UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2008

o 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: 000-17287

Outdoor Channel Holdings, Inc.

(Exact name of Registrant as specified in its charter)

Delaware
(State or other Jurisdiction
of incorporation or organization) 33-0074499
(IRS Employer Identification Number)

43445 Business Park Drive, Suite 103
Temecula, California 92590

(Address and zip code of principal executive offices)

(951) 699-6991
(Issuer’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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. þ Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes   þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class	Number of Shares Outstanding at May 7, 2008
Common Stock, $0.001 par value		27,174,157

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q
For The Period Ended March 31, 2008

Table of Contents

	Part I. Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007	3
	Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007	4
	Unaudited Condensed Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 2008	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
	Part II. Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 5.	Other Information	36
Item 6.	Exhibits	36
Signatures		37
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

* * *

2

PART I—FINANCIAL INFORMATION

ITEM 1. Financial Statements.

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except per share data)

	March 31,			December 31,
	2008			2007
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	39,397		$	25,260
Investments in available-for-sale securities		27,449			46,155
Accounts receivable, net of allowance for doubtful accounts of $679 and $240		8,076			8,299
Income tax refund receivable		229			224
Deferred tax assets, net		705			705
Prepaid programming costs		3,176			3,522
Other current assets		2,108			1,175
Total current assets		81,140			85,340
Property, plant and equipment, net		11,263			11,632
Amortizable intangible assets, net		225			313
Goodwill		43,160			43,160
Investments in auction-rate securities		5,115			—
Deferred tax assets, net		9,605			9,326
Deposits and other assets		1,870			1,930
Totals	$	152,378		$	151,701
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	4,951		$	4,158
Accrued severance payments		75			257
Deferred revenue		192			261
Current portion of deferred obligations		179			143
Customer deposits		12			14
Total current liabilities		5,409			4,833
Accrued severance payments, net of current portion		17			22
Deferred obligations		248			269
Total liabilities		5,674			5,124
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 25,000 shares authorized; none issued		—			—
Common stock, $0.001 par value; 75,000 shares authorized; 27,170 and 26,870 shares issued and outstanding		27			27
Additional paid-in capital		176,418			175,570
Accumulated other comprehensive income (loss)		1			(59	)
Accumulated deficit		(29,742	)		(28,961	)
Total stockholders’ equity		146,704			146,577
Totals	$	152,378		$	151,701

See Notes to Unaudited Condensed Consolidated Financial Statements.

3

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)

	Three Months Ended
	March 31,
	2008			2007
Revenues:
Advertising	$	7,631		$	6,357
Subscriber fees		4,049			4,749
Total revenues		11,680			11,106
Cost of services:
Programming		1,923			1,471
Satellite transmission fees		626			596
Production and operations		1,861			1,370
Other direct costs		97			38
Total costs of services		4,507			3,475
Other expenses:
Advertising		538			714
Selling, general and administrative		7,617			8,200
Depreciation and amortization		615			649
Total other expenses		8,770			9,563
Loss from operations		(1,597	)		(1,932	)
Interest and other income, net		538			703
Loss from continuing operations before income taxes		(1,059	)		(1,229	)
Income tax benefit		(278	)		(466	)
Loss from continuing operations		(781	)		(763	)
Income from discontinued operations, net of tax		—			36
Net loss	$	(781	)	$	(727	)
Basic earnings (loss) per common share data:
From continuing operations	$	(0.03	)	$	(0.03	)
From discontinued operations	$	—		$	—
Basic earnings per common share	$	(0.03	)	$	(0.03	)
Diluted earnings (loss) per common share data:
From continuing operations	$	(0.03	)	$	(0.03	)
From discontinued operations	$	—		$	—
Diluted earnings per common share	$	(0.03	)	$	(0.03	)
Weighted average number of common shares outstanding:
Basic		26,133			25,272
Diluted		26,133			25,272

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statement of Stockholders’ Equity
For the Three Months Ended March 31, 2008
(In thousands)

						Additional			Accumulated Other
	Common Stock					Paid-in			Comprehensive			Accumulated
	Shares			Amount		Capital			Income (Loss)			Deficit			Total
Balance, December 31, 2007		26,870		$	27	$	175,570		$	(59	)	$	(28,961	)	$	146,577
Comprehensive income:
Net loss		—			—		—			—			(781	)		(781	)
Change in fair value of available-for-sale securities, net of taxes of $31		—			—		—			60			—			60
Total comprehensive loss		—			—		—			—			—			(721	)
Issuance of restricted stock and performance shares to employees and service providers for services to be rendered, net of forfeited shares		309			—		—			—			—			—
Share-based employee and service provider compensation expense		—			—		912			—			—			912
Purchase and retirement of treasury stock related to employee and service provider share-based compensation activity		(9	)		—		(64	)		—			—			(64	)
Balance, March 31, 2008		27,170		$	27	$	176,418		$	1		$	(29,742	)	$	146,704

See Notes to Unaudited Condensed Consolidated Financial Statements.

5

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)

	Three Months Ended
	March 31,
	2008			2007
Operating activities:
Net loss	$	(781	)	$	(727	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Income from discontinued operations		—			(36	)
Depreciation and amortization		615			649
Amortization of subscriber acquisition fees		122			116
Gain on sale of equipment		(5	)		—
Loss on sale of available-for-sale securities		44			—
Other-than-temporary impairment on auction-rate securities		260			—
Provision for doubtful accounts		277			55
Share-based employee and service provider compensation		912			3,780
Deferred tax provision (benefit), net		(279	)		(446	)
Changes in operating assets and liabilities:
Accounts receivable		(54	)		(33	)
Income tax refund receivable		(5	)		2,077
Prepaid programming costs		346			247
Other current assets		(933	)		40
Deposits and other assets		(62	)		(185	)
Accounts payable and accrued expenses		933			530
Deferred revenue		(69	)		(79	)
Customer deposits		(2	)		(41	)
Accrued severance payments		(187	)		(60	)
Deferred obligations		15			(9	)
Net cash provided by operating activities		1,147			5,878
Investing activities:
Purchases of property, plant and equipment		(308	)		(217	)
Proceeds from sale of equipment		15			—
Purchases of available-for-sale securities		(27,176	)		(16,726	)
Proceeds from sale of available-for-sale securities		40,523			27,280
Net cash provided by investing activities		13,054			10,337
Financing activities:
Proceeds from exercise of stock options		—			446
Purchase of treasury stock		(64	)		(167	)
Net cash (used in) provided by financing activities		(64	)		279
Cash flows from discontinued operations:
Net cash used in operating activities of discontinued operations		—			(247	)
Net cash used in investing activities of discontinued operations		—			—
Net cash used in financing activities of discontinued operations		—			—
Net cash used in discontinued operations		—			(247	)
Net increase in cash and cash equivalents		14,137			16,247
Cash and cash equivalents, beginning of period		25,260			14,226
Cash and cash equivalents, end of period	$	39,397		$	30,473
Supplemental disclosure of cash flow information:
Income taxes paid	$	5		$	1
Supplemental disclosures of non-cash investing and financing activities:
Effect of net increase (decrease) in fair value of available-for-sale securities, net of deferred taxes	$	60		$	(1	)
Property, plant and equipment costs incurred but not paid	$	30		$	96
Retirement of treasury stock	$	(64	)	$	167

See Notes to Unaudited Condensed Consolidated Financial Statements.

6

OUTDOOR CHANNEL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except per share data)

NOTE 1—ORGANIZATION AND BUSINESS

Description of Operations

Outdoor Channel Holdings, Inc. (“Outdoor Channel Holdings”) is incorporated under the laws of the State of Delaware. Collectively, with its subsidiaries, the terms “we,” “us,” “our” and the “Company” refer to Outdoor Channel Holdings, Inc. as a consolidated entity, except where noted or where the context makes clear the reference is only to Outdoor Channel Holdings, Inc. or one of our subsidiaries. Gold Prospector’s Association of America, LLC. and LDMA-AU, Inc., which previously made up our Membership Division, were sold in April 2007 (see Note 10). Outdoor Channel Holdings, Inc. wholly owns Gold Prospector’s Association of America, Inc. (“GPAA”) which in turn wholly owns The Outdoor Channel, Inc. (“TOC”). Outdoor Channel Holdings is also the sole member of 43455 BPD, LLC the entity that owns the building that houses our broadcast facility. TOC operates Outdoor Channel, which is a national television network devoted to traditional outdoor activities, such as hunting, fishing and shooting sports, as well as off-road motor sports and other related lifestyle programming.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2008 and its results of operations and cash flows for the three months ended March 31, 2008 and 2007. Pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from these financial statements. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the dates of the condensed consolidated balance sheets and reported amounts of revenues and expenses for the periods presented. Accordingly, actual results could materially differ from those estimates.

Our revenues include advertising fees from advertisements aired on Outdoor Channel, including fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel, subscriber fees paid by cable and satellite service providers that air Outdoor Channel.

NOTE 2—STOCK INCENTIVE PLANS

We account for share-based compensation in accordance with Statement of Financial Accounting Standards No. 123 (R) “Share-Based Payments” (“SFAS 123R”) which requires the measurement and recognition of compensation expense to be recognized in the financial statements over the service period for the fair value of all awards granted after the date of adoption as well as for existing awards for which the requisite service had not been rendered as of the date of adoption. Our stock incentive plans provide for the granting of qualified and nonqualified options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights (“SARs”) and performance units to our officers, directors and employees. Outstanding options generally vest over a period from 90 days to four years after the date of the grant and expire no more than ten years after the grant. We satisfy the exercise of options and awards of restricted stock by issuing previously unissued common shares. Currently we have not awarded any RSUs or SARs but have awarded performance units.

We have three stock option plans: 1995 Stock Option Plan (“1995 Plan”), 2004 Long-Term Incentive Plan (“LTIP Plan”) and Non-Employee Director Stock Option Plan (“NEDSOP”). No more options can be issued under the 1995 or NEDSOP Plans. We also may grant stock options that are not covered under any of the stock option plans, with appropriate shareholder approvals. Options and stock grants are subject to terms and conditions as determined by our Board of Directors. Stock option grants are generally exercisable in increments of 25% during each year of employment beginning three months to one year from the date of grant. Generally, stock options expire five years from the date of grant. Options issued under our NEDSOP Plan are generally exercisable 40% after the first 3 months of service and 20% on the first anniversary of appointment and each anniversary thereafter until 100% are vested. These options generally have 10 year lives.

7

Our Board of Directors has discretion to allow our employees to forego shares in lieu of paying requisite withholding taxes on vested restricted shares. In turn, we remit to the appropriate taxing authorities the U.S. Federal and state withholding on the total compensation the employees have realized as a result of the vesting of these shares. During the three months ended March 31, 2008, approximately 9 shares were repurchased with a market value of approximately $64.

1995 Stock Option Plan (“1995 Plan”). There are 1,250,000 shares of common stock reserved for issuance under the 1995 Plan. Options granted under the 1995 Plan typically expire 5 years from the date of grant. These options generally vest equally over four years beginning three months to one year from the grant date. As of March 31, 2008, options to purchase 64,375 shares of common stock were outstanding and no further option grants can be issued under this plan.

2004 Long-Term Incentive Plan (“LTIP Plan”). During 2005 through March 31, 2008, all options to purchase common stock, restricted stock awards, and performance units to our employees, service providers, and Board of Directors were issued under the LTIP Plan. Options granted under the LTIP Plan expire five years from the date of grant and typically vest equally over four years. Restricted stock awards granted under the LTIP plan do not expire, but are surrendered upon termination of employment if unvested. These awards generally vest over three to five years, however, some awards vest monthly. Performance units vest based upon criteria established at the time of grant. Options or awards that are surrendered or cease to be exercisable continue to be available for future grant under the LTIP Plan. There are 3,250,000 shares of common stock reserved for issuance under the LTIP Plan. As of March 31, 2008, options to purchase 605,000 shares of common stock, 977,387 restricted shares, and 700,000 performance unit shares were outstanding. There were 688,803 shares of common stock available for future grant as of March 31, 2008.

