**FORM 10-Q**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**(MarkOne)**

**ý****   Quarterly report pursuant toSection 13 or 15(d) of the Securities Exchange Act of 1934**

**For the quarterly period endedSeptember 30, 2001.**

**o****   Transition report pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934**

**For the transition period from                   to                  .**

 

**Commission File Number 333-62077**

 

**Jones MediaNetworks, 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, Colorado80112**Address of principal executive office

 

**(303) 792-3111**Registrant's telephone number

 

Indicate by check mark whether the registrant (l) hasfiled all reports required to be filed by Section l3 or l5(d) of the SecuritiesExchange Act of l934 during the preceding l2 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

                                                                        Yesý                                                                                                 Noo

 

** JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES**

** **

**INDEX**

** **
| PART I. FINANCIAL INFORMATION |
|-------------------------------|
|                          |   |
| Item 1.                       | Financial Statements |
|                          |   |
|                          | Unaudited  Consolidated Statements of Financial Position as of December 31, 2000 and  September 30, 2001 |
|                          |   |
|                          | Unaudited  Consolidated Statements of Operations for the Three and Nine Months Ended  September 30, 2000 and 2001 |
|                          |   |
|                          | Unaudited  Consolidated Statements of Cash Flows for the Nine Months Ended  September 30, 2000 and 2001 |
|                          |   |
|                          | Notes  to Unaudited Consolidated Financial Statements |
|                          |   |
| Item  2                       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                          |   |
| PART II. OTHER INFORMATION    |
|                          |   |
| Item  3.                      | Quantitative  and Qualitative Disclosures About Market Risk |
| Item 5.                       | Other  Materially Important Events |
| Item 6.                       | Exhibits and  Reports on Form 8-K |
|                          |   |

**JONES MEDIA NETWORKS, LTD. ANDSUBSIDIARIES**

 

**UNAUDITED CONSOLIDATED STATEMENTS OFFINANCIAL POSITION**

** **
|                                                                                                                         |   | **December  31,** |        | **September 30,** |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-------------|------------------------|--------|
|                                                                                                                         |   | **2000**          |        | **2001**               |   |
| CURRENT ASSETS:                                                                                                              |   |              |        |                   |   |
| Cash and cash  equivalents                                                                                                   |   | $                 | 14,900,333  |                   | $      | 1,996,466 |   |
| Available for sale  securities                                                                                               |   | 3,711,739         |        | —                 |   |
| Accounts receivable,  net of allowance for doubtful accounts of $2,017,478 and $1,896,146, respectively                      |   | 15,991,148        |        | 15,411,122             |   |
| Prepaid expenses                                                                                                             |   | 415,769           |        | 508,538                |   |
| Other current assets                                                                                                         |   | 915,157           |        | 1,175,254              |   |
| Total current assets                                                                                                         |   | 35,934,146        |        | 19,091,380             |   |
| Property and equipment,  net                                                                                                 |   | 20,750,445        |        | 18,280,598             |   |
| Intangible assets, net                                                                                                       |   | 59,822,488        |        | 58,145,731             |   |
| Debt offering costs,  net of accumulated amortization of $1,735,429 and $2,296,070, respectively                             |   | 3,363,347         |        | 2,802,706              |   |
| Net non-current assets  of discontinued operations (Note 2)                                                                  |   | 82,548            |        | 106,140                |   |
| Other non-current  assets                                                                                                    |   | 1,587,156         |        | 1,646,148              |   |
| Total assets                                                                                                                 |   | $                 | 121,540,130 |                   | $      | 100,072,703 |   |
|                                                                                                                         |   |              |        |                   |   |
| **LIABILITIES AND SHAREHOLDERS’  DEFICIT**                                                                              |   |              |        |                   |   |
|                                                                                                                         |   |              |        |                   |   |
| CURRENT LIABILITIES:                                                                                                         |   |              |        |                   |   |
| Accounts payable—trade                                                                                                  |   | $                 | 6,077,876   |                   | $      | 5,448,527 |   |
| Producers’ fees payable                                                                                                 |   | 5,351,664         |        | 6,085,369              |   |
| Cable programming  distribution agreement payments payable                                                                   |   | 2,238,934         |        | 1,602,809              |   |
| Accrued liabilities and  other current liabilities                                                                           |   | 3,195,484         |        | 1,828,451              |   |
| Accounts payable—Jones  International, Ltd.                                                                             |   | 232,260           |        | 337,162                |   |
| Interest payable                                                                                                             |   | 5,875,000         |        | 2,937,500              |   |
| Net current liabilities  of discontinued operations (Note 2)                                                                 |   | —            |        | 107,284                |   |
| Deferred revenues                                                                                                            |   | 657,536           |        | 965,543                |   |
| Total current  liabilities                                                                                                   |   | 23,628,754        |        | 19,312,645             |   |
| LONG-TERM LIABILITIES:                                                                                                       |   |              |        |                   |   |
| Customer deposits and  deferred revenues                                                                                     |   | 601,026           |        | 633,048                |   |
| Other long-term  liabilities                                                                                                 |   | 1,026,131         |        | 1,089,486              |   |
| Senior secured notes                                                                                                         |   | 100,000,000       |        | 100,000,000            |   |
| Total long-term  liabilities                                                                                                 |   | 101,627,157       |        | 101,722,534            |   |
| MINORITY INTEREST IN                                                                                                         |   |              |        |                   |   |
| CONSOLIDATED  SUBSIDIARIES                                                                                                   |   | 297,874           |        | (647,307               | )      |
| COMMITMENTS AND  CONTINGENCIES (NOTE 5)                                                                                      |   |              |        |                   |   |
| COMMON STOCK SUBJECT TO  PUT, Class A Common Stock, $.01 par value: 136,540 shares issued and  outstanding, respectively     |   | 1,310,784         |        | 1,310,784              |   |
| SHAREHOLDERS’ DEFICIT:                                                                                                  |   |              |        |                   |   |
| Series A Preferred  Stock, $.01 par value: 1,918,000 shares authorized, issued and outstanding                               |   | 23,975,000        |        | 23,975,000             |   |
| Class A Common Stock,  $.01 par value: 100,000,000 shares authorized; 5,329,463 shares issued and  outstanding, respectively |   | 53,295            |        | 53,295                 |   |
| Class B Common Stock,  $.01 par value: 2,231,400 shares authorized, issued and outstanding                                   |   | 22,314            |        | 22,314                 |   |
| Additional paid-in  capital                                                                                                  |   | 28,453,436        |        | 28,453,436             |   |
| Accumulated other  comprehensive loss                                                                                        |   | (2,299            | )           | —                 |   |
| Accumulated deficit                                                                                                          |   | (57,826,185       | )           | (74,129,998            | )      |
| Total shareholders’  deficit                                                                                            |   | (5,324,439        | )           | (21,625,953            | )      |
| Total liabilities and  shareholders’ deficit                                                                            |   | $                 | 121,540,130 |                   | $      | 100,072,703 |   |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

**JONES MEDIA NETWORKS, LTD. AND SUBSIDIARIES**

 

**UNAUDITED CONSOLIDATED STATEMENTS OFOPERATIONS**

** **
|                                                                                                                                         |   | **Three  Months Ended September 30,** |       | **Nine  Months Ended September 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|--------------------------------------|--------|
|                                                                                                                                         |   | **2000**                                   |       | **2001**                             |   | **2000** |   | **2001** |   |
|                                                                                                                                         |   |                                       |       |                                 |   |   |   |   |   |
| Revenues, including  revenues from affiliated entities of $812,324, $422,502, $2,756,365 and  $1,108,206, respectively (Note 3)              |   | $                                          | 20,173,969 |                                 | $      | 18,324,267 |   | $ | 60,834,595 |   | $ | 58,072,667 |   |
| Operating expenses,  including charges from affiliated entities of $1,633,911, $1,335,111,  $4,856,342 and $4,499,657 respectively (Note 3): |   |                                       |       |                                 |   |   |   |   |   |
| Operations                                                                                                                                   |   | 13,023,014                                 |       | 13,811,714                           |   | 39,126,647 |   | 45,081,052 |   |
| Selling and marketing                                                                                                                        |   | 2,772,063                                  |       | 2,302,914                            |   | 7,622,309 |   | 7,660,586 |   |
| General and  administrative                                                                                                                  |   | 609,803                                    |       | 402,567                              |   | 1,866,431 |   | 1,506,055 |   |
| Depreciation and  amortization                                                                                                               |   | 3,609,474                                  |       | 4,116,029                            |   | 10,582,544 |   | 11,285,840 |   |
| Total operating  expenses                                                                                                                    |   | 20,014,354                                 |       | 20,633,224                           |   | 59,197,931 |   | 65,533,533 |   |
| OPERATING INCOME (LOSS)                                                                                                                      |   | 159,615                                    |       | (2,308,957                           | )      | 1,636,664 |   | (7,460,866 | ) |
| OTHER (INCOME) EXPENSE:                                                                                                                      |   |                                       |       |                                 |   |   |   |   |   |
| Interest expense (Note  3)                                                                                                                   |   | 3,124,881                                  |       | 3,124,380                            |   | 9,411,558 |   | 9,373,141 |   |
| Interest income                                                                                                                              |   | (239,328                                   | )          | (79,556                              | )      | (713,504 | ) | (457,489 | ) |
| Equity in loss (income)  of subsidiaries                                                                                                     |   | —                                     |       | —                               |   | (2,225 | ) | — |   |
| Write-off of equity  offering costs                                                                                                          |   | 725,128                                    |       | —                               |   | 725,128 |   | — |   |
| Other expense (income)                                                                                                                       |   | (51,219                                    | )          | (102,975                             | )      | (179,670 | ) | 37,985 |   |
| Total other expense,  net                                                                                                                    |   | 3,559,462                                  |       | 2,941,849                            |   | 9,241,287 |   | 8,953,637 |   |
| LOSS FROM CONTINUING  OPERATIONS BEFORE INCOME TAXES                                                                                         |   | (3,399,847                                 | )          | (5,250,806                           | )      | (7,604,623 | ) | (16,414,503 | ) |
| Income tax provision                                                                                                                         |   | 3,610                                      |       | 5,534                                |   | 48,357 |   | 33,000 |   |
| LOSS FROM CONTINUING  OPERATIONS BEFORE MINORITY INTEREST                                                                                    |   | (3,403,457                                 | )          | (5,256,340                           | )      | (7,652,980 | ) | (16,447,503 | ) |
| Minority interest in  net income (loss) of consolidated subsidiaries                                                                         |   | 70,757                                     |       | (284,369                             | )      | 659,175 |   | (1,392,511 | ) |
| NET LOSS FROM  CONTINUING OPERATIONS                                                                                                         |   | (3,474,214                                 | )          | (4,971,971                           | )      | (8,312,155 | ) | (15,054,992 | ) |
| Discontinued Operations  (Note 2):                                                                                                           |   |                                       |       |                                 |   |   |   |   |   |
| Income (loss) from  operations of discontinued internet advertising sales services segment                                                   |   | 1,056,813                                  |       | (17,051                              | )      | 669,095 |   | (1,212,665 | ) |
| Loss on disposal of  discontinued operations                                                                                                 |   | —                                     |       | (36,156                              | )      | — |   | (36,156 | ) |
| NET INCOME (LOSS) FROM  DISCONTINUED OPERATIONS                                                                                              |   | 1,056,813                                  |       | (53,207                              | )      | 669,095 |   | (1,248,821 | ) |
|                                                                                                                                         |   |                                       |       |                                 |   |   |   |   |   |
| NET LOSS                                                                                                                                     |   | $                                          | (2,417,401 | )                                    | $      | (5,025,178 | ) | $ | (7,643,060 | ) | $ | (16,303,813 | ) |
|                                                                                                                                         |   |                                       |       |                                 |   |   |   |   |   |
| ADJUSTMENTS TO ARRIVE  AT COMPREHENSIVE LOSS                                                                                                 |   | (6,805                                     | )          | (4,831                               | )      | (19,379 | ) | (2,299 | ) |
| COMPREHENSIVE LOSS                                                                                                                           |   | $                                          | (2,410,596 | )                                    | $      | (5,020,347 | ) | $ | (7,623,681 | ) | $ | (16,301,514 | ) |
|                                                                                                                                         |   |                                       |       |                                 |   |   |   |   |   |
| BASIC LOSS PER SHARE:                                                                                                                        |   |                                       |       |                                 |   |   |   |   |   |
| Loss before  discontinued operations                                                                                                         |   | (0.45                                      | )          | (0.64                                | )      | (1.08 | ) | (1.96 | ) |
| Income (loss) from  discontinued operations                                                                                                  |   | 0.14                                       |       | (0.01                                | )      | 0.08 |   | (0.16 | ) |
| Net loss                                                                                                                                     |   | $                                          | (0.31      | )                                    | $      | (0.65 | ) | $ | (1.00 | ) | $ | (2.12 | ) |
|                                                                                                                                         |   |                                       |       |                                 |   |   |   |   |   |
| DILUTED LOSS PER SHARE:                                                                                                                      |   |                                       |       |                                 |   |   |   |   |   |
| Loss before  discontinued operations                                                                                                         |   | (0.46                                      | )          | (0.65                                | )      | (1.09 | ) | (1.97 | ) |
| Income (loss) from  discontinued operations                                                                                                  |   | 0.14                                       |       | (0.01                                | )      | 0.09 |   | (0.16 | ) |
| Net loss                                                                                                                                     |   | $                                          | (0.32      | )                                    | $      | (0.66 | ) | $ | (1.00 | ) | $ | (2.13 | ) |
|                                                                                                                                         |   |                                       |       |                                 |   |   |   |   |   |
| WEIGHTED AVERAGE COMMON  SHARES:                                                                                                             |   |                                       |       |                                 |   |   |   |   |   |
| Basic                                                                                                                                        |   | 7,671,117                                  |       | 7,697,403                            |   | 7,661,163 |   | 7,697,403 |   |
| Fully diluted                                                                                                                                |   | 7,630,531                                  |       | 7,640,131                            |   | 7,620,577 |   | 7,640,131 |   |
|                                                                                                                                              |        |                                            |            |                                      |        |  |  |  |  |  |  |  |  |  |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

**JONES MEDIA NETWORKS, LTD. ANDSUBSIDIARIES**

 

