<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NUMBER: 333-89179
KNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2424258
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
KNOLOGY, Inc.
1241 O.G. SKINNER DRIVE
WEST POINT, GEORGIA 31833
------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 645-8553
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates is
not applicable as no public market exists for the voting stock of the
registrant.
As of July 31, 2000, we had 438,678 shares of common stock, 50,876,340
shares of Series A preferred stock and 21,180,131 shares of Series B preferred
stock outstanding.
<PAGE> 2
KNOLOGY, INC. AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS............................................... 2
Condensed Consolidated Balance Sheets.............................. 2
Condensed Consolidated Statements of Operations.................... 3
Condensed Consolidated Statement of Cash Flows..................... 4
Notes to Condensed Consolidated Financial Statements............... 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 7
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......... 16
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.................................................. 17
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS.......................... 17
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.................................... 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 17
ITEM 5 OTHER INFORMATION.................................................. 17
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K................................... 17
</TABLE>
1
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000
<TABLE>
<CAPTION>
JUNE 20, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 93,239,355 $ 7,818,462
Marketable securities -- 6,069,461
Affiliate receivable 14,220,296 18,244,232
Accounts receivable, net 9,247,849 9,037,451
Prepaid expenses 1,397,289 796,708
------------ ------------
Total current assets 118,104,789 41,966,314
PROPERTY AND EQUIPMENT, net 312,327,663 273,896,831
INVESTMENTS 7,949,992 3,249,056
INTANGIBLE AND OTHER ASSETS, net 72,319,509 81,063,813
OTHER 217,315 157,796
------------ ------------
Total assets $510,919,268 $400,333,810
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 12,174 $ 12,174
Accounts payable 20,504,382 15,138,408
Accounts payable - affiliate 270,464 337,964
Accrued liabilities 7,154,742 7,033,444
Unearned revenue 3,468,610 3,779,841
------------ ------------
Total current liabilities 31,410,372 26,301,831
NONCURRENT LIABILITIES:
Long-term notes payable 19,103,966 19,110,520
Bonds payable, net of discount 331,407,697 311,901,661
Unamortized credits 334,565 370,373
------------ ------------
Total non current liabilities 350,846,228 331,382,554
------------ ------------
Total liabilities 382,256,600 357,684,385
WARRANTS 4,726,065 4,726,065
STOCKHOLDERS' (DEFICIT) EQUITY
Convertible preferred stock 720,565 480,355
Common Stock 4,387 65
Additional paid-in capital 247,910,474 117,066,988
Accumulated deficit (124,698,823) (79,593,349)
Unrealized (loss) gain on marketable securities (Note 4) -- (30,699)
------------ ------------
Total stockholders' (deficit) equity 123,936,603 37,923,360
------------ ------------
Total liabilities and stockholders' (deficit) equity $510,919,268 $400,333,810
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE> 4
KNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 20,253,893 $ 15,883,552 $ 38,993,662 $ 31,121,805
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of services 7,762,980 6,519,848 15,149,962 12,734,905
Selling, operating, and administrative 14,089,930 11,896,796 26,432,514 22,607,289
Depreciation and amortization 14,398,048 9,232,331 27,858,612 17,856,044
------------ ------------ ------------ ------------
Total 36,250,958 27,648,975 69,441,088 53,198,238
------------ ------------ ------------ ------------
OPERATING LOSS (15,997,065) (11,765,423) (30,447,426) (22,076,433)
OTHER INCOME AND EXPENSES:
Interest income 1,725,443 386,464 3,122,774 1,108,661
Interest expense (9,861,657) (7,877,909) (19,411,090) (15,716,425)
Other income (expense), net 69,981 47,695 73,096 94,984
------------ ------------ ------------ ------------
Total (8,066,233) (7,443,750) (16,215,220) (14,512,780)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX BENEFIT (24,063,298) (19,209,173) (46,662,646) (36,589,213)
INCOME TAX BENEFIT -- 2,942,199 1,557,194 6,583,243
------------ ------------ ------------ ------------
NET LOSS $(24,063,298) $(16,266,974) $(45,105,452) $(30,005,970)
============ ============ ============ ============
NET LOSS PER SHARE:
Basic and diluted $ (0.33) $ (162,670) $ (0.68) $ (300,060)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 72,090,561 100 66,677,971 100
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 5
KNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (45,105,452) $ (30,005,970)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 27,858,612 17,856,044
Gain on disposition of assets (2,874) (5,416)
Amortization of bond discount 8,575,676 7,255,420
Amortization of deferred investment tax credit (35,808) (35,808)
Changes in operating assets and liabilities:
Accounts receivable (210,398) (20,265)
Accounts receivable - affiliate 4,023,936 (4,095,296)
Prepaid expenses and other (660,100) (580,955)
Accounts payable 5,365,979 10,909,514
Accrued liabilities and interest 11,051,636 (6,440,438)
Unearned revenue (311,231) 298,265
------------- -------------
Total adjustments 55,655,428 25,141,065
------------- -------------
Net cash provided by (used in) by operating activities 10,549,976 (4,864,905)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements (57,500,207) (47,655,118)
Investments (4,700,936) 43,695
Organizational and franchise cost expenditures, net (250,229) --
Proceeds from sales of assets 208,165 54,361
Proceeds from sales of marketable securities, net 6,069,461 49,276,833
------------- -------------
Net cash (used in) provided by investing activities (56,173,746) 1,719,771
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates (67,500) (765,384)
Proceeds from private placement, net 131,118,717 --
Expenditures related to issuance of debt -- (51,531)
Principal payments on debt (6,554) (2,494)
------------- -------------
Net cash provided by (used in) financing activities 131,044,663 (819,409)
------------- -------------
NET INCREASE (DECREASE) IN CASH 85,420,893 (3,964,543)
CASH AT BEGINNING OF PERIOD 7,818,462 5,158,674
------------- -------------
CASH AT END OF PERIOD $ 93,239,355 $ 1,194,131
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 494,463 $ 7,124
</TABLE>
4
<PAGE> 6
KNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
KNOLOGY Inc. (the "Company") offers residential and business
customers broadband communications services ("Broadband Services"),
including analog and digital cable television, local and long distance
telephone, high-speed Internet access service, and other services
including broadband carrier services ("BCS"), using high capacity
hybrid fiber/coaxial networks that are two-way interactive
("interactive broadband networks"). We own, operate and manage
interactive broadband networks in six metropolitan areas: Montgomery
and Huntsville, Alabama; Columbus and Augusta, Georgia; Panama City,
Florida; and Charleston, South Carolina. We also provide local
telephone services in West Point, Georgia, and Lanett and Valley,
Alabama. Our local telephone service in this area is provided over a
traditional copper wire network while our cable and Internet services
are provided over our broadband network. We plan to expand to
additional cities in the southeastern United States.
