SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarterly Period ended June 30, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission file number: 000-26103

ARDENT COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware 52-2066769
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Idenfication No.)

1820 North Fort Myer Drive, Arlington, Virginia 22209
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (703) 276-4200

Former name, former address, and former
year, if changed since last report:

CAIS Internet, Inc.
1255 22nd Street, N.W., 4th Floor
Washington, D.C. 20037

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 [ ]

Indicate the number of outstanding shares of each of the registrant's classes of
Common Stock, as of the latest practicable date.

Title of each class
- -------------------
Common Stock, $.01 par value
23,656,790 shares outstanding on June 30, 2001

ARDENT COMMUNICATIONS, INC.

FORM 10-Q
For the Quarterly Period Ended June 30, 2001

INDEX

Page
PART I - FINANCIAL INFORMATION Number

Item 1. Financial Statements:

Consolidated Condensed Balance Sheets as of June 30, 2001 and
December 31, 2000............................................. 4

Consolidated Condensed Statements of Operations for the Three
And Six months Ended June 30, 2001 and 2000................... 5

Consolidated Condensed Statement of Changes in Stockholders'
Deficit for the Six Months Ended June 30, 2001................ 6

Consolidated Condensed Statements of Cash Flows for the Six
Months Ended June 30, 2001 and 2000........................... 7

Notes to Consolidated Condensed Financial Statements.......... 8

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 16

Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 22

PART II - OTHER INFORMATION

Item 1. Legal Proceedings............................................. 22

Item 2. Changes in Securities and Use of Proceeds..................... 23

Item 6. Exhibits and Reports on Form 8-K.............................. 24

Signatures............................................................ 26

This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words believes, anticipates, plans, expects and similar expressions are intended
to identify forward-looking statements. The factors discussed below under the
caption, Going Concern and other Important Risk factors, among others, and
in the Company's 2000 Annual Report on Form 10-K could cause actual results to
differ materially from those indicated by forward-looking statements made herein
and presented elsewhere by management from time to time. Such forward-looking
statements represent management's current expectations and are inherently
uncertain. Investors are warned that actual results may differ from management's
expectations.

This Quarterly Report on Form 10-Q contains trademarks of the Registrant and
its affiliates, and may contain trademarks, trade names and service marks of
other parties. References to Ardent Communications, Inc. (Company), CAIS
Internet, CAIS or the Registrant are to Ardent Communications, Inc. and its
subsidiaries.

ARDENT COMMUNICATIONS, INC.
(formerly CAIS Internet, Inc.)
Consolidated Condensed Balance Sheets
(in thousands, except share amounts)

June 30, December 31,
2001 2000
----------- -------------
(Unaudited)

Current assets
Cash and cash equivalents ................................................. $ 865 $ 68,646
Accounts receivable, net of allowance for doubtful
accounts of $4,196 and $3,836, respectively ............................. 7,854 3,706
Prepaid expenses and other current assets ................................. 5,145 8,010
--------- ---------
Total current assets ................................................... 13,864 80,362

Property and equipment, net ..................................................... 76,479 82,287
Deferred debt financing costs, net .............................................. 241 1,036
Intangible assets and goodwill, net ............................................. 6,072 6,848
Restricted cash ................................................................. 1 40,500
Other assets .................................................................... 4,964 6,033
--------- ---------
Total assets ........................................................... $ 101,621 $ 217,066
========= =========

Current liabilities
Accounts payable and accrued expenses ..................................... $ 57,760 $ 100,479
Current portion of long-term debt and vendor promissory notes ............. 20,487 40,960
Current portion of obligations under capital lease ........................ 675 1,220
Unearned revenues ......................................................... 1,002 232
Deferred gain on sale of assets............................................ 5,000 --
--------- ---------
Total current liabilities .............................................. 84,924 142,891