**UNAUDITED CONSOLIDATED STATEMENTS OFCASH FLOWS**

** **
|                                                                                      |   | **For  the Nine Months Ended** |       |
|-------------------------------------------------------------------------------------------|--------|--------------------------------|------------|
|                                                                                      |   | **September 30,**         |       |
|                                                                                      |   | **2000**                       |       | **2001** |   |
|                                                                                      |   |                           |       |   |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                    |   |                           |       |   |   |
| Net loss                                                                                  |   | $                              | (7,643,060 | ) | $ | (16,303,813 | ) |
| Adjustment to reconcile  net loss to net cash provided by (used in) operating activities: |   |                           |       |   |   |
| Depreciation and  amortization                                                            |   | 10,597,413                     |       | 11,326,495 |   |
| Amortization of debt  offering costs                                                      |   | 588,472                        |       | 560,641 |   |
| Distribution received                                                                     |   | 405,992                        |       | — |   |
| Equity in income of  subsidiaries                                                         |   | (2,225                         | )          | — |   |
| Gain on distributions  from affiliates                                                    |   | (142,650                       | )          | — |   |
| Write-off of deferred  equity offering costs                                              |   | 725,128                        |       | — |   |
| Write-offs of equipment  and intangibles assets                                           |   | 65,380                         |       | 110,235 |   |
| Minority interest in  net income (loss) of consolidated subsidiaries                      |   | 659,175                        |       | (1,392,512 | ) |
| Net change in assets  and liabilities:                                                    |   |                           |       |   |   |
| Decrease (increase) in  receivables                                                       |   | (393,089                       | )          | 537,735 |   |
| Decrease in receivables  from affiliates                                                  |   | 473,759                        |       | — |   |
| Increase in prepaid  expenses and other current assets                                    |   | (461,002                       | )          | (396,698 | ) |
| Decrease (increase) in  other assets                                                      |   | (37,929                        | )          | 4,363 |   |
| Decrease in accounts  payable                                                             |   | (295,362                       | )          | (611,807 | ) |
| Increase in producers’  fees payable                                                 |   | 375,385                        |       | 814,975 |   |
| Increase in accounts  payable to Jones International, Ltd.                                |   | 722,339                        |       | 104,902 |   |
| Decrease in interest  payable                                                             |   | (2,937,500                     | )          | (2,937,500 | ) |
| Increase in deferred  revenues                                                            |   | 14,677                         |       | 308,007 |   |
| Increase (decrease) in  accrued and other liabilities                                     |   | 752,342                        |       | (1,220,442 | ) |
| Increase in customer  deposits                                                            |   | 31,807                         |       | 32,022 |   |
| Net cash provided by  (used in) operating activities                                      |   | 3,499,052                      |       | (9,063,397 | ) |
|                                                                                      |   |                           |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                    |   |                           |       |   |   |
| Purchase of property  and equipment                                                       |   | (2,226,400                     | )          | (2,158,484 | ) |
| Proceeds from sale of  available for sale securities                                      |   | 3,790,016                      |       | 3,714,038 |   |
| Cable programming  distribution agreement payments                                        |   | (5,281,109                     | )          | (5,609,459 | ) |
| Purchases of intangible  assets and programming                                           |   | (812,898                       | )          | (233,896 | ) |
| Distributions of  capital from affiliates                                                 |   | 15,000                         |       | — |   |
| Net cash used in  investing activities                                                    |   | (4,515,391                     | )          | (4,287,801 | ) |
|                                                                                      |   |                           |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                    |   |                           |       |   |   |
| Contributions from  minority interest                                                     |   | —                         |       | 447,331 |   |
| Payments for equity  offering costs                                                       |   | (484,269                       | )          | — |   |
| Net cash provided by  (used in) financing activities                                      |   | (484,269                       | )          | 447,331 |   |
|                                                                                      |   |                           |       |   |   |
| DECREASE IN CASH AND  CASH EQUIVALENTS                                                    |   | (1,500,608                     | )          | (12,903,867 | ) |
|                                                                                      |   |                           |       |   |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                           |   | 13,270,784                     |       | 14,900,333 |   |
|                                                                                      |   |                           |       |   |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                                 |   | $                              | 11,770,176 |   | $ | 1,996,466 |   |
|                                                                                      |   |                           |       |   |   |
| SUPPLEMENTAL CASH FLOW  DISCLOSURES:                                                      |   |                           |       |   |   |
| Class A Common Stock  issued for radio programs                                           |   | $                              | 671,865    |   | $ | — |   |
| Interest paid                                                                             |   | $                              | 11,750,000 |   | $ | 11,750,000 |   |
| Income tax paid                                                                           |   | $                              | 48,357     |   | $ | 33,000 |   |

 

The accompanyingnotes are an integral part of these unaudited consolidated financialstatements.

**JONESMEDIA NETWORKS, LTD. AND SUBSIDIARIES**

** **

**NOTESTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

** **

**(1) BASIS OF PRESENTATION AND SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

         This Form 10-Q is being filed by JonesMedia Networks, Ltd. and its subsidiaries (the “Company”).  The accompanying consolidated statements offinancial position as of December 31, 2000 and September 30, 2001,the consolidated statements of operations for the three and nine months endedSeptember 30, 2000 and 2001, and the statements of cash flows for thenine months ended September 30, 2000 and 2001, are unaudited.  This Form 10-Q is being filed in conformitywith the SEC requirements for unaudited financial statements and does notcontain all of the necessary footnote disclosures required for a completepresentation of the consolidated statements of financial position, consolidatedstatements of operations and consolidated statements of cash flows inconformity with generally accepted accounting principles.  However, in the opinion of management, thesestatements include all adjustments, consisting of normal recurring accruals,necessary for the fair presentation of results for these interim periods. Theresults of operations for the nine months ended September 30, 2001 arenot necessarily indicative of results to be expected for the entire year, orfor any other interim period.

 

         *Other Comprehensive Loss (Income)*—Adjustmentsto other comprehensive loss (income) represent the net change in unrealizedlosses (gains) on available for sale securities.

 

         *Minority Interest*—As of September 30,2001, the Company is reflecting negative minority interest in consolidatedsubsidiaries on the accompanying balance sheets due to the accumulated netlosses generated by the Product Information Network Venture, (“PIN Venture”) inexcess of Cox Communications’ net investment in PIN Venture.  To the extent the PIN Venture requiresadditional capital and such capital contributions are approved by the partnersof the PIN Venture, Cox Communications is required to contribute their pro ratashare of such capital contributions.

 

         *New Accounting Pronouncements*— In June2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142“Goodwill and Other Intangible Assets.” These statements prohibit pooling-of-interests accounting fortransactions initiated after June 30, 2001, require the use of the purchasemethod of accounting for all combinations after June 30, 2001, and establishnew standards for accounting for goodwill and other intangibles acquired inbusiness combinations.  Goodwill willcontinue to be recognized as an asset, but will not be amortized as previouslyrequired by APB Opinion No. 17 “Intangible Assets.”  Amortization expenses of approximately $573,000 and $745,000 wererecognized relating to goodwill for the nine months ended September 30, 2000and 2001, respectively.  Certain otherintangible assets with indefinite lives, if present, may also not be amortized.  Instead, goodwill and other intangibleassets will be subject to periodic (at least annual) tests for impairment andrecognition of impairment losses in the future could be required based on a newmethodology for measuring impairments prescribed by these pronouncements.  The revised standards include transition rulesand requirements for identification, valuation and recognition of a muchbroader list of intangibles as part of business combinations than priorpractice, most of which will continue to be amortized.  The Company’s prospective financialstatements may be significantly affected by the results of future periodictests for impairment.  In addition, theamount and timing of non-cash charges related to intangibles acquired inbusiness combinations will change significantly from prior practice.

 

         *Use of Estimates*—The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States requires the Company to make estimates andassumptions that affect the reported amounts of revenues and expenses duringthe reporting period.  Actual resultscould differ from those estimates.

 

         *Reclassifications*—Certain prior periodamounts have been reclassified to conform to the current presentation.

 

**(2) DISCONTINUED OPERATIONS**

 

**        **InAugust 2001, management approved a plan to close down the Company’s previouslyreported Internet Advertising Sales Services segment.  On September 30, 2001, the Company ceased all operations of theInternet Advertising Sales Services business and anticipates to wrap up allaspects of the segment by December 31, 2001. The historical operating results have been segregated as “DiscontinuedOperations” on the accompanying Consolidated Statements of Operations for allperiods presented.  The related assetsand liabilities have been separately identified on the consolidated Statementsof Financial Position as “Net non-current assets” or “Net current liabilitiesof discontinued operations.” Discontinued Operations have not been segregated on the ConsolidatedStatements of Cash Flows.  The Companyhas recorded impairment and exit costs of approximately $36,000 as a loss fromDiscontinued Operations in the accompanying consolidated financial statements.

         The Company’sInternet advertising sales business, which is classified as DiscontinuedOperations, is summarized as follows:

 
|                                        |   | **Three Months Ended September 30,**     |   | **Nine Months Ended September 30,** |   |
|---------------------------------------------|--------|------------------------------------------|--------|-------------------------------------|--------|
|                                        |   | **2000**                                 |   | **2001**                            |   | **2000** |   | **2001** |   |
|                                        |   | **(in thousands except per share data)** |   |
| Net revenues                                |   | $                                        | 1,505  |                                | $      | 35 |   | $ | 1,506 |   | $ | 113 |   |
|                                        |   |                                     |   |                                |   |   |   |   |   |
| Income (loss)  before income taxes          |   | $                                        | 1,057  |                                | $      | (53 | ) | $ | 669 |   | $ | (1,249 | ) |
|                                        |   |                                     |   |                                |   |   |   |   |   |
| Net income  (loss)                          |   | $                                        | 1,057  |                                | $      | (53 | ) | $ | 669 |   | $ | (1,249 | ) |
|                                        |   |                                     |   |                                |   |   |   |   |   |
| Net income  (loss) per share – basic   |   | $                                        | 0.14   |                                | $      | (0.01 | ) | $ | 0.08 |   | $ | (0.16 | ) |
|                                        |   |                                     |   |                                |   |   |   |   |   |
| Net income  (loss) per share – diluted |   | $                                        | 0.14   |                                | $      | (0.01 | ) | $ | 0.09 |   | $ | (0.16 | ) |

 

         Netassets held for Discontinued Operations are carried at cost, which do notexceed estimated net realizable value, as follows:

 

|                                                |   | **December 31,**   |   | **September 30,** |   |
|-----------------------------------------------------|--------|--------------------|--------|-------------------|--------|
|                                                |   | **2000**           |   | **2001**          |   |
|                                                |   | **(in thousands)** |   |
| Discontinued  Operations:                           |   |               |   |              |   |
| Current assets                                      |   | $                  | — |              | $      | 123 |   |
| Current  liabilities                                |   | —             |   | (230              | )      |
| Net current  liabilities of discontinued operations |   | $                  | — |              | $      | (107 | ) |
|                                                |   |               |   |              |   |
| Non-current  assets                                 |   | $                  | 83     |              | $      | 106 |   |
| Non-current  liabilities                            |   | —             |   | —            |   |
| Net non-current  assets of discontinued operations  |   | $                  | 83     |              | $      | 106 |   |

 

**(3)TRANSACTIONS WITH AFFILIATED ENTITIES**

 

         The Company is a subsidiary of Jones International, Ltd.(“Jones International”), a holding company with ownership in several companiesinvolved in various industries. Jones International is wholly owned by theCompany’s Chairman, Glenn R. Jones, who is Chairman and Chief Executive Officerof Jones International and various of its subsidiaries. Certain officers ordirectors of the Company are also officers or directors of these affiliatedentities and, from time to time, the Company may have transactions with theseentities. Certain expenses are paid by affiliated entities on behalf of theCompany and are allocated at cost based on specific identification or othermethods which management believes are reasonable.  Principal recurring transactions with affiliates are describedbelow.

 

 

*         Revenues*—Jones EarthSegment, Inc. (“Earth Segment”), a wholly owned subsidiary of the Company,provides playback, editing, duplication, trafficking and uplinking services toits network radio and cable programming network affiliates and to thirdparties.  Earth Segment chargesaffiliates for its services using rates which are calculated to achieve aspecified rate of return on its investment. For the three months ended September 30, 2000 and 2001, EarthSegment charged its affiliates approximately $427,000 and $155,000respectively, for these services.  Forthe nine months ended September 30, 2000 and 2001, Earth Segmentcharged its affiliates approximately $1,601,000 and $439,000 respectively, forthese services.

 

         In addition, Jones Space Holdings, Inc.(“Space Holdings”), a wholly owned subsidiary of the Company, subleasessatellite transponder capacity to certain of its affiliates.  Satellite transponder lease revenues ofapproximately $385,000 and $267,000, were received from affiliates for thethree months ended September 30, 2000 and 2001, respectively.  Satellite transponder lease revenues of approximately$1,155,000 and $669,000, were received from affiliates for the nine monthsended September 30, 2000 and 2001, respectively.

 

*         OperatingExpenses*—The PIN Venture is owned by the Company and by CoxCommunications.  The PIN Venture paysout a significant portion of the revenues generated by its infomercialprogramming in the form of system rebates to cable systems which enter intoagreements to air such programming.  Forthe three months ended September 30, 2000 and 2001, the PIN Venturepaid system rebates to Cox Communications of approximately $937,000 and$873,000, respectively, for system rebates. For the nine months ended September 30, 2000 and 2001, the PINVenture paid system rebates to Cox Communications of approximately $2,777,000and $3,053,000 respectively, for system rebates.

 

*        *TheCompany leases office space in Englewood, Colorado from an affiliate of JonesInternational.  For the three monthsended September 30, 2000 and 2001, the Company paid this affiliateapproximately $134,000 and $83,000, respectively, for rent and associated expenses.  For the nine months endedSeptember 30, 2000 and 2001, the Company paid this affiliateapproximately $373,000 and $275,000, respectively, for rent and associatedexpenses.

 

         An affiliate of Jones Internationalprovides computer hardware and software support services to the Company.  For the three months endedSeptember 30, 2000 and 2001, the Company paid the affiliateapproximately $335,000 and $191,000, respectively, for such services.  For the nine months endedSeptember 30, 2000 and 2001, the Company paid the affiliateapproximately $1,025,000 and $581,000, respectively, for such services.

 

         The Company and its consolidatedsubsidiaries reimburse Jones International and its affiliates for certainallocated administrative expenses. These expenses generally consist ofsalaries, related benefits and other related costs. Allocations of personnelcosts are generally based on actual time spent by affiliated associates withrespect to the Company. For the three months ended September 30, 2000and 2001, the Company reimbursed Jones International and its affiliatesapproximately $228,000 and $188,000, respectively.  For the nine months ended September 30, 2000 and 2001,the Company reimbursed Jones International and its affiliates approximately$612,000 and $591,000, respectively.