The Company has experienced operating losses as a result of
the expansion of its advanced broadband communications networks and
services into new and existing markets. Management expects to continue
the focus on increasing the customer base and expanding the broadband
operations. Accordingly, operating expenses and capital expenditures
will continue to increase with the extension of the broadband
communications networks in existing and new markets in accordance with
the business plan. While management expects its expansion plans to
result in profitability, there can be no assurance that growth in the
Company's revenue or customer base will continue or that the Company
will be able to achieve or sustain profitability and/or positive cash
flow.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments considered necessary for the fair presentation of the
financial statements have been included, and the financial statements
present fairly the financial position and results of operations for the
interim periods presented. Operating results for the three and six
months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results
of operations contained in the Company's 1999 Annual Report on Form
10-K for the year ended December 31, 1999.
Certain amounts included in the 1999 financial statements have
been reclassified to conform with the 2000 financial statements.
3. NET LOSS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." This statement requires the disclosure of basic net income
(loss) per share and diluted net income (loss) per share. Basic net
income (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted net loss per share
gives effect to all potentially dilutive securities. As the
5
<PAGE> 7
Company has no significant common stock outstanding, the convertible
preferred stock is assumed to be converted for purposes of this
calculation. The Company's other potentially dilutive securities,
including stock options and stock warrants, are not included in the
computation of diluted net loss per share as their effect is
antidilutive.
4. EQUITY TRANSACTIONS
In February 2000, ITC Holding Company, in connection with a
reorganization of certain of its businesses, distributed to its option
holders options to purchase 6,258,036 shares of our Series A preferred
stock, and distributed to its shareholders all of its 43,211,531 shares
of our Series A preferred stock. As a result of this distribution, we
are no longer a subsidiary of ITC Holding Company.
On February 7, 2000 the Company issued, in a private
placement, 21,180,131 shares of its Series B preferred stock to a small
group of institutional investors and certain officers of the Company
for proceeds of approximately $100.6 million. The Series B preferred
stock is convertible at any time at the option of the holder into
common stock at a $4.75 conversion price and will automatically convert
into common stock upon the consummation of a qualified initial public
offering of not less than $50 million. The Series B preferred
stockholders vote with the common stockholders on an as converted
basis. The Series B preferred shares do not bear a special dividend.
The Series B preferred shares have a liquidation preference of $4.75
per share to the common and Series A preferred shares.
5. SEGMENT INFORMATION
Effective January 1998, the Company adopted SFAS 131,
"Disclosures about segments of an Enterprise and Related Information,"
which established revised standards for the reporting of financial and
descriptive information about operating segments in financial
statements.
The Company owns and operates advanced hybrid fiber-coaxial
networks and provides residential and business customers broadband
communications services, including analog and digital cable television,
local and long distance telephone, and high-speed Internet access,
which the Company refers to as video, voice, and data services. We also
provide other services including BCS, which includes local transport
services such as local Internet transport, special access, local
private line, and local loop services.
While management of the Company monitors the revenue generated
from each of the various broadband services, operations are managed and
financial performance is evaluated based upon the delivery of multiple
services to customers over a single network. As a result of multiple
services being provided over a single network, many expenses and assets
are shared related to providing the various broadband services to
customers. Management believes that any allocation of the shared
expenses or assets to the broadband services would be subjective and
impractical.
