10-Q 1 a10-q.txt 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000. [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission File Number 333-62077 Jones International Networks, Ltd. Exact name of registrant as specified in charter Colorado #84-1470911 State of organization I.R.S. employer I.D.# 9697 East Mineral Avenue, Colorado 80112 Address of principal executive office (303) 792-3111 Registrant's telephone number Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES INDEX

JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

The accompany notes to these unaudited consolidated financial statements are an integral part of these consolidated financial statements. 2 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

The accompany notes to these unaudited consolidated financial statements are an integral part of these consolidated financial statements. 3 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompany notes to these unaudited consolidated financial statements are an integral part of these consolidated financial statements. 4 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This Form 10-Q is being filed by Jones International Networks, Ltd. and its subsidiaries (the "Company"). The accompanying consolidated statements of financial position as of December 31, 1999 and June 30, 2000, the consolidated statements of operations for the three and six months ended June 30, 1999 and 2000, and the statements of cash flows for the six months ended June 30, 1999 and 2000, are unaudited. This Form 10-Q is being filed in conformity with the SEC requirements for unaudited financial statements and does not contain all of the necessary footnote disclosures required for a complete presentation of the consolidated statements of financial position, consolidated statements of operations and consolidated statements of cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of results for these interim periods. The results of operations for the six months ended June 30, 2000 are not necessarily indicative of results to be expected for the entire year, or for any other interim period. COMPREHENSIVE INCOME--Adjustments to comprehensive income represent the net change in unrealized gains on available for sale securities. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS--Certain prior period amounts have been reclassified to conform to the current presentation. (2) TRANSACTIONS WITH AFFILIATED ENTITIES The Company is a subsidiary of Jones International, Ltd. ("Jones International"), a holding company with ownership in several companies involved in various industries. Jones International is wholly owned by the Company's Chairman, Glenn R. Jones, who is Chairman and Chief Executive Officer of Jones International and various of its subsidiaries. Certain officers or directors of the Company are also officers or directors of these affiliated entities and, from time to time, the Company may have transactions with these entities. Certain expenses are paid by affiliated entities on behalf of the Company and are allocated at cost based on specific identification or other methods which management believes are reasonable. Principal recurring transactions with affiliates, excluding Galactic/Tempo, d/b/a Superaudio ("Superaudio") and Jones Capstar Programming, LLC ("Jones/Capstar"), are described below. REVENUES--The Company earns up to a three percent commission on the sale of airtime for informational programming on an affiliated network. As a result of the related party ceasing its distribution efforts in the last quarter of 1999, this service was terminated in September 1999. For the three and six months ended June 30, 1999, the Company received approximately $43,000 and $88,000, respectively, for this service. The Company distributes its Great American Country network programming to certain cable television systems owned or managed by Jones Intercable, Inc. ("Jones Intercable"). Since April 7, 1999, Jones Intercable has not been an affiliate of the Company due to the sale of Mr. Jones' interest in Jones Intercable. Jones Intercable, through its new parent, has continued to pay the Company programming license fees subsequent to the sale of Mr. Jones' interest in Jones Intercable. For the three months ended June 30, 1999, Jones Intercable and its affiliated partnerships paid total license fees to the Company of approximately $85,000 for this programming service. For the six months ended in June 30, 1999, Jones Intercable and it's affiliated partnerships paid total license fees to the Company of approximately $322,000 for this programming service. Jones Earth Segment, Inc. ("Earth Segment"), a wholly owned subsidiary of the Company, provides playback, editing, duplication, trafficking and uplinking services to its cable programming network affiliates, to an affiliated entity and to third parties. This affiliated entity terminated its use of certain earth station services provided by Earth Segment in March 2000. Earth Segment charges affiliates for its services using rates which are calculated to achieve a specified rate of return on its investment to Earth Segment. For the three months ended June 30, 1999 and 2000, Jones International and its affiliates paid satellite 5 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) delivery and production support fees to the Company of approximately $905,000 and $428,000, respectively, for these services. For the six months ended June 30, 1999 and 2000, Jones International and its affiliates paid satellite delivery and production support fees to the Company of approximately $1,816,000, and $1,174,000, respectively, for these services. In addition, Jones Space Holdings, Inc. ("Space Holdings"), a subsidiary of the Company, subleases a non-preemptible satellite transponder to an affiliate of International. For the three months ended June 30, 1999 and 2000, the Company received satellite transponder lease revenues of approximately $369,000 and $385,000, respectively, for this service. For the six months ended June 30, 1999 and 2000, the Company received satellite transponder lease revenues of approximately $738,000 and $770,000, respectively, for this service. OPERATING EXPENSES--The Product Information Network Venture, ("PIN Venture") pays out a significant portion of the revenues generated by its infomercial programming in the form of system rebates to cable systems which enter into agreements to air such programming. The PIN Venture has continued to pay rebates to Jones Intercable (and its affiliated partnerships) subsequent to the change in the ownership described above. For the three months ended June 30, 1999, the PIN Venture paid Jones Intercable (and its affiliated partnerships) and Cox Communications rebates of approximately $778,000. For the six months ended June 30, 1999, the PIN Venture paid rebates to Jones Intercable (and its affiliated partnerships) and Cox Communications approximately $1,940,000. For the three months ended June 30, 2000, the PIN Venture paid rebates to Cox Communications of approximately $882,000. For the six months ended June 30, 2000, the PIN Venture paid rebates to Cox Communications of approximately $1,840,000. Jones Network Sales ("JNS"), a wholly owned subsidiary of Jones International, provided certain affiliate sales and marketing services to the Company. As a result of a related party no longer being in business, such affiliate sales and marketing functions have been incorporated into the operations of the Company starting in January 2000. For the three and six months ended June 30, 1999, the Company paid JNS approximately $337,000 and $702,000, respectively, for these services. Galactic Radio, Inc. ("Galactic Radio"), a wholly owned subsidiary of the Company, had a transponder lease agreement with Jones Satellite Holdings, Inc. ("Satellite Holdings"), an affiliate of the International, for the use of the sub-carriers on a non-preemptible satellite transponder. This agreement allowed Galactic Radio to use a portion of the transponder to distribute its audio programming. Galactic Radio terminated this agreement on January 31, 2000. For the three months ended June 30, 1999, the Company paid Satellite Holdings approximately $174,000 for this service. For the six months ended June 30, 1999 and 2000, the company paid Satellite Holdings approximately $348,000 and $57,000, respectively for this service. The Company leases and subleases office space in Englewood, Colorado from affiliates of Jones International. For the three months ended June 30, 1999 and 2000, the Company paid these affiliates approximately $36,000 and $131,000, respectively, for rent and associated expenses. For the six months ended June 30, 1999 and 2000, the Company paid $70,000 and $239,000 respectively for rent and associated expenses. An affiliate of Jones International charged the Company approximately $11,000 during the six months ended June 30, 2000 for the allocated costs of its airplane which was used by the Company in connection with a proposed equity offering. An affiliate of Jones International provides computer hardware and software support services to the Company. For the three months ended June 30, 1999 and 2000, the Company paid the affiliate approximately $199,000 and $336,000, respectively, for such services. For the six months ended June 30, 1999 and 2000, the Company paid approximately $410,000 and $690,000, respectively, for such services. The Company and its consolidated subsidiaries reimburse Jones International and its affiliates for certain allocated administrative expenses. These expenses generally consist of salaries, related benefits and other related costs. Allocations of personnel costs are generally based on actual time spent by affiliated associates with respect to the Company. For the three months ended June 30, 1999 and 2000, the Company reimbursed Jones International and its affiliates approximately $278,000 and $184,000, respectively. For the six months ended June 30, 1999 and 2000, the Company reimbursed Jones International and its affiliates approximately $546,000 and $384,000, respectively. To assist funding its operating and investing activities in the past, the Company had borrowed funds from Jones 6 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) International. Jones International's interest rate was calculated using the published prime rate plus two percent. Jones International charged interest on its advances to the Company at rates of approximately 10 percent per annum for the six months ended June 30, 1999. For the six months ended June 30, 1999, the Company paid Jones International interest of approximately $38,000. In the first quarter of 1999, Jones International elected to repay the income tax benefit receivable of approximately $1,335,000 through a reduction of the intercompany balance between the Company and Jones International. The remaining intercompany balance of approximately $255,000 was repaid in April 1999. The Company no longer receives long-term advances from Jones International. In the normal course of business, Jones International (1) remits funds on behalf of the Company to third parties and affiliates in payment of products and services purchased by the Company, and (2) receives funds on behalf of the Company in payment for products and services provided by the Company. Starting in April 1999, these amounts are reimbursed from or to Jones International on a monthly basis. Outstanding payable to Jones International and related parties at June 30, 2000 was approximately $367,000. (3) NET LOSS PER COMMON SHARE Basic earnings per share ("EPS") is computed by dividing the net earnings applicable to common shares by the weighted average of common shares outstanding during the period. Diluted EPS adjusts the basic weighted average of common shares outstanding by the assumed conversion of shares subject to put in the periods in which such effect would have been dilutive. Prior period amounts have been adjusted to reflect the effect of the 5-for-4 stock split which was effective on January 28, 2000. The table below presents a reconciliation of weighted average shares used in the calculation of basic and diluted EPS:

(4) DEFERRED EQUITY OFFERING COSTS The Company incurred approximately $0.8 million in deferred equity offering costs relating to a proposed initial public offering undertaken by the Company in 2000. Deferred equity offering costs consist primarily of financial printing, legal counsel, independent public accountants, regulatory and stock exchange registration fees, and other various costs associated with the offering. On March 9, 2000, the Company postponed its initial public offering due to market conditions. The Company is exploring a number of financing alternatives, including an initial public offering, and will evaluate these costs periodically to determine if they are transferable to other financing activities. If the Company does not proceed with an initial public offering within a reasonable period of time or deems these costs as not transferable to other financing activities, these costs will be expensed. (5) COMMITMENTS AND CONTINGENCIES EQUITY AGREEMENT-In the first quarter of 1998, Great American Country and the Company entered into an equity affiliate agreement with a multiple cable system operator ("MSO"). Pursuant to the terms of such agreement, the Company agreed to issue shares of Class A Common Stock to the MSO in return for the MSO providing Great American Country's programming to no less than 500,000 of its subscribers by December 31, 1998. Because of a put option granted to the MSO, the shares issued to that MSO are presented above the Shareholders' Deficit section of the Statements of Financial Position. The amount of accretion from the value of the shares issued to the put option at the exercise date is not significant. The MSO was granted a put option on the stock issued, whereby, if as of December 31, 2001, the Company successor has not completed a public offering of its securities, the MSO would have the option within 60 days of such date to require the Company to buy back its Class A Common Stock at a price equal to all or a portion of the license fees that would have been paid during the period between the date of the agreement and the exercise date of the put option. The purchase price would be based 7 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) on the total number of MSO subscribers receiving the Great American Country service as of December 31, 1998. Based on the cumulative amount of license fees received for the Great American Country service from the inception of the agreement, the estimated purchase price of the Class A Common Stock in the event the put option is exercised would be approximately $1,030,000. (6) UNAUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS In 1998, the Company issued $100 million of Senior Secured Notes (the "Notes"). The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by the following wholly-owned subsidiaries of the Company: JPN, Inc., Jones Direct, Ltd., Jones Space Holdings, Inc., Jones Earth Segment, Inc., Jones Infomercial Networks, Inc., Jones Radio Holdings, Inc., Great American Country, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network