FORM 10-K—ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended DECEMBER 31, 2004

For the transition period from _______to________

Commission file number 333-43157

NORTHLAND CABLE TELEVISION, INC.

AND SUBSIDIARY GUARANTOR:

NORTHLAND CABLE NEWS, INC.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (206) 621-1351

     Securities registered pursuant to including Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

10 1/4% Senior Subordinated Notes due 2007

Indicate by check mark whether registrant 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, and has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes o No þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes o No þ

     As of December 31, 2003 the Company had 10,000 shares outstanding, all of which are held by an affiliate.

 

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 31.(A)
EXHIBIT 31.(B)
EXHIBIT 32.(A)
EXHIBIT 32.(B)

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Table of Contents

Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Litigation Reform Act of 1995. Statements contained or incorporated by reference in this document that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Reform Act of 1995. Forward-looking statements may be identified by use of forward-looking terminology such as “believe”, “intends”, “may”, “will”, “expect”, “estimate”, “anticipate”, “continue”, or similar terms, variations of those terms or the negative of those terms.

PART I

ITEM 1. BUSINESS

Northland Cable Television, Inc. (the “Company”), a Washington Corporation, was formed in October 1985 and owns and operates 31 cable television systems serving small cities, towns, and rural communities in California, Georgia, South Carolina, North Carolina, Texas and Washington (collectively the “Systems”). The Company is a wholly owned subsidiary of Northland Telecommunications Corporation (“NTC”), which, together with the Company and its other affiliates, has specialized in providing cable television and related services in non-urban markets since 1981. Other subsidiaries of NTC include:

NORTHLAND COMMUNICATIONS CORPORATION (“NCC”) — formed in March 1981 and principally involved in the ownership and management of cable television systems. NCC is the sole shareholder of Northland Cable Properties, Inc.

NORTHLAND CABLE PROPERTIES, INC. (“NCPI”) — formed in February 1995 and principally involved in the direct ownership of local cable television systems. NCPI is the majority member of Northland Cable Ventures LLC.

NORTHLAND CABLE VENTURES LLC (“NCV”) — formed in June 1998 and principally involved in the direct ownership of local cable television systems. NCV’s minority member is an LLC principally owned by executives of the Company.

NORTHLAND CABLE SERVICES CORPORATION (“NCSC”) — formed in August 1993 and principally involved in the support of computer software used in billing and financial record keeping for, and Internet related services provided by, Northland-affiliated cable systems. Also provides technical support associated with the build out and upgrade of Northland affiliated cable systems. Sole shareholder of Cable Ad-Concepts.

CABLE AD-CONCEPTS, INC. (CAC) — formed in November 1993 and principally involved in the sale, development and production of video commercial advertisements that are cablecast on Northland affiliated cable systems.

NORTHLAND MEDIA, INC. — formed in April 1995 as a holding company. Sole shareholder of the following entity:

CORSICANA MEDIA, INC. — purchased in September 1998 from an affiliate and principally involved in operating an AM radio station serving the community of Corsicana, Texas and surrounding areas.

Since closing its initial acquisition in 1986, the Company has continued to target, negotiate and complete acquisitions of cable systems and integrate the operation of such systems. The Company has increased its basic and premium subscribers through strategic acquisitions, selective system upgrades and extensions of its cable systems. As of December 31, 2004, the total number of basic subscribers served by the Systems was 79,307, and the Company’s penetration rate (basic subscribers as a percentage of homes passed) was approximately 47%.

On March 11 and March 31, 2003, the Company sold the operating assets and franchise rights of its cable systems in and around Port Angeles, Washington and Aiken, South Carolina, respectively, which served approximately 21,850 subscribers. This filing and the accompanying financial statements present the results of operations and the sale of the Aiken and Port Angeles systems as discontinued operations.

The Company has 74 non-exclusive franchises to operate the Systems. These franchises, which will expire at various dates through 2022, have been granted by local and county authorities in the areas in which the Systems operate. While the franchises have defined lives based on the agreements with the franchising authorities, renewals are routinely granted, and management expects them to continue to be granted. These franchise agreements are expected to be used by the Company

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for the foreseeable future and effects of obsolescence, competition and other factors are minimal. In addition, the level of maintenance expenditures required to obtain the future cash flows expected from the franchises are not material in relation to the carrying value of the franchises. These assumptions and expectations are supported by management’s experience with the Company’s franchising authorities and the franchising authorities of the Company’s affiliates. Franchise fees are paid to the granting governmental authorities. These fees vary between 1% and 5% and are generally based on the respective gross revenues of the Systems in a particular community. The franchises may be terminated for failure to comply with their respective conditions.

THE SYSTEMS

The Company’s Systems are divided into four geographical regions. Unless otherwise indicated, all operating statistical data set forth in the following table and the region-by-region description of the Systems, which follows, is as of December 31, 2004.