Revenues by broadband communications service are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Video ...................................... $ 10,521,580 $ 8,656,053 $ 20,614,509 $ 17,050,816
Voice ...................................... 8,311,577 6,563,498 15,984,601 13,038,443
Data and Other ............................. 1,420,736 664,001 2,394,552 1,032,546
------------ ------------ ------------ ------------
Consolidated Revenues ...................... $ 20,253,893 $ 15,883,552 $ 38,993,662 $ 31,121,805
============ ============ ============ ============
</TABLE>
6
<PAGE> 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THE MANAGEMENT'S DISCUSSION AND ANALYSIS AND OTHER PORTIONS OF THIS
REPORT INCLUDE "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF THE FEDERAL
SECURITIES LAWS, INCLUDING THE PRIVATE SECURITIES LITIGATION REFORM ACT, THAT
ARE SUBJECT TO FUTURE EVENTS, RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED. IMPORTANT FACTORS
THAT EITHER INDIVIDUALLY OR IN THE AGGREGATE COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED INCLUDE, WITHOUT LIMITATION, (1) THAT WE
WILL NOT RETAIN OR GROW OUR CUSTOMER BASE, (2) THAT WE WILL FAIL TO BE
COMPETITIVE WITH EXISTING AND NEW COMPETITORS, (3) THAT WE WILL NOT ADEQUATELY
RESPOND TO TECHNOLOGICAL DEVELOPMENTS IMPACTING OUR INDUSTRY AND MARKETS, (4)
THAT NEEDED FINANCING WILL NOT BE AVAILABLE IF AND AS NEEDED, (5) THAT A
SIGNIFICANT CHANGE IN THE GROWTH RATE OF THE OVERALL U.S. ECONOMY WILL OCCUR
SUCH THAT CONSUMER AND CORPORATE SPENDING ARE MATERIALLY IMPACTED, AND (6) THAT
SOME OTHER UNFORESEEN DIFFICULTIES OCCUR, AS WELL AS THOSE RISK SET FORTH IN OUR
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, WHICH ARE
INCORPORATED HEREIN BY REFERENCE. THIS LIST IS INTENDED TO IDENTIFY ONLY CERTAIN
OF THE PRINCIPAL FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN.
The following is a discussion of our consolidated financial condition
and results of operations for the three and six months ended June 30, 2000 and
certain factors that are expected to affect our prospective financial condition.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto and other financial data included
elsewhere in this Form 10-Q.
GENERAL
Knology, Inc. was formed in September 1998 to enable ITC Holding to complete a
reorganization of some of its subsidiaries. In November 1999, in order to
effectuate the reorganization:
- ITC Holding contributed to Knology, Inc.:
- its 85% interest in Knology Broadband, Inc. (formerly Knology
Holdings, Inc.);
- all of the outstanding capital stock of Interstate Telephone
Company, Inc., Valley Telephone Company, Inc., Globe Telecom,
Inc. and ITC Globe, Inc., referred to as our "telephone
operations group;"
- a note in the principal amount of $9.6 million; and
- its 6% interest in ClearSource, Inc., subscription rights to
purchase ClearSource shares and $5.6 million in cash to
purchase the additional ClearSource shares; and
- the holders of the remaining 15% interest in Knology Broadband, Inc.
exchanged that interest for shares of Knology, Inc. and the holders of
outstanding warrants to purchase Knology Broadband preferred stock
exchanged those warrants for warrants to purchase preferred stock of
Knology, Inc.
As a result of the reorganization, ITC Holding held a 90% interest in
us, which it distributed to its stockholders on February 7, 2000. The
reorganization was accounted for in a manner similar to a pooling of interest
for the telephone operations group.
7
<PAGE> 9
In January 2000, InterCall, Inc., a subsidiary of ITC Holding, loaned us
approximately $29.7 million to fund capital expenditures and working capital.
The loan, which had a maturity date of March 31, 2000, provided that InterCall
could elect to convert it into options to purchase our Series A preferred stock.
In February 2000, InterCall converted the loan into options to purchase
6,258,036 shares of our Series A preferred stock, and we issued to ITC Holding a
note under which we will pay ITC Holding any proceeds from option exercises
received by us, including an amount equal to the exercise price for cashless
exercises. The options were distributed to ITC Holdings' stockholders on
February 4, 2000.
REVENUES AND EXPENSES
We have been expanding our networks and adding corporate staffing
necessary to grow the business into new markets. Accordingly, our operating
expenses and capital expenditures have increased significantly and are expected
to continue to increase with the continued expansion of the existing systems and
into new markets.
We have incurred net losses in each quarter since our inception, and as
of June 30, 2000, the accumulated deficit had reached approximately $125
million. We anticipate incurring net losses during the next several years while
continuing to expand operations, and as a result of substantially increased
depreciation and amortization from the construction of the new networks and
operating expenses incurred in building the customer base. There can be no
assurance that growth in revenue or the subscriber base will continue or that we
will be able to achieve or sustain profitability or positive cash flow.
We can group our revenues into four categories: video revenues, voice revenues,
data revenues and other revenues.
- Video revenues. Our video revenues consist of fixed monthly fees for
basic, premium and digital cable television services, as well as fees
from pay-per-view movies and events such as boxing matches and
concerts, that involve a charge for each viewing. Video revenues
accounted for approximately 51.9% and 52.9% of our consolidated
revenues for the three and six months ended June 30, 2000 compared to
54.5% and 54.8% for the three and six months ended June 30, 1999.
- Voice revenues. Our voice revenues consist primarily of fixed monthly
fees for local service, enhanced services such as call waiting and
voice mail and usage fees for long distance service. Voice revenues
accounted for approximately 41.0% and 41.0% of our consolidated
revenues for the three and six months ended June 30, 2000 compared to
41.3% and 41.9% for the three and six months ended June 30, 1999.
- Data revenues and other revenues. Our data revenues consist primarily
of fixed monthly fees for Internet access service and rental of cable
modems. Other revenues resulted principally from broadband carrier
services and video production services. These combined revenues
accounted for approximately 7.0% and 6.1% of our consolidated revenues
for the three and six months ended June 30, 2000 compared to 4.2% and
3.3% for the three and six months ended June 30, 1999.
Our operating expenses include cost of services, selling, operations and
administrative and depreciation and amortization.