Ventures, Inc., Jones Galactic Radio Partners, Inc., Jones Radio Network, Inc., Jones Audio Services, Inc., Jones Radio Network Ventures, Inc., MediaAmerica, Inc., Broadcast Programming, Inc., MAI Radio, Inc. and Jones/Owens Radio Programming LLC (collectively, the "Subsidiary Guarantors"). The only existing subsidiaries of the Company that did not guarantee the Notes are the following three entities: the PIN Venture, Superaudio and Jones/Capstar (collectively, the "Non-Guarantor Subsidiaries"). The Company has not provided separate complete financial statements and other disclosures of the respective Subsidiary Guarantors because management has determined that such information is not material to investors. There are no significant contractual restrictions on distributions from each of the Subsidiary Guarantors to the Company. Investments in subsidiaries are required to be accounted for by investors on the equity method for purposes of the supplemental condensed consolidating financial statement presentation. Under this method, investments are recorded at cost and adjusted for the investor company's ownership share of the subsidiaries' cumulative results of operations. In addition, investments increase by the amount of contributions to subsidiaries and decrease by the amount of distributions from subsidiaries. The elimination entries eliminate the equity method accounting for the investment in subsidiaries and the equity in earnings of subsidiaries, intercompany payables and receivables and other transactions between subsidiaries including contributions and distributions. Sections 13 and 15(d) of the Securities Exchange Act of 1934 require presentation of the following supplemental condensed consolidating financial statements. Presented below is unaudited condensed consolidating financial information for the Company and its subsidiaries as of and for the six months ended June 30, 1999 and 2000. 8 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1999: (IN THOUSANDS)

UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE 30, 1999: (IN THOUSANDS)

9 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF FINANCIAL POSITION - AS OF JUNE 30, 2000: (IN THOUSANDS)

10 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2000: (IN THOUSANDS)

UNAUDITED CONDENSED CONSOLIDATING CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE 30, 2000: (IN THOUSANDS)

11 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (7) REPORTABLE SEGMENTS The Company has six reportable segments: radio programming, cable television programming, Internet programming, advertising sales services, satellite services and general and administrative. The Company's reportable segments have been determined in accordance with the Company's internal management structure. The Company evaluates performance based on many factors; one of the primary measures is EBITDA. EBITDA represents operating income (loss) plus depreciation and amortization minus the EBITDA attributable to the minority interest in the PIN Venture, a consolidated 55.3%-owned subsidiary. The following tables set forth the Company's financial results by business segments. The presentation of reportable segments has been changed from that presented in prior periods to (1) reflect the Internet programming segment, a new segment, and (2) the separate presentation of radio programming and advertising sales services segments. The Company has also added the presentation of segment EBITDA. Management believes that this presentation provides a more meaningful analysis of the Company's business segments. EBITDA of the cable television programming segment excludes EBITDA attributable to the minority interest in the PIN Venture. The prior year's results have been reclassified to conform to the new presentation.

12 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13 JONES INTERNATIONAL NETWORKS, LTD. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Segment EBITDA excludes intersegment transactions between the satellite services and cable programming segments for the satellite services provided to the PIN Venture and Great American Country for approximately $877,000, and $940,000, for the three months ended June 30, 1999 and 2000, respectively. Segment EBITDA excludes intersegment transactions between the satellite services and cable programming segments for the satellite services provided to the PIN Venture and Great American Country for approximately $1,737,000, and $1,897,000, for the six months ended June 30, 1999 and 2000, respectively. In addition, segment EBITDA excludes intersegment transactions among advertising sales services, radio programming and Internet programming segments for the sale of radio airtime to Internet for approximately $94,000 and $538,000 for the three and six months ended June 30, 2000, respectively. Segment EBITDA differs from operating income (loss) of each of the segments by the amount of depreciation and amortization expenses of each segment. (8) CREDIT FACILITY In July 1999, we entered into a $20.0 million credit facility with a commercial bank to finance the purchase of Broadcast Programming. In order to allow us to obtain more favorable terms, Jones International guaranteed the loan and provided certain collateral as security for the guaranty. The credit facility bore interest either at the commercial bank's prime rate minus 2% or a fixed rate (which is approximately equal to LIBOR) plus 0.5%. The interest rate was 6.65 percent per annum at June 30, 2000. This credit facility expired on June 30, 2000. (9) SUBSEQUENT EVENT TERMINATION PAYMENT - The Company has negotiated an early termination to an agreement with a third party to sell Internet advertising time and provide other services. The termination of this agreement resulted in a one-time cash payment of $1.5 million, which was received by the Company in July 2000. The termination payment will be recorded as revenue during the Company's third quarter. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of results of the Company's financial condition and results of operations contains, in addition to historical information, forward-looking statements that are based upon certain assumptions and are subject to a number of risks and uncertainties. The Company's actual results may differ significantly from the results described in such forward-looking statements. RESULTS OF OPERATIONS The following table sets forth the amount of, and percentage relationship to total net revenues of, certain items included in the Company's historical unaudited consolidated statements of operations for the three and six months ended June 30, 1999 and 2000, respectively:

15 The following table sets forth EBITDA for the three and six months ended June 30, 1999 and 2000. EBITDA is unaudited and represents operating income (loss) plus depreciation and amortization minus EBITDA attributable to the minority interest in the PIN Venture, a consolidated 55.3%-owned subsidiary. Management acknowledges that EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles. However, EBITDA is a measure widely used by analysts and investors in the media industry to determine a company's operating performance and ability to service and incur debt. EBITDA should not be considered in isolation or as a substitute for net income (loss), cash flows from operating activities or other consolidated income or cash flow statement data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 REVENUES Total revenues increased $5.3 million, or 35%, from $15.2 million for the three months ended June 30, 1999 to $20.5 million for the three months ended June 30, 2000. Total revenues adjusted for the acquisition of Broadcast Programming would have been $17.3 million for the three months ended June 30, 1999. This increase was due to strong growth in our radio and cable programming content operations, an increase in radio revenues resulting from the Broadcast Programming acquisition on August 2, 1999 as well as advertising sales services. OPERATING EXPENSES OPERATIONS. Operations expense increased $3.1 million, or 31%, from $10.3 million for the three months ended June 30, 1999 to $13.4 million for the three months ended June 30, 2000. Total operations expenses adjusted for the acquisition of Broadcast Programming would have been $11.3 million for the three months ended June 30, 1999. The increase is due primarily to an increase in operating expenses resulting from the Broadcast Programming acquisition, increased expenditures related to radio programming, increased expenditures related to Internet programming and increased operating expenses to develop our Internet and cable television advertising sales businesses. As a percentage of total revenues, total operations expense decreased from 68% for the three months ended June 30, 1999 to 66% for the three months ended June 30, 2000. SELLING AND MARKETING. Selling and marketing expenses increased $1.4 million, or 110%, from $1.3 million for the three months ended June 30, 1999 to $2.7 million for the three months ended June 30, 2000. Selling and marketing expenses adjusted for the acquisition of Broadcast Programming would have been $1.5 million for the three months ended June 30, 1999. This increase is due primarily to increased expenditures to attract additional radio and cable television affiliates and an increase in selling and marketing expenditures resulting from the Broadcast Programming acquisition. GENERAL AND ADMINISTRATIVE. General and administrative expenses remained relatively flat at $0.4 million for the three months ended June 30, 1999 and 2000. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased $1.6 million, or 81%, from $2.0 million for the 16 three months ended June 30, 1999 to $3.6 million for the three months ended June 30, 2000. Depreciation and amortization expenses adjusted for the acquisition of Broadcast Programming would have been $3.1 million for the three months ended June 30, 1999. This increase is due primarily to an increase in amortization expenses related to the Broadcast Programming acquisition and the amortization of cable programming distribution agreement payments. OPERATING INCOME Operating income decreased $0.9 million from an operating income of $1.3 million for the three months ended June 30, 1999 to operating income of $0.4 million for the three months ended June 30, 2000, as a result of the factors discussed herein. Operating loss adjusted for the acquisition of Broadcast Programming would have been approximately break-even for the three months ended June 30, 1999. EBITDA EBITDA increased $0.9 million, or 30%, from $2.9 million for the three months ended June 30, 1999, to $3.8 million for the three months ended June 30, 2000 as a result of the factors discussed herein. EBITDA adjusted for the acquisition of Broadcast Programming would have been $3.7 million for the three months ended June 30, 1999. OTHER EXPENSE Total other expense remained essentially flat at $2.9 million for the three months ended June 30, 1999 and 2000. NET LOSS Net loss increased $0.6 million, or 35%, from $(2.0) million for the three months ended June 30, 1999 to $(2.6) million for the three months ended June 30, 2000 as a result of the factors discussed herein. RADIO PROGRAMMING REVENUES. Radio programming revenues increased $4.3 million, or 111%, from $3.9 million for the three months ended June 30, 1999 to $8.2 million for the three months ended June 30, 2000, due primarily to an increase in radio advertising revenue and the acquisition of the assets of Broadcast Programming. Radio revenues adjusted for the acquisition of Broadcast Programming would have been $6.1 million for the three months ended June 30, 1999. Following the acquisition, Broadcast Programming generated advertising and programming license fee revenues of $3.3 million during the three months ended June 30, 2000. Advertising revenues increased $1.1 million due to an increase in the rates charged for our advertising spots and an increase in the number of advertising spots sold. There was a decrease of $0.1 million in radio license fees, reflecting our decision to focus on programming targeted at larger market radio stations that generally are not charged license fees. EXPENSES. Radio programming expenses increased $3.6 million, or 101%, from $3.6 million for the three months ended June 30, 1999 to $7.2 million for the three months ended June 30, 2000. Radio expenses adjusted for the acquisition of Broadcast Programming would have been $6.0 million for the three months ended June 30, 1999. This increase was primarily due to: - a $2.9 million increase in operating expenses as a result of the Broadcast Programming acquisition, including depreciation and amortization expenses of $1.0 million; - a $0.3 million increase in marketing expenses for trade shows and related marketing expenditures to increase the number of radio stations receiving our programming; - a $0.2 million increase in radio programming and radio distribution expenses due to an increase in the number of radio programs we offered and an increase in the number of radio affiliates; and - a $0.2 million increase in depreciation expenses related to new equipment purchased for the upgrades of certain radio programming studios, purchase of new satellite receivers and purchase of new computer hardware and software. As a percentage of radio programming revenues, radio programming expenses decreased from 92% for the three months ended June 30, 1999 to 88% for the three months ended June 30, 2000. Due to the fixed nature of most of our radio programming expenses, 17 our radio programming expenses as a percent of radio programming revenues will generally decline as our radio programming revenues increase. OPERATING INCOME. Operating income from radio programming increased $0.7 million from an operating income of $0.3 million for the three months ended June 30, 1999 to operating income of $1.0 million for the three months ended June 30, 2000 as a result of the factors stated herein. Operating income from radio programming adjusted for the acquisition of Broadcast Programming would have been approximately $0.1 million for the three months ended June 30, 1999. SEGMENT EBITDA. Segment EBITDA from radio programming increased $1.8 million, or 274%, from $0.7 million for the three months ended June 30, 1999 to $2.5 million for the three months ended June 30, 2000 as a result of the factors stated herein. Segment EBITDA from radio programming adjusted for the Broadcast Programming acquisition would have been $1.5 million for the three months ended June 30, 1999. CABLE TELEVISION PROGRAMMING We have two cable television networks, Great American Country ("GAC") and Product Information Network ("PIN"). PIN is owned by a venture, which is 55.3% owned by us. REVENUES. Cable television programming revenues increased $1.1 million, or 15%, from $6.8 million for the three months ended June 30, 1999 to $7.9 million for the three months ended June 30, 2000. This increase was due to the following: - GAC's revenues increased $0.6 million, or 49%, as a result of a $0.4 million, or 51%, increase in advertising revenues and $0.2 million, or 45%, increase in license fees. To continue our efforts to increase our traditional national