission critical procedures manually or with
substitute systems which are Year 2000 compliant.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. None.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION.
On October 21, 1999, the Company announced that it had received and accepted an
offer from Crown to enter into a cash merger which, if consummated, would result
in the elimination of the Company's publicly held shares. Under the terms of the
proposed merger, the Company's stockholders would receive seven cents ($.07) per
common stock share.
Upon receipt, Crown's offer was referred to and reviewed by a committee of the
Company's independent directors which recommended that the offer be accepted.
The Company's Board of Directors voted to accept Crown's offer and to authorize
the negotiation of definitive documentation for the merger. Consummation of the
merger remains contingent upon, among other things, execution of definitive
documentation, the approval of the Company's stockholders and receipt of any
required regulatory approvals. Crown has indicated that it and its affiliates
will vote in favor of the merger.
-12-
<PAGE> 13
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to
the Registrant's Report on Form 10-K for the Year Ended December
31, 1994, and incorporated herein by reference thereto)
3.2 Amended and Restated Bylaws (filed as Exhibit 3.2 to the
Registrant's Report on Form 10-K for the Year Ended December 31,
1994, and incorporated herein by reference thereto)
27 Financial Data Schedule as required by Item 601 (c) of
Regulation S-K
</TABLE>
-13-
<PAGE> 14
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 15, 1999
THE NOSTALGIA NETWORK, INC.
By: /s/ SQuire D. Rushnell
------------------------------------
SQuire D. Rushnell, President and
Chief Executive Officer
By: /s/ Diane C. Fuller
------------------------------------
Diane C. Fuller, Treasurer
-14-
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to
the Registrant's Report on Form 10-K for the Year Ended December
31, 1994, and incorporated herein by reference thereto)
3.2 Amended and Restated Bylaws (filed as Exhibit 3.2 to the
Registrant's Report on Form 10-K for the Year Ended December 31,
1994, and incorporated herein by reference thereto)
27 Financial Data Schedule as required by Item 601 (c) of Regulation S-K
</TABLE>
-15-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Form 10-Q
for the quarter ended September 30, 1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> [BLANK]
<PERIOD-START> [BLANK]
<PERIOD-END> SEP-30-1999
<CASH> 614,103
<SECURITIES> 0
<RECEIVABLES> 1,099,582
<ALLOWANCES> 156,000
<INVENTORY> 11,822,571
<CURRENT-ASSETS> 9,854,542
<PP&E> 3,279,928
<DEPRECIATION> 2,251,865
<TOTAL-ASSETS> 14,691,323
<CURRENT-LIABILITIES> 6,770,804
<BONDS> 81,970,561
0
6,500
<COMMON> 811,015
<OTHER-SE> (77,262,888)
<TOTAL-LIABILITY-AND-EQUITY> 14,691,323
<SALES> 0
<TOTAL-REVENUES> 1,239,026
<CGS> 0
<TOTAL-COSTS> 4,947,328
<OTHER-EXPENSES> 1,496,752
<LOSS-PROVISION> 288,731
<INTEREST-EXPENSE> 1,496,752
<INCOME-PRETAX> (5,205,054)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,708,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,205,054)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