Non-Employee Director Stock Option Plan (“NEDSOP”). Under the NEDSOP, nonqualified stock options to purchase common stock were granted to three prior non-employee directors during periods of their appointment and to two of our current non-employee directors. Options granted under the NEDSOP expire 10 years from the date of grant. These grants are generally exercisable 40% after the first 3 months of service and 20% on the first anniversary of appointment and each anniversary thereafter until 100% vested. If an option is surrendered or ceases to be exercisable, the shares continue to be available for future grant. The NEDSOP has 1,000,000 shares of common stock reserved for issuance. As of March 31, 2008, options to purchase 250,000 shares of common stock were outstanding and no further option grants can be issued under this plan.

Other or Outside of Plan Option stock grants can be granted that are not covered under any of the stock option plans with appropriate shareholder approval. There are 462,500 shares of nonqualified stock options to purchase common stock authorized. Options granted outside of the other plans generally vest on a quarterly or annual basis and expire 5 years from the date of the grant. As of March 31, 2008, options to purchase 462,500 shares of common stock were outstanding.

We expense awards at the earliest of their vesting schedule or pro rata on a straight line basis over the requisite service period and have not capitalized any share-based compensation to any of our assets.

Under SFAS 123R, the fair value of the shares and options, adjusted for a forfeiture assumption, at the respective dates of grant (which represents deferred compensation not required to be recorded initially in the consolidated balance sheet) will be amortized to share-based compensation expense as the rights to the restricted stock and options vest with an equivalent amount added to additional paid-in capital. Changes to forfeiture assumptions are based on actual experience and are recorded in accordance with the rules related to accounting for changes in estimates. For the service providers, however, the future charge will be recognized in accordance with EITF 96-18 and, except for the performance shares, will be remeasured to reflect the fair market value at the end of each reporting period until the shares vest when the related charge will be remeasured for the final time. Restricted shares issued to service providers that vest upon specific performance have been excluded from compensation expense recognition until and if such shares vest upon achievement of the performance goals.

The following tables summarize share-based compensation expense for the three months ended March 31, 2008 and 2007:

	Three Months Ended
	March 31,
	2008		2007
Nature of Award:
Restricted stock	$	809	$	235
Options		103		695
Performance units		—		2,850
Total share-based compensation expense	$	912	$	3,780

8

	Three Months Ended
	March 31,
	2008		2007
Classification of Compensation Expense:
Cost of services:
Production and operations	$	98	$	(9	)
Other expenses:
Selling, general and administrative		814		3,789
Total share-based compensation expense	$	912	$	3,780

During the three months ended March 31, 2008 one employee transitioned to being an independent service provider. As of the transition date, the fair value of these stock options was estimated to be $0.12 per share. No options were issued during the three months ended March 31, 2008. The estimated values were derived by using the Black-Scholes option pricing model with the following assumptions:

	Three Months Ended
	March 31,
	2008	2007
Risk-free interest rate	1.4 — 2.3%	4.9 — 5.0%
Dividend yield	0.0%	0.0%
Expected life of the option	0.2 — 0.3 years	0.8 years
Volatility factor	50.0 — 52.6%	39.2 — 39.5%
Weighted average volatility factor	51.3%	39.4%

The risk-free rate is based on the U.S. Treasury rate with a maturity date corresponding to the options’ expected life. We have not paid dividends in the past and do not plan to pay any dividends in the future.

Issuances of Common Stock by the Company

For the three months ended March 31, 2008 and 2007, we received cash from the exercise of options as follows:

	Three Months Ended
	March 31,
	2008		2007
Number of options exercised		—		332
Cash proceeds	$	—	$	446
Tax benefit from options exercised	$	—	$	692

During the three months ended March 31, 2008, we issued to employees 316 shares of restricted stock while 7 shares of restricted stock have been canceled due to employee turnover.

Stock Options

A summary of the status of the options granted under the Company’s stock option plans and outside of those plans as of March 31, 2008 and the changes in options outstanding during the three months then ended is as follows:

9

						Weighted
				Weighted		Average
				Average		Remaining
				Exercise		Contractual		Aggregate
Options	Shares			Price		Term (Yrs.)		Intrinsic Value
	(in thousands)							(in thousands)
Outstanding at beginning of period		1,442		$	12.48
Granted		—			—
Exercised		—			—
Forfeited		—			—
Expired		(60	)		14.50
Outstanding at end of period		1,382		$	12.39		2.59	$	2
Vested or expected to vest at end of period		1,364		$	12.39		2.59	$	2
Exercisable at end of period		1,254		$	12.31		2.50	$	2

Additional information regarding options outstanding for all plans as of March 31, 2008, is as follows:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Term (Yrs.)		Price		Exercisable		Price
	(In thousands)						(In thousands)
$6.14 — $10.19		12		2.55	$	9.55		4	$	8.45
$11.60 — $11.60		500		0.62		11.60		500		11.60
$12.10 — $12.10		300		3.55		12.10		300		12.10
$12.11 — $12.80		345		5.04		12.56		285		12.61
$13.90 — $14.95		200		2.04		14.27		142		14.19
$15.75 — $15.75		25		1.19		15.75		23		15.75
Total		1,382		2.59	$	12.39		1,254	$	12.31

There were no options granted during the three months ended March 31, 2008 or 2007. The aggregate intrinsic value of options exercised during the three months ended March 31, 2007 was $3,204.

The total fair value of options to purchase common stock that vested during the three months ended March 31, 2008 and 2007 was $213 and $1,248, respectively.

Restricted Stock

A summary of the status of Outdoor Channel Holdings’ nonvested restricted shares as of March 31, 2008 and the changes in restricted shares outstanding during the three months then ended is presented as follows:

	As of March 31, 2008
				Weighted
				Average
				Grant-Date
	Shares			Fair Value
	(in thousands)
Nonvested at beginning of period		697		$	10.25
Granted		316			7.23
Vested		(29	)		11.99
Forfeited		(7	)		9.61
Nonvested at end of period		977		$	9.23

The fair value of nonvested shares for grants made during open market hours is determined based on the closing trading price of our shares on the trading day immediately prior to the grant date. The fair value of nonvested shares for grants made after the market closes is determined based on the closing trading price of our shares on the grant date.

10

Expense to be Recognized

Expense associated with our stock based compensation plans yet to be recognized as compensation expense over the employees’ remaining requisite service periods as of March 31, 2008 are as follows:

	March 31, 2008
			Weighted Average
	Expense Yet		Remaining
	to be		Requisite Service
	Recognized		Periods
Stock options	$	853	1.6 years
Restricted stock		7,362	3.2 years
Performance units		—		—
Total	$	8,215	3.1 years

NOTE 3—EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per common share reflects the potential dilution of securities by including common stock equivalents, such as stock options and performance units in the weighted average number of common shares outstanding for a period, if dilutive.

The following table sets forth a reconciliation of the basic and diluted number of weighted average shares outstanding used in the calculation of earnings (loss) per share for the three months ended March 31:

	2008		2007
Weighted average shares used to calculate basic earnings (loss) per share		26,133		25,272
Dilutive effect of potentially issuable common shares upon exercise of dilutive stock options and performance units		—		—
Weighted average shares used to calculate diluted earnings (loss) per share		26,133		25,272

As of March 31, 2008 and 2007 outstanding options and performance units to purchase a total of 2,100 and 2,435 shares of common stock, respectively, were not included in the calculation of diluted earnings per share because their effect was antidilutive.

NOTE 4—INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES

We adopted the provisions of SFAS 157, Fair Value Measurements, as of January 1, 2008. Under SFAS 157, fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, SFAS 157 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels. These levels, in order of highest priority to lowest priority, are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs developed using estimates and assumptions developed by management, which reflect those that a market participant would use.

11

We measure available-for-sale securities at fair value on a recurring basis. The fair values of these securities were determined using the following inputs at March 31, 2008:

			Fair Value Measurements at March 31, 2008 using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Investment securities:
Auction-rate securities	$	20,751	$	—	$	20,751	$	—
Corporate debt securities		6,698		—		6,698		—
Auction-rate securities, non-current		5,115		—		—		5,115
Total investment securities	$	32,564	$	—	$	27,449	$	5,115

As of March 31, 2008, we held $25,866 (net of other-than-temporary impairment of $260) of principal invested in auction-rate securities. Auction-rate securities are investment vehicles with long-term or perpetual maturities which pay interest monthly at current market rates reset through a Dutch auction. These monthly auctions have historically provided a liquid market for these securities, and we have therefore presented our auction-rate securities as current assets. Beginning in February 2008, the majority of auctions for these types of securities failed due to the recent liquidity issues experienced in global credit and capital markets. Our auction-rate securities followed this trend and experienced multiple failed auctions due to insufficient investor demand. As there is currently a limited secondary market for auction-rate securities, we have been unable to convert all of our positions to cash. We do not anticipate being in a position to liquidate all of these investments until there is a successful auction or the security issuer redeems the security, and accordingly, have reflected a portion of our investments in auction-rate securities as non-current assets on our balance sheet. Our auction-rate security investments continue to pay interest according to their stated terms, are fully collateralized by underlying financial instruments (primarily closed end preferred and municipalities) and have maintained AAA/AA credit ratings despite the failure of the auction process.

The fair values of our auction-rate securities as of March 31, 2008 were based on indicators in the marketplace, subsequent sales and recent trades of similar securities. The fair values of our corporate debt securities have remained unchanged since December 31, 2007. However, the fair values of certain auction-rate securities were measured using an evaluation model and analytical tools. Based on this analysis we recorded other-than-temporary impairment on auction-rate securities of $260 in interest and other income, net for the three months ended March 31, 2008. The inputs to the valuation model could no longer be corroborated by observable market data as of March 31, 2008; accordingly, these securities were transferred from Level 2 to Level 3 of the fair value hierarchy under SFAS 157. Unlike historical periods, significant inputs to our valuation model were based on certain assumptions, including an estimated amount of time that the auction-rate securities will return to liquidity, our ability to hold the auction-rate securities for the length of time that they are illiquid, and that we will be able to recover our original investment in the securities.

All other securities that were valued using significant other observable inputs were valued based on indicators in the marketplace, subsequent sales and recent trades of similar securities. The inputs were based on objective and publicly available information. These securities are presented as current assets on the balance sheet.

All of our assets measured at fair value on a recurring basis using significant Level 3 inputs as of March 31, 2008 were auction-rate securities. The following table summarizes our fair value measurements using significant Level 3 inputs, and changes therein, for the three month period ended March 31, 2008:

Balance as of December 31, 2007	$	—
Transfers into Level 3		5,375
Other-than-temporary impairment		(260	)
Balance as of March 31, 2008	$	5,115

The Company continues to monitor the market for auction-rate securities and consider its impact (if any) on the fair value of its investments. If the current market conditions deteriorate further, or the anticipated recovery in fair values does not occur, the Company may be required to record additional impairment charges in future periods. As of May 8, 2008, the Company had investments in auction-rate securities totaling $16,115.

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We consider the yields we recognize from auction-rate securities and from cash held in our money market accounts to be interest income. Yields we recognize from our investments in equity securities we consider to be dividend income. Both are recorded in interest and other income, net for the three months ended March 31, 2008 and 2007 as follows:

	Three Months Ended
	March 31,
	2008			2007
Interest income	$	810		$	684
Dividend income		32			19
Loss on sale of equity securities		(44	)		—
Other-than-temporary impairment on auction-rate securities		(260	)		—
Total interest and other income, net	$	538		$	703

NOTE 5—GOODWILL AND INTANGIBLE ASSETS

Under the provisions of SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually or more frequently if impairment indicators arise. All of our other intangible assets are considered to have finite lives and are being amortized on a straight-line basis over their estimated useful lives.

Intangible assets that are subject to amortization under SFAS No. 142 consist of the following as of March 31, 2008:

	March 31, 2008
			Accumulated
	Gross		Amortization		Net
Advertising customer relationships	$	1,972	$	1,803	$	169
Trademark		219		163		56
Total intangible assets	$	2,191	$	1,966	$	225

As of March 31, 2008, the weighted average amortization period for the above intangibles is 4.4 years.

Based on our most recent analysis, we believe that no impairment exists at March 31, 2008 with respect to our goodwill and other intangible assets.