Vendor promissory notes, net of current portion ................................. 22,114 19,977
Deferred gain on sale of assets ................................................. -- 40,500
Capital lease obligations, net of current portion ............................... 1,586 1,895
Other long-term liabilities ..................................................... 1,030 1,765
--------- ---------
Total liabilities ...................................................... 109,654 207,028
--------- ---------
Series C cumulative mandatory redeemable convertible preferred stock; $0.01 par
value; 125,000 shares authorized, issued and outstanding
(aggregate liquidation preference of $15,000) ............................. 15,000 15,000
--------- ---------
Series D cumulative mandatory redeemable convertible preferred stock; $0.01 par
value; 9,620,393 shares authorized; 7,367,123 shares issued and
outstanding (aggregate liquidation preference of $108,121 and
$104,945, respectively) ................................................... 108,121 104,945
--------- ---------
Series F cumulative mandatory redeemable convertible preferred stock; $0.01 par
value; 56,617 shares authorized; 40,342 shares issued and outstanding
(aggregate liquidation preference of $41,767 and $41,166, respectively) ... 41,767 41,166
--------- ---------
Series G cumulative mandatory redeemable convertible preferred stock; $0.01 par
value; 28,051 shares authorized; 20,270 shares issued and outstanding
(aggregate liquidation preference of $21,249 and $20,625, respectively) ... 21,249 20,625
--------- ---------
Commitments and contingencies (Notes 1 and 5)

Stockholders' deficit
Common stock, $0.01 par value; 100,000,000 shares authorized; 24,303,259
and 24,289,722 shares issued and 23,656,790 and 23,643,253
shares outstanding, respectively ........................................ 243 243
Additional paid-in capital ................................................ 223,308 223,925
Warrants outstanding ...................................................... 63,376 63,376
Deferred compensation ..................................................... -- (1,014)
Treasury stock, 646,469 shares of common stock ............................ (17,073) (17,073)
Accumulated deficit ....................................................... (464,024) (441,155)
--------- ---------
Total stockholders' deficit ............................................ (194,170) (171,698)
--------- ---------
Total liabilities and stockholders' deficit ............................ $ 101,621 $ 217,066
========= =========

The accompanying notes are an integral part of these consolidated condensed
balance sheets.

ARDENT COMMUNICATIONS, INC.
(formerly CAIS Internet, Inc.)
Consolidated Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- --------- ---------

Net revenues:
Data connectivity ........................ $ 9,343 $ 4,036 $ 16,969 $ 6,842
Hospitality .............................. 1,362 1,660 3,741 2,799
Equipment/software ....................... 300 2,954 366 5,876
--------- --------- --------- ---------
Total net revenues ..................... 11,005 8,650 21,076 15,517
--------- --------- --------- ---------
Cost of revenues:
Data connectivity ........................ 7,441 4,056 13,850 8,353
Hospitality .............................. 4,543 2,787 11,623 4,391
Equipment/software ....................... 6 757 53 868
--------- --------- --------- ---------
Total cost of revenues ................. 11,990 7,600 25,526 13,612
--------- --------- --------- ---------
Operating expenses:
Selling, general and administrative ...... 17,315 21,577 32,593 40,063
Research and development ................. -- 1,364 241 2,549
Depreciation and amortization ............ 4,022 8,531 7,791 14,283
Non-cash compensation .................... -- 410 385 829
Treasury stock premium and stock charge .. -- 10,348 -- 10,348
Impairment of long-lived assets .......... 608 -- 2,958 --
Gain on sale of assets ................... (35,398) -- (35,398) --
--------- --------- --------- ---------
Total operating expenses ............... (13,453) 42,230 8,570 68,072
--------- --------- --------- ---------
Income (loss) from operations ................... 12,468 (41,180) (13,020) (66,167)

Interest income (expense), net:
Interest income .......................... 915 786 1,819 1,441
Interest expense ......................... (2,303) (902) (4,331) (1,219)
--------- --------- --------- ---------
Total interest income (expense), net ... (1,388) (116) (2,512) 222
--------- --------- --------- ---------
Income (loss) before extraordinary item ......... 11,080 (41,296) (15,532) (65,945)
Extraordinary item- early extinguishment
of debt ................................ (444) -- (444) --
--------- --------- --------- ---------
Net income (loss) ............................... 10,636 (41,296) (15,976) (65,945)