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(1)	Homes passed refers to estimates of the number of dwelling units in a particular community that can be connected to the distribution system without any further extension of principal transmission lines. Such estimates are based upon a variety of sources, including billing records, house counts, city directories and other local sources.
(2)	The number of basic subscribers has been computed by adding the actual number of subscribers for all non-bulk accounts and the equivalent subscribers for all bulk accounts. The number of such equivalent subscribers has been calculated by dividing aggregate basic service revenue for bulk accounts by the full basic service rate for the community in which the account is located.
(3)	Percentage of all basic subscribers based on an aggregate of all Systems.
(4)	Premium service units represent the number of subscriptions to premium channels.
(5)	EBITDA represents a non-GAAP measure and is one of the primary measures used by our management to evaluate performance and to forecast future results. EBITDA margin represents EBITDA as a percentage of revenue. We believe EBITDA is useful to assess performance in a manner similar to the method used by management, and provides a measure that can be used to analyze, value and compare the companies in the cable television industry, which may have different depreciation and amortization policies. A limitation of this measure is that it excludes depreciation and amortization, which represents the period costs of certain capitalized tangible and intangible assets, and gains and losses recognized on the disposal of assets. It is also not intended to be a performance measure that should be regarded as an alternative either to operating income (loss) or net income (loss) as an indicator of operating performance or to the statement of cash flows as a measure of liquidity and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Our definitions of EBITDA may not be identical to similarly titled measures reported by other companies. (See reconciliation of EBITDA to operating income (loss) included in the Results of Operations section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

The South Carolina/North Carolina/Georgia Region. The South Carolina/North Carolina/Georgia Region consists of seven headends serving 38,745 subscribers. Three headends, located in Greenwood and Clemson, South Carolina and Statesboro, Georgia, serve 34,697 subscribers or 89.5% of the total subscribers in the region. The region is currently operated from four primary local offices located in Greenwood and Clemson, South Carolina, Statesboro, Georgia and Highlands, North Carolina.

Clemson, South Carolina. The Clemson area systems serve 11,772 subscribers from two headends. The Clemson system, which is home to Clemson University, is the largest system, serving 11,619 subscribers or approximately 98.7%.

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Approximately 63% of the Clemson system’s plant has a channel capacity of 450 MHz or better. The Company currently offers digital television service in the Clemson system and began offering high-speed Internet services to certain areas in 2003. Additionally, the Clemson area systems have a strong advertising sales effort, and their principal office and headend sites are owned by the Company.

Greenwood, South Carolina. The Greenwood system serves 15,758 subscribers from three headends, with 14,174 or approximately 90% of the systems’ total basic subscribers being served by the largest headend. The Greenwood system has a minimum of 450 MHz channel capacity. Approximately 60% of the systems’ plant has a channel capacity of 550 MHz. Although this system employed fiber optic technology, the Company has constructed an expansion of the fiber optic backbone designed to support 860 MHz capacity. Additionally, a fiber optic backbone interconnect was constructed to the Saluda and Edgefield systems for system upgrades and connection, which was completed during 2003. The Company currently offers digital television service in the Greenwood system and began offering high-speed Internet services to certain areas during 2003. The Greenwood area has a diversified industrial base consisting of local, national and foreign manufacturing companies covering such diverse industries such as pharmaceuticals, photo film textiles, industrial robotics, gardening seeds and prefabricated homes. The Company owns its office and headend site.

Statesboro, Georgia. The Statesboro system serves 8,904 subscribers from a single headend al of which are served by plant with 450 MHz channel capacity. The Company currently offers digital television service in the Statesboro system and began offering high-speed Internet services to certain areas during 2003. The Statesboro system has a strong advertising sales effort and its office and headend site are owned by the Company. Statesboro is home to Georgia Southern University.

Highlands, North Carolina. The Highlands system serves 2,311 subscribers from a single headend. Approximately 24% of the systems plant has a channel capacity of 330 MHz channel capacity and 76% has a channel capacity of 450 MHz. The system currently utilizes and plans to expand a fiber backbone designed to ultimately support 860 MHz capacity. Highlands is located on a plateau of the Blue Ridge Mountains where Georgia, North Carolina and South Carolina meet. The Highlands area has long been a vacation destination for affluent families from many Southern cities. The area is encircled by 200,000 acres of the End National Forest. One of the main attractions of Highlands is the area’s exclusive golf clubs. The system experiences seasonality in its subscriber base, the area’s low season (winter) and high season (summer) fluctuate by approximately 700 basic subscribers.

The Washington Region. The Washington region consists only of the Moses Lake, Washington system, as the Company’s system serving Port Angeles, Washington was sold during 2003.

Moses Lake, Washington. The Moses Lake area systems serve 9,342 subscribers from three headends. The Moses Lake headend serves 64% of the subscribers. Additionally, the Moses Lake headend has a channel capacity of 450 MHz and a fiber optic backbone designed to support a 750 MHz capacity. The Company currently offers digital television service throughout the Moses Lake system and offers high-speed Internet services to certain areas. The office, three headend sites and a microwave site are owned by the Company. The three headends are interconnected via microwave for the delivery of certain off-air broadcast signals imported from the Seattle and Spokane, Washington markets. Each system maintains a separate headend facility for reception and distribution of satellite signals. The Othello system currently has a channel capacity of 450 MHz and a majority of the Ephrata system has a channel capacity minimum of 400 MHz .