 

*        *GalacticRadio, Inc. (“Galactic Radio”), a wholly owned subsidiary of the Company, had atransponder lease agreement with Jones Satellite Holdings, Inc. (“SatelliteHoldings”), an affiliate of Jones International, for the use of thesub-carriers on a non-preemptible satellite transponder. Galactic Radioterminated this agreement on January 31, 2000. This agreement allowed Galactic Radio to use a portion of thetransponder to distribute its audio programming.  The Company paid Satellite Holdings approximately $58,000 during2000 for this service.

 

         An affiliate of Jones Internationalcharged the Company approximately $11,000 for the nine months endedSeptember 30, 2000 for the allocated costs of its airplane, which wasused by the Company in connection with a proposed equity offering.  No such costs were incurred during the threeand nine month periods ended September 30, 2001.

 

         In the normal course of business, JonesInternational (1) remits funds on behalf of the Company to third parties andaffiliates in payment of products and services purchased by the Company, and(2) receives funds on behalf of the Company in payment for products andservices provided by the Company.  Theseamounts are reimbursed from or to Jones International on a monthly basis.  The outstanding payable to JonesInternational and related parties at September 30, 2001 wasapproximately $337,000.

**(4) NETLOSS PER COMMON SHARE**

 

         Basic earnings per share ("EPS") is computed bydividing the net earnings applicable to common shares by the weighted averagenumber of common shares outstanding during the period. Diluted EPS adjusts thebasic weighted average of common shares outstanding by the assumed redemptionof shares subject to put in the periods in which such effect would have beendilutive. Prior period amounts have been adjusted to reflect the effect of the5-for-4 stock split which was effective on January 28, 2000. Thetable below presents a reconciliation of weighted average shares used in thecalculation of basic and diluted EPS:

** **
|                                        |   | **For  the Three Months ended** |       | **For  the Nine Months ended** |   |
|---------------------------------------------|--------|---------------------------------|------------|--------------------------------|--------|
|                                        |   | **September  30,**              |       | **September  30,**             |   |
|                                        |   | **2000**                        |       | **2001**                       |   | **2000** |   | **2001** |   |
|                                        |   |                            |       |                           |   |   |   |   |   |
| Loss from continuing  operations            |   | $                               | (3,474,214 | )                              | $      | (4,971,971 | ) | $ | (8,312,155 | ) | $ | (15,054,992 | ) |
| Income (loss) from  Discontinued Operations |   | 1,056,813                       |       | (53,207                        | )      | 669,095 |   | (1,248,821 | ) |
| Net loss                                    |   | $                               | (2,417,401 | )                              | $      | (5,025,178 | ) | $ | (7,643,060 | ) | $ | (16,303,813 | ) |
|                                        |   |                            |       |                           |   |   |   |   |   |
| Basic Per share amount:                     |   |                            |       |                           |   |   |   |   |   |
| Continuing operations                       |   | $                               | (0.45      | )                              | $      | (0.64 | ) | $ | (1.08 | ) | $ | (1.96 | ) |
| Discontinued Operations                     |   | 0.14                            |       | (0.01                          | )      | 0.08 |   | (0.16 | ) |
| Total                                       |   | $                               | (0.31      | )                              | $      | (0.65 | ) | $ | (1.00 | ) | $ | (2.12 | ) |
|                                        |   |                            |       |                           |   |   |   |   |   |
| Shares – Basic                         |   | 7,671,117                       |       | 7,697,403                      |   | 7,661,163 |   | 7,697,403 |   |
|                                        |   |                            |       |                           |   |   |   |   |   |
| Diluted Per share  amount:                  |   |                            |       |                           |   |   |   |   |   |
| Continuing operations                       |   | $                               | (0.46      | )                              | $      | (0.65 | ) | $ | (1.09 | ) | $ | (1.97 | ) |
| Discontinued Operations                     |   | 0.14                            |       | (0.01                          | )      | 0.09 |   | (0.16 | ) |
| Total                                       |   | $                               | (0.32      | )                              | $      | (0.66 | ) | $ | (1.00 | ) | $ | (2.13 | ) |
|                                        |   |                            |       |                           |   |   |   |   |   |
| Shares – Diluted                       |   | 7,630,531                       |       | 7,640,131                      |   | 7,620,577 |   | 7,640,131 |   |
|                                        |   |                            |       |                           |   |   |   |   |   |
| Weighted average shares  for basic EPS      |   | 7,671,117                       |       | 7,697,403                      |   | 7,661,163 |   | 7,697,403 |   |
| Less:  shares subject to put           |   | 40,586                          |       | 57,272                         |   | 40,586 |   | 57,272 |   |
|                                        |   |                            |       |                           |   |   |   |   |   |
| Weighted average shares  for diluted EPS    |   | 7,630,531                       |       | 7,640,131                      |   | 7,620,577 |   | 7,640,131 |   |

 

**(5) COMMITMENTS AND CONTINGENCIES**

 

         *GAC Equity Agreement*—In 1998, GreatAmerican Country and the Company entered into an equity affiliate agreementwith a multiple cable system operator (“MSO”). Pursuant to the terms of the agreement, the Company agreed to issueshares of Class A Common Stock to this MSO in return for this MSO providingGreat American Country’s programming to no less than 550,000 of the MSO’ssubscribers by May 31, 1998 and an additional 150,000 subscribers byDecember 31, 1999.  The totalnumber of shares of Class A Common Stock issued was based on the number ofsubscribers provided by this MSO.  As ofSeptember 30, 2001, 136,540 shares of Class A Common Stock had beenissued.  No additional shares of Class ACommon Stock are required to be issued to this MSO.   The value of the Class A Common Stock was recorded as anintangible asset upon execution of the affiliate agreements and upon issuanceof the Class A Common Stock.  Thisintangible is being amortized using the straight-line method over the life ofthe contract (approximately 10 years). Because of a put option granted to this MSO, the shares issued to thisMSO are presented above the Shareholders’ Deficit section of the Statements ofFinancial Position.

 

         As noted above, this MSO was granted a put option on theClass A Common Stock issued, whereby, if as of December 31, 2001, theCompany or its successor has not completed a public offering of its securities,the MSO would have the option within 60 days of such date to require theCompany to buy back its Class A Common Stock. In the event the put option is exercised, the purchase price of theClass A Common Stock would be approximately $951,000.  This amount represents a portion of the total license fees paidto the Company by the MSO during the period between the date of the agreementand December 1, 2000, and is based on the license fees generated fromthe total number of MSO subscribers receiving the Great American Countryservice at December 31, 1999.

 

**(6)UNAUDITED CONDENSED CONSOLIDATING FINANCIAL INFORMATION FOR SUBSIDIARYGUARANTORS**

 

         In July1998, the Company issued $100 million of 113⁄4 percent Senior Secured Notes(the “Senior Notes”).  The Senior Notesare fully and unconditionally guaranteed, jointly and severally, on a senior unsecuredbasis 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 AmericanCountry, Inc., Jones Galactic Radio, Inc., Jones Infomercial Network Ventures,Inc., Jones Galactic Radio Partners, Inc., Jones Radio Networks, Inc., JonesAudio Services, Inc., Jones Radio Network Ventures, Inc., Jones MediaAmerica,Inc., Jones Broadcast Programming, Inc., Jones MatchMedia, Inc.,  and Jones MAI Radio, Inc.  The only existing subsidiary of the Companythat did not guarantee the Notes is the PIN Venture (the "Non-GuarantorSubsidiary").  Superaudio andJones/Capstar were subsidiaries of the Company that did not guarantee theNotes.  Superaudio ceased distributingits programming and all other operating activities on January 31, 2000.Jones Radio Network, Inc. purchased all Jones/Capstar assets on April 1, 2000and now produces and distributes its programming.  Assets and liabilities that were transferred to Jones RadioNetwork, Inc. are now reported under the “Subsidiary Guarantors.”

 

         The Company has not provided separatecomplete financial statements and other disclosures of the respectiveSubsidiary Guarantors because management has determined that such informationis not material to investors.  There areno significant contractual restrictions on distributions from each of theSubsidiary Guarantors to the Company.

 

         Investments in subsidiaries arerequired to be accounted for by investors on the equity method for purposes ofthe supplemental condensed consolidating financial statement presentation.  Under this method, investments are recordedat cost and adjusted for the investor company’s ownership share of thesubsidiaries’ cumulative results of operations.  In addition, investments increase in the amount of contributionsto subsidiaries and decrease in the amount of distributions from subsidiaries.  The elimination entries necessary forconsolidation purposes eliminate the equity method accounting for theinvestment in subsidiaries and the equity in earnings of subsidiaries,intercompany payables and receivables and other transactions betweensubsidiaries including contributions and distributions.

 

         Sections 13 and 15(d) of the SecuritiesExchange Act of 1934 require presentation of the following supplementalcondensed consolidating financial statements. Presented below is condensed consolidating financial information for theCompany and its subsidiaries as of and for the nine months endedSeptember 30, 2000 and 2001.

 

**UnauditedCondensed Consolidating Statements of Operations – For the Nine Months EndedSeptember 30, 2000:**

**(inthousands)**

 
|                                                          |   |        |   |           |   | **Non-**         |   |            |   |         |   |
|---------------------------------------------------------------|--------|-------------|--------|----------------|--------|------------------|--------|-----------------|--------|--------------|--------|
|                                                          |   | **The**     |   | **Subsidiary** |   | **Guarantor**    |   | **Elimination** |   |         |   |
|                                                          |   | **Company** |   | **Guarantors** |   | **Subsidiaries** |   | **Entries**     |   | **Reported** |   |
|                                                          |   |        |   |           |   |             |   |            |   |         |   |
| Revenues                                                      |   | $           | — |           | $      | 43,186           |   | $               | 18,954 |         | $      | (1,305 | ) | $ | 60,835 |   |
| Operating  expenses:                                          |   |        |   |           |   |             |   |            |   |         |   |
| Operations                                                    |   | —      |   | 23,613         |   | 16,819           |   | (1,305          | )      | 39,127       |   |
| Selling and  marketing                                        |   | —      |   | 6,959          |   | 663              |   | —          |   | 7,622        |   |
| General and  administrative                                   |   | 1,866       |   | —         |   | —           |   | —          |   | 1,866        |   |
| Depreciation and  amortization                                |   | 57          |   | 10,422         |   | 104              |   | —          |   | 10,583       |   |
| Total operating  expenses                                     |   | 1,923       |   | 40,994         |   | 17,586           |   | (1,305          | )      | 59,198       |   |
| OPERATING INCOME  (LOSS)                                      |   | (1,923      | )      | 2,192          |   | 1,368            |   | —          |   | 1,637        |   |
| OTHER EXPENSE  (INCOME):                                      |   |        |   |           |   |             |   |            |   |         |   |
| Interest expense                                              |   | 9,410       |   | 2              |   | —           |   | —          |   | 9,412        |   |
| Interest income                                               |   | (428        | )      | (117           | )      | (168             | )      | —          |   | (713         | )      |
| Equity share of  loss (income) of subsidiaries                |   | (3,998      | )      | 4,810          |   | —           |   | (814            | )      | (2           | )      |
| Other expense  (income), net                                  |   | 736         |   | (253           | )      | 62               |   | —          |   | 545          |   |
| Total other  expense (income)                                 |   | 5,720       |   | 4,442          |   | (106             | )      | (814            | )      | 9,242        |   |
| Income (loss)  before income taxes and minority interest      |   | (7,643      | )      | (2,250         | )      | 1,474            |   | 814             |   | (7,605       | )      |
| Income tax  provision                                         |   | —      |   | 47             |   | 1                |   | —          |   | 48           |   |
| Income (loss)  before minority interest                       |   | (7,643      | )      | (2,297         | )      | 1,473            |   | 814             |   | (7,653       | )      |
| Minority  interest in net income of consolidated subsidiaries |   | —      |   | —         |   | —           |   | 659             |   | 659          |   |
| NET INCOME  (LOSS) FROM CONTINUED OPERATIONS                  |   | (7,643      | )      | (2,297         | )      | 1,473            |   | 155             |   | (8,312       | )      |
|                                                          |   |        |   |           |   |             |   |            |   |         |   |
| NET INCOME FROM  DISCONTINUED OPERATIONS:                     |   |        |   |           |   |             |   |            |   |         |   |
| Net income from  discontinued operations                      |   | —      |   | 669            |   | —           |   | —          |   | 669          |   |
|                                                          |   |        |   |           |   |             |   |            |   |         |   |
| NET INCOME  (LOSS)                                            |   | $           | (7,643 | )              | $      | (1,628           | )      | $               | 1,473  |         | $      | 155 |   | $ | (7,643 | ) |

 

**UnauditedCondensed Consolidating Cash Flows – For the Nine Months EndedSeptember 30, 2000:**

**(inthousands)**

** **
|                                                                                                |   |        |   |           |   | **Non-**         |   |            |   |         |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------|--------|----------------|--------|------------------|--------|-----------------|--------|--------------|--------|
|                                                                                                |   | **The**     |   | **Subsidiary** |   | **Guarantor**    |   | **Elimination** |   |         |   |
|                                                                                                |   | **Company** |   | **Guarantors** |   | **Subsidiaries** |   | **Entries**     |   | **Reported** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                              |   |        |   |           |   |             |   |            |   |         |   |
| Net income  (loss)                                                                                  |   | $           | (7,643 | )              | $      | (1,628           | )      | $               | 1,473  |         | $      | 155 |   | $ | (7,643 | ) |
| Adjustment to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |   |        |   |           |   |             |   |            |   |         |   |
| Non-cash  expenses                                                                                  |   | (1,400      | )      | 14,285         |   | 167              |   | (155            | )      | 12,897       |   |
| Net change in  assets and liabilities                                                               |   | 603         |   | (2,699         | )      | 341              |   | —          |   | (1,755       | )      |
| Net cash  provided by (used in) operating activities                                                |   | (8,440      | )      | 9,958          |   | 1,981            |   | —          |   | 3,499        |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                              |   |        |   |           |   |             |   |            |   |         |   |
| Purchase of  property and equipment                                                                 |   | (25         | )      | (2,014         | )      | (188             | )      | —          |   | (2,227       | )      |
| Proceeds  from/purchase of investments                                                              |   | 4,673       |   | 19             |   | (902             | )      | —          |   | 3,790        |   |
| Purchase of  intangible assets                                                                      |   | (9          | )      | (6,085         | )      | —           |   | —          |   | (6,094       | )      |
| Distributions of  capital from affiliates                                                           |   | —      |   | 15             |   | —           |   | —          |   | 15           |   |
| Net cash  provided by (used in) investing activities                                                |   | 4,639       |   | (8,065         | )      | (1,090           | )      | —          |   | (4,516       | )      |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                              |   |        |   |           |   |             |   |            |   |         |   |
| Payments for  equity offering costs                                                                 |   | (484        | )      | —         |   | —           |   | —          |   | (484         | )      |
| Net cash used in  financing activities                                                              |   | (484        | )      | —         |   | —           |   | —          |   | (484         | )      |
| INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                                   |   | (4,285      | )      | 1,893          |   | 891              |   | —          |   | (1,501       | )      |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                                     |   | 7,889       |   | 2,708          |   | 2,674            |   | —          |   | 13,271       |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                                           |   | $           | 3,604  |           | $      | 4,601            |   | $               | 3,565  |         | $      | — |   | $ | 11,770 |   |