Cost of services include:
- Video cost of services. Video cost of services consist primarily of
monthly fees to the National Cable Television Cooperative and other
programming providers, and are generally based on the average number of
subscribers to each program. Programming costs as a percentage of video
revenue were approximately 42.7% and 42.4% for the three and six months
ended June 30, 2000 compared to 42.3% and 43.0% for the three and six
months ended June 30, 1999. Programming costs is our largest single
cost and we expect this to continue. Since this cost is based on
numbers of subscribers, it will increase as we add more subscribers.
8
<PAGE> 10
- Voice and data services. Cost of services related to our voice and
data services include costs of Internet transport and telephone
switching, and interconnection and transport charges payable to local
and long distance carriers.
Selling, operations and administrative expenses include:
- Sales and marketing costs. Sales and marketing costs include the cost
of sales and marketing personnel and advertising and promotional
expenses.
- Network operations and maintenance expenses. Network operations and
maintenance expenses include payroll and departmental costs incurred
for network design and maintenance monitoring.
- Customer service expenses. Customer service expenses include payroll
and departmental costs incurred for customer service representatives
and management.
- General and administrative expenses. General and administrative
expenses consist of corporate and subsidiary general management and
administrative costs.
Depreciation and amortization expenses include depreciation of our interactive
broadband networks and equipment, and amortization of cost in excess of net
assets and other intangible assets related to acquisitions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1999
The following table sets forth financial data as a percentage of operating
revenues for the three months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
2000 1999
------ ------
<S> <C> <C>
Operating revenues:
Video .................................................. 52% 55%
Voice .................................................. 41 41
Data and other ......................................... 7 4
------ ------
Total ............................................... 100 100
Operating expenses:
Cost of services ....................................... 38 41
Selling, operating and administrative .................. 70 75
Depreciation and amortization .......................... 71 58
------ ------
Total ............................................... 179 174
------ ------
Operating loss ............................................. (79) (74)
Other income and expenses, net ............................. (40) (47)
------ ------
Loss before income tax benefit ............................. (119) (121)
Income tax benefit ......................................... 0 19
------ ------
Net loss attributable to common stockholders ........ (119)% (102)%
====== ======
</TABLE>
9
<PAGE> 11
The following table sets forth certain operating and financial data for
the periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000 1999 CHANGE %
------- ------- ------- -------
<S> <C> <C> <C> <C>
MARKETABLE HOMES PASSED ................ 335,978 276,011 59,967 21.7%
CONNECTIONS (1)
Video ............................... 96,781 85,146 11,635 13.7%
------- ------- ------- -------
Voice
On Net (2) ...................... 46,175 28,393 17,782 62.6%
Off Net (3) ..................... 7,635 7,602 33 0.4%
------- ------- ------- -------
........................... 53,810 35,995 17,815 49.5%
Data ................................ 9,675 2,633 7,042 267.5%
------- ------- ------- -------
Total ........................... 160,266 123,774 36,492 29.5%
======= ======= ======= =======
</TABLE>
(1) Connections represent revenue-generating connections. For video and
data, connections represent the number of customers subscribing to the
service. For voice, connections represent the number of lines
connected. For example, a telephone customer that has two lines would
be counted as two connections.
(2) Onnet refers to lines provided over our networks.
(3) Offnet consists of telephone lines leased from third parties.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
2000 1999 CHANGE %
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Video .............................................. $ 10,521,580 $ 8,656,053 $ 1,865,527 21.6%
Voice .............................................. 8,311,577 6,563,498 1,748,079 26.6%
Data and other ..................................... 1,420,736 664,001 756,735 114.0%
------------ ------------ ----------- -----------
Total ........................................ 20,253,893 15,883,552 4,370,341 27.5%
OPERATING EXPENSES:
Cost of services ................................... 7,762,980 6,519,848 1,243,132 19.1%
Selling, operating, and administrative ............. 14,089,930 11,896,796 2,193,134 18.4%
Depreciation and amortization ...................... 14,398,048 9,232,331 5,165,717 56.0%
------------ ------------ ----------- -----------
Total ........................................ 36,250,958 27,648,975 8,601,983 31.1%
------------ ------------ ----------- -----------
OPERATING LOSS ........................................ (15,997,065) (11,765,423) (4,231,642) 36.0%
OTHER INCOME AND EXPENSES, NET ........................ (8,066,233) (7,443,750) (622,483) 8.4%
LOSS BEFORE INCOME TAX BENEFIT ........................ (24,063,298) (19,209,173) (4,854,125) 25.3%
INCOME TAX BENEFIT .................................... -- 2,942,199 (2,942,199) 100.0%
------------ ------------ ----------- -----------
NET LOSS .............................................. $(24,063,298) $(16,266,974) $(7,796,324) 47.9%
============ ============ =========== ===========
</TABLE>
Revenues. Operating revenues increased 27.5% from $15.9 million for the
three months ended June 30, 1999, to $20.3 million for the three months ended
June 30, 2000. Operating revenues from video services increased 21.6% from $8.7
million for the three months ended June 30, 1999 to $10.5 million for the same
period in 2000. Operating revenues from voice services increased 26.6% from $6.6
million for the three months ended June 30, 1999 to $8.3 million for the same
period in 2000. Operating revenue from data and other services increased 114%
from $664,000 for the three months ended June 30, 1999 to $1.4 million for the
same period in 2000, $1.2 million of which were revenues from data services. The
increased revenues for video, voice and data and other services are primarily
due to a 29.5% increase in the number of connections, from 123,774 at June 30,
1999 to 160,266 at June 30, 2000. The additional connections resulted primarily
from the extension and/or upgrade of our broadband networks in Augusta,
Charleston, Columbus, Huntsville, Montgomery, and Panama City.