The Texas Region. The Texas Region is characterized by smaller systems, with 15 headends serving 21,458 subscribers. Seven headends currently serve 83% of the subscribers. Additionally, the Company’s management structure allows it to achieve operating efficiencies, as only five local offices are required to service the region.

Stephenville, Texas. The Stephenville area systems serve 4,696 subscribers from a cluster of four headends. Stephenville is home to Tarleton State College, an affiliate of Texas A&M University. All of the subscribers are currently served by plant with 450 MHz or better channel capacity. The Company currently offers digital television service in the Stephenville system. The office and three of the headend sites are owned by the Company.

Mexia, Texas. The Mexia area systems serve 8,773 subscribers from a cluster of nine headends, with the two largest headends, Mexia and Crockett, serving 58% of the subscribers. Approximately 98% of the systems’ plant has a channel capacity of at least 400 MHz, with the Mexia headend utilizing a fiber optic backbone. The Company offers digital television service in the Mexia. The Mexia area has a diversified economy with Nucor Steel, Inc. as a major employer.

Marble Falls, Texas. The Marble Falls area systems serve 6,907 subscribers from a cluster of three headends. Approximately 83% of the subscribers in the area are served from a single headend. The combination office and headend site in Marble Falls is owned by the Company. Over the next two to three years the remaining systems in the Marble Falls

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area are scheduled to be upgraded to 400 MHz or 550 MHz capacity. The Company currently offers digital television service in the Marble Falls system and began offering high-speed Internet services to certain areas during 2003. The Marble Falls region is a popular outdoor recreation and retirement area for families from nearby Austin and San Antonio.

Navasota, Texas. The remaining headend in the Texas region, located in the Navasota, serves 1,082 subscribers, with all of the subscribers served by plant with 400 MHz capacity or better.

The California Region. The California Region serves 9,762 subscribers from six headends, which are operated from three offices located in Yreka, Oakhurst and Mount Shasta, California. Three headends serve 8,788 subscribers or 90% of the total subscribers in the region.

Oakhurst, California. The Oakhurst, California area is one of the entrances to Yosemite National Park. The Oakhurst area systems serve 3,168 subscribers from a cluster of five headends. The Oakhurst headend serves 69% of the subscribers in the area. Approximately 83% of the system’s plant has a channel capacity of at least 400 MHz. The Company currently offers digital television service in the Oakhurst system.

Yreka, California. The Yreka, California system, located near Mt. Shasta National Park, serves 2,798 subscribers from a single headend. Yreka is the county seat of Siskiyou County. The Yreka system currently has a minimum plant capacity of 450 MHz. The Company currently offers digital television service in the Yreka system and began offering high-speed Internet services to certain areas in 2004. The Yreka office and headend sites are owned by the Company.

Mount Shasta, California. The Mount Shasta, California system, serves 3,796 subscribers from a primary headend and is located in close proximity to the Company’s Yreka system. The system sits at the base of 14,162 foot Mt. Shasta, which attracts tourists year round with skiing, hiking and golf courses nearby. The communities of Mount Shasta, Dunsmuir and Weed are connected by fiber optic backbone and the community of McCloud is connected via AML microwave. Approximately 63% of the plant has 450 MHz capacity with the remaining plant having 550 MHz capacity. The Company currently offers digital television service in the Mount Shasta system and began offering high-speed Internet services during 2003. The Mount Shasta area has a strong economic base. Forestry, forest services and tourism are the major industries.

As of December 31, 2004, the Company had approximately 205 full-time employees and 12 part-time employees. 11 of the Company’s employees at its Moses Lake, Washington system are represented by a labor union. The Company considers its relations with its employees to be good.

The Company’s cable television business generally is not considered seasonal. Its business is not dependent upon a single customer or a few customers, the loss of any one or more of which would have a material adverse effect on its business. No customer accounts for 10% or more of revenues. No material portion of the Company’s business is subject to re-negotiation of profits or termination of contracts or subcontracts at the election of any governmental unit, except that franchise agreements may be terminated or modified by the franchising authorities as noted above. During the last year, the Company did not engage in any research and development activities.

Company revenues are derived primarily from monthly payments received from cable television subscribers. Subscribers are divided into five categories: basic subscribers, expanded basic subscribers, premium subscribers, digital subscribers, and Internet subscribers. “Basic subscribers” are households that subscribe to the basic level of service, which generally provides access to the three major television networks (ABC, NBC and CBS), a few independent local stations, PBS (the Public Broadcasting System) and certain satellite programming services, such as ESPN, CNN or The Discovery Channel. “Expanded basic subscribers” are households that subscribe to an additional level of programming service, the content of which varies from system to system. “Premium subscribers” are households that subscribe to one or more “pay channels” in addition to the basic service. These pay channels include such services as Showtime, Home Box Office, Cinemax, The Movie Channel, Encore and Starz. “Digital subscribers” are those who subscribe to digitally delivered video and audio services where offered. “Internet Subscribers” are those who subscribe to the Company’s high speed Internet service, which is offered via a cable modem.