Dividends and accretion on preferred
stock .................................. (4,017) (9,773) (6,893) (68,621)
--------- --------- --------- ---------

Net income (loss) attributable to common
stockholders ............................... $ 6,619 $ (51,069) $ (22,869) $(134,566)
========= ========= ========= =========
Basic and diluted income (loss) per share:
Income (loss) attributable to common
stockholders before extraordinary item ..... $ 0.30 $ (2.22) $ (0.95) $ (5.86)
Extraordinary item ......................... (0.02) -- (0.02) --
--------- --------- --------- ---------
Total .................................... $ 0.28 $ (2.22) $ (0.97) $ (5.86)
========= ========= ========= =========
Basic and diluted weighted-average shares
outstanding ................................ 23,657 23,036 23,653 22,977
========= ========= ========= =========

The accompanying notes are an integral part of these consolidated condensed
statements.

ARDENT COMMUNICATIONS, INC.
(formerly CAIS Internet, Inc.)
Consolidated Condensed Statement of
Changes in Stockholders' Deficit
(in thousands)
(unaudited)

Redeemable Convertible Preferred Stock
--------------------------------------------------------------------------------------------
Series C Series D Series F Series G
--------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
-------- -------- -------- -------- -------- -------- -------- --------

December 31, 2000 .............. 125 $ 15,000 7,367 $104,945 40 $ 41,166 20 $ 20,625
Accrued and
cash dividends on
preferred shares ............. -- -- -- 3,176 -- 601 -- 624
Exercise of stock
options ...................... -- -- -- -- -- -- -- --
Amortization of
unearned compensation ........ -- -- -- -- -- -- -- --
Cancellation of stock options
related to unearned
compensation.................. -- -- -- -- -- -- -- --
Net loss ...................... -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
June 30, 2001 .................. 125 $ 15,000 7,367 $108,121 40 $ 41,767 20 $ 21,249
======== ======== ======== ======== ======== ======== ======== ========

(continued)

Stockholders' Deficit
------------------------------------------------------------------------------------------------------
Common Stock Additional
--------------------- Paid-In Warrants Deferred Treasury Accumulated
Shares Par Capital Outstanding Compensation Stock Deficit Total
--------- --------- --------- ----------- ------------ --------- --------- ---------

December 31, 2000 ....... 24,290 $ 243 $ 223,925 $ 63,376 $ (1,014) $ (17,073) $(441,155) $(171,698)
Accrued and cash
dividends on
preferred shares ...... -- -- -- -- -- -- (6,893) (6,893)
Exercise of stock
options ............... 13 -- 12 -- -- -- -- 12
Amortization of
unearned
compensation .......... -- -- -- -- 385 -- -- 385
Cancellation of stock
options related to
unearned compensation .. -- -- (629) -- 629 -- -- --
Net loss ................ -- -- -- -- -- -- (15,976) (15,976)
--------- --------- --------- --------- --------- --------- --------- ---------
June 30, 2001 ............ 24,303 $ 243 $ 223,308 $ 63,376 $ -- $ (17,073) $(464,024) $(194,170)
========= ========= ========= ========= ========= ========= ========= =========

(concluded)

The accompanying notes are an integral part of these consolidated condensed
statements.

ARDENT COMMUNICATIONS,INC.
(formerly CAIS Internet, Inc.)
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)