10
<PAGE> 12
Particularly in the cable industry, there is a trend towards
consolidation, exclusivity arrangements and other forms of competition. If the
level of competition continues to increase, due to consolidation, exclusivity
arrangements or otherwise, our ability to attract and retain customers and to
increase revenues could suffer.
Expenses. Operating expenses, excluding depreciation and amortization,
increased 17.4% from $18.4 million for the three months ended June 30, 1999, to
$21.9 million for the three months ended June 30, 2000. Cost of services
increased 19.1% from $6.5 million for the three months ended June 30, 1999, to
$7.8 million for the three months ended June 30, 2000. Selling, operating and
administrative expenses increased 18.4% from $11.9 million for the three months
ended June 30, 1999, to $14.1 million for the three months ended June 30, 2000.
The increase in our cost of services and operating expenses is consistent with
the growth in revenues and is a result of the expansion of the operations and
the increase in the number of employees associated with such expansion and
growth into new markets. We expect our cost of services to continue to increase
as we add more connections. On a per subscriber basis, our cost of services
should remain relatively constant as we expand into new markets, but our
selling, operations and administration expenses will increase. Programming
costs, which are our largest single expense item, have been increasing over the
last several years, and we expect this trend to continue. We may not be able to
pass these higher costs on to customers, which would adversely affect our cash
flow and operating margins.
Depreciation and amortization increased from $9.2 million for the three
months ended June 30, 1999, to $14.4 million for the three months ended June 30,
2000. The increase in depreciation and amortization is due to significant
additions in property, plant, equipment and intangible assets resulting from the
expansion of our networks; the upgrading of older systems to broadband
capabilities; the purchase of buildings, computers and office equipment; and the
costs of the reorganization of Knology, Inc. We expect our depreciation and
amortization expense to continue to increase as we make capital expenditures to
extend our existing networks and build additional networks.
Other Income and Expense. Interest income was $386,000 for the three
months ended June 30, 1999, compared to $1.7 million for the same period in
2000. The increase primarily reflects the interest earned from the short-term
investment of certain proceeds of the $100.6 million received in the Series B
preferred stock offering completed in February 2000 and the $29.7 million loan
provided by InterCall, Inc.
Interest expense increased from $7.9 million for the three months ended
June 30, 1999, to $9.9 million for the three months ended June 30, 2000. The
increase in interest expense reflects the accrual of the interest attributable
to the 11 7/8% senior discount notes issued in October 1997. We capitalized
interest related to the construction of our broadband networks of $945,000 and
$536,000 for the three months ended June 30, 1999 and 2000 respectively.
Income Tax Benefit. The income tax benefit was $2.9 million for the
three months ended June 30, 1999, with no tax benefit for the same period in
2000. The income tax benefit in 1999 resulted from our utilizing net tax losses
under a tax sharing agreement with ITC Holding. The tax sharing agreement became
effective August 1998 upon the acquisition by ITC Holding of its majority
interest in Knology Broadband. With the completion of the spinoff of Knology,
Inc. by ITC Holding, effective February 7, 2000, we no longer participate in the
tax sharing agreement and therefore can not utilize our net tax losses. As a
standalone entity after the spinoff, we record a full valuation allowance
against any net tax losses with no tax benefit being recorded.
Net Loss Attributed to Common Stockholders. We incurred a net loss of
$16.3 million for the three months ended June 30, 1999, compared to a net loss
of $24.1 million for the three months ended June 30, 2000. We expect net losses
to continue to increase as we continue to expand our business.
11
<PAGE> 13
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
The following table sets forth financial data as a percentage of operating
revenues for the six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
----- -----
<S> <C> <C>
Operating revenues:
Video ....................................................... 53% 55%
Voice ....................................................... 41 42
Data and other .............................................. 6 3
----- -----
Total .................................................... 100 100
Operating expenses:
Cost of services ............................................ 39 41
Selling, operating and administrative ....................... 68 73
Depreciation and amortization ............................... 71 57
----- -----
Total .................................................... 178 171
----- -----
Operating loss .................................................. (78) (71)
Other income and expenses, net .................................. (42) (47)
----- -----
Loss before income tax benefit .................................. (120) (118)
Income tax benefit .............................................. 4 21
----- -----
Net loss attributable to common stockholders ............. (116)% (97)%
===== =====
</TABLE>
The following table sets forth certain operating and financial data for
the periods ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000 1999 CHANGE %
------- ------- ------ ------
<S> <C> <C> <C> <C>
MARKETABLE HOMES PASSED ........... 335,978 276,011 59,967 21.7%
CONNECTIONS (1)
Video .......................... 96,781 85,146 11,635 13.7%
------- ------- ------ ------
Voice
On Net (2) ................. 46,175 28,393 17,782 62.6%
Off Net (3) ................ 7,635 7,602 33 0.4%
------- ------- ------ ------
........................ 53,810 35,995 17,815 49.5%
Data ........................... 9,675 2,633 7,042 267.5%
------- ------- ------ ------
Total ...................... 160,266 123,774 36,492 29.5%
======= ======= ====== ======
</TABLE>
(1) Connections represent revenue-generating connections. For video and
data, connections represent the number of customers subscribing to the
service. For voice, connections represent the number of lines
connected. For example, a telephone customer that has two lines would
be counted as two connections.
(2) Onnet refers to lines provided over our networks.
(3) Offnet consists of telephone lines leased from third parties.