COMPETITION

Cable television systems currently experience competition from several sources, including broadcast television, cable overbuilds, direct broadcast satellite services, private cable and multichannel multipoint distribution service systems, and most recently, a new category of wireless service recently authorized by the FCC known as Multichannel Video Distribution and Data Service, or MVDDS. Cable television systems are also in competition in various degrees with other communications and entertainment media, including motion pictures, home video cassette recorders, DVDs, Internet data

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delivery, Internet video delivery and telecommunications companies. The following provides a summary description of these sources of competition.

Broadcast Television

Cable television systems have traditionally competed with broadcast television, which consists of television signals that the viewer is able to receive directly on his television without charge using an “off-air” antenna. The extent of this competition is dependent in part upon the quality and quantity of signals available by antenna reception as compared to the services provided by the local cable system. Accordingly, cable operators find it less difficult to obtain higher penetration rates in rural areas (where signals available off-air are limited) than in metropolitan areas where numerous, high quality off-air signals are often available without the aid of cable television systems. The recent licensing of digital spectrum by the FCC will provide incumbent broadcast licenses with the ability to deliver high definition television pictures and multiple digital-quality program streams, as well as advanced digital services such as subscription video.

Overbuilds

Cable television franchises are not exclusive. More than one cable television system may be built in the same area. This is known as an “overbuild.” Overbuilds have the potential to result in loss of revenues to the operator of the original cable television system. Generally, an overbuilder is required to obtain franchises from the local governmental authorities, although in some instances, the overbuilder could be the local government itself and no franchise is required. An overbuilder would obtain programming contracts from entertainment programmers and, in most cases, would build a complete cable system such as headends, trunk lines and drops to individual subscribers’ homes throughout the franchise areas.

Companies with considerable resources have entered the business. These companies include public utilities to whose poles the Company’s cables are attached. Federal law allows telephone companies to provide a wide variety of services that are competitive with the Company’s services, including video and Internet services within and outside their telephone service areas. Several telephone companies have begun seeking cable television franchises from local governmental authorities and are constructing cable television systems. The Company cannot predict at this time the extent of the competition that will emerge in areas served by the Company’s cable television systems. The entry of telephone companies, public and private utilities and local governments as direct competitors, however, is likely to continue over the next several years and could adversely affect the profitability and market value of the Company’s systems.

Direct Broadcast Satellite Service

High powered direct-to-home satellites have made possible the wide-scale delivery of programming to individuals throughout the United States using small roof-top or wall-mounted antennas. The two leading DBS providers have experienced dramatic growth over the last several years. Companies offering direct broadcast satellite service use video compression technology to increase channel capacity of their systems to more than 100 channels and to provide packages of movies, satellite networks and other program services which are competitive to those of cable television systems. DBS companies historically faced significant legal and technological impediments to providing popular local broadcast programming to their customers. Federal legislation has reduced this competitive disadvantage, and has reduced the compulsory copyright fees paid by DBS companies and allowed them to continue offering distant network signals to rural customers. The availability of low or no cost DBS equipment, delivery of local signals in some markets and exclusivity with respect to certain sports programming has increased DBS’s market share over recent years. The impact of DBS services on the Company’s market share within its service areas cannot be precisely determined but is estimated to have taken away a significant number of subscribers. Satellite carriers are attempting to expand their service offerings to include, among other things, high-speed Internet services and are entering joint marketing arrangements with local telecommunications providers.

Satellite Master Antenna Television

Additional competition is provided by private cable television systems, known as satellite master antenna television (“SMATV”), serving multi-unit dwellings such as condominiums, apartment complexes, and private residential communities. These private cable systems may enter into exclusive agreements with apartment owners and homeowners associations, although some states have enacted laws to provide cable system access to these facilities. Operators of private cable, which do not cross public rights of way, are largely free from the federal, state and local regulatory requirements

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imposed on franchised cable television operators. In addition, some SMATV operators are developing and/or offering packages of telephony, data and video services to private residential and commercial developments.

Mulitchannel Multipoint Distribution Service Systems

Cable television systems also compete with wireless program distribution services such as multichannel, multipoint distribution service systems (“MMDSS”) commonly called wireless cable, which are licensed to serve specific areas. MMDSS uses low-power microwave frequencies to transmit television programming over-the-air to paying subscribers. This industry is less capital intensive than the cable television industry, and it is therefore more practical to construct systems using this technology in areas of lower subscriber penetration.

High-Speed Internet Services

Some of our cable systems are currently offering high-speed Internet services to subscribers. These systems compete with a number of other companies, many of whom have substantial resources, such as existing Internet service providers (“ISPs”) and telecommunications companies. The deployment of digital subscriber line (“DSL”) technology allows Internet access over telephone lines and transmission rates far in excess of conventional modems. Many local telephone companies are seeking to provide Internet services without regard to their present service boundaries. Further, the FCC has recently reduced the regulatory burden on local telephone companies by, for example, reducing their obligation to provide Internet on a wholesale basis to competitors.