Six Months Ended
June 30,
2001 2000
-------- --------

Cash flows from operating activities:
Net loss........................................................... $(15,976) $(65,945)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation pursuant to stock options................... 385 829
Amortization of debt discount and deferred debt
financing costs.................................................. 351 214
Treasury stock premium and stock charge........................... -- 8,953
Impairment of long-lived assets................................... 2,958 --
Gain on sale of assets ........................................... (35,398) --
Extraordinary item - early extinguishment of debt ................ 444 --
Depreciation and amortization..................................... 7,791 14,283
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable, net........................................ (4,148) (4,394)
Prepaid expenses and other current assets....................... (290) (3,425)
Other assets.................................................... 169 (1,359)
Accounts payable and accrued expenses........................... (34,000) 11,887
Unearned revenues............................................... 770 1,024
Other long-term liabilities..................................... (122) (50)
-------- --------
Net cash used in operating activities......................... (77,066) (37,983)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment................................ (3,513) (70,784)
Purchase of DSL subscriber lines................................... (1,000) --
Purchases of restricted investments................................ (600) (3,294)
Proceeds from release of restricted cash........................... 40,499 --
Proceeds from release of restricted investments ................... 2,175 --
Sales of short-term investments ................................... -- 6,743
Cash paid for acquisitions/investments ............................ (582) (1,213)
Payment of expenses related to the release of restricted cash...... (102) --
Payment of visitor-based and multi-family network contract rights.. -- (4,131)
Proceeds from sale of investments.................................. 1,280 --
Net advances on notes receivable................................... (536) --
Net payments received on notes receivable.......................... -- 50
-------- --------
Net cash provided by (used in) investing activities........... 37,621 (72,629)
-------- --------
Cash flows from financing activities:
Borrowings under long-term debt.................................... -- 24,629
Repayments under long-term debt.................................... (27,494) --
Principal payments under capital lease obligations ................ (854) (268)
Payment of loan commitment, debt financing and offerings costs..... -- (61)
Payment of Series C preferred stock dividends...................... -- (588)
Net proceeds from issuance of Series D preferred stock............. -- 92,461
Net proceeds from issuance of Series G preferred stock............. -- 18,779
Repurchase of common stock ........................................ -- (16,688)
Proceeds from issuance of common stock............................. 12 994
-------- --------
Net cash (used in) provided by financing activities........... (28,336) 119,258
-------- --------
Net (decrease) increase in cash and cash equivalents.................. (67,781) 8,646
Cash and cash equivalents, beginning of period........................ 68,646 17,120
-------- --------
Cash and cash equivalents, end of period.............................. $ 865 $ 25,766
======== ========

The accompanying notes are an integral part of these consolidated condensed
statements.

ARDENT COMMUNICATIONS, INC.
(formerly CAIS Internet, Inc.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
(unaudited)

1. Business Description:

Overview

Ardent Communications, Inc. (the Company), formerly known as CAIS Internet,
Inc., is a nationwide supplier of broadband Internet access solutions and
provides price competitive high-speed Internet services and bundled data
solutions to businesses nationwide. The Company offers always-on, broadband
Internet access to commercial and residential customers through its various
bandwidth products in points of presence throughout the U.S. It also provides
service to certain hotel properties utilizing several different technology
platforms. All of the Company's broadband services utilize its own tier-one,
nationwide Internet network. The Company also maintains unmanned business
centers and Internet kiosks nationwide to deliver broadband Internet access and
content to public venues, such as airports, retail centers, hotel lobbies and
cruise ships.

During the fourth quarter of 2000, the Company commenced a complete strategic
review of its business lines, including analysis of capital deployment and
profitability. The Company determined that the projected revenues from hotel and
multi-family properties were insufficient to continue operating many of these
properties in a cost effective manner. In response to this analysis and changing
equity market conditions, the Company determined that its new strategy would
focus on a restructuring of the Company's business goals to capitalize on its
already existing network bandwidth investment by expanding its core Data
Connectivity and services (ISP) business. This business consists primarily of
providing business customers nationwide with high-speed digital subscriber line
(DSL), TI, DS3 and satellite Internet access, web hosting services, colocation,
and virtual private network (VPN). The Company believes that focusing on these
areas will have the effect of reducing operating losses, conserving capital, and
maximizing shareholder value.

The Company signed an amendment in July 2001 to the Nortel Equipment Financing
Agreement (see Financing and Debt, note 3). In return for modifications to
payment terms under the Nortel Equipment Financing Agreement the Company granted
a first priority lien to Nortel Networks, Inc. (Nortel) on substantially all the
assets of the Company except for certain assets (see Financing and Debt, note
3). The amendment to the Nortel agreement is subject to certain post-closing
conditions, certain of which have not yet been satisfied (see Financing and
Debt, note 3).