12
<PAGE> 14
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999 CHANGE %
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Video .......................... $ 20,614,509 $ 17,050,816 $ 3,563,693 20.9%
Voice .......................... 15,984,601 13,038,443 2,946,158 22.6%
Data and other ................. 2,394,552 1,032,546 1,362,006 131.9%
------------ ------------ ------------ --------
Total .................... 38,993,662 31,121,805 7,871,857 25.3%
OPERATING EXPENSES:
Cost of services ............... 15,149,962 12,734,905 2,415,057 19.0%
Selling, operating, and administrative 26,432,514 22,607,289 3,825,225 16.9%
Depreciation and amortization .. 27,858,612 17,856,044 10,002,568 56.0%
------------ ------------ ------------ --------
Total .................... 69,441,088 53,198,238 16,242,850 30.5%
------------ ------------ ------------ --------
OPERATING LOSS .................... (30,447,426) (22,076,433) (8,370,993) 37.9%
OTHER INCOME AND EXPENSES, NET .... (16,215,220) (14,512,780) (1,702,440) 11.7%
LOSS BEFORE INCOME TAX BENEFIT .... (46,662,646) (36,589,213) (10,073,433) 27.5%
INCOME TAX BENEFIT ................ 1,557,194 6,583,243 (5,026,049) 76.3%
------------ ------------ ------------ --------
NET LOSS .......................... $(45,105,452) $(30,005,970) $(15,099,482) 50.3%
============ ============ ============ ========
</TABLE>
Revenues. Operating revenues increased 25.3% from $31.1 million for the
six months ended June 30, 1999, to $39.0 million for the six months ended June
30, 2000. Operating revenues from video services increased 20.9% from $17.1
million for the six months ended June 30, 1999 to $20.6 million for the same
period in 2000. Operating revenues from voice services increased 22.6% from
$13.0 million for the six months ended June 30, 1999 to $16.0 million for the
same period in 2000. Operating revenue from data and other services increased
132% from $1.0 million for the six months ended June 30, 1999 to $2.4 million
for the same period in 2000, $2.3 million of which were revenues from data
services. The increased revenues for video, voice and data and other services
are primarily due to an increase in the number of connections, from 123,774 at
June 30, 1999 to 160,266 at June 30, 2000. The additional connections resulted
primarily from the extension of our broadband networks in Montgomery, Columbus,
Panama City, Augusta and Charleston.
Particularly in the cable industry, there is a trend towards
consolidation, exclusivity arrangements and other forms of competition. If the
level of competition continues to increase, due to consolidation, exclusivity
arrangements or otherwise, our ability to attract and retain customers and to
increase revenues could suffer.
Expenses. Operating expenses, excluding depreciation and amortization,
increased 16.6 % from $35.7 million for the six months ended June 30, 1999, to
$41.6 million for the six months ended June 30, 2000. Cost of services increased
19.0% from $12.7 million for the six months ended June 30, 1999, to $15.1
million for the six months ended June 30, 2000. Selling, operating and
administrative expenses increased 16.9% from $22.6 million for the six months
ended June 30, 1999, to $26.4 million for the six months ended June 30, 2000.
The increase in our cost of services and operating expenses is consistent with
the growth in revenues and is a result of the expansion of the operations and
the increase in the number of employees associated with such expansion and
growth into new markets. We expect our cost of services to continue to increase
as we add more connections. On a per subscriber basis, our cost of services
should remain relatively constant as we expand into new markets, but our
selling, operations and administration expenses will increase. Programming
costs, which are our largest single expense item, have been increasing over the
last several years, and we expect this trend to continue. We may not be able to
pass these higher costs on to customers, which would adversely affect our cash
flow and operating margins.
Depreciation and amortization increased from $17.9 million for the six
months ended June 30, 1999, to $27.9 million for the six months ended June 30,
2000. The increase in depreciation and amortization is due to significant
additions in property, plant, equipment and intangible assets resulting from the
expansion of our networks; the upgrading of older systems to broadband
capabilities; the purchase of buildings, computers and office equipment; and the
costs of the reorganization of Knology, Inc. We
13
<PAGE> 15
expect our depreciation and amortization expense to continue to increase as we
make capital expenditures to extend our existing networks and build additional
networks.
Other Income and Expense. Interest income was $1.1 million for the six
months ended June 30, 1999, compared to $3.1 million for the same period in
2000. The increase primarily reflects the interest earned from the short-term
investment of certain proceeds of the $100.6 million received in the Series B
preferred stock offering completed in February 2000 and the $29.7 million loan
provided by InterCall, Inc.
Interest expense increased from $15.6 million for the six months ended
June 30, 1999, to $19.4 million for the six months ended June 30, 2000. The
increase in interest expense reflects the accrual of the interest attributable
to the 11 7/8% senior discount notes issued in October 1997. We capitalized
interest related to the construction of our broadband networks of $1.5 million
and $1.1 million for the six months ended June 30, 1999 and 2000 respectively.
Income Tax Benefit. The income tax benefit was $6.6 million for the six
months ended June 30, 1999, compared to $1.6 million for the same period in
2000. The income tax benefit in 1999 resulted from our utilizing net tax losses
under a tax sharing agreement with ITC Holding. The tax sharing agreement became
effective August 1998 upon the acquisition by ITC Holding of its majority
interest in Knology Broadband. With the completion of the spinoff of Knology,
Inc. by ITC Holding, effective February 7, 2000, we no longer participate in the
tax sharing agreement and therefore can not utilize our net tax losses. As a
standalone entity after the spinoff, we record a full valuation allowance
against any net tax losses with no tax benefit being recorded.