A number of cable operators have reached agreements with unaffiliated ISPs to grant them access to their cable facilities for the purpose of providing competitive Internet services. The Company has not entered into any such “access” arrangement. However, we cannot provide any assurance that regulatory authorities will not impose “open access” or similar requirements on us as part of an industry-wide requirement. These requirements could adversely affect our results of operations.

REGULATION AND LEGISLATION

Summary

The following summary addresses key regulatory issues and legislation affecting the cable television industry. Other existing federal legislation and regulations, copyright licensing and, in many jurisdictions, state and local franchise requirements are currently the subject of a variety of judicial proceedings, legislative hearings and administrative and legislative proposals, which could change, in varying degrees, the manner in which cable television systems operate. Neither the outcome of these proceedings nor their impact upon the cable television industry or the Company can be predicted at this time. Further, our high-speed Internet service, while not currently regulated, may be subject to regulation in the future.

The Company expects to adapt its business to adjust to the changes that may be required under any scenario of regulation. At this time, the Company cannot assess the effects, if any, that present regulation may have on the Company’s operations and potential appreciation of its systems. There can be no assurance that the final form of regulation will not have a material adverse impact on the Company’s operations.

The operation of a cable system is extensively regulated at the federal, local, and, in some instances, state levels. The Communications Act of 1934, Cable Communications Policy Act of 1984, the Cable Television Consumer Protection and Competition Act of 1992 (the “1992 Cable Act”), and the 1996 Telecommunications Act (the “1996 Telecom Act”, and, collectively, the “Cable Act”) are the primary legislation providing for cable regulation and collectively establish a national policy to guide the development and regulation of cable television systems. The Federal Communications Commission (“FCC”) has principal responsibility for implementing the policies of the Cable Act. Many aspects of such regulation are currently the subject of judicial proceedings and administrative or legislative proposals. Legislation and regulations continue to change, and the Company cannot predict the impact of future developments on the cable television industry. Future regulatory and legislative changes could adversely affect the Company’s operations. Among the more substantial areas regarding our business are the following:

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Cable Rate Regulation

The 1992 Cable Act imposed an extensive rate regulation regime on the cable television industry, which limited the ability of cable companies to increase subscriber fees. Under that prior regime, all cable systems were subject to rate regulation, unless they face “effective competition” in their local franchise area. Federal law now defines “effective competition” on a community-specific basis as requiring satisfaction of conditions rarely satisfied in the current marketplace.

The FCC itself historically administered rate regulation of cable programming service tiers, which represent the expanded level of non-“basic” and non-“premium”, programming services. The 1996 Telecom Act, however, provided special rate relief for small cable operators offering cable programming service tiers. The elimination of cable programming service tier regulation afforded the Company substantially greater pricing flexibility.

Although the FCC established the underlying regulatory scheme, local government units, commonly referred to as local franchising authorities (“LFAs”), are primarily responsible for administering the regulation of the lowest level of cable service called the basic service tier. The basic service tier typically contains local broadcast stations and public, educational, and government access channels. LFAs also have primary responsibility for regulating cable equipment rates. Under federal law, charges for various types of cable equipment must be unbundled from each other and from monthly charges for programming services. Before a local franchising authority begins basic service rate regulation, it must certify to the FCC that it will follow applicable federal rules. Many local franchising authorities have voluntarily declined to exercise their authority to regulate basic service rates, although they may do so in the future. Under the FCC’s rate rules, premium cable services offered on a per-channel or per-program basis remain unregulated, as do affirmatively marketed packages consisting entirely of new programming products.

In a particular effort to ease the regulatory burden on small cable systems, the FCC created special rate regulations applicable for systems with fewer than 15,000 subscribers owned by an operator with fewer than 400,000 subscribers. The special rate regulations allow for a simplified cost-of-service showing. Almost all of the Company’s systems are eligible for these simplified cost-of-service rules.

As of December 31, 2003, several LFAs governing certain of the Company’s systems have properly certified to regulate basic tier rates. However, in accordance with certain notice requirements under the 1992 Cable Act, other communities may certify and regulate rates. It is, therefore, possible that additional localities served by the systems may choose to certify and regulate rates in the future. Certain legislators, however, have called for new rate regulations. Should this occur, all rate deregulation, including that applicable to small operators like the Company, could be jeopardized.

Cable Entry Into Telecommunications

The 1996 Telecom Act creates a more favorable environment for the Company to provide telecommunications services beyond traditional video delivery. It provides that no state or local laws or regulations may prohibit or have the effect of prohibiting any entity from providing any interstate or intrastate telecommunications service. A cable operator is authorized under the 1996 Telecom Act to provide telecommunications services without obtaining a separate local franchise. States are authorized, however, to impose “competitively neutral” requirements regarding universal service, public safety and welfare, service quality, and consumer protection. State and local governments also retain their authority to manage the public rights-of-way and may require reasonable, competitively neutral compensation for management of the public rights-of-way when cable operators provide telecommunications service.

