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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, 2000.
[ ] 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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DELAWARE 84-0923659
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
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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 20,275,370.
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TABLE OF CONTENTS
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of
June 30, 2000 and December 31, 1999 3
Statements of Operations
For the Three and Six Months Ended June 30, 2000 and 1999 4
Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999 5
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 13
Item 3. Quantitative and Qualitative Disclosure about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Default upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Report on Form 8-K 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE NOSTALGIA NETWORK, INC.
BALANCE SHEETS
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(Unaudited) December 31,
Jun. 30, 2000 1999
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,018,593 $674,177
Accounts receivable, less allowance of $153,000
and $161,000, respectively 619,641 826,588
Prepaid expenses 228,663 114,096
Programming and cablecast rights, net 4,529,461 7,105,280
---------------------- ----------------------
Total current assets 6,396,358 8,720,141
Programming and cablecast rights, net 3,214,851 2,981,416
Property and equipment, net 855,276 972,107
Deposits 76,431 49,430
---------------------- ----------------------
Total assets $10,542,916 $12,723,094
====================== ======================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of programming and cablecast fees $3,582,275 $4,810,822
Accounts payable -- Trade 824,490 1,172,475
-- Related parties 20,560 32,191
Accrued expenses and other liablilities 339,167 531,341
Unearned income 362,839 221,016
---------------------- ----------------------
Total current liabilities 5,129,331 6,767,845
---------------------- ----------------------
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES
Programming and cablecast fees 676,410 2,135,164
Notes payable to related parties 93,585,900 86,085,900
Accrued interest payable -- Related parties 3,861,910 330,463
---------------------- ----------------------
Total Long-term liabilities 98,124,220 88,551,527
---------------------- ----------------------
Total liabilities 103,253,551 95,319,372
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, convertible: $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, 20,275,370 shares issued and outstanding 811,015 811,015
Additional paid-in capital 30,213,584 30,213,584
Deficit (123,741,734) (113,627,377)
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Total stockholders' deficit (92,710,635) (82,596,278)
---------------------- ----------------------
Total liabilities and stockholders' deficit $10,542,916 $12,723,094
====================== ======================
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THE NOSTALGIA NETWORK, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
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OPERATING REVENUES:
Affiliate sales $496,495 $615,340 $1,047,800 $1,163,555
Advertising sales 1,008,250 754,916 2,041,541 1,546,336
----------- ----------- ------------ ------------
Total operating revenues 1,504,745 1,370,256 3,089,341 2,709,891
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Programming, production and transmission 1,234,430 1,350,128 2,415,713 2,551,635
Programming amortization 1,890,601 2,122,042 4,048,601 4,241,062
Sales and marketing 593,429 834,633 1,117,571 1,824,300
Finance, general and administration 917,293 802,529 1,792,845 1,864,104
----------- ----------- ------------ ------------
Total operating expenses 4,635,753 5,109,332 9,374,730 10,481,101
----------- ----------- ------------ ------------
LOSS FROM OPERATIONS (3,131,008) (3,739,076) (6,285,389) (7,771,210)
----------- ----------- ------------ ------------
OTHER INCOME AND (EXPENSE)
Interest and other - net (1,997,184) (1,542,965) (3,828,968) (2,883,271)
----------- ----------- ------------ ------------
NET LOSS ($5,128,192) ($5,282,041) ($10,114,357) ($10,654,481)
=========== =========== ============ ============
LOSS PER COMMON SHARE - BASIC AND DILUTED $(0.25) $(0.26) $(0.50) $(0.53)
=========== =========== ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 20,275,370 20,274,371 20,275,370 20,274,371
=========== =========== ============ ============
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THE NOSTALGIA NETWORK, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
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For the Six Months
Ended June 30
-----------------------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(10,114,357) $(10,654,481)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 139,826 142,800
Programming amortization 4,048,601 4,241,062
Provision for losses on accounts receivable 238,040 252,000
Net change in operating assets and liabilities:
Increase in accounts receivable (31,093) (418,687)
(Increase) decrease in prepaid expenses (114,567) 8,521
(Increase) decrease in deposits (27,001) 4,000
Decrease in accounts payable (359,616) (584,339)
(Decrease) increase in accrued expenses
and other liabilities (192,175) 500,388
Increase in accrued interest 3,531,448 1,668,054
Increase in unearned income 141,823 217,699
------------------ -------------------
Net cash used in operating activities (2,739,071) (4,622,983)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipmernt (22,996) (49,659)
Acquisitions of programming and cablecast rights (1,706,219) (1,133,318)
------------------ -------------------
Net cash used in investing activities (1,729,215) (1,182,977)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - Related parties 7,500,000 10,000,000
Payments of cablecast rights obligations (2,687,298) (2,352,241)
------------------ -------------------
Net cash provided by financing activities 4,812,702 7,647,759
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 344,416 1,841,799
CASH AND CASH EQUIVALENTS - BEGINNING 674,177 539,371
------------------ -------------------
CASH AND CASH EQUIVALENTS - ENDING $1,018,593 $2,381,170
================== ===================
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The accompanying summary of accounting policies and notes as integral part of
these financial statements.