 

 

**UnauditedCondensed Consolidating Statements of Financial Position – As ofSeptember 30, 2001:**

**(inthousands)**
|                                                         |   |        |       |           |       | **Non-**         |       |            |       |         |       |
|--------------------------------------------------------------|--------|-------------|------------|----------------|------------|------------------|------------|-----------------|------------|--------------|------------|
|                                                         |   | **The**     |       | **Subsidiary** |       | **Guarantor**    |       | **Elimination** |       |         |       |
|                                                         |   | **Company** |       | **Guarantors** |       | **Subsidiaries** |       | **Entries**     |       | **Reported** |       |
| **ASSETS:**                                                  |   |        | ** ** |           | ** ** |             | ** ** |            | ** ** |         | ** ** |
| Cash and cash  equivalents                                   |   | $           | 1,350      |           | $          | 539              |       | $               | 107        |         | $          | — |   | $ | 1,996 |   |
| Accounts  receivable, net                                    |   | —      |       | 14,240         |       | 1,171            |       | —          |       | 15,411       |       |
| Other current  assets                                        |   | 63          |       | 1,621          |       | —           |       | —          |       | 1,684        |       |
| Total current  assets                                        |   | 1,413       |       | 16,400         |       | 1,278            |       | —          |       | 19,091       |       |
| Property and equipment,  net                                 |   | 30          |       | 17,961         |       | 290              |       | —          |       | 18,281       |       |
| Intangible  assets, net                                      |   | 2,803       |       | 55,343         |       | —           |       | —          |       | 58,146       |       |
| Net non-current  assets of discontinued operations           |   | —      |       | 106            |       | —           |       | —          |       | 106          |       |
| Other long-term  assets                                      |   | 26,587      |       | (21,271        | )          | —           |       | (867            | )          | 4,449        |       |
| Total assets                                                 |   | $           | 30,833     |           | $          | 68,539           |       | $               | 1,568      |         | $          | (867 | ) | $ | 100,073 |   |
| **LIABILITIES AND SHAREHOLDERS’****EQUITY  (DEFICIT):** |   |        | ** ** |           | ** ** |             | ** ** |            | ** ** |         | ** ** |
| Accounts payable                                             |   | $           | 464        |           | $          | 2,078            |       | $               | 2,907      |         | $          | — |   | $ | 5,449 |   |
| Producers’ fees  payable                                |   | —      |       | 6,085          |       | —           |       | —          |       | 6,085        |       |
| Cable programming  distribution agreements payments          |   | —      |       | 1,603          |       | —           |       | —          |       | 1,603        |       |
| Accrued  liabilities                                         |   | 3,191       |       | 1,501          |       | 76               |       | —          |       | 4,768        |       |
| Net current  liabilities of discontinued operations          |   | —      |       | 107            |       | —           |       | —          |       | 107          |       |
| Other current  liabilities                                   |   | (53,594     | )          | 54,864         |       | 32               |       | —          |       | 1,302        |       |
| Total current  liabilities                                   |   | (49,939     | )          | 66,238         |       | 3,015            |       | —          |       | 19,314       |       |
| Senior secured  notes                                        |   | 100,000     |       | —         |       | —           |       | —          |       | 100,000      |       |
| Other long-term  liabilities                                 |   | 1,089       |       | 634            |       | —           |       | —          |       | 1,723        |       |
| Total long-term  liabilities                                 |   | 101,089     |       | 634            |       | —           |       | —          |       | 101,723      |       |
| Minority  interest                                           |   | —      |       | —         |       | —           |       | (647            | )          | (647         | )          |
| Class A Common  Stock subject to put                         |   | 1,311       |       | —         |       | —           |       | —          |       | 1,311        |       |
| Shareholders’  equity (deficit):                        |   |        |       |           |       |             |       |            |       |         |       |
| Series A  Preferred Stock                                    |   | 23,975      |       | —         |       | —           |       | —          |       | 23,975       |       |
| Class A Common  Stock                                        |   | 53          |       | —         |       | —           |       | —          |       | 53           |       |
| Class B Common  Stock                                        |   | 22          |       | —         |       | —           |       | —          |       | 22           |       |
| General  Partners’ Contributions                        |   | —      |       | —         |       | 1,350            |       | (1,350          | )          | —       |       |
| Additional  paid-in capital                                  |   | 28,452      |       | —         |       | —           |       | —          |       | 28,452       |       |
| Accumulated  other comprehensive income                      |   | —      |       | —         |       | —           |       | —          |       | —       |       |
| Retained  earnings (deficit)                                 |   | (74,130     | )          | 1,667          |       | (2,797           | )          | 1,130           |       | (74,130      | )          |
| Total  shareholders’ equity (deficit)                   |   | (21,628     | )          | 1,667          |       | (1,447           | )          | (220            | )          | (21,628      | )          |
| Total  liabilities and shareholders’ equity (deficit)   |   | $           | 30,833     |           | $          | 68,539           |       | $               | 1,568      |         | $          | (867 | ) | $ | 100,073 |   |

**UnauditedCondensed Consolidating Statements of Operations – For the Nine Months EndedSeptember 30, 2001:**

**(inthousands)**
|                                                        |   |        |    |           |   | **Non-**         |   |            |   |         |   |
|-------------------------------------------------------------|--------|-------------|---------|----------------|--------|------------------|--------|-----------------|--------|--------------|--------|
|                                                        |   | **The**     |    | **Subsidiary** |   | **Guarantor**    |   | **Elimination** |   |         |   |
|                                                        |   | **Company** |    | **Guarantors** |   | **Subsidiaries** |   | **Entries**     |   | **Reported** |   |
| Revenues                                                    |   | $           | —  |           | $      | 41,359           |   | $               | 18,291 |         | $      | (1,577 | ) | $ | 58,073 |   |
| Operating  expenses:                                        |   |        |    |           |   |             |   |            |   |         |   |
| Operations                                                  |   | —      |    | 25,820         |   | 20,838           |   | (1,577          | )      | 45,081       |   |
| Selling and  marketing                                      |   | —      |    | 7,161          |   | 500              |   | —          |   | 7,661        |   |
| General and  administrative                                 |   | 1,506       |    | —         |   | —           |   | —          |   | 1,506        |   |
| Depreciation and  amortization                              |   | 101         |    | 11,068         |   | 117              |   | —          |   | 11,286       |   |
| Total operating  expenses                                   |   | 1,607       |    | 44,049         |   | 21,455           |   | (1,577          | )      | 65,534       |   |
| OPERATING INCOME  (LOSS)                                    |   | (1,607      | )       | (2,690         | )      | (3,164           | )      | —          |   | (7,461       | )      |
| OTHER EXPENSE  (INCOME):                                    |   |        |    |           |   |             |   |            |   |         |   |
| Interest expense                                            |   | 9,373       |    | —         |   | —           |   | —          |   | 9,373        |   |
| Interest income                                             |   | (330        | )       | (76            | )      | (51              | )      | —          |   | (457         | )      |
| Equity share of  loss (income) of subsidiaries              |   | 5,654       |    | (3,934         | )      | —           |   | (1,720          | )      | —       |   |
| Other expense,  net                                         |   | —      |    | 38             |   | —           |   | —          |   | 38           |   |
| Total other  expense (income)                               |   | 14,697      |    | (3,972         | )      | (51              | )      | (1,720          | )      | 8,954        |   |
| Income (loss)  before income taxes and minority interest    |   | (16,304     | )       | 1,282          |   | (3,113           | )      | 1,720           |   | (16,415      | )      |
| Income tax  provision                                       |   | —      |    | 33             |   | —           |   | —          |   | 33           |   |
| Income (loss)  before minority interest                     |   | (16,304     | )       | 1,249          |   | (3,113           | )      | 1,720           |   | (16,448      | )      |
| Minority  interest in net loss of consolidated subsidiaries |   | —      |    | —         |   | —           |   | (1,393          | )      | (1,393       | )      |
| NET INCOME  (LOSS) FROM CONTINUED OPERATIONS                |   | (16,304     | )       | 1,249          |   | (3,113           | )      | 3,113           |   | (15,055      | )      |
| NET LOSS FROM  DISCONTINUED OPERATIONS:                     |   |        |    |           |   |             |   |            |   |         |   |
| Loss from  discontinued operations                          |   | —      |    | (1,213         | )      | —           |   | —          |   | (1,213       | )      |
| Loss on disposal  of discontinued operations                |   | —      |    | (36            | )      | —           |   | —          |   | (36          | )      |
| NET LOSS FROM  DISCONTINUED OPERATIONS                      |   | —      |    | (1,249         | )      | —           |   | —          |   | (1,249       | )      |
|                                                        |   |        |    |           |   |             |   |            |   |         |   |
| NET INCOME  (LOSS)                                          |   | $           | (16,304 | )              | $      | —           |   | $               | (3,113 | )            | $      | 3,113 |   | $ | (16,304 | ) |

 

**UnauditedCondensed Consolidating Cash Flows – For the Nine Months EndedSeptember 30, 2001:**

**(inthousands)**
|                                                                                                |   |        |    |           |   | **Non-**         |   |            |   |         |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------|---------|----------------|--------|------------------|--------|-----------------|--------|--------------|--------|
|                                                                                                |   | **The**     |    | **Subsidiary** |   | **Guarantor**    |   | **Elimination** |   |         |   |
|                                                                                                |   | **Company** |    | **Guarantors** |   | **Subsidiaries** |   | **Entries**     |   | **Reported** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                              |   |        |    |           |   |             |   |            |   |         |   |
| Net income  (loss)                                                                                  |   | $           | (16,304 | )              | $      | -                |   | $               | (3,113 | )            | $      | 3,113 |   | $ | (16,304 | ) |
| Adjustment to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |   |        |    |           |   |             |   |            |   |         |   |
| Non-cash  expenses                                                                                  |   | 6,701       |    | 6,899          |   | 118              |   | (3,113          | )      | 10,605       |   |
| Net change in  assets and liabilities                                                               |   | (4,525      | )       | 1,010          |   | 151              |   | —          |   | (3,364       | )      |
| Net cash  provided by (used in) operating activities                                                |   | (14,128     | )       | 7,909          |   | (2,844           | )      | —          |   | (9,063       | )      |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                              |   |        |    |           |   |             |   |            |   |         |   |
| Purchase of  property and equipment                                                                 |   | (12         | )       | (2,102         | )      | (44              | )      | —          |   | (2,158       | )      |
| Proceeds from  the sale of available for sale securities                                            |   | 3,312       |    | 2              |   | 400              |   | —          |   | 3,714        |   |
| Cable  programming distribution agreements payments                                                 |   | —      |    | (5,610         | )      | —           |   | —          |   | (5,610       | )      |
| Purchase of  intangible assets                                                                      |   | —      |    | (234           | )      | —           |   | —          |   | (234         | )      |
| Net cash  provided by (used in) investing activities                                                |   | 3,300       |    | (7,944         | )      | 356              |   | —          |   | (4,288       | )      |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                              |   |        |    |           |   |             |   |            |   |         |   |
| Contributions to  partnership                                                                       |   | —      |    | (553           | )      |             |   | 553             |   | —       |   |
| Contributions  from minority interest                                                               |   | —      |    | —         |   | 1,000            |   | (553            | )      | 447          |   |
| Net cash  provided by (used in) investing activities                                                |   | —      |    | (553           | )      | 1,000            |   | —          |   | 447          |   |
| INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                   |   | (10,828     | )       | (588           | )      | (1,488           | )      | —          |   | (12,904      | )      |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                                     |   | 12,178      |    | 1,127          |   | 1,595            |   | —          |   | 14,900       |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                                           |   | $           | 1,350   |           | $      | 539              |   | $               | 107    |         | $      | — |   | $ | 1,996 |   |

 

**(7) REPORTABLE SEGMENTS**

 

         The Company currently has fourreportable segments: network radio, cable television programming, satelliteservices and general and administrative-corporate. In August 2001, Managementdecided to discontinue the Company’s previously reported Internet AdvertisingSales Services segment.  On September30, 2001, the Company ceased all operations of the Internet Advertising SalesServices business.  The historicaloperating results have been segregated as “Discontinued Operations” below.

 

         The Company’s reportable segments havebeen determined in accordance with the Company’s internal management structure.  The Company evaluates performance based onmany factors, one of the primary measures being EBITDA.  Consolidated EBITDA represents operatingincome (loss) plus depreciation and amortization minus the EBITDA attributableto the minority interest in the PIN Venture, a consolidated 55.3%-ownedsubsidiary.

 

         The following tables set forth theCompany's financial results by operating segments.  The presentation of reportable segments has been changed fromthat presented in the prior periods to combine the results of operations fromInternet websites related to the Company’s radio programming with the networkradio segment and the results of operations from Internet websites related toone of the Company's cable television networks with the cable television programmingsegment.  Because of the complementarynature of the Company’s Internet websites to their respective radio program andcable television network counterparts, the Company has decided to include theresults of operations of these companion websites in the Company's respectivenetwork radio and cable television programming operations.  In addition, the Company has combined thepresentation of its radio programming content and radio advertising salesservices segments into the network radio segment. Management believes that thispresentation provides a more meaningful analysis of the Company's businesssegments.