As a condition to the release of the $40.5 million escrow account established on
the sale of CAISSoft assets to Cisco Systems, Inc. (Cisco), the Company was
obligated to indemnify Cisco against patent infringement risks, or return to the
escrow $5,000,000 prior to June 30, 2001. This requirement was extended until
July 31, 2001, but has not yet been satisfied. Although the Company and Cisco
are holding discussions, no agreement has yet been reached that would change the
Company's obligation. The settlement of the Cisco patent indemnification risk
and the renegotiations of an agreement between the Company and Qwest Corporation
(Qwest) (see Network Capacity, note 5) are conditions precedent to the Company's
obtaining the July 2001 Bridge Loan (as defined below). To date these conditions
have been waived which allowed for the borrowings of $10,000,000. However, there
can be no assurance that these conditions will continue to be waived if not
resolved.

Management is currently conducting a review of a $1.0 million sale of equipment
recorded in the third quarter of 2000 and reversed upon return of the equipment
in the fourth quarter of 2000. The Company's independent public accountants have
recommended that the Company restate its third and fourth quarter results for
the sales transaction. While such restatement would not affect reported revenues
for the year ended December 31, 2000, a conclusion by management to restate,
would result in a decrease of net revenues by approximately $1.0 million in the
third quarter of 2000 and an increase in net revenues by approximately $1.0
million in the fourth quarter of 2000.

Organization

The Company was incorporated under the name CGX Communications,
Inc. (CGX) as a C corporation in Delaware in December 1997 to serve as a holding
company for two operating entities, CAIS, Inc., a Virginia S Corporation, and
Cleartel Communications Limited Partnership (Cleartel), a District of Columbia
limited partnership. The Company completed a reorganization in October 1998 such
that CAIS Inc. and Cleartel became wholly-owned subsidiaries of the Company. In
February 1999, the Company spun-off Cleartel to the Company's stockholders and
changed its name from CGX Communications, Inc. to CAIS Internet, Inc. In May
1999, the Company became a public company through the completion of an initial
public offering (IPO) of its common stock. On July 26, 2001, following
shareholder approval at its annual meeting, the Company changed its name from
CAIS Internet, Inc. to Ardent Communications, Inc.

Going Concern and Other Important Risk Factors

The Company has suffered significant losses and negative cash flows from
operations since inception. These operating losses and negative cash flows are
expected to continue for additional periods in the future. At June 30, 2001,
current liabilities exceeded current assets by approximately $71,060,000. For
the six months ended June 30, 2001, the Company incurred a net loss and negative
cash flows from operations of approximately $15,976,000 and $77,066,000,
respectively, and had negative stockholders' equity of approximately
$194,170,000 at June 30, 2001.

On July 5, 2001 the Company entered into a credit agreement with CII Ventures II
LLC, an affiliate of Kohlberg Kravis Roberts & Company, Ulysses G. Auger, II, a
founder and director of the Company and R. Theodore Ammon, a major shareholder
and director of the Company. The credit agreement ("July 2001 Bridge Loan")
will provide for availability of borrowings up to $19,500,000 which will be used
to continue funding the Company's operations. The borrowings will incur interest
at 15% per annum and will mature December 31, 2001. The credit agreement is
unsecured and is subordinated to Nortel Networks, Inc., an existing senior
creditor. The July 2001 Bridge Loan is subject to certain post-closing
conditions, certain of which have not yet been satisfied (see Financing and
Debt, note 3). Under the July 2001 Bridge Loan, the Company has made an initial
borrowing in the amount of $10,000,000. If the Company is unable to raise
additional capital before the end of the third quarter of 2001, the Company may
not be able to meet its projected obligations beyond 2001. If such sources of
financing are insufficient or unavailable, the Company would further reduce
headcount, defer payments, sell operating assets and/or seek protection under
appropriate bankruptcy statutes. As a result of this material uncertainty, there
is substantial doubt about the Company's ability to continue to operate as a
going concern for a reasonable period of time.