spot advertising in 2000, GAC incurred $0.4 million in advertising sales fees in 2000. Excluding the advertising sales fees incurred in 2000, GAC advertising revenues increased 103%. Advertising revenues increased due to higher advertising rates charged for airtime based on a 56% increase in the number of subscribers receiving GAC; and - PIN's revenues increased $0.5 million, or 9%, primarily as a result of an 18% increase in FTRE's receiving PIN. FTREs represent the number of full-time revenue equivalent subscribers receiving PIN. EXPENSES. Cable television programming expenses rose $1.2 million, or 19%, from $6.5 million for the three months ended June 30, 1999 to $7.7 million for the three months ended June 30, 2000. This was primarily due to: - an increase of $0.8 million in rebates to cable systems receiving PIN, driven by an increase in PIN revenues from June 30, 1999 to June 30, 2000; - an increase of $0.5 million in amortization expenses for GAC distribution agreement payments driven by GAC's growth in subscribers; - an increase of $0.2 million in marketing expenditures resulting from an increase in GAC affiliate sales and other promotional expenses; and - a decrease of $0.2 million in GAC's management and support expenses. For the three months ended June 30, 1999 and 2000, PIN made rebates of approximately 68% and 75%, respectively, of its advertising revenues to systems receiving its programming. As PIN's FTRE's continue to grow, total cable television programming expenses will continue to increase as PIN will have to pay out additional rebates to cable systems as PIN advertising revenues increase. As a percentage of cable television programming revenues, cable television programming expenses increased from 95% for the three months ended June 30, 1999 to 98% for the three months ended June 30, 2000. OPERATING INCOME. Operating income from cable television programming decreased $0.2 million from an operating income of $0.4 million for the three months ended June 30, 1999 to an operating income of $0.2 million for the three months ended June 30, 2000 as a result of the factors stated above. SEGMENT EBITDA. Segment EBITDA from cable television programming increased $0.3 million, or 43%, from $0.8 million for the three months ended June 30, 1999 to $1.1 million for the three months ended June 30, 2000 as a result of the factors stated above. 18 INTERNET Internet expenses increased beginning in the fourth quarter of 1999 and will continue to increase throughout 2000. We have not generated significant revenues from our Internet business. We anticipate salary, content development and associated expenses and marketing expenses to increase as we develop new web sites and expand existing web sites. REVENUES. We did not generate significant Internet revenues for the three months ended June 30, 2000. EXPENSES. We incurred Internet expenses of $0.7 million for the three months ended June 30, 2000. OPERATING LOSS. We generated an operating loss from our Internet activities of $(0.7) million for the three months ended June 30, 2000. SEGMENT EBITDA. We generated a deficit in segment EBITDA from our Internet activities of $(0.6) million for the three months ended June 30, 2000. ADVERTISING SALES SERVICES REVENUES. Advertising sales services revenues increased $0.7 million, or 33%, from $2.3 million for the three months ended June 30, 1999 to $3.0 million for the three months ended June 30, 2000. The increase in advertising sales services revenues is due primarily to an increase in the rates charged for advertising spots and an increase in the number of spots aired on radio stations which received third parties and owned programming. EXPENSES. Advertising sales services expenses increased $0.9 million, or 43%, from $2.1 million for the three months ended June 30, 1999 to $3.0 million for the three months ended June 30, 2000. The increase is due primarily to: - an increase of $0.4 million related to the development of our traditional spot cable television advertising sales business. In the second quarter of 2000, our operating expenses increased as a result of new associates hired to sell GAC traditional spot advertising and certain audience ratings information subscribed to on behalf of GAC; - an increase of $0.3 million related to the development of our Internet advertising sales business as a result of new associates hired to sell and market Internet advertising primarily for third parties; - an increase of $0.2 million in management and support expenses. OPERATING INCOME. Operating income from advertising sales services decreased $0.2 million from an operating income of $0.2 million for the three months ended June 30, 1999 to a break-even point the three months ended June 30, 2000 as a result of factors discussed herein. Operating income from advertising sales services in 2000 consisted of operating income of $0.3 million from radio and cable advertising sales services and operating loss of $(0.3) million from internet advertising sales services. SEGMENT EBITDA. Segment EBITDA from advertising sales services decreased $0.1 million, or 34%, from $0.4 million for the three months ended June 30, 1999, to $0.3 million for the three months ended June 30, 2000. Segment EBITDA from advertising sales services consisted of Segment EBITDA of $0.6 million from radio and cable advertising sales services and Segment EBITDA of $(0.3) million from Internet advertising sales services. SATELLITE SERVICES REVENUES. Satellite services revenues decreased $0.9 million, or 40%, from $2.2 million for the three months ended June 30, 1999 to $1.3 million for the three months ended June 30, 2000. This decrease was primarily due to: - the expiration in August 1999 of a third party satellite services agreement, which generated $0.5 million in satellite services revenues in the second quarter of 1999; and - $0.4 million decrease in satellite services fees charged to an affiliated party because of reduced service levels driven by an affiliate ceasing its network operations in March 2000. 19 Historically we have provided satellite services to a related company. Because the related party began to decrease its programming expenditures in the second half of 1999 and ceased all programming efforts as of March 31, 2000, satellite services fees charged to affiliated parties decreased in the first half of 2000. For the balance of the year, these satellite service fees should remain at the levels recognized in the second quarter of 2000. In April 2000, we entered into an agreement to lease two satellite transponder channels as well as other uplinking and earth station services to a third party. The terms of this agreement will commence on July 15, 2000 and will terminate October 15, 2000. EXPENSES. Satellite services expenses decreased $0.3 million, or 21%, from $1.4 million for the three months ended June 30, 1999 to $1.1 million for three months ended June 30, 2000. This decrease is primarily due to variable cost savings realized as a result of the related party ceasing all programming operations as of March 31, 2000 as discuss herein. As a percentage of satellite services revenues, satellite services expenses increased from 62% for the three months ended June 30, 1999 to 82% for the three months ended June 30, 2000. Due to the fixed nature of most of our satellite services expenses, the percentage of satellite services expenses in relation to the satellite services revenues will generally increase as our revenues decrease. OPERATING INCOME. Operating income from satellite services decreased $0.6 million from $0.8 million for the three months ended June 30, 1999 to $.0.2 million for the three months ended June 30, 2000 as a result of the factors stated above. SEGMENT EBITDA. Segment EBITDA from satellite services decreased $0.6 million, or 36%, from $1.8 million for the three months ended June 30, 1999 to $1.2 million for the three months ended June 30, 2000 as a result of the factors stated above. SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 REVENUES Total revenues increased $13.0 million, or 47%, from $27.7 million for the six months ended June 30, 1999 to $40.7 million for the six months ended June 30, 2000. Total revenues adjusted for the acquisition of Broadcast Programming would have been $31.7 million for the six months ended June 30, 1999. This increase was due to strong growth in our radio and cable programming content operations, an increase in radio revenues resulting from the Broadcast Programming acquisition on August 2, 1999 as well as increased advertising sales services. OPERATING EXPENSES OPERATIONS. Operations expense increased $6.9 million, or 35%, from $19.8 million for the six months ended June 30, 1999 to $26.7 million for the six months ended June 30, 2000. Total operations expenses adjusted for the acquisition of Broadcast Programming would have been $22.1 million for the six months ended June 30, 1999. The increase is due primarily to an increase in operating expenses resulting from the Broadcast Programming acquisition, increased expenditures related to Internet programming and increased operating expenses to develop our Internet and cable television advertising sales businesses. As a percentage of total revenues, total operations expense decreased from 71% for the six months ended June 30, 1999 to 66% for the six months ended June 30, 2000. SELLING AND MARKETING. Selling and marketing expenses increased $2.4 million, or 91%, from $2.6 million for the six months ended June 30, 1999 to $5.0 million for the six months ended June 30, 2000. Selling and marketing expenses adjusted for the acquisition of Broadcast Programming would have been $3.1 million for the six months ended June 30, 1999. This increase is due primarily to increased expenditures to attract additional radio and cable television affiliates and an increase in selling and marketing expenditures resulting from the Broadcast Programming acquisition. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $0.2 million, or 23%, from $0.7 million for the six months ended June 30, 1999 to $0.9 million for the six months ended June 30, 2000. This increase is due primarily to an increase in computer software and hardware support services charged by an affiliate of Jones International and an increase in salary and related expenses as a result of new associates hired to perform accounting related functions. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses increased $3.0 million, or 76%, from $4.0 million for the six months ended June 30, 1999 to $7.0 million for the six months ended June 30, 2000. Depreciation and amortization expenses adjusted for the acquisition of Broadcast Programming would have been $6.2 million for the six months ended June 30, 1999. This 20 increase is due primarily to an increase in amortization expenses related to the Broadcast Programming acquisition and the amortization of cable programming distribution agreement payments. OPERATING INCOME Operating income increased $0.5 million, or 80%, from an operating income of $0.6 million for the six months ended June 30, 1999 to operating income of $1.1 million for the six months ended June 30, 2000, as a result of the factors discussed herein. Operating loss adjusted for the acquisition of Broadcast Programming would have been $(0.5) million for the six months ended June 30, 1999. EBITDA EBITDA increased $3.4 million, or 82%, from $4.1 million for the six months ended June 30, 1999, to $7.5 million for the six months ended June 30, 2000 as a result of the factors discussed herein. EBITDA adjusted for the acquisition of Broadcast Programming would have been $5.3 million for the six months ended June 30, 1999. OTHER EXPENSE Total other expense remained essentially flat at $5.7 million for the six months ended June 30, 1999 and 2000. NET LOSS Net loss decreased $0.4 million, or 7%, from $(5.6) million for the six months ended June 30, 1999 to $(5.2) million for the six months ended June 30, 2000 as a result of the factors discussed herein. RADIO PROGRAMMING REVENUES. Radio programming revenues increased $8.8 million, or 128%, from $6.9 million for the six months ended June 30, 1999 to $15.7 million for the six months ended June 30, 2000, due primarily to an increase in radio advertising revenue and the acquisition of the assets of Broadcast Programming. Radio revenues adjusted for the acquisition of Broadcast Programming would have been $11.0 million for the six months ended June 30, 1999. Following the acquisition, Broadcast Programming generated advertising and programming license fee revenues of $6.4 million during the six months ended June 30, 2000. Advertising revenues increased $2.7 million due to an increase in the number of spots sold, an increase in the rates charged for our advertising spots and the number of radio programs we offered. This increase was offset by a decrease of $0.3 million in radio license fees, reflecting our decision to focus on programming targeted at larger market radio stations that generally are not charged license fees. EXPENSES. Radio programming expenses increased $6.8 million, or 96%, from $7.2 million for the six months ended June 30, 1999 to $14.0 million for the six months ended June 30, 2000. Radio expenses adjusted for the acquisition of Broadcast Programming would have been $12.2 million for the six months ended June 30, 1999. This increase was primarily due to: - a $5.5 million increase in operating expenses as a result of the Broadcast Programming acquisition, including depreciation and amortization expenses of $2.0 million; - a $0.5 million increase in radio programming and distribution expenses due to an increase in the number of radio programs we offered as well as an increase in the number of radio affiliates; - a $0.5 million increase in marketing expenses to increase the number of radio stations receiving our programming; - a $0.2 million increase in depreciation expenses related to new equipment purchased for the upgrades of certain radio programming studios, purchase of new satellite receivers and purchase of new computer hardware and software; and - a $0.1 million increase in fees paid to license certain radio programming. As a percentage of radio programming revenues, radio programming expenses decreased from 104% for the six months ended June 30, 1999 to 90% for the six months ended June 30, 2000. Due to the fixed nature of most of our radio programming expenses, our radio programming expenses as a percent of radio programming revenues will generally decline as our radio programming 21 revenues increase. OPERATING INCOME (LOSS). Operating income (loss) from radio programming increased $1.9 million from an operating loss of $(0.3) million for the six months ended June 30, 1999 to operating income of $1.6 million for the six months ended June 30, 2000 as a result of the factors stated herein. Operating loss from radio programming adjusted for the acquisition of Broadcast Programming would have been $(1.2) million for the six months ended June 30, 1999. SEGMENT EBITDA. Segment EBITDA from radio programming increased $4.0 million, or 1,047%, from $0.4 million for the six months ended June 30, 1999 to $4.4 million for the six months ended June 30, 2000 as a result of the factors