** **
|                                               |   | **Three Months Ended** |   | **Nine Months Ended** |   |
|----------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                               |   | **September 30,**      |   | **September 30,**     |   |
|                                               |   | **2000**               |   | **2001**              |   | **2000** |   | **2001** |   |
|                                               |   | **(in thousands)**     |   |
| Revenues:                                          |   |                   |   |                  |   |   |   |   |   |
| Network  radio                                     |   | $                      | 10,635 |                  | $      | 8,609 |   | $ | 31,282 |   | $ | 30,224 |   |
| Cable  television programming                      |   | 7,864                  |   | 8,822                 |   | 24,856 |   | 25,328 |   |
| Satellite  services                                |   | 1,676                  |   | 893                   |   | 4,697 |   | 2,521 |   |
|                                                    |   |                   |   |                  |   |   |   |   |   |
| Total  revenues                                    |   | $                      | 20,175 |                  | $      | 18,324 |   | $ | 60,835 |   | $ | 58,073 |   |
|                                                    |   |                   |   |                  |   |   |   |   |   |
| EBITDA:                                            |   |                   |   |                  |   |   |   |   |   |
| Network  radio                                     |   | $                      | 2,449  |                  | $      | 998 |   | $ | 7,795 |   | $ | 4,399 |   |
| Cable  television programming                      |   | 403                    |   | 374                   |   | 2,102 |   | (1,388 | ) |
| Satellite  services                                |   | 1,528                  |   | 838                   |   | 4,189 |   | 2,320 |   |
| Segment  EBITDA                                    |   | 4,380                  |   | 2,210                 |   | 14,086 |   | 5,331 |   |
| Reconciliation  to operating income:               |   |                   |   |                  |   |   |   |   |   |
| General  and administrative – Corporate       |   | (609                   | )      | (402                  | )      | (1,866 | ) | (1,506 | ) |
| Depreciation  and amortization                     |   | (3,610                 | )      | (4,117                | )      | (10,583 | ) | (11,286 | ) |
| Total  operating income (loss)                     |   | $                      | 161    |                  | $      | (2,309 | ) | $ | 1,637 |   | $ | (7,461 | ) |
|                                               |   |                   |   |                  |   |   |   |   |   |
| Reconciliation of  segment EBITDA to total EBITDA: |   |                   |   |                  |   |   |   |   |   |
| Segment  total                                     |   | $                      | 4,380  |                  | $      | 2,210 |   | $ | 14,086 |   | $ | 5,331 |   |
| General  and administrative – Corporate       |   | (609                   | )      | (402                  | )      | (1,866 | ) | (1,506 | ) |
| Adjustment  related to minority interest EBITDA    |   | (56                    | )      | 269                   |   | (658 | ) | 1,363 |   |
| Total  EBITDA from continuing operations           |   | 3,715                  |   | 2,077                 |   | 11,562 |   | 5,188 |   |
| EBITDA  from Discontinued Operations               |   | 1,065                  |   | (39                   | )      | 684 |   | (1,208 | ) |
| Total  EBITDA                                      |   | $                      | 4,780  |                  | $      | 2,038 |   | $ | 12,246 |   | $ | 3,980 |   |

 
|                                                          |   | **Three Months Ended** |   | **Nine Month Ended** |   |
|---------------------------------------------------------------|--------|------------------------|--------|----------------------|--------|
|                                                          |   | **September 30,**      |   | **September 30,**    |   |
|                                                          |   | **2000**               |   | **2001**             |   | **2000** |   | **2001** |   |
|                                                          |   | **(in thousands)**     |   |
| Depreciation and amortization:                                |   |                   |   |                 |   |   |   |   |   |
| Network radio                                                 |   | $                      | 1,672  |                 | $      | 2,087 |   | $ | 4,970 |   | $ | 5,598 |   |
| Cable television programming                                  |   | 955                    |   | 1,062                |   | 2,663 |   | 2,758 |   |
| Satellite services                                            |   | 953                    |   | 936                  |   | 2,893 |   | 2,829 |   |
| Segment total                                                 |   | 3,580                  |   | 4,085                |   | 10,526 |   | 11,185 |   |
| General and administrative – Corporate                   |   | 30                     |   | 32                   |   | 57 |   | 101 |   |
| Total depreciation and amortization for continuing operations |   | 3,610                  |   | 4,117                |   | 10,583 |   | 11,286 |   |
| Discontinued Operations                                       |   | 8                      |   | 14                   |   | 15 |   | 41 |   |
| Total depreciation and amortization                           |   | $                      | 3,618  |                 | $      | 4,131 |   | $ | 10,598 |   | $ | 11,327 |   |
|                                                               |   |                   |   |                 |   |   |   |   |   |
| Capital expenditures:                                         |   |                   |   |                 |   |   |   |   |   |
| Network radio                                                 |   | $                      | 475    |                 | $      | 596 |   | $ | 1,239 |   | $ | 1,598 |   |
| Cable television programming                                  |   | 244                    |   | 12                   |   | 530 |   | 136 |   |
| Satellite services                                            |   | 248                    |   | 11                   |   | 298 |   | 380 |   |
| Segment total                                                 |   | 967                    |   | 619                  |   | 2,067 |   | 2,114 |   |
| General and administrative – Corporate                   |   | 23                     |   | 4                    |   | 25 |   | 12 |   |
| Total capital expenditures for continuing operations          |   | 990                    |   | 623                  |   | 2,092 |   | 2,126 |   |
| Discontinued Operations                                       |   | 16                     |   | –               |   | 135 |   | 32 |   |
| Total capital expenditures                                    |   | $                      | 1,006  |                 | $      | 623 |   | $ | 2,227 |   | $ | 2,158 |   |
|                                                          |   |                   |   |                 |   |   |   |   |   |
| Cable programming distribution agreements payments:           |   |                   |   |                 |   |   |   |   |   |
|                                                          |   |                   |   |                 |   |   |   |   |   |
| Cable television programming                                  |   | $                      | 431    |                 | $      | 4,241 |   | $ | 5,281 |   | $ | 5,609 |   |
|                                                          |   |                   |   |                 |   |   |   |   |   |
| Discontinued Operations:                                      |   |                   |   |                 |   |   |   |   |   |
| Revenue                                                       |   | $                      | 1,505  |                 | $      | 35 |   | $ | 1,506 |   | 113 |   |
| EBITDA                                                        |   | 1,065                  |   | (39                  | )      | 684 |   | (1,208 | ) |
|                                                          |   |                   |   |                 |   |   |   |   |   |

 

|                                        |   | **As of September 30,** |    |
|---------------------------------------------|--------|------------------------------|---------|
|                                        |   | **2000**                     |    | **2001** |   |
|                                        |   | **(in thousands)**           |    |
| Total assets:                               |   |                         |    |   |   |
| Network radio                               |   | $                            | 35,256  |   | $ | 34,723 |   |
| Cable television programming                |   | 24,177                       |    | 20,673 |   |
| Satellite services                          |   | 16,895                       |    | 13,615 |   |
| Segment total                               |   | 76,328                       |    | 69,011 |   |
| General and administrative – Corporate |   | 43,541                       |    | 30,833 |   |
| Total assets from continuing operations     |   | 119,869                      |    | 99,844 |   |
| Discontinued Operations                     |   | 83                           |    | 229 |   |
| Total assets                                |   | $                            | 119,952 |   | $ | 100,073 |   |

 

         Segment EBITDA excludes intersegmenttransactions between the satellite services and cable television programmingsegments for the satellite services provided to the PIN Venture and GreatAmerican Country for approximately $940,000, and $907,000, for the three months endedSeptember 30, 2000 and 2001, respectively.  For the nine months ended September 30, 2000 and 2001,intersegment charges to the PIN Venture and Great American Country totaledapproximately $1,897,000, and $3,133,000, respectively.

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

 

         The following discussion of results ofthe Company’s financial condition and results of operations contains, inaddition to historical information, forward-looking statements that are basedupon certain assumptions and are subject to a number of risks anduncertainties.  The Company’s actual resultsmay differ significantly from the results described in such forward-lookingstatements.

 

**Results of Operations**

 

         The following table sets forth theamount of, and percentage relationship to total net revenues of, certain itemsincluded in the Company’s historical unaudited consolidated statements ofoperations for the three and nine months ended September 30, 2000 and2001:

** **
|                                           |   | **Three Months Ended September 30,** |   | **Nine Months Ended September 30,** |     |
|------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|----------|
|                                           |   | **2000**                             |   | **2001**                            |     | **2000** |   | **2001** |   |
|                                           |   | **(in thousands)**                   |   |
| Revenues:                                      |   |                                 |   |                                | * * |   |   |   | * * |   |   |   | * * |   |   |   |   |
| Network radio                                  |   | $                                    | 10,635 |                                | 53       | % | $ | 8,609 |   | 47 | % | $ | 31,282 |   | 51 | % | $ | 30,224 |   | 52 | % |
| Cable television programming                   |   | 7,864                                |   | 39                                  |     | 8,822 |   | 48 |   | 24,856 |   | 41 |   | 25,328 |   | 44 |   |
| Satellite services                             |   | 1,676                                |   | 8                                   |     | 893 |   | 5 |   | 4,697 |   | 8 |   | 2,521 |   | 4 |   |
|                                                |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                 |   | 20,175                               |   | 100                                 |     | 18,324 |   | 100 |   | 60,835 |   | 100 |   | 58,073 |   | 100 |   |
|                                                |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                            |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Network radio                                  |   | 9,858                                |   | 49                                  |     | 9,698 |   | 53 |   | 28,457 |   | 47 |   | 31,423 |   | 54 |   |
| Cable television programming                   |   | 8,416                                |   | 42                                  |     | 9,510 |   | 52 |   | 25,417 |   | 42 |   | 29,474 |   | 51 |   |
| Satellite services                             |   | 1,101                                |   | 5                                   |     | 991 |   | 5 |   | 3,401 |   | 5 |   | 3,030 |   | 5 |   |
|                                                |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Total segment expenses                         |   | 19,375                               |   | 96                                  |     | 20,199 |   | 110 |   | 57,275 |   | 94 |   | 63,927 |   | 110 |   |
| General and administrative                     |   | 639                                  |   | 3                                   |     | 434 |   | 3 |   | 1,923 |   | 3 |   | 1,607 |   | 3 |   |
|                                                |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                       |   | 20,014                               |   | 99                                  |     | 20,633 |   | 113 |   | 59,198 |   | 97 |   | 65,534 |   | 113 |   |
|                                                |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                               |   | 161                                  |   | 1                                   |     | (2,309 | ) | (13 | ) | 1,637 |   | 3 |   | (7,461 | ) | (13 | ) |
|                                                |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net                          |   | 2,886                                |   | 14                                  |     | 3,045 |   | 17 |   | 8,699 |   | 14 |   | 8,916 |   | 15 |   |
| Other expense (income), net                    |   | 674                                  |   | 3                                   |     | (103 | ) | (1 | ) | 543 |   | 1 |   | 38 |   | – |   |
| Income tax provision                           |   | 3                                    |   | –                              |     | 5 |   | – |   | 48 |   | – |   | 33 |   | – |   |
| Minority interest                              |   | 71                                   |   | 1                                   |     | (284 | ) | (2 | ) | 659 |   | 2 |   | (1,393 | ) | (2 | ) |
|                                                |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss from continuing operations            |   | (3,473                               | )      | (17                                 | )        | (4,972 | ) | (27 | ) | (8,312 | ) | (14 | ) | (15,055 | ) | (26 | ) |
|                                           |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued Operations:                       |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) fromDiscontinued  Operations     |   | 1,057                                |   | 5                                   |     | (17 | ) | – |   | 669 |   | 1 |   | (1,213 | ) | (2 | ) |
| Loss from disposal of DiscontinuedOperations   |   | –                               |   | –                              |     | (36 | ) | – |   | – |   | – |   | (36 | ) | – |   |
| Net income (loss) fromDiscontinued  Operations |   | 1,057                                |   | 5                                   |     | (53 | ) | – |   | 669 |   | 1 |   | (1,249 | ) | (2 | ) |
|                                           |   |                                 |   |                                |     |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                       |   | $                                    | (2,416 | )                                   | (12      | )% | $ | (5,025 | ) | (27 | )% | $ | (7,643 | ) | (13 | )% | $ | (16,304 | ) | (28 | )% |
|                                                |        |                                      |        |                                     |          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

         The following table sets forth EBITDA for the threeand nine months ended September 30, 2000 and 2001. EBITDA isunaudited and represents operating income (loss) plus depreciation andamortization and adjusted for EBITDA attributable to the minority interest inthe PIN Venture, a consolidated 55.3%–owned subsidiary. Managementacknowledges that EBITDA is not a measure of performance or liquiditycalculated in accordance with generally accepted accounting principles.However, EBITDA is a measure widely used by analysts and investors in the mediaindustry to determine a company's operating performance and ability to serviceand incur debt. EBITDA should not be considered in isolation or as a substitutefor net income (loss), cash flows from operating activities or otherconsolidated income or cash flow statement data prepared in accordance withgenerally accepted accounting principles or as a measure of profitability orliquidity.

 
|                                            |   | **For The Three  Months Ended**

**September 30,** |       | **For The Nine  Months Ended**

**September 30,** |   |
|-------------------------------------------------|--------|----------------------------------------------------|------------|---------------------------------------------------|--------|
|                                            |   | **2000**                                           |       | **2001**                                          |   | **2000** |   | **2001** |   |
|                                            |   | **(in thousands)**                                 | ** ** |
| EBITDA  from continuing operations:             |   |                                               |       |                                              |   |   |   |   |   |
| Network radio                                   |   | $                                                  | 2,449      |                                              | $      | 998 |   | $ | 7,795 |   | $ | 4,399 |   |
| Cable television programming                    |   | 403                                                |       | 374                                               |   | 2,102 |   | (1,388 | ) |
| Satellite services                              |   | 1,528                                              |       | 838                                               |   | 4,189 |   | 2,320 |   |
| Segment EBITDA                                  |   | 4,380                                              |       | 2,210                                             |   | 14,086 |   | 5,331 |   |
| General and administrative –  Corporate    |   | (609                                               | )          | (402                                              | )      | (1,866 | ) | (1,506 | ) |
| Adjustment related to minority  interest EBITDA |   | (56                                                | )          | 269                                               |   | (658 | ) | 1,363 |   |
| Total EBITDA from continuing  operations        |   | 3,715                                              |       | 2,077                                             |   | 11,562 |   | 5,188 |   |
| EBITDA From Discontinued  Operations            |   | 1,065                                              |       | (39                                               | )      | 684 |   | (1,208 | ) |
| Total EBITDA                                    |   | $                                                  | 4,780      |                                              | $      | 2,038 |   | $ | 12,246 |   | $ | 3,980 |   |

 

**Three Months Ended September 30, 2000 Compared toThree Months ended September 30, 2001**

 

**Total Revenues***.*  Total revenues decreased $1.9 million, or 9%, from$20.2 million for the three months ended September 30, 2000 to$18.3 million for the three months ended September 30, 2001.This decrease in revenues was due to a decline in revenues generated from ournetwork radio and satellite services segments, as partially offset by anincrease in revenues from our cable television programming.  The decrease in network radio revenues wasprimarily due to the further deterioration of the advertising marketplacecaused by worsening general economic conditions and the adverse impact that theevents of September 11 had on advertising.  The decrease in satellite services revenues was due to lower feescharged to affiliated parties and termination by an affiliated party of certainof its remaining satellite services in December 2000, as well as thenon-recurring revenue earned in 2000 from NBC for transmission of the 2000Summer Olympic Games.  These decreaseswere partially offset by an increase in cable television programming revenuesas a result of increases in PIN’s advertising revenues and GAC’s nationaladvertising sales and license fee revenues driven by increased subscriberdistribution on both networks.