The auditors' report on the Company's financial statements for the year ended
December 31, 2000 was modified to reflect substantial doubt about the Company's
ability to continue as a going concern. The Company has been advised by its
independent public accountants that if the Company has not raised sufficient
capital to meet its projected obligations for 2002 prior to the completion of
their audit of the Company's financial statements for the year ending December
31, 2001, their auditors' report on those financial statements will be modified
to reflect this contingency.

Management plans to raise additional capital through the sale of equity,
additional borrowings, the sale of non-strategic assets, including intellectual
property and proprietary technology, or the sale of selected operations.
Although management believes the Company has the ability to generate additional
equity and cash through such financing transactions, those transactions may be
dilutive and there can be no assurances that adequate

funds will be available, or available on terms that are reasonable or acceptable
to the Company. If the Company is unable to generate additional financing and
adequate cash, there will be a material and adverse effect on the financial
condition of the Company, to the extent that a restructuring, sale, or
liquidation of the Company will be required, in whole or in part. The
consolidated condensed financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.

The Company is subject to various risks in connection with the operation of its
business. These risks include, but are not limited to, regulations, dependence
on effective billing and information systems, intense competition, continued
operations of its major suppliers, and rapid technological change. The DSL
industry is suffering from significant operating losses and limited capital
availability. The continued viability of these suppliers is critical to the
Company's future business plans. In addition to the need for capital, the
Company's future plans are substantially dependent on the ability to transition
the Company to its new business model and eliminate operating losses as soon as
possible. There can be no assurance that the Company will be successful in its
efforts.

2. Summary of Significant Accounting Policies:

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Operating results for the three and six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2000.

Consolidated Condensed Financial Statements

The consolidated condensed financial statements include the results of the
Company and its wholly-owned subsidiaries. These results include Ardent, Inc.
formerly known as CAIS, Inc., CAIS Software Solutions (CAISSoft) formerly known
as Atcom, Inc. (Atcom) and Business Anywhere USA, Inc. (Business Anywhere) for
all periods presented. All significant inter-company transactions and accounts
have been eliminated. Substantially all of the assets of CAISSoft were sold in
December 2000.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Net Income (Loss) Per Share

SFAS No. 128, Earnings Per Share, requires dual presentation of basic and
diluted earnings per share on the face of the statements of operations. Basic
earnings per share excludes dilution and is computed by dividing income or loss
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.

The treasury stock effect of options and warrants to purchase 9,093,000 shares
of common stock outstanding at June 30, 2001 is zero for purposes of computing
diluted income per share for the three months ended June 30, 2001. The treasury
stock effect of options and warrants to purchase 9,093,000 and 12,849,000 shares
of common stock outstanding at June 30, 2001 and 2000, respectively, has not
been included in the computations of diluted loss per share for the six months
ended June 30, 2001 and the three and six months ended June 30, 2000, as such
effect would be anti-dilutive. The conversion effect of the Series C, D, F and G
convertible preferred stock into approximately 10,030,000 shares of common stock
has not been included in the computation of diluted income (loss) per share for
the three and six months ended June 30, 2001 and 2000, as such effect would also
be anti-dilutive.

Comprehensive Income

Statement of Financial Accounting Standards (SFAS) No. 130 Reporting of
Comprehensive Income, requires comprehensive income and the components of other
comprehensive income to be reported in the financial statements and/or notes
thereto. Since the Company does not have any components of other comprehensive

income, reported net income (loss) is the same as comprehensive income (loss)
for the three and six months ended June 30, 2001 and 2000.

Recent Accounting Pronouncements

The FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of SFAS No. 133, in July 1999. SFAS
No. 133 became effective January 1, 2001. The statement requires companies to
record derivatives on the balance sheet as assets or liabilities measured at
fair value. Gains or losses resulting from changes in the fair values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The adoption of SFAS No. 133 did not
have a material effect on the Company's results of operations or financial
position for the six months ended June 30, 2001.