The favorable pole attachment rates afforded cable operators under federal law can be gradually increased by utility companies owning the poles, beginning in 2001, if the operator provides telecommunications service, as well as cable service, over its plant. The FCC has adopted rules, upheld by the courts, that regulate the rates and terms under which utilities must grant access to their poles. (These regulations do not control the rates and terms under which electrical cooperatives may decide to grant cable operators access to their poles.) The utilities have a history of aggressively litigating the various aspects of the FCC’s pole attachment rulemakings, and despite recent favorable court decisions, we expect the utilities to continue to raise additional issues regarding pole attachments. An adverse decision regarding pole rates or terms of our agreements could potentially increase our pole attachment costs.

High-Speed Internet Service

Since its introduction, some local governments and various competitors have sought to impose regulatory requirements on certain aspects of ISP services. Thus, a few local governments have sought to impose regulation on cable provision of Internet services, and in each case, the court has invalidated each such regulation. Similarly, the FCC has refused to classify high-speed cable data services as a “telecommunications service”, but rather has classified it as an “interstate

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information service.” As such, high-speed cable services are currently free from local regulation. Despite the FCC rulings, several localities have sought judicial review of the FCC’s decision. In addition, the FCC may always consider whether to impose any regulatory requirements, whether LFAs should be able to impose any fees or other regulations, such as customer service standards. Further, several LFAs have sued other cable operators seeking payment of franchise fees on cable Internet services. Currently, the FCC has ruled that such fees are not allowable. The matter has been addressed by at least one appellate court which has similarly ruled that Internet services are not subject to LFAs franchise fees.

Some local franchising authorities have unsuccessfully tried to impose mandatory Internet access or “open access” requirements as part of cable franchise renewals or transfers. In AT&T Corp v. City of Portland, No. 99-35609 (9th Cir., June 22, 2000), the federal Court of Appeals for the Ninth Circuit ruled that an LFA may not impose “open access” requirements as a condition of transfer of the franchise. The court held that Internet services were not “cable services” subject to local regulations, but that Internet services had characteristics of both “information services” and “telecommunications services.” The potential regulatory state and federal implications of this rationale are unclear, given the various regulatory requirements for the provision of telecommunications services. In addition to the Ninth Circuit ruling, there have been several other court rulings that have rejected local imposition of “open access” conditions on cable-provided Internet access relying on various other grounds, for example, a cable company’s free speech rights under the First Amendment. Other local authorities have imposed or may impose mandatory Internet access requirements on cable operators. These developments could burden the capacity of cable systems and complicate any plans the Company may have to develop for providing Internet service.

Telephone Entry Into Cable Television

The 1996 Telecom Act allows telephone companies to compete directly with cable operators by repealing the historic telephone company/cable cross-ownership ban. Local exchange carriers, including the regional telephone companies, can now compete with cable operators both inside and outside their telephone service areas with certain regulatory safeguards. Because of their resources, local exchange carriers could be formidable competitors to traditional cable operators. Various local exchange carriers currently are providing video programming services within their telephone service areas through a variety of distribution methods, including both the deployment of broadband wire facilities, the use of wireless transmission, and through the resale of bundled packages that include satellite video services.

Electric Utility Entry Into Telecommunications/Cable Television

The 1996 Telecomm Act provides that registered utility holding companies and subsidiaries may provide telecommunications services, including cable television, notwithstanding the Public Utility Holding Company Act. Electric utilities must establish separate subsidiaries, known as “exempt telecommunications companies” and must apply to the FCC for operating authority. Like telephone companies, electric utilities have substantial resources at their disposal, and could be formidable competitors to traditional cable systems. Several of these utilities have been granted broad authority by the FCC to engage in activities, which could include the provision of video programming.

Additional Ownership Restrictions

The 1996 Telecomm Act eliminates statutory restrictions on broadcast/cable cross-ownership, including broadcast network/cable restrictions, but leaves in place existing FCC regulations prohibiting local cross-ownership between co-located television stations and cable systems. The 1996 Cable Act leaves in place existing restrictions on cable cross-ownership with satellite master antenna television and multichannel multipoint distribution service facilities, but lifts those restrictions where the cable operator is subject to effective competition. FCC regulations permit cable operators to own and operate satellite master antenna television systems within their franchise area, provided that their operation is consistent with local cable franchise requirements.

Must Carry/Retransmission Consent

The 1992 Cable Act contains broadcast signal carriage requirements that require cable operators to carry most commercial and non-commercial broadcast stations without compensation to the cable operator. Once every three years, local commercial television broadcast stations may elect between “must carry” status or “retransmission consent” status. Under the latter, local broadcast stations may negotiate the terms of carriage, which may include the payment of fees or require the carriage of other programming content. As broadcasters transition from analog to digital transmission technologies, the FCC is considering whether to require cable companies to simultaneously carry both analog and digital signals of a single broadcaster, and once digital carriage is required of broadcasters, whether cable companies may be required to carry

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multiple digital program streams that each broadcaster may have the capability to transmit (commonly referred to as “Digital Must Carry”). If the FCC requires Digital Must Carry, the Company will have less freedom to allocate the usable spectrum of the cable plant, which in turn, would diminish our ability to provide those services to our subscribers that we believe they would be most likely to purchase, such as advanced video services, Internet services and, perhaps, telecommunications services. As a result, Digital Must Carry could diminish our ability to attract and retain subscribers. It is not possible to predict whether the FCC will require Digital Must Carry. To date, the Company has been able to reach mutually acceptable arrangements with all of the broadcasters who elected retransmission consent.