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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, 1999 filed with the United States
Securities and Exchange Commission (the "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 December 31, 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 $63,997,292 and $21,783,608, respectively, bearing
interest at 8.5%, with the principal and unpaid interest due January 1,
2001. These notes require minimum monthly interest payments aggregating
to $60,000 and replace previously issued notes in the principal amounts
of $61,071,503 and $20,598,036 plus $2,925,789 and $1,185,572 in accrued
and unpaid interest, respectively. On January 31, 2000, March 09, 2000
and March 21, 2000, the Company issued three promissory notes to Crown in
the principal amount of $1,250,000 each, bearing interest at 8.5%. On
April 14, 2000 and May 16, 2000, the Company issued two promissory notes
to Crown in the principal amount of $1,250,000 each, bearing interest at
9.0%. On June 13, 2000, the Company issued one promissory note to Crown
in the amount of $1,250,000, bearing interest at 9.5%. Each of these is
due January 1, 2001. These notes are secured by certain Security
Agreements between the Majority Stockholders and the Company, as amended.
5. In October 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
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of the Company's publicly-held shares of common stock and constitute a
going-private transaction within the meaning of Section 13(e)(3) of the
Securities Exchange Act of 1934 (the "Exchange Act"). Crown and Concept,
which is majority-owned by Crown, in the aggregate are the beneficial
owners of 70.3% of the Company's issued and outstanding shares of common
stock.
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, the approval of the Company's stockholders. Crown has
indicated that it and its affiliates will vote in favor of the merger.
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,
1999, filed with the Commission on March 30, 2000.
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Results of Operations
Total revenues increased $379,450, or 14.0% (from $2,709,891 to $3,089,341) for
the six months ended June 30, 2000 (the "Period") as compared with the same
period during 1999 and increased $134,489, or 9.8% (from $1,370,256 to
$1,504,745) for the three months ended June 30, 2000 (the "Quarter") as compared
with the same quarter during 1999, primarily as a result of selling available
radio spot airtime of which a portion was acquired in 1999.
Overall advertising revenue increased $495,205 or 32.0% (from $1,546,336 to
$2,041,541) for the Period and increased $253,335, or 33.5% (from $754,915 to
$1,008,250) for the Quarter. Infomercial sales decreased $412,510, or 59.5%
(from $692,733 to $280,223) for the Period and decreased $194,682, or 65.4%
(from $297,455 to $102,773) for the Quarter. The decrease in Infomercial revenue
was 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 designated for nested programs. Revenue from nested programs,
which are included in conventional advertising amounted to $725,002 for the
Period and $399,652 for the Quarter. Conventional advertising increased $907,715
or 106.3% (from $853,603 to $1,761,318) for the Period and increased $448,017,
or 97.9% (from $457,460 to $905,477) for the Quarter. This increase was
primarily as a result of a combination of the Company's decision to discontinue
the sale of national spot advertising and expand the inventory of advertising
hours for infomercial and direct response advertising and of selling available
radio spot airtime of which a portion was acquired in 1999.
Affiliate revenues decreased by $115,755, or 9.9% (from $1,163,555 to
$1,047,800) for the Period and decreased by $118,845, or 19.3% (from $615,340 to
$496,495) for the Quarter. This was primarily as a result of renegotiated
contracts of affiliate customers who had dropped the service. The length of each
affiliate contract varies, but generally ranges from three to five years.