Estimated future amortization expense related to intangible assets at March 31, 2008 is as follows:

Years Ending December 31,	Amount
2008 (remaining 9 months)	$	180
2009		15
2010		15
2011		11
2012		4
Total	$	225

NOTE 6—LINES OF CREDIT

On October 2, 2007, the Board of Directors approved the renewal of the revolving line of credit agreement (the “Revolver”) with U.S. Bank N.A. (the “Bank”), extending the maturity date to September 5, 2009 and increasing the total amount which can be drawn upon under the Revolver from $8,000,000 to $10,000,000. The Revolver provides that the interest rate shall be LIBOR plus 1.25% payable monthly. The Revolver was previously collateralized by substantially all of our assets. The renewed Revolver is unsecured. This credit facility contains customary financial and other covenants and restrictions, as amended on September 21, 2007, including a change of control provision, some of which are defined with non-GAAP provisions including elimination of the effects of noncash share-based employee compensation expense. As of March 31, 2008, we did not have any amounts outstanding under this credit facility. This Revolver is guaranteed by TOC. We were not in compliance with our profitability covenant for the quarter ended March 31, 2008. However, on May 6, 2008 we obtained a waiver from the Bank of this covenant violation.

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NOTE 7—INCOME TAX PROVISION (BENEFIT)

The income tax benefit reflected in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2008 and 2007 is different than that computed based on the applicable statutory Federal income tax rate of 34% primarily due to state taxes and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m).

We file income tax returns in the United States and various state and local tax jurisdictions. We have net operating loss and credit carryforwards that will be subject to examination beyond the year in which they are ultimately utilized. Our policy is to record interest and penalties on uncertain tax positions as income tax expense.

NOTE 8—RELATED PARTY TRANSACTIONS

We lease our administrative facilities from Musk Ox Properties, LP, which in turn is owned by Messrs. Perry T. Massie, Chairman of the Board and Thomas H. Massie, both of whom are principal stockholders and directors of the Company. The lease agreement has a five-year term, expiring on December 31, 2010, with 2 renewal options (between 2 and 5 years) exercisable at our discretion. Monthly rent payments under this lease agreement were $29 with a 3% per year escalation clause. On April 24, 2007, in conjunction with the sale of the Membership Division, which resulted in our occupying less space, we have amended the lease and the monthly rent payment was reduced to $17 per month through the end of 2007 with a 3% per year escalation clause thereafter. We paid Musk Ox Properties, LP approximately $54 and $90 in the three months ended March 31, 2008 and 2007, respectively. We recognized rent expense related to this lease of $53 and $93 in the three months ended March 31, 2008 and 2007, respectively.

We have engaged Narrowstep, Inc. to assist us in developing our broadband capabilities. Roger L. Werner, Chief Executive Officer, is a shareholder and member of the board of directors of Narrowstep. During the three months ended March 31, 2008, we paid Narrowstep $21. We believe the terms of the contract reflect market rates for similar services.

On April 24, 2007, we sold the Membership Division to Thomas H. Massie, who is a principal stockholder and director of the Company (see Note 10).

NOTE 9—COMMITMENTS AND CONTINGENCIES

From time to time we are involved in litigation as both plaintiff and defendant arising in the ordinary course of business. In the opinion of management, the results of any pending litigation should not have a material adverse effect on our consolidated financial position or operating results.

We appointed Roger L. Werner, Jr. President of Outdoor Channel Holdings, Inc. and entered into an employment agreement (the “Agreement”) with him, which sets forth terms and provisions governing his employment as Chief Executive Officer and President. The Agreement has an initial term of three years beginning October 16, 2006, which will be automatically extended each year for an additional one year term unless the other party provides written notice of non-renewal at least 60 days prior to the date of automatic renewal. The Agreement may be terminated at any time by either party with or without cause. The agreement contains provisions for severance payments in the event that the Company terminates Mr. Werner’s employment without “Cause” (as defined in the Agreement) or Mr. Werner resigns for “Good Reason” (as also defined in the Agreement).

In February 2008, the Company entered into a Supplemental Compensation Agreement with its Chief Executive Officer, Mr. Roger L. Werner, providing for an increase in Mr. Werner’s base annual salary from $300 to $450, effective February 4, 2008, and an increase from $450, to $500, effective October 16, 2008. The Supplemental Compensation Agreement also provides for target annual incentive bonuses for Mr. Werner of not less than $225 and $250 for 2008 and 2009, respectively. In addition, under the terms of the Supplemental Compensation Agreement, Mr. Werner is eligible to receive up to $950 for the renewal of seven major affiliation agreements on commercially reasonable terms. Mr. Werner is also eligible to receive an incentive bonus for incremental growth of the Company’s subscriber base over the existing base as reported by all companies distributing the Outdoor Channel in their December 2007 reports as follows: $300 for each incremental increase of 1 million paying subscribers, or portion thereof, for up to 5 million incremental subscribers; $400 for each incremental increase of 1 million paying subscribers, or portion thereof, for between 5 million and 10 million incremental subscribers; and $500 for each incremental increase of 1 million paying subscribers, or portion thereof, for incremental subscribers in excess of 10 million, with no maximum amount. Further, Mr. Werner is entitled to receive a cash bonus of 5% of the annual increase in advertising revenue from continuing operations of Outdoor Channel compared to the prior year, for both 2008 and 2009. During the three months ended March 31, 2008, we have recognized $389 of expense related to Mr. Werner’s Supplemental Compensation Agreement.

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On March 14, 2008, the Company announced a stock repurchase plan to repurchase up to $10 million of its stock at specified prices. All repurchases under the plan shall be in accordance with Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program commenced April 15, 2008 and will cease upon the earlier of November 30, 2008 or completion of the program. As of May 8, 2008, 159 shares had been repurchased for $1,181.

Operating Leases

We lease facilities and equipment, including access to satellites for television transmission, under non-cancelable operating leases that expire at various dates through 2012. Generally, the most significant leases are satellite leases that require escalating rental payments. Rent expense is recognized on a straight-line basis over each lease term. The excess of the expense accrued over the amounts currently payable is reflected in deferred obligations in the accompanying consolidated balance sheets.

We lease our administrative facilities from Musk Ox Properties, LP, which in turn is owned by Messrs. Perry T. Massie, Chairman of the Board and Thomas H. Massie, both of whom are principal stockholders and directors of the Company. The lease agreement has a five-year term, expiring on December 31, 2010, with 2 renewal options (between 2 and 5 years) exercisable at our discretion. Monthly rental payments are $18 with a 3% per year escalation clause.

Rent expense, including rent paid to Musk Ox Properties, LP and satellite and transponder expense, aggregated to approximately $747 and $740 for the three months ended March 31, 2008 and 2007, respectively.

NOTE 10—DISCONTINUED OPERATIONS

In April 2007, our Board of Directors and management decided that the operations of the Membership Division, comprised of Gold Prospector’s Association of America, LLC and LDMA-AU, Inc., was no longer strategic to the core business of Outdoor Channel Holdings. We applied the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) to the Membership Division’s assets and liabilities classifying them as assets and liabilities of discontinued operations. The sale on April 24, 2007 of the Membership Division was for its net asset value and accordingly we have not adjusted its carrying value.

Prior to June 30, 2007, we had reported separate segment information in our filings for the operations of TOC and Membership Division in the same format as reviewed by our Chief Operating Decision Maker. Due to the discontinued operations of the Membership Division, we operate in a single segment.

The results of the Membership Division are as follows:

	Three Months Ended
	March 31,
	2008		2007
Membership Division revenue	$	—	$	1,269
Income from continuing operations		—		58
Income from discontinued operations, net of tax	$	—	$	36

NOTE 11—RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008, and will be adopted in the first quarter of fiscal 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 141R on its consolidated results of operations and financial condition.

In December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51” (“FAS 160”). FAS 160 clarifies the classification in a company’s consolidated balance sheet and the accounting for a disclosure of transactions between the company and holders of noncontrolling interest. FAS 160 is effective for the Company January 1, 2009. Early adoption is not permitted. The Company does not expect the adoption of FAS 160 to have a material impact on its consolidated financial statements.

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On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements, and has been partially deferred for non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The partial adoption of SFAS 157 for financial assets and liabilities did not have a material impact on our consolidated financial position, results of operations or cash flows. See Note 4 for the related disclosures regarding fair value measurement of our investments.

In addition, on January 1, 2008, we adopted Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). Under SFAS 159, companies may elect to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. We did not elect to use the fair value option. Therefore, the adoption of SFAS 159 did not impact our consolidated financial position, results of operations or cash flows.

NOTE 12—SUBSEQUENT EVENT

On April 9, 2008, the Company completed negotiations with its satellite service provider. The new agreement reduced the monthly usage fee from $150 to $85 and reduced the term of the agreement from 12 years to 7 years. These changes will become effective beginning June 2008.

* * *

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Safe Harbor Statement

The information contained in this report may include forward-looking statements. Our actual results could differ materially from those discussed in any forward-looking statements. The statements contained in this report that are not historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements, without limitation, regarding our expectations, beliefs, intentions or strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provisions contained in those sections. Such forward-looking statements relate to, among other things: (1) expected revenue and earnings growth and changes in mix; (2) anticipated expenses including advertising, programming, personnel and others; (3) Nielsen Media Research, which we refer to as Nielsen, estimates regarding total households and cable and satellite homes subscribing to and viewers (ratings) of The Outdoor Channel; and (4) other matters. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

These statements involve significant risks and uncertainties and are qualified by important factors that could cause our actual results to differ materially from those reflected by the forward-looking statements. Such factors include but are not limited to risks and uncertainties which are included in Part II, Item 1A Risk Factors below and other risks and uncertainties discussed elsewhere in this report. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-Q and in our other filings with the Securities and Exchange Commission. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements in Section 27A of the Securities Act and Section 21E of the Exchange Act.

General

Through our wholly owned subsidiary, The Outdoor Channel, Inc. or TOC, we own and operate Outdoor Channel which is a national television network devoted primarily to traditional outdoor activities, such as hunting, fishing and shooting sports, as well as off-road motor sports and other outdoor related lifestyle programming. TOC revenues include advertising fees from advertisements aired on Outdoor Channel and fees paid by third-party programmers to purchase advertising time in connection with the airing of their programs on Outdoor Channel and subscriber fees paid by cable and satellite service providers that air Outdoor Channel. Outdoor Channel Holdings also wholly owns 43455 BPD, LLC that owns the building housing our broadcast facility.

Until April 2007, we also owned and operated businesses we refer to as the “Membership Division”. These businesses include: LDMA-AU, Inc., which we refer to as Lost Dutchman’s, and Gold Prospector’s Association of America, LLC, which we refer to as GPAA. Lost Dutchman’s is a national gold prospecting campground club with properties in Arizona, California, Colorado, Georgia, Michigan, North Carolina, Oregon and South Carolina. Among other services offered, GPAA is the publisher of the Gold Prospector & Treasure Hunters in the Great Outdoors magazine. In addition, the Membership Division owns a 2,300 acre property near Nome, Alaska used to provide outings for a fee to the members of Lost Dutchman’s and GPAA. Membership fees are earned from members in both Lost Dutchman’s and GPAA and other income including magazine sales, products and services related to gold prospecting, gold expositions, expeditions and outings.

We consummated the sale of the Membership Division on April 24, 2007 (see Note 10—Discontinued Operations). We have disclosed the Membership Division as a discontinued operation in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Expenses previously allocated to the Membership Division which will continue after its disposition have been reallocated as appropriate.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments and assumptions. We believe that our estimates, judgments and assumptions made when accounting for items and matters such as customer retention patterns, allowance for bad debts, useful lives of assets, asset valuations including cash flow projections, recoverability of assets, potential unasserted claims under contractual obligations, income taxes, reserves and other provisions and contingencies are reasonable, based on information available at the time they are made. These estimates, judgments and assumptions can affect reported amounts of assets and liabilities as of the dates of the consolidated balance sheet and reported amount of revenues and expenses for the periods presented. Accordingly, actual results could materially differ from those estimates.

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We believe that the policies set forth below may involve a higher degree of judgment and complexity in their application than our other accounting policies and represent the critical accounting policies used in the preparation of our financial statements.

Subscriber Acquisition Fees

Subscriber acquisition fees are paid to obtain carriage on certain pay television distributors’ systems. Under certain of these agreements with pay television distributors, TOC is obligated to pay subscriber acquisition fees to the pay television distributors if they meet defined criteria for the provision of additional carriage for Outdoor Channel on the pay television distributors’ systems. Such costs are accrued when TOC receives appropriate documentation that the distributors have met the contractual criteria and have provided the additional carriage.