In June 2001 the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively
prohibits the pooling of interest method of accounting for business combinations
initiated after June 30, 2001. SFAS No. 142 requires companies to cease
amortizing goodwill that existed at June 30, 2001. The amortization of existing
goodwill will cease on December 31, 2001. Any goodwill resulting from
acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142
also establishes a new method of testing goodwill for impairment on an annual
basis or on an interim basis if an event occurs or circumstances change that
would reduce the fair value of a reporting unit below its carrying value. The
adoption of SFAS No. 142 will result in the Company's discontinuation of
amortization of its goodwill; however, the Company will be required to test its
goodwill for impairment under the new standard beginning in the first quarter of
2002, which could have an adverse effect on the Company's future results of
operations if an impairment occurs.

Excess of Cost over Net Assets Acquired (Goodwill)

Goodwill and other intangibles were recorded as a result of the acquisitions by
the Company of Atcom and Business Anywhere in September 1999, Hub Internet
Services, Inc. (Hub Internet) in February 2000, and QuickATM, LLC (QuickATM) in
March 2000. Goodwill and acquired intangibles are amortized on a straight-line
basis over three years. Amortization of goodwill and acquired intangibles was
approximately $889,000 and $4,158,000 for the three months ended June 30, 2001
and 2000, respectively and $1,543,000 and $7,976,000 for the six months ended
June 30, 2001 and 2000, respectively.

Hospitality and Multi-family Contract Rights

The Company made up-front contract payments in 1999 and 2000 to its hospitality
and multi-family contract partners in connection with entering into long-term
master agreements. These payments give the Company various installation and
marketing rights to provide high-speed Internet services to customers in hotels
and apartment buildings. The net balance of these payments was zero as of June
30, 2001 and December 31, 2000 as the Company wrote off approximately
$20,283,000 of intangible assets related to contract rights in the fourth
quarter of 2000 as part of the impairment of long-lived assets analysis. Prior
to the fourth quarter of 2000, the payments were amortized over the term of the
agreements, ranging from five to seven years. Amortization expense of these
costs for the three and six months ended June 30, 2000 was approximately
$812,000 and $1,481,000, respectively. The Company does not plan to make any
payments for contract rights in the future.

Non-cash Compensation

The Company accounts for its stock option plan under APB Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has adopted SFAS No. 123,
Accounting for Stock-Based Compensation, for disclosure purposes. The Company
has recognized non-cash compensation expense on certain stock options granted to
management in 1997, 1998 and 1999 at exercise prices less than the estimated
fair market value at the dates of the grants. During the second quarter 2001 the
unvested options as of March 31, 2001 were cancelled upon termination of
employment. The outstanding balance as of March 31, 2001 of approximately
$629,000 was charged back to additional paid-in capital. The non-cash
compensation expense was recorded over the vesting periods of the options and
was approximately $410,000 for the three months ended June 30, 2000 and $385,000
and $829,000 for the six months ended June 30, 2001 and 2000, respectively. The
Company has not granted options or warrants to purchase common stock to
management or consultants during the six months ended June 30, 2001.
Additionally, the Company has not modified any outstanding options or warrants
to purchase common stock.

Impairment of Long-Lived Assets

Long-lived assets, including identifiable intangible assets to be held and used
and goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows will be less
than the carrying amount of such assets. If future estimated undiscounted net
cash flows are less than the carrying amount of long-lived assets, then such
assets are written down to their estimated fair value. The Company considers
expected cash flows and estimated future operating results, trends, and other
available information in assessing whether the carrying value of the assets is
impaired.

The Company's estimates of anticipated net revenues, the remaining estimated
lives of tangible and intangible assets, or both, could be reduced significantly
in the future due to changes in technology, regulation, available financing, or
intense competition, or actual building usage penetration results. As a result,
the carrying amount of long-lived assets could be reduced materially in the
future.

In the fourth quarter of 2000, the Company recorded a write-down of
approximately $161,187,000 for fixed assets and $20,283,000 for intangible
contract rights related to the Company's hospitality segment. In connection with
the termination of service to properties in 2001, the Company may incur
additional impairment charges. Management believes that such cost could be as
high as $7,000,000 and would be recognized upon the incurrence of such charges.