Access Channels

Local franchising authorities can include franchise provisions requiring cable operators to set aside certain channels for public, educational and governmental access programming. Federal law also requires cable systems to designate a portion of their channel capacity, up to 15% in some cases, for commercial leased access by unaffiliated third parties. The FCC has adopted rules regulating the terms, conditions and maximum rates a cable operator may charge for commercial leased access use. While, in the Company’s experience to date, requests for commercial leased access carriages have been relatively limited, it is always possible that demand could increase or the revisions could be made to the above requirements that would place further burdens on the channel capacity of our cable systems.

Access to Programming

To spur the development of independent cable programmers and competition to incumbent cable operators, the Act precludes cable operators, satellite services in which they have an attributable interest, and satellite broadcast programming vendors from hindering the distribution of satellite delivered programming by any multi-channel video program distributor. This prohibition prevents satellite delivered programming vendors from favoring their cable operators over new competitors and requires these programmers to sell their programming to other multi-channel video distributors. These rules do not apply to cable programmers who are not affiliated with cable operators or programmers who deliver their service by terrestrial means (rather than by satellite). Recent mergers and acquisitions in the industry may make vertical integration of cable operators and programming more difficult in the future. At this time, it is not possible to predict what facts or circumstances may impact the Company’s ability to have continued access to the programming it currently carries or that might become available in the future.

Multiple Dwelling Unit Inside Wiring; Subscriber Access; Satellite Dish Installations

The FCC has established rules that regulate how an incumbent cable operator, upon expiration of a multiple dwelling unit’s (“MDU”) service contract, sells, abandons, or removes “home run” wiring that was installed by the cable operator in a MDU building. While these inside wiring rules are expected to assist building owners in their attempts to replace existing cable operators with new programming providers who are willing to pay the building owner a higher fee, where this fee is permissible, the FCC has also declined to prohibit exclusive or to cap perpetual arrangements held by incumbent cable operators with MDU owners. However, in certain states, local access laws prohibit exclusive arrangements with MDUs. Further, with limited exceptions, existing federal and FCC regulation prohibit any state or local law or regulations, or private covenant, private contract, lease provision, homeowners’ association rule or similar restriction, impairing the installation, maintenance or use of certain video reception antennas satellite dishes on property within the exclusive control of a tenant or property owner.

Other Regulations of the Federal Communications Commission

In addition to the FCC regulations noted above, there are other FCC regulations covering such areas as the following: equal employment opportunity, set top box regulations, subscriber privacy, programming practices, including, among other things, syndicated program exclusivity, network program nonduplication, local sports blackouts, indecent programming, lottery programming, political programming, sponsorship identification, children’s programming advertisements, closed captioning, registration of cable systems and facilities licensing, maintenance of various records and public inspection files, aeronautical frequency usage, lockbox availability, antenna structure notification, tower marking and lighting, consumer protection and customer service standards, technical standards, consumer electronics equipment compatibility, and emergency alert systems.

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Enforcement

The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations.

Copyright

Cable television systems are subject to federal copyright licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenues to a federal copyright royalty pool, cable operators can obtain blanket permission to retransmit copyrighted material included in broadcast signals. The possible modification or elimination of this compulsory copyright license is the subject of continuing legislative review and could adversely affect the Company’s ability to obtain desired broadcast programming. The outcome of this legislative activity cannot be predicted. Copyright clearances for nonbroadcast programming services are arranged through private negotiations.

In addition, cable operators distribute locally originated programming and advertising that use music controlled by one of the three principal music performing rights organizations: the American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and SESAC, Inc., originally known as the Society of European Stage Authors and Composers. The cable industry has had a long series of negotiations and adjudications with these organizations, and we cannot predict with certainty whether license fee disputes may arise in the future.

State and Local Franchise Regulation

Cable television systems generally are operated pursuant to nonexclusive franchises granted by a municipality or other state or local government entity in order to cross public rights-of-way. Cable franchises generally are granted for fixed terms and in many cases include monetary penalties for non-compliance and may be terminable if the franchisee fails to comply with material provisions. The specific terms and conditions of franchises vary materially between jurisdictions. Each franchise may contain provisions governing cable operations, service rates, franchising fees, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, and indemnification protections. A number of states subject cable systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. Although local franchising authorities have considerable discretion in establishing franchise terms, local franchising authorities cannot demand franchise fees exceeding 5% of the system’s gross revenues derived from cable television services, cannot dictate the particular technology used by the system, cannot specify video programming other than identifying broad categories of programming and cannot require cable operators to provide any telecommunications service or facilities, (other than institutional networks under certain circumstances), as a condition of an initial cable franchise grant, franchise renewal, or franchise transfer.

Federal law contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. Even if a franchise is renewed, the local franchising authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and service or increased franchise fees as a condition of renewal. Similarly, if a local franchising authority’s consent is required for the purchase or sale of a cable system or franchise, the local franchising authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for consent. Historically, most of the Company’s franchises have been            renewed and transfer consents granted.