Subscriber acquisition fees included in other assets, are amortized over the contractual period that the pay television distributor is required to carry the newly acquired TOC subscriber, generally 3 to 5 years. The amortization is charged as a reduction of the subscriber fee revenue that the pay television distributor is obligated to pay us. If the amortization expense exceeds the subscriber fee revenue recognized on a per incremental subscriber basis, the excess amortization is included as a component of cost of services. We assess the recoverability of these costs periodically by comparing the net carrying amount of the subscriber acquisition fees to the estimates of future subscriber fees and advertising revenues. We also assess the recoverability when events such as changes in distributor relationships occur or other indicators suggest impairment.

Prepaid Programming Costs

We produce a portion of the programming we air on our channels in-house as opposed to acquiring the programming from third party producers. The cost of production is expensed when the show airs. As such, we have incurred costs for programming that is yet to air. These costs are accumulated on the balance sheet as “Prepaid programming costs.” Costs of specific shows will be charged to programming expense based on anticipated airings, when the program airs and the related advertising revenue is recognized. At the time it is determined that a program will not likely air, we charge to programming expense any remaining costs recorded in prepaid programming costs.

Revenue Recognition

We generate revenues through advertising fees from advertisements and infomercials aired on Outdoor Channel, fees paid by outside producers to purchase advertising time in connection with the airing of their programs on Outdoor Channel and from subscriber fees paid by cable and satellite service providers that air Outdoor Channel.

Advertising revenues are recognized when the advertisement is aired and the collectability of fees is reasonably assured. Subscriber fees are recognized in the period the programming is aired by the distributor.

Broadcast and national television network advertising contracts may guarantee the advertiser a minimum audience for its advertisements over the term of the contracts. We provide the advertiser with additional advertising time if we do not deliver the guaranteed audience size. The amount of additional advertising time is generally based upon the percentage of shortfall in audience size. This requires us to make estimates of the audience size that will be delivered throughout the terms of the contracts. We base our estimate of audience size on information provided by ratings services and our historical experience. If we determine we will not deliver the guaranteed audience, an accrual for “make-good” advertisements is recorded as a reduction of revenue. The estimated make-good accrual is adjusted throughout the terms of the advertising contracts. Revenues recognized do not exceed the total of the cash payments received and cash received in excess of revenue earned is recorded as deferred revenue.

We maintain an allowance for doubtful accounts for estimated losses that may arise if any of our customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness and trade publications regarding the financial health of our larger customers and changes in customer payment terms when making estimates of the uncollectability of our trade accounts receivable balances. If we determine that the financial condition of any of our customers deteriorated or improved, whether due to customer specific or general economic conditions, we make appropriate adjustments to the allowance.

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Valuation of Goodwill

We review goodwill for impairment annually and whenever events or changes in circumstance indicate the carrying value of an asset may not be recoverable in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. The provisions of SFAS No. 142 require that a two-step impairment test be performed on goodwill. In the first step, we compare the fair value of our only reporting unit to its carrying value. We determine the fair value of our reporting unit using the income approach. Under the income approach, we calculate the fair value based on the present value of estimated future cash flows. If the fair value of our reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and we are not required to perform further testing. If the carrying value of the net assets assigned to our reporting unit exceeds the fair value, then we must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we must record an impairment loss equal to the difference. Based on our most recent analysis, we believe that no impairment exists at March 31, 2008.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,” which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” FIN 48 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Stock Incentive Plans

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which requires us to record stock compensation expense for equity based awards granted, including stock options, for which expense will be recognized over the service period of the equity based award based on the fair value of the award, at the date of grant. SFAS 123R revises SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”.

We adopted the provisions of SFAS 123R using the modified prospective transition method. In accordance with this transition method, our consolidated financial statements for prior periods have not been restated to reflect the impact of SFAS 123R. Under the modified prospective transition method, share-based compensation expense for 2006 and 2007 includes compensation expense for all share-based compensation awards granted prior to, but for which the requisite service has not yet been performed as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123. Share-based compensation expense for all share-based compensation awards granted after December 31, 2005 is based on the grant date for fair value estimated in accordance with the provisions of SFAS 123R using the Black-Scholes option-pricing model (for stock options) or lattice models such as Monte Carlo simulation (for awards that vest based upon market conditions).

We account for stock options granted to non-employees using the fair value method. Compensation expense for options granted to non-employees has been determined in accordance with SFAS No. 123, Emerging Issues Task Force (“EITF”) No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF No. 00-18 “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees”, as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense for options granted to non-employees is periodically remeasured as the underlying options vest and is recorded as expense in the consolidated financial statements.

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Comparison of Operating Results for the Three Months Ended March 31, 2008 and March 31, 2007

The following table discloses certain financial information for the periods presented, expressed in terms of dollars, dollar change, percentage change and as a percent of total revenue (all dollar amounts are in thousands):

							Change						% of Total Revenue
	2008			2007			$			%			2008			2007
Revenues:
Advertising	$	7,631		$	6,357		$	1,274			20.0	%		65.3	%		57.2	%
Subscriber fees		4,049			4,749			(700	)		(14.7	)		34.7			42.8
Total revenues		11,680			11,106			574			5.2			100.0			100.0
Cost of services:
Programming		1,923			1,471			452			30.7			16.5			13.2
Satellite transmission fees		626			596			30			5.0			5.4			5.4
Production and operations		1,861			1,370			491			35.8			15.9			12.3
Other direct costs		97			38			59			155.3			0.8			0.3
Total cost of services		4,507			3,475			1,032			29.7			38.6			31.3
Other expenses:
Advertising		538			714			(176	)		(24.6	)		4.6			6.4
Selling, general and administrative		7,617			8,200			(583	)		(7.1	)		65.2			73.8
Depreciation and amortization		615			649			(34	)		(5.2	)		5.3			5.8
Total other expenses		8,770			9,563			(793	)		(8.3	)		75.1			86.1
Loss from operations		(1,597	)		(1,932	)		335			(17.3	)		(13.7	)		(17.4	)
Interest and other income, net		538			703			(165	)		(23.5	)		4.6			6.3
Loss from continuing operations before income taxes		(1,059	)		(1,229	)		170			(13.8	)		(9.1	)		(11.1	)
Income tax benefit		(278	)		(466	)		188			(40.3	)		(2.4	)		(4.2	)
Loss from continuing operations		(781	)		(763	)		(18	)		2.4			(6.7	)		(6.9	)
Income from discontinued operations, net of tax		—			36			(36	)		(100.0	)		—			0.3
Net loss	$	(781	)	$	(727	)	$	(54	)		7.4	%		(6.7	)%		(6.5	)%

(percentages may not add due to rounding)

Revenues

Our revenues include revenues from advertising fees and subscriber fees. Advertising revenue is generated from the sale of advertising time on Outdoor Channel including advertisements shown during a program (also known as short-form advertising) and infomercials in which the advertisement is the program itself (also known as long-form advertising). Advertising revenue is also generated from fees paid by third party programmers that purchase advertising time in connection with the airing of their programs on Outdoor Channel. Subscriber fees are generated from cable and satellite service providers who pay monthly subscriber fees to us for the right to broadcast our channel.

Results of Operations

Total revenues for the three months ended March 31, 2008 were $11,680,000, an increase of $574,000, or 5.2%, compared to revenues of $11,106,000 for the three months ended March 31, 2007. The net increases were the result of changes in several items comprising revenue as discussed below.

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Advertising revenue for the three months ended March 31, 2008 was $7,631,000, an increase of $1,274,000 or 20.0% compared to $6,357,000 for the three months ended March 31, 2007. For March 2008, Nielsen estimated that Outdoor Channel had 30.2 million viewers compared to 30.0 million for the same period a year ago. The increase in advertising revenue for the three months ended March 31, 2008 principally reflects an increase in the rates charged for short-form advertising as well as an increase in the time buy rates charged to producers. These increases were partially offset by lower infomercial revenues. We expect demand for our advertising inventory will continue to be strong reflecting our position within our programming genre and niche.

Nielsen revises its estimate of the number of subscribers to our channel each month, and for May 2008 Nielsen increased its estimate to 31.4 million subscribers. Nielsen is the leading provider of television audience measurement and advertising information services worldwide, and its estimates and methodology are generally accepted and used in the advertising industry. Although we realize Nielsen’s estimate is typically greater than the number of subscribers on which a network is paid by the service providers, we are currently experiencing a greater difference in these two different numbers of subscribers than we would expect. We anticipate this difference to decrease as we grow our total subscriber base. There can be no assurances that Nielsen will continue to report growth of its estimate of our subscribers and in fact at some point Nielsen might even report additional declines in our subscriber estimate. If that were to happen, we could suffer a reduction in advertising revenue.

Subscriber fees for the three months ended March 31, 2008 were $4,049,000, a decrease of $700,000 or 14.7% compared to $4,749,000 for the three months ended March 31, 2007. The decrease in subscriber fees was primarily due to reductions in the subscriber fee rates charged to new and existing service providers carrying Outdoor Channel.

We plan to accelerate our subscriber growth utilizing various means including deployment of rate relief for new and existing subscribers and payment of subscriber acquisition or launch support fees among other tactics. Such launch support fees are capitalized and amortized over the period that the pay television distributor is required to carry the newly acquired TOC subscriber. To the extent revenue is associated with the incremental subscribers, the amortization is charged to offset the related revenue. Any excess of launch support amortization over the related subscriber fee revenue is charged to expense. As a result of a combination of these tactics, we anticipate our net subscriber fee revenue will decrease over the short-term future as we deploy this strategy.

Cost of Services

Our cost of services consists primarily of the cost of providing our broadcast signal and programming to the distributors for transmission to the consumer. Cost of services includes programming costs, satellite transmission fees, production and operations costs, and other direct costs. Total cost of services for the three months ended March 31, 2008 was $4,507,000, an increase of $1,032,000 or 29.7%, compared to $3,475,000 for the three months ended March 31, 2007. As a percentage of revenues, total cost of services was 38.6% and 31.3% in the three months ended March 31, 2008 and 2007, respectively.

Programming expenses for the three months ended March 31, 2008 were $1,923,000, an increase of $452,000 or 30.7% compared to $1,471,000 for the three months ended March 31, 2007. The increase is principally a result of our higher program quality standards which necessitated the write off of certain lower quality programs which will not be aired and the airing of more new programs in the current quarter as compared to the corresponding prior year quarter.

Our policy is to charge costs of specific show production to programming expense over the expected airing period beginning when the program first airs. The cost of programming is generally first recorded as prepaid programming costs and is then charged to programming expense based on the anticipated airing schedule. The anticipated airing schedule has typically been over 2 or 4 quarters that generally does not extend over more than 2 years. As the anticipated airing schedule changes, the timing and amount of the charge to expense is prospectively adjusted accordingly. At the time we determine a program is unlikely to air or re-air, we charge programming expense with the remaining associated cost recorded in prepaid programming. We do not make any further expense or asset adjustments if in subsequent periods demand brings episodes to air that had previously been fully expensed, rather, we consider such events when we review our expected airings prospectively. As noted above, we have implemented a new programming strategy which may include more airings per show including a greater number of repeat episodes within the quarter. Our programming costs per show are expected to increase as we continue to improve the quality of our in-house produced shows, and we expect our aggregate programming costs to increase somewhat from prior year levels. As our programming strategy evolves, we will reconsider the appropriate timing of the charge to expense of our programming costs.

Satellite transmission fees for the three months ended March 31, 2008 were $626,000, an increase of $30,000, or 5.0%, compared to $596,000 for the three months ended March 31, 2007. The increase was primarily due to an increase in the transponder fee contract effective April 2007. We have finalized negotiations with our satellite provider and beginning in June 2008 we will incur reduced fees of $65 per month.

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Production and operations costs for the three months ended March 31, 2008 were $1,861,000, an increase of $491,000, or 35.8%, compared to $1,370,000 for the three months ended March 31, 2007. The increase in costs relates primarily to an increase in personnel and related payroll costs associated with production and programming of approximately $248,000. In addition, the increase included approximately $76,000 related to encryption transponders provided to our service providers.

Other direct costs for the three months ended March 31, 2008 were $97,000, an increase of $59,000, or 155.3%, compared to $38,000 for the three months ended March 31, 2007. The increase principally relates to the amortization of subscriber acquisition fees resulting in more expense recognized through amortization in the three months ended March 31, 2008 compared to the same period in 2007. We anticipate other direct costs will increase over the foreseeable future. Such increases are expected to result from the amortization of subscriber acquisition fees, also referred to as launch support fees, where the costs are in excess of the related subscriber revenue.