Certain of Nostalgia's affiliate contracts have expired and carriage currently
is provided on a month-to-month basis. Many of these affiliates have declined to
enter into new contracts until their plans for channel expansion are completed.
As a result of intense competition among cable networks for this reduced number
of channels, Nostalgia's per subscriber fees from affiliates may decline.
The Company believes that baby boomer and older adults are a valuable market,
which currently is not being served by any other network. Government statistics
show that this demographic is the fastest growing demographic segment and will
account for 30% of the population in 2000. As the technological front continues
to change, the Company believes its best approach is to further brand and build
consumer awareness of the Network. In furtherance of this goal, the Company is
actively pursuing development of new original programming specifically targeted
to boomers and over which will be unique to the Network. The Company believes
that investment in the Network's programming and consumer awareness will provide
a greater long-term benefit than diverting funds for short-term launch
opportunities.
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Operating expenses decreased $1,106,371, or 10.5% (from $10,481,101 to
$9,374,730) for the Period and decreased by $473,579, or 10.2% (from $5,109,332
to $4,635,753) for the Quarter. The decrease for the Period was primarily a
result of a decrease of $135,922, or 5.3% (from $2,551,635 to $2,415,713) in
programming, production and transmission costs, a decrease in sales and
marketing costs of $706,729, or 38.7% (from $1,824,300 to $1,117,571), a
decrease in finance, general and administrative costs of $71,259, or 3.8%, (from
$1,864,104 to $1,792,845). The decrease for the Quarter was primarily the result
of a decrease in programming, production and transmission costs of $115,698, or
8.6% (from $1,350,128 to $1,234,430), a decrease in sales and marketing costs of
$241,204, or 28.9% (from $834,633 to $593,429), offset by an increase in
finance, general and administrative costs of $114,765, or 14.3% (from $802,528
to $917,293).
Programming, production and transmission costs, net of $4,048,601 and $1,890,601
in programming amortization costs for the Period and the Quarter decreased by
$135,922, or 5.3% (from $2,551,635 to $2,415,713) for the Period and decreased
by $115,698, or 8.6% (from $1,350,129 to $1,234,430) for the Quarter. The
decrease was a result of a decrease in programming costs of $255,029, or 38.8%
(from $657,298 to $402,269) for the Period, and a decrease of $201,801 or 50.3%
(from $401,063 to $199,262) for the Quarter, a decrease in production and
traffic costs of $27,125, or 10.9% (from $248,175 to $221,050) for the Period,
and a decrease of $15,785, or 12.9% (from $122,043 to $106,258) for the Quarter.
These decreases were offset by an increase in transmission costs of $146,232, or
8.9% (from $1,646,162 to $1,792,394) for the Period, and an increase of
$101,903, or 12.3% (from $827,023 to $928,926) for the Quarter. Programming
amortization costs decreased by $192,461 or 4.5% (from $4,241,062 to $4,048,601)
for the Period and decreased $231,441 or 10.9% (from $2,122,042 to $1,890,601)
for the Quarter primarily as a result of timing changes in the Network's
original production schedule and programming contracts. The Company expects to
incur increases in future programming and studio production costs as a
consequence of upgrading the Network's programming and the creation of new
original programs. These additional future expenditures will impact adversely
the Company's results of operations in the short-term, but management believes
they are critical to the Company's long-term survival and growth.
The Company continues its schedule of new and original productions in 2000,
including the following programs: GTV DanceSport, which spotlights a rapidly
growing trend in America, ballroom and performance dancing which is slated to
become a recognized Olympic sport; American Couples, hosted by esteemed
television journalist Nancy Glass, an hour long show celebrating 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 hosted by Nancy Glass, a unique series
juxtaposing members of contemporary families against the classic TV families of
The Adventures of Ozzie and Harriet and Make Room for Daddy and references how
today's parents and children deal with age-old issues confronting Ozzie Nelson
and Danny Thomas; Flea Market Movie, with collectibles aficionado, Christopher
Kent, appraising viewer's attic treasures during movie breaks; The Cookbook Show
which features the Network's Flea Market Movie host, Christopher
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Kent, who also is an accomplished chef, preparing dishes from famous cookbooks;
More Money with the Dolans, staring Ken and Daria Dolan, the "first family of
finance," which provides an entertaining program on money issues; The Bull and
the Bear, featuring 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.