 

         Theevents of September 11 had an adverse impact on our network radio and cabletelevision programming advertising revenues, both directly and indirectly.  First, the events directly resulted in ourlosing network radio revenues on September 11 and 12 when we made availablenews coverage of the terrorist attacks in lieu of most of our regularsyndicated programming and therefore aired limited advertising those days. Webelieve that such lost gross advertising revenues in the third quarter totaledapproximately $0.4 million, of which a majority of the advertisingrevenues are anticipated to be recovered in the fourth quarter in the form ofcredit spots to be aired for those advertisers whose commercials were notaired.  Indirectly, we believe theseevents have had a significant negative impact on our advertising revenuesthrough the additional economic uncertainty they have created for an alreadyweakened economy going into the fourth quarter.

 

**Total OperatingExpenses***.*  Totaloperating expenses increased $0.8 million, or 6%, from $13.0 millionfor the three months ended September 30, 2000 to $13.8 millionfor the three months ended September 30, 2001.  This increase resulted from the greater expenditures forcable television programming due to an increase in rebates paid by PIN to cablesystem and Direct Broadcast Satellite (“DBS”) operators, because of a 21%increase in PIN’s full-time equivalent subscribers (“FTREs”). As a percentage of total revenues, totaloperating expenses increased from 65% for the three months endedSeptember 30, 2000 to 75% for the three months endedSeptember 30, 2001.

 

**Selling and Marketing**.  Sellingand marketing expenses decreased $0.5 million, or 17%, from$2.8 million for the three months ended September 30, 2000 to$2.3 million for the three months ended September 30, 2001.Beginning in the third quarter of 2001, steps were taken to further decreaseour marketing and promotional expenditures across all of our divisions.  As a result of these cost savings measures,we realized selling and marketing cost reductions in the third quarter.

 

**General and Administrative.**  Generaland administrative expenses decreased $0.2 million, or 34%, from$0.6 million for the three months ended September 30, 2000 to$0.4 million for the three months ended September 30, 2001.  The decrease is due primarily to reductionsin personnel expenses of our Internet administrative support operations.

 

**Depreciationand Amortization**.  Depreciation and amortization expensesincreased $0.5 million, or 14%, from $3.6 million for the threemonths ended September 30, 2000 to $4.1 million for the threemonths ended September 30, 2001. This increase is primarily related to theamortization of additional GAC cable programming distribution agreementpayments and the depreciation related to new broadcast equipment and satellitereceivers purchased.

 

**Total Operating Income (Loss).** Operating income (loss) decreased $2.5 million, from operatingincome of $0.2 million for the three months endedSeptember 30, 2000 to an operating loss of $(2.3) million forthe three months ended September 30, 2001, as a result of the factorsstated above.

 

**Total EBITDA From Continuing Operations***.*  EBITDA decreased $1.6 million, or 44%,from $3.7 million for the three months ended September 30, 2000,to $2.1 million for the three months ended September 30, 2001,as a result of the factors stated above.

 

**Total Other Expense.** Total other expense decreased $0.6 million,or 17%, from $3.6 million for the three months endedSeptember 30, 2000 to $3.0 million for the three months endedSeptember 30, 2001 due primarily to the write off of $0.7 millionin equity offering costs in 2000.  Nosimilar expenses were incurred in 2001.

 

**Net Loss From Continuing Operations.** Net lossfrom continuing operations increased $1.5 million from a net loss of$(3.5) million for the three months ended September 30, 2000 toa net loss of $(5.0) million for the three months endedSeptember 30, 2001, as a result of the factors stated above.

 

**Net loss From Discontinued Operations.** Net loss from discontinued operations increased$1.1 million from a net income of $1.0 million for the three monthsended September 30, 2000 to a net loss of $(0.1) million for the threemonths ended September 30, 2001.

 

         In2000, we began offering Internet advertising sales services with initial focuson streaming media advertising.  Wedeveloped a sales and technology infrastructure to seek to grow this business,as this new advertising medium appeared to gain momentum.  The success of this business was highlydependent upon our ability to reach a sufficient audience and to aggregate,target and accurately measure such audience (through still-emergingtechnologies) in a way that is attractive to national advertisers.  Due to a number of developments whichadversely affected streaming media advertising, management approved a plan to closedown this business entirely in the third quarter of 2001.  On September 30, 2001, the Companyceased all operations of the Internet Advertising Sales Services business andwill wrap up all aspects of this segment by December 31, 2001.

 

**Total Net Loss**. Net loss increased $2.6 million, or 108%,from $(2.4) million for the three months endedSeptember 30, 2000 to $(5.0) million for the three months endedSeptember 30, 2001, as a result of the factors stated above.

** **

**Network Radio**

 

*Revenues.*  Network radio revenues decreased$2.0 million, or 19%, from $10.6 million for the three months endedSeptember 30, 2000 to $8.6 million for the three months endedSeptember 30, 2001.  This decreasein revenues is due primarily to a deterioration of the radio advertising marketresulting in a decrease in our rates and sell-out percentages, as compared tothe same quarter in 2000.  Also, networkradio revenues decreased due to a contraction in audience, and in certaincases, the elimination of some of our program offerings over the last 12months.  Prior to the events ofSeptember 11, the overall network radio advertising market had continued toslow as the overall economic conditions continued to worsen.  Due to the events of September 11, thenetwork radio advertising marketplace has further slowed as advertisers,particularly those in travel-related businesses, have shown reluctance to makeadvertising buys in an uncertain economic environment.  Further, we experienced loss of networkradio advertising revenues caused by the extensive news coverage related to theevents of September 11.  In contrast,during the first nine months of 2000, we benefited from very strong networkradio advertising demand, driven primarily by strong economic conditions, whichdemand was further enhanced by a significant increase in the volume of networkradio advertising by Internet companies. Due to the very strong demand for network radio advertising in 2000, ournetwork radio business had achieved virtually 100% inventory sell-outpercentages in 2000.

 

*Expenses.*  Networkradio expenses decreased $0.2 million, or 2%, from $9.9 million forthe three months ended September 30, 2000 to $9.7 million forthe three months ended September 30, 2001.  This decrease was primarily due to:

 

•       $0.4 milliondecrease in operating expenses.  Thus farin 2001, we have eliminated several unprofitable radio programs that no longerfit the Company’s longer-term strategy or profitability requirements.  In addition, we have implemented many costsavings measures including reductions in travel and personnel expenses.  These decreases were partially offsetby  an increase of operating expensesrelated to new radio programs and products we began offering in late 2000 andearly 2001, increased license fees for certain programming and an increase inthe number of our radio station affiliates;

 

•       $0.2 million decrease in selling andmarketing expenses.

 

        Thesedecreases were offset by a $0.4 million increase in depreciation andamortization expenses.  Amortizationexpense increased due to the write off of capitalized costs for programs thatwere no longer distributed during the quarter. In addition, depreciationexpense increased due to new equipment purchased for the upgrades of certainradio programming studios, purchase of new satellite receivers and purchase ofnew computer hardware and software earlier in the year.

 

         As a percentage of network radio revenues, networkradio expenses increased from 93% for the three months endedSeptember 30, 2000 to 113% for the three months endedSeptember 30, 2001.  The increasein network radio expenses as a percentage of network radio revenues is dueprimarily to a decrease in revenues resulting from the softer advertisingmarket experienced in the third quarter of 2001 in comparison to 2000.  Our advertising revenues will be adverselyaffected by any further decline in the network radio advertising market or ineconomic conditions. We anticipate that we will continue to experience a weaknetwork radio advertising market through the remainder of 2001.

 

*Operating Income (Loss).* Operating income decreased $1.9 million from an operatingincome of $0.8 million for thethree months ended September 30, 2000 to an operating loss of $(1.1) million for the three months endedSeptember 30, 2001 as a result of the factors stated above.

 

*Segment EBITDA. *Segment EBITDA decreased $1.5 million,or 59%, from $2.5 million forthe three months ended September 30, 2000, to $1.0 million for the three months endedSeptember 30, 2001 as a result of the factors stated above.

 

** Cable Television Programming**

 

*Revenues.*  Cable television programming revenuesincreased $0.9 million, or 12%, from $7.9 million for the threemonths ended September 30, 2000 to $8.8 million for the threemonths ended September 30, 2001. This increase was due primarily to an increase in PIN’s and GAC’srevenues.

 

•     PIN’s revenues increased $0.4 million, or7%, in the third quarter of 2001 as compared to the same period in 2000 as aresult of the 21% increase in the number of PIN’s FTREs.  The increase in PIN’s revenues was mostlyoffset by a decrease in infomercial advertising rates.  The decrease in PIN’s infomercial rates isdue to a lack of new infomercials, a decreasing number of infomercialsuppliers, a slowing economy resulting in decreased response rates, and anincrease in the number of larger networks that are airing infomercials tooffset national and local spot advertising revenue declines which are causing asignificant negative impact on the infomercial marketplace.

 

•       GAC’s revenues increased $0.5 million, or26%, as a result of a $0.3 million, or 19%, increase in advertisingrevenues driven by increases in national advertising revenues and a$0.2 million, or 46%, increase in license fees charged to cable systemoperators which distribute GAC’s programming. Advertising revenues increased due to greater national advertisingrevenues in the third quarter of 2001 as compared to 2000, driven by anincrease of GAC subscribers (as reported by cable and DBS operators) of 13% atthe end of the third quarter of 2001 as compared to 2000.

 

         Weanticipate that we will continue to experience a weak cable televisionadvertising market through the remainder of 2001.

 

*Expenses.*  Cable television programming expenses rose$1.1 million, or 13%, from $8.4 million for the three months endedSeptember 30, 2000 to $9.5 million for the three months endedSeptember 30, 2001.  This was primarily due to:

 

•      an increase of $1.0 million, or 20%, in rebates paid tocable systems receiving PIN, driven by a 21% increase in the number of FTREsreceiving PIN;

 

•      an increase of $0.2 million in programming expenses incurred toenhance GAC’s programming, for distribution of GAC on AT&T’s HITS platform,and to secure an additional satellite feed needed temporarily in order toprovide PIN programming to a DBS provider;

 

•      an increase of $0.1 million in depreciation and amortizationexpenses primarily related to a increase in amortization of cable programmingdistribution agreement payments caused by an increase in the number of GAC’ssubscribers in third quarter of 2001;

 

•      a decrease of $0.1 million in personnel and otherexpenses; and

 

•      a decrease of $0.1 million in GAC’s selling and marketingexpenses due to reduced marketing and promotional activities.

 

         As a percentage of cable televisionprogramming revenues, cable television programming expenses increased from 107%for the three months ended September 30, 2000 to 108% for the threemonths ended September 30, 2001. The increase in cable televisionprogramming expenses as a percentage of cable television programming revenuesis due primarily to higher PIN rebate costs and the weak advertising marketexperienced in 2001, which has resulted in a decrease in rates charged forinfomercial advertising inventory.

 

         For the three months endedSeptember 30, 2000 and 2001, PIN made rebates of approximately 81%and 94%, respectively, of its revenues to operators receiving itsprogramming.  This increase in rebatesrelative to revenues was due to a significant decrease in PIN revenues persubscriber driven by poor infomercial advertising market conditions during thethird quarter of 2001.  In addition,rebates increased due to a 21% increase in PIN’s FTREs at the end of the thirdquarter of 2001 as compared to 2000.  Ina continuing effort to restore PIN to profitability during this difficultadvertising market, PIN has been actively working to reduce rebate coststhrough negotiating lower rebate rates with PIN’s cable television systemaffiliates.  To date, PIN hasre-negotiated lower rebate rates with affiliates representing 61% of its FTREdistribution, with an accumulated cost savings of approximately$0.5 million. We anticipate cost savings for the reminder of 2001 will bean additional $0.5 million.  Whilewe are continuing to take certain measures to further decrease PIN rebate costsby negotiating lower rebates with cable system operators as their carriageagreements come up for renewal, there can be no assurance that we will be ableto reduce these costs to the mid 70% range we have achieved in the past unless anduntil the long-form advertising market improves significantly.

 

         PIN entered into a short-term agreementto distribute PIN’s programming on a DBS provider in March 2001.  PIN launched on the DBS provider in March2001 on a secondary satellite feed established to isolate and test the economicpotential to PIN of distribution through a DBS provider.  Due to the launch of an additional PINsatellite feed needed temporarily to provide programming the DBS provider, cabletelevision programming expenses (including rebates paid to this DBS provider)increased approximately $0.5 million for the three months ended September30, 2001.  PIN has incurred losses underthis agreement, as revenues generated have been inadequate to cover PIN’srebate and satellite delivery costs and, as a result, PIN terminated theagreement effective in August 2001.

 

         Aspart of our efforts to increase GAC subscribers, GAC entered into a digitalsatellite distribution agreement with AT&T’s Headend in the Sky, Inc.(“HITS”), which will enable GAC to broadcast its programming on the HITSdigital platform to cable systems which elect to carry GAC on their digitalprogramming tiers. As a result, digital satellite distribution expensesincreased approximately $30,000 per month beginning in November 2000.

 

         Asof September 30, 2001, GAC’s subscribers (as reported by cable and DBS operators)increased 13% to 15.5 million subscribers at the end of the third quarter of2001 as compared to 13.7 million in the third quarter of 2000, an increase of 1.8 millionsubscribers.  Our ability to continue toincrease GAC distribution is largely dependent on our ability to successfullynegotiate with cable operators resulting in GAC being carried on their digitalprogramming tiers and our ability to secure carriage with another broadcastsatellite provider.  We anticipate GAC’ssubscriber distribution will continue to grow modestly for the remainder of2001.

 

         In 1999, we developed and enhanced a companionwebsite to the GAC network. Internet programming and content expenses for thiscompanion website commenced in the fourth quarter of 1999 and increasedthroughout 2000. This website generated e-commerce revenues by selling productsto website visitors; however, we did not generate significant e-commerce revenuesfrom this website.  Given the lack ofmeaningful e-commerce revenues generated and unfavorable product margins, weceased substantially all e-commerce efforts at the end of the second quarter of2001 in order to reduce costs and re-direct resources to more efficientlypromote the GAC network via the Internet. We anticipate that such costs will decrease further during the remainderof 2001.