Other Expenses

Other expenses consist of the cost of advertising, selling, general and administrative expenses and depreciation and amortization.

Total other expenses for the three months ended March 31, 2008 were $8,770,000, a decrease of $793,000 or 8.3%, compared to $9,563,000 for the three months ended March 31, 2007. As a percentage of revenues, total other expenses were 75.1% and 86.1% in the three months ended March 31, 2008 and 2007, respectively.

Advertising expenses for the three months ended March 31, 2008 were $538,000, a decrease of $176,000 or 24.6% compared to $714,000 for the three months ended March 31, 2007. The decrease was primarily due to the termination of our sponsorship of a NASCAR team in 2007.

Selling, general and administrative expenses for the three months ended March 31, 2008 were $7,617,000, a decrease of $583,000 or 7.1% compared to $8,200,000 for the three months ended March 31, 2007. As a percentage of revenues, selling, general and administrative expenses were 65.2% and 73.8% for the three months ended March 31, 2008 and 2007, respectively. During the three months ended March 31, 2007, we recognized approximately $2,850,000 in share-based compensation related to two tranches of performance units granted to our CEO. Share-based compensation related to these two tranches of performance units was completely recognized during the 2007 calendar year and no corresponding expense for performance units was recognized during the three months ended March 31, 2008. This decrease in expense was partially offset by increased legal and accounting fees of approximately $558,000 related to the transition of audit and tax service providers and increased use of outside legal services. In addition, newly hired personnel and revised compensation plans for our senior executives increased approximately $745,000, expenses related an annual marketing event held during the first quarter increased by approximately $533,000 and our reserve for doubtful accounts increased by approximately $222,000 during the three months ended March 31, 2008 compared to the three months ended March 31, 2007.

We anticipate that selling, general and administrative costs, excluding share-based compensation charges, will remain consistent over the foreseeable future. We are adding to our professional and support staff across all departments to support our initiatives in subscriber growth and in other areas such as accounting and finance. We utilize share-based compensation packages as incentives for our employees. We have utilized restricted stock grants as opposed to stock options or performance units. For tax purposes, the tax deduction for restricted stock, subject to the limitations on the deductibility of employee remuneration of Internal Revenue Code Section 162(m), is the fair market value of the Company’s stock on the date the restrictions lapsed (e.g. vesting). Although we may find it necessary to motivate prospective or current employees with additional cash and or equity awards, we expect our share-based compensation charges to decline from fiscal 2007 amounts.

Depreciation and amortization for the three months ended March 31, 2008 were $615,000, a decrease of $34,000 or 5.2% compared to $649,000 for the three months ended March 31, 2007. The decrease in depreciation and amortization primarily relates to our long form customer relations intangible asset becoming fully amortized as of December 31, 2007, partially offset by increased depreciation related to an increase in fixed assets.

Loss from Operations

Loss from operations for the three months ended March 31, 2008 was $1,597,000, a change of $335,000 compared to $1,932,000 for the three months ended March 31, 2007. As discussed above, the reduction of our loss from operations was driven by increased prices we are realizing for our advertising inventory, growth in our subscriber base and decreased compensation related to share-based performance units, offset by decreased subscriber fees, growth in our professional and support staff, professional fees and other charges. As we continue to strive to grow our subscriber base which involves increased advertising expenditures, subscriber rate relief for our carriage partners and the ongoing and planned payment of launch or advertising support, we will continue to incur increased expenses such as broadband, marketing and advertising that are unlikely to be immediately offset by revenues. As a result, we anticipate our operating margins will be constrained for the short-term future until scale is achieved. There can be no assurance that these strategies will be successful.

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Interest and Other Income, Net

Interest and other income, net for the three months ended March 31, 2008 was $538,000, a decrease of $165,000 compared to $703,000 for the three months ended March 31, 2007. This decrease was primarily due to the recognition of other-than-temporary impairment charges related to certain auction-rate securities totaling $260,000 and a loss on sale of equity securities of $44,000 during the three months ended March 31, 2008. These charges were offset by increased dividends and interest earned on the increased average balances of our investments in available-for-sale securities and cash and cash equivalent balances. We anticipate a decline in dividends and interest earned in future periods.

Loss from Continuing Operations Before Income Taxes

Loss from continuing operations before income taxes as a percentage of revenues was (9.1)% for the three months ended March 31, 2008 compared to (11.1)% for the three months ended March 31, 2007. We incurred a loss before income taxes for the three months ended March 31, 2008 amounting to $1,059,000, a change of $170,000 compared to $1,229,000 for the three months ended March 31, 2007.

Income Tax Benefit

Income tax benefit for the three months ended March 31, 2008 was $278,000, a change of $188,000 as compared to $466,000 for the three months ended March 31, 2007. The income tax benefit reflected in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2008 and 2007 is different than that computed based on the applicable statutory Federal income tax rate of 34% primarily due to state taxes and the limitations on the deductibility of executive compensation as provided for in Internal Revenue Code Section 162(m).

The income tax benefit reflected in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2008 included a discrete tax expense of $82,000 related to option tax deductions upon exercise or lapse of restrictions on restricted stock that is less than the book compensation previously recorded under FAS 123R.

Loss from Continuing Operations

Loss from continuing operations for the three months ended March 31, 2008 was $781,000, a change of $18,000 compared $763,000 during the three months ended March 31, 2007. The larger loss was due to the reasons stated above.

Income from Discontinued Operations, Net of Tax

We did not have discontinued operations during the three months ended March 31, 2008 as the Membership Division was sold on April 24, 2007 compared to income of $36,000 for the three months ended March 31, 2007.

Net Loss

Net loss for the three months ended March 31, 2008 was $781,000, a change of $54,000 compared to $727,000 for the three months ended March 31, 2007. The larger loss was due to the reasons stated above.

Liquidity and Capital Resources

We generated $1,147,000 of cash in our operating activities in the three months ended March 31, 2008, compared to $5,878,000 in the three months ended March 31, 2007 and had a cash and cash equivalent balance of $39,397,000 at March 31, 2008, an increase of $14,137,000 from the balance of $25,260,000 at December 31, 2007. The decrease in cash flows from operating activities in the three months ended March 31, 2008 compared to the same period in 2007 was due primarily to increases in operating expenses. In addition, the three months ended March 31, 2007 included the receipt of federal and state income tax refunds totaling $2,077,000 which did not repeat in the corresponding period in 2008. Net working capital decreased to $75,731,000 at March 31, 2008, compared to $80,507,000 at December 31, 2007, primarily due to the classification of certain auction-rate securities totaling $5,115,000 as non-current assets.

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As of March 31, 2008, we held $25,866,000 of principal invested in auction-rate securities. Auction-rate securities are investment vehicles with long-term or perpetual maturities which pay interest monthly at current market rates reset through a Dutch auction. These monthly auctions have historically provided a liquid market for these securities, and have therefore been presented as short-term securities. Beginning in February 2008, the majority of auctions for these types of securities failed due to the recent liquidity issues experienced in global credit and capital markets. Our auction-rate securities followed this trend and experienced multiple failed auctions due to insufficient investor demand. As there is a limited secondary market for auction-rate securities, we have been unable to convert our positions to cash. We do not anticipate being in a position to liquidate all of these investments until there is a successful auction or the security issuer redeems their security, and accordingly, have reflected a portion of our investments in auction-rate securities as non-current assets on our balance sheet. Our auction-rate security investments continue to pay interest according to their stated terms, are fully collateralized by underlying financial instruments (primarily closed end preferred and municipalities) and have maintained AAA/AA credit ratings despite the failure of the auction process. The fair values of our auction-rate securities as of March 31, 2008 were based on indicators in the marketplace, subsequent sales and recent trades of similar securities. However, the fair values of certain auction-rate securities were measured using an evaluation model and analytical tools. The inputs to the valuation model were based on assumptions which included an estimated amount of time that the auction-rate securities will return to liquidity, our ability to hold the auction-rate securities for the length of time that they are illiquid, and that we will be able to recover our original investment in the securities. We believe that based on the company’s current cash, cash equivalents and marketable securities balances at March 31, 2008, the current lack of liquidity in the credit and capital markets will not have a material impact on our liquidity, cash flow, financial flexibility or our ability to fund our operations.

We continue to monitor the market for auction-rate securities and consider its impact (if any) on the fair value of our investments. If the current market conditions deteriorate further, or the anticipated recovery in fair values does not occur, we may be required to record additional impairment charges in future periods.

Net cash provided by investing activities was $13,054,000 in the three months ended March 31, 2008 compared to $10,337,000 for the three months ended March 31, 2007. The increase in cash provided by investing activities related principally to the net difference of sales and purchases of short-term auction-rate securities partially offset by an increase in capital expenditures for fixed asset replacements.

Cash used by financing activities was $64,000 in the three months ended March 31, 2008 compared to cash provided of $279,000 in the three months ended March 31, 2007. The cash used by financing activities in the three months ended March 31, 2008 was principally the cash used for the purchase of stock as employees used stock to satisfy withholding taxes related to vesting of restricted shares. For the three months ended March 31, 2007, cash provided by financing activities was principally the proceeds from the exercise of stock options partially offset by the purchase of stock as employees used stock to satisfy withholding taxes related to vesting of restricted shares.

On October 2, 2007, the Board of Directors approved the renewal of the revolving line of credit agreement (the “Revolver”) with U.S. Bank N.A. (the “Bank”), extending the maturity date to September 5, 2009 and increasing the total amount which can be drawn upon under the Revolver from $8,000,000 to $10,000,000. Interest is payable beginning November 5, 2007, and on the same date of each consecutive month thereafter. The Revolver provides that the interest rate shall be LIBOR plus 1.25%. The Revolver was previously collateralized by substantially all of our assets. The renewed Revolver is unsecured. This credit facility contains customary financial and other covenants and restrictions, as amended on September 21, 2007, including a change of control provision, some of which are defined with non-GAAP provisions including elimination of the effects of noncash stock based employee compensation expense. As of March 31, 2008 and as of the date of this report, we did not have any amounts outstanding under this credit facility. This Revolver is guaranteed by TOC. We were not in compliance with our profitability covenant for the quarter ended March 31, 2008. However, on May 6, 2008 we obtained a waiver from the Bank of this covenant violation.

As of March 31, 2008, we had sufficient cash on hand and expected cash flow from operations to meet our short-term cash flow requirements. Management believes that our existing cash resources including cash on-hand and anticipated cash flows from operations will be sufficient to fund our operations at current levels and anticipated capital requirements through at least the next twelve months. To the extent that such amounts are insufficient to finance our working capital requirements or our desire to expand operations beyond current levels, we could seek additional financing. There can be no assurance that equity or debt financing will be available if needed or, if available, will be on terms favorable to us.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

At March 31, 2008 and December 31, 2007, our investment portfolio included fixed-income securities of $32,564,000 and $46,155,000, respectively. At March 31, 2008, our available-for-sale securities included auction-rate securities with long-term maturities, but which have variable yields based on auctions that are held every 28 days. These securities are subject to interest rate risk and will decline in value if interest rates increase. However, due to the short duration of our investment portfolio, an immediate 10% change in interest rates would have no material impact on our financial condition, operating results or cash flows. Declines in interest rates over time will, however, reduce our interest income while increases in interest rates over time may increase our interest expense.

We do not have any transactions denominated in currencies other than U.S. dollars and as a result we have no foreign currency exchange rate risk. The effect of an immediate 10% change in foreign exchange rates would have no material impact on our financial condition, operating results or cash flows.

As of March 31, 2008 and as of the date of this report, we did not have any outstanding borrowings. The rate of interest on our line-of-credit is variable, but we currently have no outstanding balance under this credit facility. Because of these reasons, an immediate 10% change in interest rates would have no material, immediate impact on our financial condition, operating results or cash flows.

Included within our available-for-sale investments are $25,866,000 of investments in auction-rate securities. With the liquidity issues experienced in the global credit and capital markets, our auction-rate securities have experienced multiple failed auctions. While we continue to earn and receive interest on these investments at the maximum contractual rate, the estimated fair values of certain of these auction-rate securities no longer approximates par value. As of March 31, 2008, we recorded an other-than-temporary impairment of $260,000 in interest and other income, net for certain auction-rate securities.