stated herein. Segment EBITDA from radio programming adjusted for the Broadcast Programming acquisition would have been $1.6 million for the six months ended June 30, 1999. CABLE TELEVISION PROGRAMMING REVENUES. Cable television programming revenues increased $3.5 million, or 28%, from $12.6 million for the six months ended June 30, 1999 to $16.1 million for the six months ended June 30, 2000. This increase was due to the following: - GAC's revenues increased $0.9 million, or 42%, as a result of a $0.7 million, or 48%, increase in advertising revenues and $0.2 million, or 31%, increase in license fees. To continue our efforts to increase our traditional national spot advertising, GAC incurred $0.8 million in advertising sales fees in 2000. Excluding the advertising sales fees incurred in 2000, GAC advertising revenues increased 109%. Advertising revenues increased due to higher advertising rates charged for airtime driven by a 56% increase in the number of subscribers receiving GAC; and - PIN's revenues increased $2.6 million, or 25%, primarily as a result of a 18% increase in FTRE's receiving PIN. FTREs represent the number of full-time revenue equivalent subscribers receiving PIN. EXPENSES. Cable television programming expenses rose $3.2 million, or 25%, from $12.4 million for the six months ended June 30, 1999 to $15.6 million for the six months ended June 30, 2000. This was primarily due to: - increases of $2.0 million in rebates to cable systems receiving PIN, which was driven by an increase in PIN revenues of $2.6 million from June 30, 1999 to June 30, 2000; - an increase of $0.9 million in amortization expenses for GAC cable programming distribution agreement payments; - an increase of $0.5 million in cable television programming expenses resulting from an increase in GAC affiliate sales and other promotional expenses; and - a decrease of $0.2 million in GAC's management and support expenses. For the six months ended June 30, 1999 and 2000, PIN made rebates of approximately 74% and 75%, respectively, of its advertising revenues to systems receiving its programming. Rebates paid to cable systems receiving PIN programming, as a percent of revenue, have remained relatively constant over the comparable periods on a per FTRE basis. However, as FTRE's continue to grow, total cable television programming expenses will increase as PIN will have to pay out additional rebates to cable systems as PIN advertising revenues increase. As a percentage of cable television programming revenues, cable television programming expenses decreased from 99% for the six months ended June 30, 1999 to 97% for the six months ended June 30, 2000. OPERATING INCOME. Operating income from cable television programming increased $0.3 million from operating income of $0.2 million for the six months ended June 30, 1999 to operating income of $0.5 million for the six months ended June 30, 2000 as a result of the factors stated above. SEGMENT EBITDA. Segment EBITDA from cable television programming increased $1.2 million, or 127%, from $1.0 million for the six months ended June 30, 1999 to $2.2 million for the six months ended June 30, 2000 as a result of the factors stated above. INTERNET Internet expenses increased beginning in the fourth quarter of 1999 and will continue to increase throughout 2000. We 22 anticipate salary, content development and associated expenses and marketing expenses to increase as we develop new web sites and expand existing web sites. REVENUES. We did not generate significant Internet revenues for the six months ended June 30, 2000. EXPENSES. We incurred Internet expenses of $1.2 million for the six months ended June 30, 2000. OPERATING LOSS. We generated an operating loss from our Internet activities of $(1.2) million for the six months ended June 30, 2000. SEGMENT EBITDA. We generated a deficit in segment EBITDA from our Internet activities of $(1.1) million for the six months ended June 30, 2000. ADVERTISING SALES SERVICES REVENUES. Advertising sales services revenues increased $1.9 million, or 51%, from $3.9 million for the six months ended June 30, 1999 to $5.8 million for the six months ended June 30, 2000. The increase in advertising sales services revenues is due primarily to the increase in the rates charged for advertising spots and an increase in the number of spots aired on radio stations which received third parties and owned programming. EXPENSES. Advertising sales services expenses increased $1.5 million, or 36%, from $4.1 million for the six months ended June 30, 1999 to $5.6 million for the six months ended June 30, 2000. The increase is due primarily to: - an increase of $0.7 million related to the development of our traditional spot cable television advertising sales business. In the first half of 2000, our operating expenses increased as a result of new associates hired to sell GAC traditional paid spot advertising and certain audience ratings information subscribed to on behalf of GAC; - an increase of $0.4 million related to the development of our Internet advertising sales business as a result of new associates hired to sell and market Internet advertising primarily for third parties; and - an increase of $0.4 million in management and support costs. OPERATING INCOME (LOSS). Operating income from advertising sales services increased $0.5 million from an operating loss of $(0.2) million for the six months ended June 30, 1999 to operating income of $0.3 million for the six months ended June 30, 2000 as a result of factors discussed herein. Operating income from advertising sales services in 2000 consisted of operating income of $0.7 million from radio and cable advertising sales services and operating loss of $(0.4) million from Internet advertising sales services. SEGMENT EBITDA. Segment EBITDA from advertising sales services increased $0.5 million, or 206%, from $0.3 million for the six months ended June 30, 1999, to $0.8 million for the six months ended June 30, 2000. Segment EBITDA from advertising sales services consisted of Segment EBITDA of $1.2 million from radio and cable advertising sales services and Segment EBITDA of $(0.4) million from Internet advertising sales services. SATELLITE SERVICES REVENUES. Satellite services revenues decreased $1.4 million, or 31%, from $4.4 million for the six months ended June 30, 1999 to $3.0 million for the six months ended June 30, 2000. This decrease was primarily due to: - the expiration in August 1999 of a third party satellite services agreement, which generated $0.9 million in satellite services revenues in the first half of 1999; and - $0.5 million decrease in satellite services fees charged to an affiliated party because of reduced service levels required by an affiliate which ceased network operations at the end of the first quarter of 2000. Historically we have provided satellite services to a related company. Because the related party began to decrease its programming expenditures in the second half of 1999 and ceased all programming efforts as of March 31, 2000, satellite services fees 23 charged to affiliated parties decreased in the first half of 2000. For the balance of the year, these satellite service fees should remain at the levels recognized in the second quarter of 2000. In April 2000, we entered into an agreement to lease two satellite transponder channels as well as other uplinking and earth station services to a third party. The terms of this agreement will commence on July 15, 2000 and will terminate October 15, 2000. EXPENSES. Satellite services expenses decreased $0.4 million, or 15%, from $2.7 million for the six months ended June 30, 1999 