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ITEM 2. PROPERTIES

The Company’s cable television systems are located in and around Stephenville, Marble Falls, Mexia and Navasota, Texas; Moses Lake, Washington; Clemson and Greenwood, South Carolina; Highlands, North Carolina; Statesboro, Georgia; and Yreka, Mount Shasta and Oakhurst, California.

On March 11, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of Port Angeles, Washington (the “Port Angeles System”). The Port Angeles System was sold at a price of approximately $11,375,000, of which the Company received approximately $10,800,000 at closing. Substantially all of the proceeds were used to pay down amounts outstanding under the Company’s Senior Credit Facility. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $575,000 was to be held in escrow and released to the Company one year from the closing of the transaction, subject to general representations and warranties. In March of 2004, the Company received notice from the buyer of the Port Angeles System of certain claims, which were made under the hold back agreement provisions of the purchase and sale agreement. Management believes that such claims are unsubstantiated and intends to vigorously contest such claims. However, approximately $433,000 of the original escrow proceeds will remain in escrow until such claims are resolved. The Company has filed a lawsuit against the buyer of the Port Angeles System for recovery of the remaining escrow proceeds and unspecified damages. The escrow proceeds in excess of the claims were released to the Company in March of 2004.

On March 31, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of Aiken, South Carolina (the “Aiken System”). The Aiken System was sold at a price of approximately $46.3 million of which the Company received approximately $42.6 million at closing. Substantially all of the proceeds were used to pay down amounts outstanding under the Company’s Senior Credit Facility. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $3.7 million was held in escrow and released, in full, to the Company in March of 2004.

The sales were made pursuant to offers by separate, independent third parties. Based on the offers made, management determined that acceptance of the offers would be in the best economic interest of the Company. The sales were not a result of declining or deteriorating operations nor was it necessary to create liquidity or reduce outstanding debt.

A cable television system consists of three principal operating components. The first component, known as the headend, receives television, radio and information signals generally by means of special antennas and satellite earth stations. The second component, the distribution network, which originates at the headend and extends throughout the system’s service area, consists of microwave relays, coaxial or fiber optic cables and associated electronic equipment placed on utility poles or buried underground. The third component of the system is a “drop cable,” which extends from the distribution network into each customer’s home and connects the distribution system to the customer’s television set. An additional component used in certain systems is the home terminal device, or converter, that expands channel capacity to permit reception of more than twelve channels of programming on a non-cable ready television set.

The Company’s principal physical assets consist of cable television systems, including signal-receiving, encoding and decoding apparatus, headends, distribution systems and subscriber house drop equipment for each of its systems. The signal receiving apparatus typically includes a tower, antennas, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, typically are located near the receiving devices. The Company’s distribution systems consist primarily of coaxial cable and related electronic equipment. As upgrades are completed, the systems will generally incorporate fiber optic cable. Subscriber equipment consists of traps, house drops and, in some cases, converters. The Company owns its distribution systems, various office fixtures, test equipment and certain service vehicles. The physical components of the systems require maintenance and periodic upgrading to keep pace with technological advances.

The Company’s cables are generally attached to utility poles under pole rental agreements with local public utilities, although in some areas the distribution cable is buried in trenches or placed in underground ducts. The FCC regulates most pole attachment rates under the federal Pole Attachment Act although in certain cases attachment rates are regulated by state law.

The Company owns or leases parcels of real property for signal reception sites (antenna towers and headends), microwave complexes and business offices. The Company believes that its properties, both owned and leased, are in good condition and are suitable and adequate for the Company’s business operations as presently conducted.

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ITEM 3. LEGAL PROCEEDINGS

The Company is a party to ordinary and routine litigation proceedings that are incidental to the Company’s business. Management believes that the outcome of all pending legal proceedings will not, individually or in the aggregate, have a material adverse effect on the Company, its financial condition, prospects and debt service ability.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) There is no established public trading market for the Company’s common equity.

(b) The Company has one common equity holder as of December 31, 2004.

(c) During 2004, the Company did not pay cash dividends and has no intentions of paying cash dividends in the foreseeable future, due to restrictions in its loan agreements.

ITEM 6. SELECTED FINANCIAL DATA

The data set forth below should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data.”

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(1)		As of December 31, 2001, the Company discontinued amortization of its franchise agreements and goodwill in accordance with SFAS No. 142. Amortization of these items attributable to continuing operations was $8,128,664 and $8,012,500 for the years ended December 31, 2001 and 2000, respectively.
(2)		On March 11 and March 31, 2003, the Company sold the operating assets and franchise rights of its cable systems in and around Port Angeles, Washington and Aiken, South Carolina, respectively. The results of operations and the sale of these systems are presented as discontinued operations in this filing and the accompanying financial statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

2004 and 2003

Basic subscribers attributable to continuing operations decreased 5,289 or 6%, from 84,596 as of December 31, 2003 to 79,307 as of December 31, 2004. The loss in subscribers is a result of several factors including competition from DBS providers, ava