We intend and have the ability to hold these auction-rate securities until the market recovers. We do not anticipate having to sell these securities in order to operate our business. We believe that, based on our ability to access our cash and other short-term investments, our expected operating cash flows, and our other sources of cash, we do not anticipate the lack of liquidity on these investments will affect our ability to operate our business as usual.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the regulations of the Securities and Exchange Commission. Disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure the information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that our system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2008, the end of the period covered by this report. Based on this evaluation, we have concluded that as a result of the material weaknesses in our internal control over financial reporting discussed below, our disclosure controls and procedures were not effective as of March 31, 2008.

Management’s report on internal control over financial reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2008, based on the framework set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management reviewed the results of this evaluation with the Audit Committee of our Board of Directors, and based on this evaluation, management determined that as of March 31, 2008 four material weaknesses existed. These material weaknesses related to our financial statement close process (including supervision and review of complex accounting and disclosure requirements as well as evaluating accounting obligations inherent in contractual agreements); inadequate controls surrounding accounting for share-based awards to employees and non-employees; inadequate controls related to income taxes; and inadequate staffing and lack of financial expertise within the finance and accounting departments. These deficiencies have not been remediated as of March 31, 2008, the date of this report.

Notwithstanding the existence of these material weaknesses, we believe that the unaudited condensed consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented. Until these deficiencies are remediated, management has concluded that there is more than a remote likelihood that a material misstatement to the annual or interim consolidated financial statements could occur and not be prevented or detected by the Company’s controls in a timely manner. Accordingly, management has determined that these control deficiencies constitute material weaknesses. Because of these material weaknesses, we have concluded that we did not maintain effective internal control over financial reporting as of March 31, 2008 based on the criteria in Internal Control — Integrated Framework.

Remediation plan for material weaknesses in internal control over financial reporting. The lack of staff resources, deficiencies in our financial statement close process (including supervision and review of complex accounting and disclosure requirements as well as evaluating accounting obligations inherent in contractual agreements), deficiencies in controls surrounding income taxes, share-based awards and the lack of financial expertise arose as a result of several issues including time constraints imposed on the accounting staff as a result of key financial accounting employee turnover and our inability to timely fill these accounting and financial-related positions with qualified personnel. Our management, with the oversight of our Audit Committee, has devoted considerable effort in remediating the material weaknesses identified above. However, as of March 31, 2008, we had not remediated the material weaknesses in our internal control over financial reporting.

We have implemented accounting software that will enhance our capabilities across many accounting disciplines, particularly as it relates to share-based compensation, and we will more fully develop the technical expertise of our existing staff. We have hired additional CPAs to bolster our U.S. GAAP expertise and supplemented our current procedures in the area of income taxes.

Many of the remedial actions we have taken are recent, and other remedial actions are currently still being implemented including the training of recently hired accounting staff. Because our remediation efforts include the training of additional personnel, many of the controls in our current system of internal controls will still rely extensively on manual review and approval and management will not be able to conclude that the material weaknesses have been eliminated until such additional personnel have been fully engaged and remediating controls have been successfully placed in operation and tested. We, along with our Audit Committee, will continue to monitor and evaluate the effectiveness of these remedial actions and make further changes as deemed appropriate.

Changes in internal control over financial reporting. Other than as noted above, during the quarter ended March 31, 2008, there was no change in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting subsequent to the date referred to above.

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PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings.

None.

ITEM 1A. Risk Factors.

Our business and operations are subject to a number of risks and uncertainties, and the following list should not be considered to be a definitive list of all factors that may affect our business, financial condition and future operating results and should be read in conjunction with the risks and uncertainties, including risk factors, contained in our other filings with the Securities and Exchange Commission. Any forward-looking statements made by us are made with the intention of obtaining the benefits of the “safe harbor” provisions of the Securities Litigation Reform Act and a number of factors, including, but not limited to those discussed below, could cause our actual results and experiences to differ materially from the anticipated results or expectations expressed in any forward-looking statements.

Cable and satellite service providers could discontinue or refrain from carrying Outdoor Channel, or decide to not renew our distribution agreements, which could substantially reduce the number of viewers and harm our operating results.

The success of Outdoor Channel is dependent, in part, on our ability to enter into new carriage agreements and maintain existing agreements or arrangements with, and carriage by, satellite systems and multiple system operators’, which we refer to as MSOs, affiliated regional or individual cable systems. Although we currently have arrangements or agreements with, and are being carried by, all the largest MSOs and satellite service providers, having such relationship or agreement with an MSO does not ensure that an MSOs affiliated regional or individual cable systems will carry or continue to carry Outdoor Channel or that the satellite service provider will carry our channel. Under our current contracts and arrangements, our subsidiary The Outdoor Channel, Inc. or TOC typically offers satellite systems and cable MSOs, along with their cable affiliates, the right to broadcast Outdoor Channel to their subscribers, but such contracts or arrangements have not typically required that Outdoor Channel be offered to all subscribers of, or any tiers offered by, the service provider or a specific minimum number of subscribers. Because many of our prior carriage arrangements do not specify on which service levels Outdoor Channel is carried, such as analog versus basic digital, expanded digital or specialty tiers, or in which geographic markets Outdoor Channel will be offered, we have no assurance that Outdoor Channel will be carried and available to viewers of any particular MSO or to all satellite subscribers. In addition, under the terms of our prior agreements, the service providers could decide to discontinue carrying Outdoor Channel. Lastly, we are currently not under any long-term contract with some of the service providers that are currently distributing our channel. Our long-term distribution agreements with four of the major service providers, accounting for over 50% of our subscriber base as of March 2008, have expired as of that date, although we have renewed some of such agreements for a short period or continued such agreements on a month-to-month basis. If we are unable to renew these distribution agreements for a committed number of subscribers or for multi-year terms, we could lose, or be subject to a loss of, a substantial number of subscribers. If cable and satellite service providers discontinue or refrain from carrying Outdoor Channel, or decide to not renew our distribution agreement with them, this could reduce the number of viewers and harm our operating results.

If our channel is placed in unpopular program packages by cable or satellite service providers, or if service fees are increased for our subscribers, the number of viewers of our channel may decline which could harm our business and operating results.

We do not control the channels with which our channel is packaged by cable or satellite service providers. The placement by a cable or satellite service provider of our channel in unpopular program packages could reduce or impair the growth of the number of our viewers and subscriber fees paid by service providers to us. In addition, we do not set the prices charged by cable and satellite service providers to their subscribers when our channel is packaged with other television channels or offered by itself. The prices for the channel packages in which our channel is bundled, or the price for our channel by itself, may be set too high to appeal to individuals who might otherwise be interested in our network. Further, if our channel is bundled by service providers with networks that do not appeal to our viewers or is moved to packages with fewer subscribers, we may lose viewers. These factors may reduce the number of subscribers and/or viewers of our channel, which in turn would reduce our subscriber fees and advertising revenue.

We may not be able to grow our subscriber base at a sufficient rate to offset planned increased costs, decreased revenue or at all, and as a result our revenues and profitability may not increase and could decrease.

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A major component of our financial growth strategy is based on increasing the number of subscribers to our channels. Growing our subscriber base depends upon many factors, such as the success of our marketing efforts in driving consumer demand for our channels; overall growth in cable and satellite subscribers; the popularity of our programming; our ability to negotiate new carriage agreements, or amendments to, or renewals of, current carriage agreements, and maintain existing distribution; plus other factors that are beyond our control. There can be no assurance that we will be able to maintain or increase the subscriber base of our channels on cable and satellite systems or that our current carriage will not decrease as a result of a number of factors or that we will be able to maintain our current subscriber fee rates. In particular, negotiations for new carriage agreements, or amendments to, or renewals of, current carriage agreements, are lengthy and complex, and we are not able to predict with any accuracy when such increases in our subscriber base may occur, if at all, or if we can maintain our current subscriber fee rates. If we are unable to grow our subscriber base or we reduce our subscriber fee rates, our subscriber and advertising revenues may not increase and could decrease. In addition, as we plan and prepare for such projected growth in our subscriber base, we plan to increase our expenses accordingly. If we are not able to increase our revenue to offset these increased expenses, and if our subscriber fee revenue decreases, our profitability could decrease.

We do not control the methodology used by Nielsen to estimate our subscriber base or television ratings, and changes, or inaccuracies, in such estimates could cause our advertising revenue to decrease.

Our ability to sell advertising is largely dependent on the size of our subscriber base and television ratings estimated by Nielsen. We do not control the methodology used by Nielsen for these estimates, and estimates regarding Outdoor Channel’s subscriber base made by Nielsen is theirs alone and does not represent opinions, forecasts or predictions of Outdoor Channel Holdings, Inc. or its management. Outdoor Channel Holdings, Inc. does not by its reference to Nielsen or distribution of the Nielsen Universe Estimate imply its endorsement of or concurrence with such information. In particular, we believe that we may be subject to a wider difference between the number of subscribers as estimated by Nielsen and the number of subscribers reported by our cable and satellite MSOs than is typically expected because we are not fully distributed and are sometimes carried on poorly penetrated tiers. In addition, if Nielsen modifies its methodology or changes the statistical sample it uses for these estimates, such as the demographic characteristics of the households, the size of our subscriber base and our ratings could be negatively affected resulting in a decrease in our advertising revenue.

If we offer favorable terms or incentives to service providers in order to grow our subscriber base, our operating results may be harmed or your percentage of the Company may be diluted.

Although we currently have plans to offer incentives to service providers in an attempt to increase the number of our subscribers, we may not be able to do so economically or at all. If we are unable to increase the number of our subscribers on a cost-effective basis, or if the benefits of doing so do not materialize, our business and operating results would be harmed. In particular, it may be necessary to reduce our subscriber fees in order to grow or maintain our subscriber base. In addition, if we make any upfront cash payments to service providers for an increase in our subscriber base, our cash flow could be adversely impacted, and we may incur negative cash flow for some time. In addition, if we were to make such upfront cash payments or provide other incentives to service providers, we expect to amortize such amounts ratably over the term of the agreements with the service providers. However, if a service provider terminates any such agreement prior to the expiration of the term of such agreement, then under current accounting rules we may incur a large expense in that quarter in which the agreement is terminated equal to the remaining un-amortized amounts and our operating results could accordingly be adversely affected. In addition, if we offer equity incentives, the terms and amounts of such equity may not be favorable to us or our stockholders.

If, in our attempt to increase our number of subscribers, we structure favorable terms or incentives with one service provider in a way that would require us to offer the same terms or incentives to all other service providers, our operating results may be harmed.

Many of our existing agreements with cable and satellite service providers contain “most favored nation” clauses. These clauses typically provide that if we enter into an agreement with another service provider on more favorable terms, these terms must be offered to the existing service provider, subject to some exceptions and conditions. Future agreements with service providers may also contain similar “most favored nation” clauses. If, in our attempt to increase our number of subscribers, we reduce our subscriber fees or structure launch support fees or other incentives to effectively offer more favorable terms to any service provider, these clauses may require us to offer similar incentives to other service providers or reduce the effective subscriber fee rates that we receive from other service providers, and this could negatively affect our operating results.

Consolidation among cable and satellite operators may harm our business.

Cable and satellite operators continue to consolidate, making us increasingly dependent on fewer operators. If these operators fail to carry Outdoor Channel, use their increased distribution and bargaining power to negotiate less favorable terms of carriage or to obtain additional volume discounts, our business and operating results would suffer.

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The cable and satellite television industry is subject to substantial governmental regulation for which compliance may increase our costs, hinder our growth and possibly expose us to penalties for failure to comply.

The cable television industry is subject to extensive legislation and regulation at the federal and local levels, and, in some instances, at the state level, and many aspects of such regulation are currently the subject of judicial proceedings and administrative or legislative proposals. Similarly, the satellite television industry is subject to federal regulation. Operating in a regulated industry increases our cost of doing business as a video programmer, and such regulation may in some cases also hinder our ability to increase our distribution. The regulation of programming services, cable television systems and satellite licensees is subject to the political process and has been in constant flux over the past decade. Further, material changes in the law and regulatory requirements are difficult to anticipate and our business may be harmed by future legislation, new regulation, deregulation or court decisions interpreting laws and regulations.