Net Loss Attributed to Common Stockholders. We incurred a net loss of
$30.0 million for the six months ended June 30, 1999, compared to a net loss of
$45.1 million for the six months ended June 30, 2000. We expect net losses to
continue to increase as we continue to expand our business.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we had net working capital of $86.7 million,
compared to $15.7 million at December 31, 1999. The increase in working capital
is principally due to the completion of funding for the private placement of our
Series B preferred stock and the loan, which was subsequently converted to
equity, provided by InterCall, Inc.
Operating activities used cash of $4.9 million and provided cash of
$10.5 million for the six months ended June 30, 1999 and 2000, respectively. Net
cash provided by operating activities in the 2000 period was primarily due to
the $45.1 million net loss being offset by a $19.2 million increase in working
capital, depreciation and amortization of $27.9 million and bond accretion on
the 11 7/8% senior discount notes of $8.6 million. The net cash flow activity
related to operations consists primarily of changes in operating assets and
liabilities and adjustments to net income for noncash transactions including:
- depreciation and amortization;
- amortization of deferred investment tax credit;
Investing activities provided cash of $1.7 and used cash of $56.2
million for the six months ended June 30, 1999 and 2000, respectively. Investing
activities in the 2000 period primarily consisted of $57.5 million of capital
expenditures and a $4.7 million investment in ClearSource, Inc., partially
funded by $6.1 million in proceeds from the sale of shortterm investments. The
shortterm investments sold represent a portion of the proceeds received from the
October 22, 1997 offering of 11 7/8 senior discount notes that were invested in
marketable securities.
Financing activities used cash of $819,000 and provided cash of $131.0
million for the six months ended June 30, 1999 and 2000, respectively. Financing
activities in the six months ended June 30, 2000 consisted of $100.6 million in
proceeds from the private placement of Series B preferred stock and a $29.7
million loan from InterCall, Inc.
14
<PAGE> 16
FUNDING TO DATE
We have required equity infusions and debt proceeds to finance a
significant portion of our operating, investing and financing activities in the
development of our business. On October 22, 1997, Knology Broadband received net
proceeds of approximately $242.4 million from the offering of units consisting
of senior discount notes due 2007 and warrants to purchase preferred stock. The
notes were sold at a substantial discount from their principal amount at
maturity, and there will not be any payment of cash interest on the notes prior
to April 15, 2003. The notes will fully accrete to face value of $444.1 million
on October 15, 2002. From and after October 15, 2002, the notes will bear
interest, which will be payable in cash, at a rate of 11 7/8% per annum on April
15 and October 15 of each year, commencing April 15, 2003. The indenture
contains covenants that restrict the ability of Knology Broadband to take
certain actions, including the ability to:
- incur indebtedness;
- pay dividends;
- prepay subordinated indebtedness;
- redeem capital stock;
- make investments;
- engage in transactions with stockholders and
affiliates;
- create liens;
- sell assets; and
- engage in mergers and consolidations.
The proceeds from the units offering were used to fund capital
expenditures, including the upgrade and expansion of our networks, and to fund
operating losses.
In connection with the 1997 units offering, Knology Broadband completed
an equity private placement in which Knology Broadband issued approximately
$32.2 million of preferred stock. A portion of the proceeds from this private
placement were used to repay approximately $11.0 million in borrowings from
SCANA Communications, Inc. and an additional $11.0 million of debt incurred by
Knology Broadband to finance the purchase of its cable television systems in
Montgomery, Alabama and Columbus, Georgia in 1995.
In November 1999, we completed an exchange in which we received the
Knology Broadband warrants, issued in connection with the senior discount notes
in 1997, in exchange for warrants to purchase shares of our Series A preferred
stock.
On December 22, 1998, Knology Broadband entered into a $50 million
four-year senior secured credit facility with First Union National Bank and
First Union Securities, Inc. This credit facility allows Knology Broadband to
borrow up to five times the annualized consolidated adjusted cash flow of each
of its subsidiaries, if such subsidiary's cash flow is positive. The credit
facility may be used for working capital and other purposes, including capital
expenditures and permitted acquisitions. At Knology Broadband's option, interest
will accrue based on either the prime or federal funds rate plus applicable
margin or the LIBOR rate plus applicable margin. The applicable margin may vary
from .50% to 2.50% based on the leverage ratio of Knology Broadband. The credit
facility contains a number of covenants limiting the ability of Knology
Broadband and its subsidiaries to take certain actions, including the ability
to:
- incur indebtedness;
- pay dividends;
- make distributions or stock repurchases;
- make investments;
- engage in transactions with affiliates;
- create liens;
- sell assets; and
- engage in mergers and acquisitions.
15
<PAGE> 17
The maximum amount available under the credit facility as of June 30
2000 was approximately $19 million, assuming compliance with all of the
operating and financial covenants. As of June 30 2000, $19 million had been
drawn against the credit facility. The company plans to refinance the credit
facility but there can be no assurances that it will be able to do so on
favorable terms
We obtained an aggregate of approximately $39.4 million in loans from
ITC Holding and its subsidiary InterCall during November 1999 and January 2000.
Approximately $9.6 million of these advances were provided to us in November
1999. This loan was converted into 2,029,724 shares of Series A preferred stock
in November 1999. Another $29.7 million loan was made in January 2000. The loan
bore interest at an annual rate of 11 7/8% and had a maturity date of March 31,
2000. In February 2000, the loan was converted into options to purchase up to
6,258,036 shares of our Series A preferred stock, and we issued to ITC Holding a
note under which we will pay ITC Holding any proceeds from option exercises
received by us, including an amount equal to the exercise price for cashless
exercises. The options were distributed to ITC' stockholders on February 4,
2000.