to $2.3 million for three months ended June 30, 2000. This decrease is primarily due to variable cost savings realized as a result of the related party ceasing all programming operations as of March 31, 2000 as discussed herein. As a percentage of satellite services revenues, satellite services expenses increased from 62% for the six months ended June 30, 1999 to 76% for the six months ended June 30, 2000. Due to fixed nature of most of our satellite services expenses, our satellite services expenses as a percentage of satellite services revenues will generally increase as our satellite services revenues decrease. OPERATING INCOME. Operating income from satellite services decreased $1.0 million from $1.7 million for the six months ended June 30, 1999 to $0.7 million for the six months ended June 30, 2000 as a result of the factors stated above. SEGMENT EBITDA. Segment EBITDA from satellite services decreased $1.0 million, or 28%, from $3.7 million for the six months ended June 30, 1999 to $2.7 million for the six months ended June 30, 2000. LIQUIDITY AND CAPITAL RESOURCES Since our inception, we have incurred net losses, primarily as a result of expenses associated with developing and launching our programming networks and financing costs. For the six months ended June 30, 1999 and 2000, we incurred net losses of $(5.6) million and $(5.2) million, respectively. Net cash provided by (used in) operating activities for the six months ended June 30, 1999 and 2000 was $(0.6) million and $3.6 million, respectively. The implementation of our growth strategies depends on a number of factors including the availability of cash generated from operations and available cash balances, and may require additional equity and/or debt financings, particularly to make significant acquisitions. Our indenture currently permits secured borrowings of up to $20.0 million. We had cash and cash equivalents and available for sale securities of $16.6 million as of June 30, 2000. We believe that our cash balances, available for sale securities and operating cash flow, including the cash flows of, and dividends and distributions from, our subsidiaries, will fund our cash flow requirements through 2000. On March 9, 2000, we postponed our initial public offering due to unfavorable market conditions. At such time market conditions improve, we will reconsider an initial public offering of our Class A Common Stock. We are exploring a number of financing alternatives to provide us with additional liquidity to implement our growth strategies. There can be no assurance we will be successful in these efforts or that such financings will be available on terms we view as acceptable. We will continue to depend significantly upon the earnings and cash flows of, and dividends and distributions from, our subsidiaries to pay our expenses, meet our obligations and pay interest and principal on our Senior Notes and our other indebtedness. While the terms of our joint ventures (including the PIN Venture) generally require the mutual consent of ourselves and our joint venture partners to distribute or advance funds to ourselves, there are no significant contractual restrictions on distributions from our subsidiaries. INVESTING ACTIVITIES For the six months ended June 30, 1999 and 2000, net cash used in investing activities was $(6.1) million and $(5.1) million, respectively. Our investing activities for the six months ended June 30, 2000 consisted primarily of the following: - $1.7 million proceeds from the sale of available for sale securities; - $(4.9) million in cable programming distribution agreement payments for GAC; - $(0.7) million to purchase certain radio programs; and - $(1.2) million for the purchase of property and equipment. 24 Total capital expenditures for the balance of 2000 are estimated to be approximately $1.8 million, which will be used primarily to upgrade certain cable television and radio related earth station equipment and to purchase computer hardware and software for the Internet segment. Total cable programming distribution agreement payments for Great American Country for the balance of 2000 are estimated to be approximately $2.0 million to $2.5 million. FINANCING ACTIVITIES In July 1999, we entered into a $20.0 million credit facility with a commercial bank to finance the purchase of Broadcast Programming. In order to allow us to obtain more favorable terms, Jones International guaranteed the loan and provided certain collateral as security for the guaranty. The credit facility bore interest either at the commercial bank's prime rate minus 2% or a fixed rate (which is approximately equal to LIBOR) plus 0.5%. The interest rate was 6.65 percent per annum at June 30, 2000. This credit facility expired on June 30, 2000. We are in the process of seeking a new credit facility without Jones International guaranteeing the loan and providing collateral as security for the guaranty. We can give no assurance that we will be able to obtain a new credit facility on terms we believe are acceptable. Net cash used in financing activities for the six months ended June 30, 2000 was $(0.3) million. Net cash used in financing activities consisted of costs related to our initial public offering of our Class A Common Stock. Such costs included financial printing, legal counsel, independent public accountants, regulatory and stock exchange registration fees, and other various costs associated with the offering. Costs for said offering were approximately $0.5 million for the six months ended June 30, 2000 and $0.8 million since the offering process began. We can give no assurance as to if or when such offering will be completed or what the net proceeds of such offering to us would be. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact our financial position, results of operations, or cash flows due to adverse changes in financial market prices. We are exposed to market risk through interest rates. This exposure is directly related to our normal funding and investing activities. As of June 30, 2000, none of our current liabilities was subject to changes in interest rates. ITEM 5: OTHER MATERIALLY IMPORTANT EVENTS Item 6. Exhibits and Reports on Form 8-K a) Exhibits None b) Reports on Form 8-K Current Report on Form 8-K dated April 13, 2000 reporting that on March 14, 2000, Mr. James J. Krejci was appointed as a member of the Board of Directors of the Company. He shall serve in such capacity until the next annual meeting of the shareholders of the Company or until his successor is duly elected, qualified and acting. Mr. Krejci is President and CEO of Comtec International, Inc., a company in the specialized mobile radio services business, headquartered in Englewood, Colorado. Prior to joining Comtec International, Inc. in February 1998, Mr. Krejci was President and CEO of Imagelink Technologies, Inc., headquartered in Boulder, Colorado, from June 1996 to February 1998. Prior to that, he was President of the International Division of International Gaming Technology, the world's largest gaming equipment manufacturer, with headquarters in Reno, Nevada from May 1994 to February 1995. He was formerly a director of Jones Intercable, Inc. and an officer and director of certain affiliates of Jones International. 26 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. JONES INTERNATIONAL NETWORKS, LTD. By: --------------------------------------- Jeffery C. Wayne President Dated: August 4, 2000 By: --------------------------------------- Jay B. Lewis Group Vice President/Finance (Principal Financial Officer) Dated: August 4, 2000

JONES INTERNATIONAL NETWORKS LTD /CO/ 10-Q