The FCC has adopted rules to ensure that cable television subscribers continue to be able to view local broadcast television stations during and after the transition to digital television. Federal law requires that analog television broadcasting end on February 17, 2009. In September 2007, the FCC established rules which will require cable operators make local television broadcast programming available to all subscribers. They may do so either by carrying each local station’s digital signal in analog format or in digital format, provided that all subscribers are provided with the necessary equipment to view the station signals. This requirement will remain in effect until February 2012, and possibly longer, depending on a FCC review of the state of technology and the marketplace in the year prior to that date. These broadcast signal carriage requirements could reduce the available capacity on cable systems to carry channels like Outdoor Channel. We cannot predict how these requirements will affect the Company.

The FCC may adopt rules which would require cable operators and other multichannel video programming providers to make available programming channels on an a la carte basis or as part of packages of “family friendly” programming channels. We cannot predict whether such rules will be adopted or how their adoption would impact our ability to have the Outdoor Channel carried on cable and satellite multichannel programming distribution systems.

Our investments in adjustable rate securities are subject to risks which may affect the liquidity of these investments and could cause additional impairment charges.

As of March 31, 2008, our marketable security investments included $25.9 million of high-grade (AAA/AA rated) auction-rate securities issued primarily by municipalities. Beginning in February 2008, we were informed that there was insufficient demand at auction for our high-grade auction-rate securities. As a result, these affected securities are currently not liquid, and we could be required to hold them until they are redeemed by the issuer or to maturity. We may experience a similar situation with our remaining auction-rate securities. In the event we need to access the funds that are in an illiquid state, we will not be able to do so without a loss of principal, until a future auction on these investments is successful, the securities are redeemed by the issuer or they mature. The market for these investments is presently uncertain. If the credit ratings of the security issuers deteriorate and any decline in market value is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an impairment charge. As of May 8, 2008, we had investments in seven auction-rate securities which totaled $16.1 million.

We may not be able to effectively manage our future growth or the integration of acquisitions, and our growth may not continue, which may substantially harm our business and prospects.

We have undergone rapid and significant growth in revenue and subscribers over the last several years. There are risks inherent in rapid growth and the pursuit of new strategic objectives, including among others: investment and development of appropriate infrastructure, such as facilities, information technology systems and other equipment to support a growing organization; hiring and training new management, sales and marketing, production, and other personnel and the diversion of management’s attention and resources from critical areas and existing projects; and implementing systems and procedures to successfully manage growth, such as monitoring operations, controlling costs, maintaining effective quality and service, and implementing and maintaining adequate internal controls. We expect that additional expenditures will be required as we continue to upgrade our facilities. In addition, we may acquire other companies to supplement our business and the integration of such other operations may take some time in order to fully realize the synergies of such acquisitions. We cannot assure you that we will be able to successfully manage our growth, that future growth will occur or that we will be successful in managing our business objectives. We can provide no assurance that our profitability or revenues will not be harmed by future changes in our business. Our operating results could be harmed if such growth does not occur, or is slower or less profitable than projected.

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We may not be able to secure additional national advertising accounts, and as a result, our revenues and profitability may be negatively impacted.

Our ability to secure additional national advertising accounts, which generally pay higher advertising rates, depends upon the size of our audience, the popularity of our programming and the demographics of our viewers, as well as strategies taken by our competitors, strategies taken by advertisers and the relative bargaining power of advertisers. Competition for national advertising accounts and related advertising expenditures is intense. We face competition for such advertising expenditures from a variety of sources, including other cable network companies and other media. We cannot assure you that our sponsors will pay advertising rates for commercial air time at levels sufficient for us to make a profit or that we will be able to attract new advertising sponsors or increase advertising revenues. If we are unable to attract national advertising accounts in sufficient quantities, our revenues and profitability may be harmed.

We have found material weaknesses in our internal controls over financial reporting, and we cannot be certain in the future that we will be able to report that our controls are without material weakness or to complete our evaluation of those controls in a timely fashion.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), and the rules and regulations promulgated by the SEC to implement Section 404, we are required to include in our Form 10-Q a report by our management regarding the effectiveness of our internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. As of March 31, 2008, our internal control over financial reporting was ineffective due to the presence of material weaknesses, as more fully described in Item 4 of Part 1 of our Form 10-Q. We are actively working to correct these material weaknesses, and having hired additional staff in our accounting department, we will now need to successfully operate and test our controls with such staff in place.

If we fail to maintain an effective system of disclosure controls or internal control over financial reporting, we may discover material weaknesses that we would then be required to disclose. We may not be able to accurately or timely report on our financial results, and we might be subject to investigation by regulatory authorities. This could result in a loss of investor confidence in the accuracy and completeness of our financial reports, which may have an adverse effect on our stock price.

In addition, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Expenses relating to programming costs are generally increasing and a number of factors can cause cost overruns and delays, and our operating results may be adversely impacted if we are not able to successfully recover the costs of developing and acquiring new programming.

The average cost of programming has increased recently for the cable industry and such increases may continue. We plan to build our programming library through the acquisition of long-term broadcasting rights from third party producers, in-house production and outright acquisition of programming, and this may lead to increases in our programming costs. The development, production and editing of television programming requires a significant amount of capital and there are substantial financial risks inherent in developing and producing television programs. Actual programming and production costs may exceed their budgets. Factors such as labor disputes, death or disability of key spokespersons or program hosts, damage to master tapes and recordings or adverse weather conditions may cause cost overruns and delay or prevent completion of a project. If we are not able to successfully recover the costs of developing or acquiring programming through increased revenues, whether the programming is produced by us or acquired from third-party producers, our business and operating results will be harmed.

Our operating results may vary significantly, and historical comparisons of our operating results are not necessarily meaningful and should not be relied upon as an indicator of future performance.

Our operations are influenced by many factors. These factors may cause our financial results to vary significantly in the future and our operating results may not meet the expectations of securities analysts or investors. If this occurs, the price of our stock may decline. Factors that can cause our results to fluctuate include, but are not limited to:

• carriage decisions of cable and satellite service providers;

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• demand for advertising, advertising rates and offerings of competing media;

• changes in the growth rate of cable and satellite subscribers;

• cable and satellite service providers’ capital and marketing expenditures and their impact on programming offerings and penetration;

• seasonal trends in viewer interests and activities;

• pricing, service, marketing and acquisition decisions that could reduce revenues and impair quarterly financial results;

• the mix of cable television and satellite-delivered programming products and services sold and the distribution channels for those products and services;

• our ability to react quickly to changing consumer trends;

• increased compensation expenses resulting from the hiring of highly qualified employees;

• specific economic conditions in the cable television and related industries; and

• changing regulatory requirements.

Due to the foregoing and other factors, many of which are beyond our control, our revenue and operating results vary from period to period and are difficult to forecast. Our expense levels are based in significant part on our expectations of future revenue. Therefore, our failure to meet revenue expectations would seriously harm our business, operating results, financial condition and cash flows. Further, an unanticipated decline in revenue for a particular calendar quarter may disproportionately affect our profitability because our expenses would remain relatively fixed and would not decrease correspondingly.

Changes to financial accounting standards or our accounting estimates may affect our reported operating results.

We prepare our financial statements to conform to accounting principles generally accepted in the United States of America which are subject to interpretations by the Financial Accounting Standards Board, the Securities and Exchange Commission and various bodies formed to interpret and create appropriate accounting policies. A change in those policies can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. Accounting policies affecting many other aspects of our business, including rules relating to business combinations and employee share-based compensation, have recently been revised or are under review. Changes to those rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct our business. In addition, our preparation of financial statements in accordance with GAAP requires that we make estimates, judgments and assumptions that affect the recorded amounts of assets and liabilities, disclosure of those assets and liabilities at the date of the financial statements and the recorded amounts of revenue and expenses during the reporting period. A change in the facts and circumstances surrounding those estimates, including the interpretation of the terms and conditions of our contractual obligations, could result in a change to our estimates and could impact our operating results.

If we fail to develop and distribute popular programs, our viewership would likely decline, which could cause advertising and subscriber fee revenues to decrease.

Our operating results depend significantly upon the generation of advertising revenue. Our ability to generate advertising revenues is largely dependent on our Nielsen ratings, which estimates the number of viewers of Outdoor Channel, and this directly impacts the level of interest of advertisers and rates we are able to charge. If we fail to program popular shows that maintain or increase our current number of viewers, our Nielsen ratings could decline, which in turn could cause our advertising revenue to decline and adversely impact our business and operating results. In addition, if we fail to program popular shows the number of subscribers to our channel may also decrease, resulting in a decrease in our subscriber fee and advertising revenue.

The market in which we operate is highly competitive, and we may not be able to compete effectively, particularly against competitors with greater financial resources, brand recognition, marketplace presence and relationships with service providers.

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We compete for viewers with other pay cable television and broadcast networks, including Versus (formerly OLN), Spike TV, ESPN2 and others. If these or other competitors, many of which have substantially greater financial and operational resources than us, significantly expand their operations with respect to outdoor-related programming or their market penetration, our business could be harmed. In addition, certain technological advances, including the deployment of fiber optic cable, which are already substantially underway, are expected to allow cable systems to greatly expand their current channel capacity, which could dilute our market share and lead to increased competition for viewers from existing or new programming services. In addition, the satellite distributors generally have more bandwidth capacity than cable distributors allowing them to possibly provide more channels offering the type of programming we offer.

We also compete with television network companies that generally have large subscriber bases and significant investments in, and access to, competitive programming sources. In some cases, we compete with cable and satellite service providers that have the financial and technological resources to create and distribute their own television networks, such as Versus, which is owned and operated by Comcast. In order to compete for subscribers, we may be required to reduce our subscriber fee rates or pay either launch fees or marketing support or both for carriage in certain circumstances in the future which may harm our operating results and margins. We may also issue our securities from time to time in connection with our attempts for broader distribution of Outdoor Channel and the number of such securities could be significant. We compete for advertising sales with other pay television networks, broadcast networks, and local over-the-air television stations. We also compete for advertising sales with satellite and broadcast radio and the print media. We compete with other cable television networks for subscriber fees from, and affiliation agreements with, cable and satellite service providers. Actions by the Federal Communications Commission, which we refer to as the FCC, and the courts have removed certain of the impediments to entry by local telephone companies into the video programming distribution business, and other impediments could be eliminated or modified in the future. These local telephone companies may distribute programming that is competitive with the programming provided by us to cable operators.

Changes in corporate governance and securities disclosure and compliance practices have increased and may continue to increase our legal compliance and financial reporting costs.

The Sarbanes-Oxley Act of 2002 required us to change or supplement some of our corporate governance and securities disclosure and compliance practices. The Securities and Exchange Commission and Nasdaq have revised, and continue to revise, their regulations and listing standards. These developments have increased, and may continue to increase, our legal compliance and financial reporting costs.

The satellite infrastructure that we use may fail or be preempted by another signal, which could impair our ability to deliver programming to our cable and satellite service providers.

Our ability to deliver programming to service providers, and their subscribers, is dependent upon the satellite equipment and software that we use to work properly to distribute our programming. If this satellite system fails, or a signal with a higher priority replaces our signal, which is determined by our agreement with the owner of the satellite, we may not be able to deliver programming to our cable and satellite service provider customers and their subscribers within the time periods advertised. We have negotiated for back-up capability with our satellite provider on an in-orbit spare satellite, which provides us carriage on the back-up satellite in the event that catastrophic failure occurs on the primary satellite. Our contract provides that our main signal is subject to preemption and until the back-up satellite is in position, we could lose our signal for a period of time. A loss of our signal could harm our reputation and reduce our revenues and profits.

Natural disasters and other events beyond our control could interrupt our signal.

Our systems and operations may be vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures and similar events. They also could be subject to break-ins, sabotage and intentional acts of vandalism. Since our production facilities for Outdoor Channel are all located in Temecula, California, the results of such events could be particularly disruptive because we do not have readily available alternative facilities from which to conduct our business. Our business interruption insurance may not be sufficient to compensate us for losses that may occur. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities could result in interruptions in our services. Interruptions in our service could harm our reputation and reduce our revenues and profits.

Seasonal increases or decreases in advertising revenue may negatively affect our business.

Seasonal trends are likely to affect our viewership, and consequently, could cause fluctuations in our advertising revenues. Our business reflects seasonal patterns of advertising expenditures, which is common in the broadcast industry. For this reason, fluctuations in our revenues and net income could occur from period to period depending upon the availability of advertising revenues. Due, in part, to these seasonality factors, the results of any one quarter are not necessarily indicative of results for future periods, and our cash flows may not correlate with revenue recognition.