Sales and marketing expenses decreased by $706,729, or 38.7% (from $1,824,300 to
$1,117,571) for the Period and decreased $241,204, or 28.9% (from $834,633 to
$593,429) for the Quarter. Salaries, taxes and benefits decreased by $200,108,
or 29.2% (from $686,269 to $486,161) for the Period and decreased by $20,160, or
6.7% (from $302,822 to $282,662) for the Quarter. Travel & entertainment
decreased by $6,777, or 8.3% (from $81,326 to $74,549 for the Period and
increased by $6,065, or 19.4% (from $31,271 to $37,336) for the Quarter. Other
employee costs decreased by $29,306, or 99.8% (from $29,365 to $59) for the
Period and decreased $17,994, or 100.0% (from $17,994 to $0) for the Quarter.
These decreases were due primarily to the departure of personnel that have not
been replaced. Convention expenses decreased by $10,385, or 30.9% (from $33,571
to $23,186) for the Period and decreased by $3,923, or 19.4% (from $20,184 to
$16,261) for the Quarter as a result of reduced expenditures. Sales and
marketing materials decreased by $38,490, or 72.7% (from $52,904 to $14,414) for
the Period and decreased by $32,713, or 71.0% (from $46,050 to $13,337) for the
Quarter. Marketing allowance decreased by $139,160, or 64.8% (from $214,892 to
$75,732) for the Period and decreased by $46,845, or 73.3% (from $63,861 to
$17,016) for the Quarter. Program guides decreased by $64,013, or 46.0% (from
$139,138 to $75,125) for the Period and decreased $15,248, or 28.9% (from
$52,748 to $37,500) for the Quarter. These decreases were offset partially by
increases in advertising expenditures of $56,410, or 75.9% (from $74,289 to
$130,699 for the Period and increased by $40,402, or 66.6% (from $60,651 to
$101,053) for the Quarter as a result of the Company's efforts to build consumer
awareness of the Network.
Finance, general and administrative costs decreased by $71,259, or 3.8% (from
$1,864,104 to $1,792,845) for the Period and increased by $110,826, or 13.8%
(from $802,528 to $913,354 for the Quarter. The decrease was a result of a
decrease in transactional expenses of $117,551, or 44.1% (from $266,123 to
$148,572) for the Period and $10,690, or 14.7% (from $72,361 to $61,671) for the
Quarter, which was offset by an increase in salaries, taxes and benefits
$51,316, or 9.8% (from $524,130 to $575,446) for the Period and an increase of
$11,975, or 4.4% (from $270,272 to $282,247) for the Quarter as a result
increases in salaries. Legal and professional fees increased by $44,425, or
16.8% (from $264,726 to $309,151) for the Period and increased by $102,125, or
92.5% (from $110,368 to $212,493) for the Quarter primarily as a result of
increased audit and litigation expenses.
As a result of increased revenues ($379,450), decreased programming, production
and transmission costs ($135,922), decreased programming amortization costs
($192,461), decreased sales and marketing costs ($706,729), decreased finance,
general and administrative costs
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($71,259), the Company's loss from operations decreased $1,485,821, or 19.1%
(from $7,771,210 to $6,285,389) for the Period. As a result of increased
revenues of ($134,489), decreased programming, production and transmission costs
($115,698), decreased programming amortization costs ($231,441), decreased sales
and marketing costs ($241,204), offset by increased finance, general and
administrative costs ($114,764), the Company's loss from operations decreased
$608,068, or 16.2% (from $3,739,076 to $3,131,008), for the Quarter.
Other expenses increased $945,697 or 32.8% (from $2,883,271 to $3,828,968) for
the Period and $454,219, or 29.4% (from $1,542,965 to $1,997,184) for the
Quarter, primarily as a result of interest on outstanding debt.
Liquidity and Capital Resources
Cash increased from $674,177 at December 31, 1999 to $1,018,593 at June 30,
2000, principally due to $7,500,000 in financing received in the Period, offset
by cash outlays to cover operating losses and repayments of certain debts.
Working capital decreased from $1,952,296 at December 31, 1999 to $1,267,027 at
June 30, 2000, principally as a result of a decrease in programming and
cablecast rights. Cablecast rights have decreased by $2,342,384, or 23.2% since
year-end as a result of amortization of the Network's investment in its
primetime line-up. Total liabilities increased primarily due to $7,500,000 in
additional financing.