In February 2000, we issued to qualified investors in an equity private
placement 21,180,131 shares of our Series B preferred stock at a purchase price
of $4.75 per share, for aggregate proceeds of approximately $100.6 million.
FUTURE FUNDING
Our business requires substantial investment to finance capital
expenditures and related expenses, to expand and/or upgrade the interactive
broadband networks, to fund subscriber equipment and to maintain the quality of
our networks. We currently expect to require approximately $9 million to fund
operating losses and approximately $131 million for capital expenditures during
2000. The $131 million for capital expenditures includes approximately $70
million related to the construction of networks in new and existing markets. The
remainder primarily relates to the purchase of equipment for customer premises,
such as cable boxes, and information systems. Through June 30, 2000 we have
invested $58 million of the expected $131 million in capital expenditures.
We expect that, with sufficient funds, the construction of our networks
in our existing markets will be substantially completed during 2002. We will not
have sufficient funds to complete this construction without additional
financing. If we are not successful in raising additional capital, we may not be
able to complete the construction of our networks throughout our existing
markets. This may cause us to violate our franchise agreements, which could
adversely affect us or limit our growth within these markets.
We plan to expand to additional cities in the southeastern United
States. We have recently received franchises to build networks in Knoxville and
Nashville, Tennessee. We have begun construction of our network in Knoxville and
have begun planning the construction of our network in Nashville. We estimate
the cost of constructing networks and funding initial subscriber equipment in
additional new cities at approximately $75 to $100 million per 100,000 homes.
The actual costs of each new market may vary significantly from this range and
will depend on the number of miles of network to be constructed, the geographic
and demographic characteristics of the city, costs associated with the cable
franchise in each city, the number of subscribers in each city, the mix of
services purchased, the cost of subscriber equipment we pay for or finance and
other factors. We will need additional financing to complete this expansion, for
new business activities or in the event we decide to make acquisitions. We
expect to raise this capital through future private and public debt offerings
and private and public equity offerings, although there is no assurance that
this financing will be available on terms favorable to us. If we are not
successful in raising additional capital, we will not be able to expand to
additional cities as planned. The schedule for our planned expansion will depend
upon the availability of sufficient capital. Definitive decisions on which
cities will be chosen for expansion are not expected to be made until this
capital has been raised.
In connection with our spinoff from ITC Holding, which was completed on
February 7, 2000, we entered into a tax separation agreement with ITC Holding.
In the agreement, we made representations and covenants that impose limitations
on our future actions. We could be liable for up to $50 million to ITC Holding,
under the tax separation agreement if we breach these representations and
covenants. For example, we covenanted not to pursue any transaction that would
be presumed to be part of a
16
<PAGE> 18
plan or series of related transactions which results in any cumulative 50%
change of ownership within the four-year period beginning two years before the
date of our spinoff from ITC Holding. Transactions that could involve a possible
breach include an actual or constructive change of control, exceeding limits on
the raising of equity capital or the use of our stock to acquire other
companies. As a result, we may have to forego some growth opportunities that may
occur during the two years subsequent to the spinoff, until February 7, 2002.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We do not engage in trading market risk sensitive instruments and do
not purchase as investments, as hedges, or for purposes "other than trading"
instruments that are likely to expose us to market risk, whether it be from
interest rate, foreign currency exchange, commodity price or equity price risk.
We have entered into no forward or futures contracts, purchased no options and
entered into no swaps.
Our primary market risk exposure is that of interest rate risk. A
change in LIBOR or the Prime Rate as set by First Union National Bank would
affect the rate at which we could borrow funds under our credit facility.
17
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
On February 7, 2000 we completed a private placement of 21,180,131
shares of our Series B preferred stock to a small group of institutional
investors and certain of our executive officers for approximately $100.6
million. The shares of Series B preferred stock are convertible into shares of
our common stock at any time at the option of the holder and automatically upon
the completion of a public offering in which (1) the per share price to the
public is at least $6.00, (2) the gross proceeds to us are at least $50 million
and (3) the common stock sold in the offering is listed on the Nasdaq National
Market or on a national securities exchange. The shares are convertible into
shares of common stock on a onetoone basis, subject to customary antidilution
adjustments. The Series B preferred stockholders will vote with the common
stockholders on an as converted basis. The Series B preferred shares will not
bear a dividend. The Series B preferred shares have a liquidation preference of
$4.75 per share to the common and Series A preferred shares.
The issuances of securities described above were made in reliance on
exemptions from registration provided by Section 4(2) or Regulation D of the
Securities Act, as amended, as transactions by an issuer not involving any
public offering. The persons and entities exchanging securities in the
transactions represented their intention to acquire the securities for
investment only and not with a view to or for distribution in connection with
such transactions, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access to
information about our company, through their relationship with us or through
information about us made available to them.
ITEM 3. Default upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
<S> <C>
27.1 Financial Data Schedule for the three months ended June 30, 2000 (for SEC use only).
</TABLE>
(B) REPORTS ON FORM 8-K
The company did not file any reports on form 8-K during the quarterly
period ended June 30, 2000.
18
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
KNOLOGY, Inc.
August 11, 2000 By: /s/ RODGER L. JOHNSON
-----------------------------------------
President and Chief Executive Officer
KNOLOGY, Inc.
August 11, 2000 By: /s/ ROBERT K. MILLS
-----------------------------------------
Chief Financial Officer
(Principal Financial Officer)
19