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We may be unable to access capital, or offer equity as an incentive for increased subscribers, on acceptable terms to fund our future growth and operations.

Our future capital and subscriber growth requirements will depend on numerous factors, including the success of our efforts to increase advertising revenues, the amount of resources devoted to increasing distribution of Outdoor Channel, and acquiring and producing programming for Outdoor Channel. As a result, we could be required to raise substantial additional capital through debt or equity financing or offer equity as an incentive for increased distribution. To the extent that we raise additional capital through the sale of equity or convertible debt securities, or offer equity incentives for subscriber growth, the issuance of such securities could result in dilution to existing stockholders. If we raise additional capital through the issuance of debt securities, the debt securities would have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. We cannot assure you that additional capital, if required, will be available on acceptable terms, or at all. If we are unable to obtain additional capital, or must offer equity incentives for subscriber growth, our current business strategies and plans and ability to fund future operations may be harmed.

We may not be able to attract and retain key personnel.

Our success depends to a significant degree upon the continued contributions of the principal members of our sales, marketing, production and management personnel, many of whom would be difficult to replace. Other than our CEO, Roger L. Werner, Jr., none of our employees are under contract, and all of our employees are “at-will.” Any of our officers or key employees could leave at any time, and we do not have “key person” life insurance policies covering any of our employees. The competition for qualified personnel has been strong in our industry. This competition could make it more difficult to retain our key personnel and to recruit new highly qualified personnel. The loss of Perry T. Massie, our Chairman of the Board, Roger L. Werner, Jr., our CEO and President, Thomas E. Hornish, our COO and General Counsel, or Shad L. Burke, our Chief Financial Officer could adversely impact our business. To attract and retain qualified personnel, we may be required to grant large option or other share-based incentive awards, which may be highly dilutive to existing stockholders. We may also be required to pay significant base salaries and cash bonuses to attract and retain these individuals, which payments could harm our operating results. If we are not able to attract and retain the necessary personnel we may not be able to implement our business plan.

New video recording technologies may reduce our advertising revenue.

A number of new personal video recorders, such as TiVo^® in the United States, have emerged in recent years. These recorders often contain features allowing viewers to watch pre-recorded programs without watching advertising. The effect of these recorders on viewing patterns and exposure to advertising could harm our operations and results if our advertisers reduce the advertising rates they are willing to pay because they believe television advertisements are less effective with these technologies.

Cable and satellite television programming signals have been stolen or could be stolen in the future, which reduces our potential revenue from subscriber fees and advertising.

The delivery of subscription programming requires the use of conditional access technology to limit access to programming to only those who subscribe to programming and are authorized to view it. Conditional access systems use, among other things, encryption technology to protect the transmitted signal from unauthorized access. It is illegal to create, sell or otherwise distribute software or devices to circumvent conditional access technologies. However, theft of cable and satellite programming has been widely reported, and the access or “smart” cards used in cable and satellite service providers’ conditional access systems have been compromised and could be further compromised in the future. When conditional access systems are compromised, we do not receive the potential subscriber fee revenues from the cable and satellite service providers. Further, measures that could be taken by cable and satellite service providers to limit such theft are not under our control. Piracy of our copyrighted materials could reduce our revenue from subscriber fees and advertising and negatively affect our business and operating results.

Because we expect to become increasingly dependent upon our intellectual property rights, our inability to protect those rights could negatively impact our ability to compete.

Approximately 75% of programs we aired (exclusive of infomercials) on Outdoor Channel are provided by third-party television and film producers. In order to build a library of programs and programming distribution rights, we must obtain all of the necessary rights, releases and consents from the parties involved in developing a project or from the owners of the rights in a completed program. There can be no assurance that we will be able to obtain the necessary rights on acceptable terms, or at all or properly maintain and document such rights. In addition, protecting our intellectual property rights by pursuing those who infringe or dilute our rights can be costly and time consuming. If we are unable to protect our portfolio of trademarks, service marks, copyrighted material and characters, trade names and other intellectual property rights, our business and our ability to compete could be harmed.

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We may face intellectual property infringement claims that could be time-consuming, costly to defend and result in our loss of significant rights.

Other parties may assert intellectual property infringement claims against us, and our products may infringe the intellectual property rights of third parties. From time to time, we receive letters alleging infringement of intellectual property rights of others. Intellectual property litigation can be expensive and time-consuming and could divert management’s attention from our business. If there is a successful claim of infringement against us, we may be required to pay substantial damages to the party claiming infringement or enter into royalty or license agreements that may not be available on acceptable or desirable terms, if at all. Our failure to license the proprietary rights on a timely basis would harm our business.

Some of our existing stockholders can exert control over us and may not make decisions that are in the best interests of all stockholders.

Our current officers, directors and greater than 5% stockholders together currently control a very high percentage of our outstanding common stock. As a result, these stockholders, acting together, may be able to exert significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in control of our company, even when a change may be in the best interests of stockholders. In addition, the interests of these stockholders may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or agreements that you would not approve.

The market price of our common stock has been and may continue to be subject to wide fluctuations.

Our stock has historically been and continues to be traded at relatively low volumes and therefore has been subject to price volatility. Various factors contribute to the volatility of our stock price, including, for example, low trading volume, quarterly variations in our financial results, increased competition and general economic and market conditions. While we cannot predict the individual effect that these factors may have on the market price of our common stock, these factors, either individually or in the aggregate, could result in significant volatility in our stock price during any given period of time. There can be no assurance that a more active trading market in our stock will develop. As a result, relatively small trades may have a significant impact on the price of our common stock. Moreover, companies that have experienced volatility in the market price of their stock often are subject to securities class action litigation. If we were the subject of such litigation, it could result in substantial costs and divert management’s attention and resources. On March 14, 2008, the Company entered into a Rule 10b5-1 stock repurchase plan to repurchase up to $10 million of its stock at specified prices. All repurchases under the plan shall be in accordance with Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program commenced April 15, 2008 and will cease upon the earlier of November 30, 2008 or completion of the program.

Anti-takeover provisions in our certificate of incorporation, our bylaws and under Delaware law may enable our incumbent management to retain control of us and discourage or prevent a change of control that may be beneficial to our stockholders.

Provisions of Delaware law, our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. Furthermore, these provisions could prevent attempts by our stockholders to replace or remove our management. These provisions:

• allow the authorized number of directors to be changed only by resolution of our board of directors;

• establish a classified board of directors, providing that not all members of the board be elected at one time;

• require a 66 2/3% stockholder vote to remove a director, and only for cause;

• authorize our board of directors to issue without stockholder approval blank check preferred stock that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our board of directors;

• require that stockholder actions must be effected at a duly called stockholder meeting and prohibit stockholder action by written consent;

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• establish advance notice requirements for stockholder nominations to our board of directors or for stockholder proposals that can be acted on at stockholder meetings;

• except as provided by law, allow only our board of directors to call a special meeting of the stockholders; and

• require a 66 2/3% stockholder vote to amend our certificate of incorporation or bylaws.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a prescribed period of time.

Technologies in the cable and satellite television industry are constantly changing, and our failure to acquire or maintain state-of-the-art technology may harm our business and competitive advantage.

The technologies used in the cable and satellite television industry are rapidly evolving. Many technologies and technological standards are in development and have the potential to significantly transform the ways in which programming is created and transmitted. We cannot accurately predict the effects that implementing new technologies will have on our programming and broadcasting operations. We may be required to incur substantial capital expenditures to implement new technologies, or, if we fail to do so, may face significant new challenges due to technological advances adopted by competitors, which in turn could result in harming our business and operating results.

If our goodwill becomes impaired, we will be required to recognize a noncash charge which could have a significant effect on our reported net earnings.

A significant portion of our assets consists of goodwill. In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, or SFAS 142, we test goodwill for impairment on September 30 of each year, and on an interim date if factors or indicators become apparent that would require an interim test. A significant downward revision in the present value of estimated future cash flows for a reporting unit could result in an impairment of goodwill under SFAS 142 and a noncash charge would be required. Such a charge could have a significant effect on our reported net earnings.

Future issuance by us of preferred shares could adversely affect the holders of existing shares, and therefore reduce the value of existing shares.

We are authorized to issue up to 25,000,000 shares of preferred stock. The issuance of any preferred stock could adversely affect the rights of the holders of shares of our common stock, and therefore reduce the value of such shares. No assurance can be given that we will not issue shares of preferred stock in the future.

We do not expect to pay dividends in the foreseeable future.

We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends will also depend on our financial condition, operating results, capital requirements and other factors and will be at the discretion of our board of directors. Furthermore, at the time of any potential payment of a cash dividend we may subject to contractual restrictions on, or prohibitions against, the payment of dividends.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

ITEM 3. Defaults Upon Senior Securities.

None.

ITEM 4. Submission of Matters to a Vote of Security Holders.

None.

ITEM 5. Other Information.

As of March 31, 2008, we held $25.9 million (net of other-than-temporary impairment of $0.3 million) of principal invested in auction-rate securities. Auction-rate securities are investment vehicles with long-term or perpetual maturities which pay interest monthly at current market rates reset through a Dutch auction. These monthly auctions have historically provided a liquid market for these securities, and we have therefore presented our auction-rate securities as current assets. Beginning in February 2008, the majority of auctions for these types of securities failed due to the recent liquidity issues experienced in global credit and capital markets. Our auction-rate securities followed this trend and experienced multiple failed auctions due to insufficient investor demand. As there is currently a limited secondary market for auction-rate securities, we have been unable to convert all of our positions to cash. We do not anticipate being in a position to liquidate all of these investments until there is a successful auction or the security issuer redeems the security, and accordingly, have reflected a portion of our investments in auction-rate securities as non-current assets on our balance sheet. Our auction-rate security investments continue to pay interest according to their stated terms, are fully collateralized by underlying financial instruments (primarily closed end preferred and municipalities) and have maintained AAA/AA credit ratings despite the failure of the auction process.

The fair values of our auction-rate securities as of March 31, 2008 were based on indicators in the marketplace, subsequent sales and recent trades of similar securities. Based on our analysis of fair values we recorded an other-than-temporary impairment on auction-rate securities of $0.3 million for the three months ended March 31, 2008.

The Company continues to monitor the market for auction-rate securities and consider its impact (if any) on the fair value of its investments. If the current market conditions deteriorate further, or the anticipated recovery in fair values does not occur, the Company may be required to record additional impairment charges in future periods. As of May 8, 2008, the Company had investments in auction-rate securities totaling $16.1 million.

In conjunction with ongoing negotiations for the renewal and extension of their agreement, Outdoor Channel Holdings, Inc. (the “Company”) has learned from DirecTV that since October 2007 DirecTV has been making Outdoor Channel available to more customers than authorized in the agreement. DirecTV recently modified its carriage of Outdoor Channel. Although the Nielsen Media Research (“Nielsen”) estimated number of households receiving Outdoor Channel has not increased significantly since October 2007, the Company is unable to ensure that there will be no decrease in Nielsen’s estimated number of households receiving Outdoor Channel in the future as a result of this recent modification of carriage by DirecTV. The Company continues its negotiations with DirecTV and has authorized DirecTV to continue carrying Outdoor Channel.

ITEM 6. Exhibits.

Exhibit
Number	Description
3.1	Certificate of Incorporation of Outdoor Channel Holdings, Inc, a Delaware corporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 20, 2004 and incorporated herein by reference)
3.2	By-Laws of Outdoor Channel Holdings, Inc., a Delaware corporation (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on September 20, 2004 and incorporated herein by reference)
4.1	Instruments defining the rights of security holders, including debentures (see Exhibits 3.1 and 3.2 above and Exhibit 4.1 to the Company’s Form 10-Q for the period ended June 30, 2005)
31.1	Certification by Chief Executive Officer
31.2	Certification by Chief Financial Officer
32.1*	Section 1350 Certification by Chief Executive Officer
32.2*	Section 1350 Certification by Chief Financial Officer

* Pursuant to Commission Release No. 33-8238, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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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.

OUTDOOR CHANNEL HOLDINGS, INC.
 

/s/ Shad L. Burke  

Shad L. Burke 

Authorized Officer, Chief Financial Officer and Principal Accounting Officer
Date: May 9, 2008

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