Cash used in operating activities decreased $1,883,912, or 40.8% from
($4,622,983 to $2,739,071) for the Period compared to the same period during
1999, principally as a result of decreases in accounts payable, improved
collections on accounts receivable and reduced overall expenditures primarily in
sales and marketing as a result of reductions in staff due to consolidation.
Cash used in investing activities increased $546,238, or 46.2% (from $1,182,977
to $1,729,215) due principally to increases in programming and cablecast rights
of $572,901.
Cash flows from financing activities decreased $2,835,057, or 37.1% (from
$7,647,759 to $4,812,702) due principally to decreased financing of $2,500,000,
or 25.0% (from $10,000,000 to $7,500,000) and offset by an increase in repayment
of long-term obligations of $335,057, or 14.2% (from $2,352,241 to $2,687,298).
In light of the Company's recurring losses, management is actively monitoring
expenses and examining operating methods to increase efficiencies. These
measures may provide short-term improvement, but do not address the more
critical long-term growth needs for the Network. In order to grow, the Network
needs to increase its affiliate base which, in turn, will increase the
subscriber base and should allow the Network to increase its advertising rates
as well as affiliate revenues. To provide for necessary future growth,
management continues its focus on aggressive affiliate marketing, including
consumer awareness advertising and events, prominent presence at major trade
shows and new trade advertising.
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Since 1990, Crown and Concept have been the principal sources of the Company's
capital. Crown and Concept have invested $2,300,000 and provided $85,781,000 in
financing since 1994, including $15,000,000 loaned by Crown to the Company in
1999. Additionally, between January 1, 2000 and August 4, 2000, Crown has
provided $8,750,000 in debt financing to the Company and has committed to
advance, as needed, an additional $6,250,000 in debt or equity financing during
the balance of the calendar year. The Company believes that these funds will be
sufficient to satisfy its operating needs for 2000. In connection with the
borrowings, the Company has entered into a security agreement pledging
substantially all the Company's assets as security for its indebtedness to Crown
and Concept.
In October 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 of common stock and
constitute a going-private transaction within the meaning of Section 13(e)(3) of
the Exchange Act. Crown and Concept, which is majority-owned by Crown, in the
aggregate are the beneficial owners of 70.3% of the Company's issued and
outstanding shares of common stock.
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, the approval of the
Company's stockholders. Crown has indicated that it and its affiliates will vote
in favor of the merger.
In January 2000, Crown and Concept transferred their respective shares of the
Company's common stock and preferred stock to NNI Acquisition Corporation, a
Delaware corporation ("Acquisition"), which was formed to facilitate the merger.
Crown and Concept retain beneficial control of the transferred shares, as
Acquisition is wholly owned by Crown and Concept.
It is anticipated that following the merger the business and operations of the
Company will be continued substantially as currently conducted for the immediate
future, including continuing the Company's analysis of and efforts to seek a
strategic alliance. The Company has had contact with several possible strategic
partners, but no serious discussions have occurred. There can be no assurance
that the Company will be able to obtain a strategic partner, or that any
strategic partner will be willing to invest the sums required by the Company in
order to continue to grow the Network's subscriber base. Crown and Concept have
informed the Company that they intend to reevaluate the business and operations
of the Company following the merger and take such actions with respect to the
future business and operations of the Company as they deem appropriate. Although
there are no definitive plans or agreements in place, Crown and Concept may
cause the Company to enter into joint venture or other agreements with other
business entities after the merger.
12
<PAGE> 13
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 that the Company will be able to locate sufficient financing in excess
of that committed from Crown, nor that it will be able to achieve a strategic
alliance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. None.
13
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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. None
14
<PAGE> 15
ITEM 6. EXHIBIT AND REPORT ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
27 Financial Data Schedule as required by Item 601 (c) of Regulation S-K
</TABLE>
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 04, 2000
THE NOSTALGIA NETWORK, INC.
By: /s/ SQuire D. Rushnell
------------------------------------
SQuire D. Rushnell, President and
Chief Executive Officer
By: /s/ Diane Fuller
------------------------------------
Diane C. Fuller, Chief Financial Officer
and Treasurer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- --------
<S> <C> <C>
27 Financial Data Schedule as required by Item 601 (c) of Regulation S-K 17
</TABLE>
16