 

*Operating Income(Loss).* Operating loss increased $0.1million from an operating loss of $(0.6) million for the three monthsended September 30, 2000 to an operating loss of $(0.7) million forthe three months ended September 30, 2001 as a result of the factorsstated above.

 

*Segment EBITDA. *Segment EBITDA, beforeadjusting for the EBITDA attributable to the PIN Venture’s minority interest,remained relatively flat at $0.4 million for the three months endedSeptember 30, 2001 and 2000, as a result of the factors stated above.

 

**SatelliteServices**

 

*Revenues.*  Satellite services revenuesdecreased $0.8 million, or 47%, from $1.7 million for the threemonths ended September 30, 2000 to $0.9 million for the threemonths ended September 30, 2001. This decrease was primarily the result of an affiliated partyterminating all of its remaining satellite services commitments in the fourthquarter of 2000, as well as the non-recurring satellite services revenue in2000 from NBC for transmission of the 2000 summer Olympic Games.  We anticipate that we will not add anyadditional customers for our satellite services for the remainder of 2001.

 

*Expenses.* Satellite services expenses decreased $0.1 million, or 10%, from$1.1 million for the three months ended September 30, 2000 to$1.0 million for the three months ended September 30, 2001.  As a percentage ofsatellite services revenues, satellite services expenses increased from 66% forthe three months ended September 30, 2000 to 111% for the threemonths ended September 30, 2001. Because a significant portion of the costs of our satellite services isfixed, when we decrease our utilization of the excess capacity on our SatcomC-3 transponder, the percentage of satellite services expenses in relation tothe satellite services revenues increases. The leasing of capacity on our transponder is subject to a numbers offactors, including cable network demand and general availability of transponderspace.  There can be no assurance thatwe will be successful in leasing our excess satellite transponder capacity.

 

 *Operating Income (Loss).* Operatingincome (loss) decreased $0.7 millionfrom an operating income of $0.6 million for the three months ended September 30, 2000 to anoperating loss of $(0.1) millionfor the three months ended September 30, 2001 as a result of thefactors stated above.

 

*Segment EBITDA. *Segment EBITDA decreased$0.7 million, or 45%, from $1.5 million for the three months ended September 30, 2000, to $0.8 million for the three months endedSeptember 30, 2001 as a result of the factors stated above.

 

**Nine Months Ended September 30, 2000 Compared toNine Months ended September 30, 2001**

 

**Total Revenues***.*  Total revenues decreased $2.8 million,or 5%, from $60.8 million for the nine months endedSeptember 30, 2000 to $58.0 million for the nine months endedSeptember 30, 2001. This decrease in revenues was due to a decline inrevenues generated from our network radio and satellite services segments, aspartially offset by an increase in revenues from our cable televisionprogramming.  The decrease in networkradio revenues was primarily due to soft advertising marketplace caused by weakgeneral economic conditions.  Thedecrease in satellite services revenues was due to lower fees charged toaffiliated parties and the termination by an affiliated party of certain of itsremaining satellite services in December 2000. These decreases were partially offset by an increase in cable televisionprogramming revenues as a result of increases in PIN’s advertising revenues andGAC’s national advertising sales and license fee revenues driven by increasedsubscriber distribution on both networks.

** **

**Total OperatingExpenses***.*  Totaloperating expenses increased $6.0 million, or 15%, from $39.1 millionfor the nine months ended September 30, 2000 to $45.1 millionfor the nine months ended September 30, 2001.  These increases resulted from the greater expendituresfor new network radio and cable television programs and products offeredbeginning in mid-year 2000 and early 2001. In addition, cable television programming expenses increased due to anincrease in rebates paid by PIN to cable system and DBS operators, because of a21% increase in PIN’s FTREs.  Theseincreases were partially offset by several Company-wide cost-cutting measuresimplemented during 2001.  As a percentage of total revenues, totaloperating expenses increased from 64% for the nine months endedSeptember 30, 2000 to 78% for the nine months endedSeptember 30, 2001.

 

**Selling and Marketing**.  Sellingand marketing expenses increased $0.1 million, or 1%, from$7.6 million for the nine months ended September 30, 2000 to$7.7 million for the nine months ended September 30, 2001. This increase is dueprimarily to increased expenditures to attract additional radio and cabletelevision affiliates and increased selling and marketing expenses incurred tolaunch, promote and support new radio programs.

 

**General and Administrative.**  Generaland administrative expenses decreased $0.4 million, or 19%, from $1.9million for the nine months ended September 30, 2000 to$1.5 million for the nine months ended September 30, 2001.  This change was due to decreases inpersonnel expenses, Internet-related support expenses and other expenses.

 

**Depreciationand Amortization**.  Depreciation and amortization expensesincreased $0.7 million, or 7%, from $10.6 million for the nine monthsended September 30, 2000 to $11.3 million for the nine monthsended September 30, 2001. This increase is primarily related to theamortization of additional GAC cable programming distribution agreementpayments and the depreciation related to new equipment and satellite receiverspurchased.

 

**Total Operating Income (Loss).** Operating income (loss) decreased $9.1 million, from operatingincome of $1.6 million for the nine months endedSeptember 30, 2000 to an operating loss of $(7.5) million forthe nine months ended September 30, 2001, as a result of the factorsstated above.

 

**Total EBITDA From Continuing Operations***.*  EBITDA decreased $6.4 million, or 55%,from $11.6 million for the nine months ended September 30, 2000,to $5.2 million for the nine months ended September 30, 2001, asa result of the factors stated above.

 

**Total Other Expense.** Total other expense decreased $0.3 million,or 3%, from $9.2 million for the nine months endedSeptember 30, 2000 to $8.9 million for the nine months endedSeptember 30, 2001.  The decrease is dueprimarily to a write off of$0.7 million in equity offering costs in 2000 (no similar expenses wereincurred in 2001), a decrease of $0.3 million in interest income and adecrease of $0.1 million in other income.

 

**Net Loss From Continuing Operations.** Net lossfrom continuing operations increased $6.7, from a net loss of$(8.3) million for the nine months ended September 30, 2000 to anet loss of $(15.0) million for the nine months ended September 30, 2001.

 

**Net Income (Loss) From Discontinued Operations.** Net income (loss) from discontinued operationsdecreased $1.9 million from a net income of $0.7 million for the ninemonths ended September 30, 2000 to a net loss of $(1.2) million for thenine months ended September 30, 2001.

 

         In2000, we began offering Internet advertising sales services with initial focuson streaming media advertising.  Wedeveloped a sales and technology infrastructure to seek to grow this business,as this new advertising medium appeared to gain momentum.  The success of this business was highlydependent upon our ability to reach a sufficient audience and to aggregate,target and accurately measure such audience (through still-emergingtechnologies) in a way that is attractive to national advertisers.  Due to a number of developments whichadversely affected streaming media advertising, management approved a plan toclose down this business entirely in the third quarter of 2001. OnSeptember 30, 2001, the Company ceased all operations of the InternetAdvertising Sales Services business and will wrap up all aspects of thissegment by December 31, 2001.

 

**Total Net Loss**. Net loss increased $8.7 million, or 113%,from $(7.6) million for the nine months ended September 30, 2000to $(16.3) million for the nine months ended September 30, 2001,as a result of the factors stated above.

** **

**Network Radio**

 

*Revenues.*  Network radio revenues decreased$1.1 million, or 3%, from $31.3 million for the nine months endedSeptember 30, 2000 to $30.2 million for the nine months endedSeptember 30, 2001.  This decreasein revenues is due primarily to a deterioration of the radio advertisingmarket, resulting in a decrease in our sell-out percentages as compared to thefirst nine months in 2000.  Also,network radio revenues decreased due to a contraction in audience, and incertain cases, the elimination of some of our program offerings over the last12 months.  Prior to the events ofSeptember 11, the overall network radio advertising market had continued toslow as overall economic conditions continued to worsen.  Due to the events of September 11, the radioadvertising marketplace has further slowed as advertisers, particularly thosein travel-related businesses, have shown reluctance to make advertising buys inan uncertain economic environment. Further, we experienced loss of network radio advertising revenuescaused by the extensive news coverage related to the events of September11.  In contrast, during the first ninemonths of 2000, we benefited from very strong network radio advertising demand,driven primarily by strong economic conditions, which demand was furtherenhanced by a significant increase in the volume of network radio advertisingby Internet companies.  Due to the verystrong demand for network radio advertising in 2000, our network radio businesshad achieved virtually 100% inventory sell-out percentages in 2000.

 

*Expenses.*  Networkradio expenses increased $2.9 million, or 10%, from $28.5 million forthe nine months ended September 30, 2000 to $31.4 million forthe nine months ended September 30, 2001.  This increase was primarily due to:

 

•      $1.2 millionincrease in operating expenses due to the increase in the number of radioprograms and products we offered, including increased license fees for certainprogramming, as well as an increase in the number of our radio stationaffiliates.  These increases waspartially off-set by cost savings measures implemented during the second halfof 2001, including elimination of several unprofitable radio programs that nolonger fit the Company’s longer-term strategy or profitability requirements,reductions in travel and personnel expenses;

 

•      $0.6 million increase in depreciation and amortization expensesrelated to new equipment purchased for the upgrades of certain radioprogramming studios and purchase of new satellite receivers;

 

•      $0.4 million increase in selling and marketing expenses toincrease the number of radio stations receiving our existing programming and topromote the launch of new programs;

 

•      $0.4 million increase in producer fees for certain programmingadded in late 2000; and

 

•      $0.3 million increase in management, support costs and other.

 

         As a percentage of network radio revenues, network radioexpenses increased from 91% for the nine months endedSeptember 30, 2000 to 104% for the nine months endedSeptember 30, 2001.  The increase in networkradio expenses as a percentage of network radio revenues is due primarily to adecrease in revenues resulting from the softer advertising market experiencedin 2001 in comparison to 2000 as well as the result of the expense factorsstated above. Our advertising revenues will be adversely affected by anyfurther decline in the network radio advertising market or in economicconditions. We anticipate that we will continue to experience a weak networkradio advertising market through the remainder of 2001.

 

*Operating Income (Loss).* Operating income (loss) decreased $4.0 millionfrom an operating income of $2.8 million for the nine months ended September 30, 2000 to anoperating loss of $(1.2) millionfor the nine months ended September 30, 2001 as a result of thefactors stated above.

 

*Segment EBITDA. *Segment EBITDA decreased $3.4 million,or 44%, from $7.8 million forthe nine months ended September 30, 2000, to $4.4 million for the nine months endedSeptember 30, 2001 as a result of the factors stated above.

 

** Cable Television Programming**

 

*Revenues.*  Cable television programming revenuesincreased $0.4 million, or 2%, from $24.9 million for the nine monthsended September 30, 2000 to $25.3 million for the nine monthsended September 30, 2001. This increase was due primarily to a increase in GAC’s revenues, whichwere partially offset by a decrease in PIN's revenues.

 

•      GAC’s revenuesincreased $1.0 million, or 18%, as a result of a $0.6 million, or13%, increase in advertising revenues driven by increases in nationaladvertising revenues and a $0.4 million, or 29%, increase in license feescharged to cable system operators who distribute GAC’s programming.  Advertising revenues increased due togreater national advertising revenues during the first nine months of 2001 ascompared to 2000, reflecting an increase of GAC subscribers (as reported bycable system and DBS operators) of 13% at the end of the third quarter of 2001as compared to 2000.

 

•      During the ninemonths ended September 30, 2001, PIN added a number of significantcable television systems and advertising markets including Baltimore,Pittsburgh, Union, Lebanon, Columbus, Portland, Manatee, Syracuse, Baton RougeManchester, San Gabriel, Newburgh, Glendale and others.  While PIN’s full-time equivalent subscribers(“FTRE”) grew 21%, revenues decreased $0.6 million, or 4%, due to lower rates that PIN was able to chargefor its infomercial advertising inventory. The decrease in PIN’s infomercial rates is due to a lack of newinfomercials, a decreasing number of infomercial suppliers and a slowingeconomy resulting in decreased response rates. Combined, these factors have had a significant negative impact on theinfomercial marketplace.

 

         We anticipate that we will continue toexperience a weak cable television advertising market through the remainder of2001.

 

*Expenses.*  Cable television programming expenses rose$4.1 million, or 16%, from $25.4 million for the nine months endedSeptember 30, 2000 to $29.5 million for the nine months endedSeptember 30, 2001.  This was primarily due to:

 

•      an increase of $3.5 million, or 4%, in rebates paid to cablesystems receiving PIN, driven by a 21% increase in the number of FTREsreceiving PIN;

 

•      an increase of $0.4 million as a result of new associates hiredlate in 2000 to sell GAC traditional spot advertising;

 

•      an increase of $0.4 million in programming expenses incurred toenhance GAC’s programming and to secure an additional satellite feed neededtemporarily in order to provide PIN programming to a DBS provider; and

 

•      an increase of $0.1 million in depreciation andamortization expenses primarily related to a increase in amortization of cableprogramming distribution agreements payments caused by an increase in thenumber of GAC’s subscribers in the third quarter of 2001; as partially offsetby:

 

•      a decrease of $0.1 million in PIN’s selling and marketingexpenses;

 

•      a decrease of $0.1 million in GAC’s personnel relatedexpenses; and

 

•     a decrease of$0.1 million in GAC’s selling and marketing expenses.

 

         As a percentage of cable televisionprogramming revenues, cable television programming expenses increased from 102%for the nine months ended September 30, 2000 to 116% for the ninemonths ended September 30, 2001. The increase in cable televisionprogramming expenses as a percentage of cable television programming revenuesis due primarily to higher PIN rebate costs and weak advertising marketexperienced in 2001, which has resulted in a decrease in rates charged foradvertising inventory, particularly infomercial advertising inventory.

 

         For the nine months endedSeptember 30, 2000 and 2001, PIN made rebates of approximately 77%and 99%, respectively, of its revenues to cable system and DBS operatorsreceiving its programming.  Thisincrease in rebates relative to revenues was due to a significant decrease inPIN revenues driven by poor infomercial advertising market conditions duringthe first nine months of 2001.  Inaddition, rebates increased due to a 21% increase in total PIN FTREs at the endof the third quarter of 2001 as compared to 2000.  In a continuing effort to restore PIN to profitability duringthis difficult advertising market, PIN has been actively working to reducerebate costs through negotiating lower rebate rates with PIN’s cable televisionsystem affiliates.  To date, PIN hasre-negotiated lower rebate rates with affiliates representing 61% of its FTREdistribution, with an accumulated cost savings of approximately $0.5 million.We anticipate cost savings for the reminder of 2001 will be an additional$0.5 million.  While we arecontinuing to take certain measures to decrease PIN rebate costs, includingnegotiating lower rebates with cable system operators as their carriageagreements come up for renewal, there can be no assurance that we will be ableto reduce these costs to the mid 70% range we have achieved in the past unlessand until the long-form advertising marketing improves significantly.

 

        PIN entered into a short-termagreement to distribute PIN’s programming with a DBS provider beginning inMarch 2001.  PIN launched on this DBSprovider in March 2001 on a secondary satellite feed established to isolate andtest the economic potential to PIN of distribution through a DBS provider.  Due to the launch of an additional PINsatellite feed needed temporarily to provide programming to this DBS provider,cable television programming expenses (including rebates paid to this DBS provider)increased approximately $1.6 million for the nine months ended September30, 2001.  PIN incurred losses underthis agreement, as revenues generated have been inadequate to cover PIN’srebate and satellite delivery costs and, as a result, PIN elected to terminatethis agreement in August 2001.

 

         Aspart of our efforts to increase GAC subscriber distribution, GAC entered into adigital satellite distribution agreement with HITS, which will enable GAC tobroadcast its programming on the HITS digital platform to cable systems whichelect to carry GAC on their digital programming tiers. As a result, digitalsatellite distribution expenses increased approximately $30,000 per monthbeginning in November 2000.

 

         Asof September 30, 2001, GAC’s subscribers (as reported by cable and DBS operators) increased13% to 15.5 million subscribers at the end of the third quarter of 2001 ascompared to 13.7 million in the third quarter of 2000, an increase of1.8 million subscribers.  Ourability to continue to increase GAC distribution is largely dependent on ourability to persuade cable operators to carry GAC on their digital programmingtiers and our ability to secure carriage with another broadcast satelliteprovider.  We anticipate GAC’ssubscriber distribution will continue to grow modestly for the remainder of2001.

 

         In 1999, we developed and enhanced a companionwebsite to the GAC network. Internet programming and content expenses for thiscompanion website commenced in the fourth quarter of 1999 and increasedthroughout 2000. This website generated e-commerce revenues by selling productsto website visitors; however, we did not generate significant e-commercerevenues from this website.  Given thelack of meaningful e-commerce revenues generated and unfavorable productmargins, we have ceased substantially all e-commerce efforts at the end of thesecond quarter of 2001 in order to reduce costs and re-direct resources to moreefficiently promote the GAC network via the Internet.  We anticipate that such costs will decrease further during theremainder of 2001.

 

*Operating Income(Loss).* Operating income (loss) decreased$3.5 million from an operating loss of $(0.6) million for the nine monthsended September 30, 2000 to an operating loss of $(4.1) million forthe nine months ended September 30, 2001 as a result of the factorsstated above.

 

*Segment EBITDA. *Segment EBITDA, beforeadjusting for the EBITDA attributable to the PIN Venture’s minority interest,decreased $3.5 million from $2.1 million for the nine months endedSeptember 30, 2000, to $(1.4) million for the nine months ended September 30, 2001 as aresult of the factors stated above.

 

**SatelliteServices**

 

* Revenues.* Satellite services revenues decreased $2.2 million, or 46%, from$4.7 million for the nine months ended September 30, 2000 to$2.5 million for the nine months ended September 30, 2001. These decreases wereprimarily the result of an affiliated party ceasing network operations at theend of the first quarter of 2000 and terminating all of its remaining satelliteservices commitments in the fourth quarter of 2000, as well as thenon-recurring satellite services revenue in 2000 from NBC for transmission ofthe 2000 summer Olympic Games.  Weanticipate that we will not add any additional customers for our satelliteservices for the remainder of 2001.

 

*Expenses.* Satellite services expenses decreased $0.4 million, or 11%, from$3.4 million for the nine months ended September 30, 2000 to$3.0 million for the nine months ended September 30, 2001. Thisdecrease is primarily due to cost savings realized as a result of theaffiliated party ceasing all programming operations in the first nine months of2000.  Asa percentage of satellite services revenues, satellite services expensesincreased from 72% for the nine months ended September 30, 2000 to120% for the nine months ended September 30, 2001.  Because a significant portion of the costsof our satellite services is fixed, when we decrease our utilization of theexcess capacity on our Satcom C-3 transponder, the percentage of satelliteservices expenses in relation to the satellite services revenuesincreases.  The leasing of capacity onour transponder is subject to a numbers of factors, including cable networkdemand and general availability of transponder space.  There can be no assurance that we will be successful in leasingour excess satellite transponder capacity.

 

*Operating Income(Loss).* Operating income (loss) decreased$1.8 million from an operating income of $1.3 million for the nine months endedSeptember 30, 2000 to an operating loss of $(0.5) million for the nine months endedSeptember 30, 2001 as a result of the factors stated above.

 

*Segment EBITDA. *Segment EBITDA decreased$1.9 million, or 45%, from $4.2 million for the nine months ended September 30, 2000, to $2.3 million for the nine months endedSeptember 30, 2001 as a result of the factors stated above.

 

**Liquidity and Capital Resources**

 

         Since our inception, we have incurrednet losses, primarily as a result of expenses associated with developing andlaunching our programming networks as well as financing costs. For the ninemonths ended September 30, 2000 and 2001, we incurred net losses of$(7.6) million and $(16.3) million, respectively.  Net cash provided by (used in) operating activities for the ninemonths ended September 30, 2000 and 2001 was $3.5 million and$(9.1) million, respectively.

 

         Theimplementation of our growth strategies depends on a number of factors,including the availability of cash generated from operations and available cashbalances, and will likely require additional equity and/or debt financings,particularly to fund any significant cable programming distribution agreementpayments or to make significant acquisitions. The indenture for our SeniorNotes currently permits secured borrowings of up to $20.0 million. While we donot currently have a credit facility in place, we are seeking to obtain anasset-based financing in order to provide us with additional financialflexibility. We had cash and cash equivalents of $2.0 million as ofSeptember 30, 2001.

 

         Wewill continue to depend significantly upon the earnings and cash flows of, anddividends and distributions from, our subsidiaries to pay our expenses, meetour obligations and pay interest and principal on our Senior Notes and ourother indebtedness as it may exist from time-to-time. While the terms of thePIN Venture generally require the mutual consent of ourselves and our jointventure partner to distribute or advance funds to ourselves, there are nosignificant contractual restrictions on distributions from our subsidiaries.

 

         Throughout2001 we have taken a number of steps to reduce costs to help mitigate theadverse advertising market conditions affecting our business and to improve ourfinancial results.  As a result of theseefforts we reduced operating expenses, excluding depreciation and amortization,by $3.6 million, or 18%, from the second quarter of 2001 to the third quarterof 2001.

 

         Becauseof continued softness in the advertising marketplace, which was furtherweakened by the events of September 11, we intend to take additional actions toimprove our liquidity.  These actionsinclude:

 

•      Improving our working capital by taking aggressive efforts toreduce our accounts receivable balances;

•      Seeking to obtain an asset-based revolving line of credit,which would be secured by our accounts receivable, or other financingtransaction using our accounts receivable;

•      Seeking to sell one or more underutilized assets, which in theaggregate would not constitute a major portion of our assets; and

•      Continuing to reduce operating costs to the extent possiblewithout adversely impacting the operations of our core media businesses.

 

         However, there can be no assurance that we will besuccessful in improving our working capital, sufficiently reducing ouroperating expenses, securing a financing utilizing our accounts receivableprior to year end or on terms we view as acceptable, or selling certain of ourassets prior to year end or on terms we view as acceptable.  In the event we are not successful in implementingone or more of the above items, which would provide us with sufficientliquidity to pay our January 2002 interest payment on our Senior Notes, JonesInternational, our parent company, has agreed to lend us up to$2.5 million subject to negotiation of the specific terms.  While our parent company has significantresources, there is no obligation for our parent company to provide similarassistance in the future.

         Based onthe cost reductions in effect and the above measures contemplated, and assumingthere is no significant further deterioration in the advertising marketplacebeyond what management currently expects, we believe that our cash balances,operating cash flows, including the cash flows of and dividends anddistributions from our subsidiaries, as well as cash generated from theadditional actions noted above, will be sufficient to fund our operating cashflow requirements through the remainder of 2001, as well as our January 2002bond interest payment.

 

Investing Activities

 

         Forthe nine months ended September 30, 2000 and 2001, net cash providedby (used in) investing activities was $(4.5) million and $(4.3) million,respectively.

 

          Our investing activities for the nine months endedSeptember 30, 2001 consisted primarily of the following:

 

•      $3.7 million proceeds from the sale of available for salesecurities;

 

•      $(5.6) million in cable programming distribution agreementpayments for GAC;

 

•      $(2.2) million for the purchase of property and equipment; and

 

•      $(0.2) million to purchase certain radio programs and otherintangible assets.

 

 

         Ourinvesting activities for the nine months ended September 30, 2000consisted primarily of the following:

 

•      $3.8 million proceeds from the sale of available for salesecurities;

 

•      $(5.3) million in cable programming distribution agreementpayments for GAC;

 

•      $(0.8) million to purchase certain radio programs; and

 

•      $(2.2) million for the purchase of property and equipment.

 

        Totalcapital expenditures for the balance of 2001 are estimated to be approximately$0.5 million, which will be used primarily to purchase satellitereceivers, computer hardware and software. Total cable programming distribution agreement payments for GAC for thebalance of 2001 are estimated to be approximately $1.5 million.

 

Financing Activities

 

         Forthe nine months ended September 30, 2000 and 2001, net cash providedby (used in) financing activities was $(0.5) million and$0.5 million, respectively.

 

         In 1998, we entered into an equityaffiliate agreement with a MSO. This MSO was granted a put option on the ClassA Common Stock issued, whereby, if as of December 31, 2001, we or oursuccessor has not completed a public offering of its securities, the MSO wouldhave the option within 60 days of such date to require us to buy back its ClassA Common Stock.  In the event the putoption is exercised, the purchase price of the Class A Common Stock would beapproximately $951,000.

 

# **Guidancefor Fourth Quarter 2001**

 

         Thefollowing information provided below represents guidance on anticipatedoperating results of the Company and its businesses for the fourth quarterending December 31, 2001. The following guidance represents “forward-lookingstatements” within the meaning of the federal securities laws and is subject tothe safe harbor under those laws. Forward-looking statements are not statementsof historical facts, but rather reflect our current expectations as to ourfuture business plans, results of operations and/or financial condition. Ourexpectations for the Company's future necessarily involve a number ofassumptions and estimates, and various risk factors, many of which are beyondour ability to control or predict and that could cause actual results to differmaterially from these expectations. These risk factors include distribution ofour radio and television programming, intense competition in our industry, ourdependence upon earnings and cash flow of our subsidiaries, dependence onadvertising relationships and revenues, our outstanding debt and therestrictions imposed by an indenture governing our existing debt, businessexpansion issues, and the other risks described in the most recent AnnualReport on Form 10-K filed with the SEC. Accordingly, forward-looking statementsare not guarantees of future performance, and should not be unduly relied upon.The forward-looking statements made herein are based on expectations existingon the date of this report, and we assume no obligation to update theseforward-looking statements following the date of such report.

 

 

|                                                              |   | ** 4th Quarter**   |   |
|-------------------------------------------------------------------|--------|-------------------------|--------|
|                                                              |   | **(in thousands)** |   |
| **Revenues:**                                                     |   |                    |   |
|                                                              |   |                    |   |
| Network radio                                                     |   | $                       | 9,300  |   |
| Cable television  programming                                     |   | 8,200                   |   |
| Satellite services                                                |   | 900                     |   |
|                                                              |   |                    |   |
| Total revenues                                                    |   | $                       | 18,400 |   |
|                                                              |   |                    |   |
| **EBITDA :**                                                 |   |                    |   |
|                                                              |   |                    |   |
| Network radio                                                     |   | $                       | 1,400  |   |
| Cable television  programming*                                    |   | 400                     |   |
| Satellite  services                                               |   | 800                     |   |
| General and  administrative - corporate                           |   | (500                    | )      |
|                                                              |   |                    |   |
| Total EBITDA  from continuing operations                          |   | 2,100                   |   |
|                                                              |   |                    |   |
| EBITDA from  Discontinued Operations                              |   | -                       |   |
|                                                              |   |                    |   |
| Total EBITDA                                                      |   | $                       | 2,100  |   |
|                                                              |   |                    |   |
| *Reflects  EBITDA effect net of PIN minority interest of $400,000 |   |
|                                                              |   |                    |   |
| **Other Disclosures:**                                            |   |                    |   |
|                                                              |   |                    |   |
| Capital  expenditures                                             |   | $                       | 500    |   |
|                                                              |   |                    |   |
| Cable  programming distribution payments                          |   | $                       | 1,500  |   |
|                                                              |   |                    |   |
|                                                              |   |                    |   |

 

**ITEM3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

         Market risk represents the risk of lossthat may impact our financial position, results of operations, or cash flowsdue to adverse changes in financial market prices. We are exposed to marketrisk through interest rates. This exposure is directly related to our normal fundingand investing activities.

 

         As of September 30, 2001,none of our current liabilities was subject to changes in interest rates.

 

**ITEM 5: OTHER MATERIALLY IMPORTANTEVENTS**

 

         On August 9, 2001, Standard &Poor’s lowered its rating for the Company’s senior secured notes as well as theCompany’s corporate credit rating of “B” to a rating of “CCC with a NegativeOutlook.”

 

**ITEM 6: EXHIBITS AND REPORTS ON FORM8-K**

 

a)     Exhibits

 

         None

 

b)     Reports on Form 8-K

 

         None

**SIGNATURES**

 

         Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

         JONES MEDIA NETWORKS, LTD.

 

         By:

 

 

 
|   |   | /s/ Jeffery C. Wayne |             |   |
|--------|--------|----------------------|------------------|--------|
|   |   |                 | Jeffery C. Wayne |   |   |  
 

 

 

President

 

 

 
 

 

 

 

 

 

 
 

 

Dated:   November 14, 2001

 

 

 

 
 

 

 

 

 

 

 
 

         By:

 

 

 

 

 

/s/ Jay B. Lewis

 

 

 

 

 

Jay B. Lewis

 

 

 
 

 

 

Group Vice President/Finance

 

 

 
 

 

 

(Principal Financial  Officer)

 

 

 
 

 

 

 

 

 

 
 

 

Dated:   November 14, 2001

 

 

 

 

 

 

 

 

 
 

 

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