During the fourth quarter of 2000, the Company invested $1,200,000 in a
hospitality portal media venture and committed to invest an additional
$1,150,000 into the entity. During 2001, the Company invested $1,158,000 into
the entity pursuant to its commitment. Management has determined this investment
to be impaired based on revised cash flow prospects of the entity. Accordingly,
an impairment charge of $2,358,000 was recognized in the six months ended June
30, 2001.

During the second quarter of 2001 management determined leasehold improvements
associated with property formerly occupied by the Company were impaired.
Accordingly, an impairment charge of $600,000 was recognized in the six months
ended June 30, 2001.

3. Financing and Debt:

The Company and Nortel Networks Inc. (Nortel) entered into a five-year, $30
million equipment financing line of credit, dated as of June 4, 1999, and
several amendments. As of June 30, 2001 and December 31, 2000, the Company had
an outstanding balance of approximately $11.1 million and $12.1 million under
this credit facility, respectively. The facility required the Company to meet
certain financial covenants including revenue targets and leverage and debt
service ratios.

In November 2000, the credit facility was amended such that the maximum
borrowings were limited to approximately $16,100,000. The amendment also
terminated borrowing availability as of November 30, 2000, modified the
repayment terms, and increased the interest rate on the facility to LIBOR plus
6%. If the Company raised a minimum of $75 million in debt or equity while any
balance was outstanding, the Company agreed to pay any remaining balance due to
Nortel at that time. The Company repaid $4,000,000 of the outstanding balance in
December 2000 and was required to repay the remaining balance in equal monthly
installments over the 2001 calendar year. Although the Company made the January
2001 payment of approximately $1,010,000, the Company did not make any
subsequent payments and was in default of the Nortel credit agreement at
June 30, 2001. The Company had received a Notice of Default from Nortel, and was
in discussions with Nortel regarding a resolution of the default status at
June 30, 2001.

In July 2001, the Company signed an amendment to the Nortel credit agreement
(the July 2001 Amendment). The amendment granted a waiver for the July 2001
Bridge Loan, modified the repayment terms of the underlying Nortel credit
agreement to call for a repayment of approximately $448,000 of principal plus
approximately $552,000 of accrued interest in July 2001 with the remaining
principal and any additional accrued interest after that date to be paid in
December 2001, called for accelerated principal repayment of 20% of the net
proceeds of issuances or placements of debt or capital stock in excess of $25
million (not including the July 2001 Bridge Loan) and full repayment of all net
proceeds in excess of $25 million, granted a first priority lien on
substantially all assets of the Company, other than approximately $6 million of
property represented by purchase money liens securing several vendor promissory
notes, required the release of the Cisco liens on or before September 30, 2001,
waived any and all non-compliance with all financial and certain other covenants
contained in the original credit agreement through the end of 2001, and allowed
the sale of approximately $2 million of excess equipment which would otherwise
be covered by Nortel's security interest. As part of the July 2001 Amendment,
the lenders to the July 2001 Bridge Loan also agreed to subordinate that debt to
the Nortel principal obligation. The amendment also called for an extension of
the repayment date for the Nortel principal to February 15, 2002 if the July
2001 Bridge Loan is converted into equity or to three business days prior to the
extended maturity date of the July 2001 Bridge Loan if the July 2001 Bridge Loan
is extended.

Based upon the changes in the terms of the Nortel credit facility and the
$1 million payment to Nortel upon its execution of the amendment, the Company
will be in compliance with the terms of the Nortel credit facility.

As discussed above, the Company entered into the July 2001 Bridge Loan, by and
among the Company, Ardent, Inc. (formerly known as CAIS, Inc.), a wholly-owned
subsidiary of the Company, CII Ventures II LLC, an affiliate of Kohlberg Kravis
Roberts & Co. ("KKR"), Ulysses G. Auger, II, a founder and director of the
Company and R. Theodore Ammon, a major shareholder and director of the Company
(see Going Concern and Other Important Risk Factors). The July 2001 Bridge Loan
provides available financing of up to $19.5 million to fund the Company's
operations, which borrowings will incur interest at the rate of 15% per annum
or, if such payments are overdue, at a rate of 17% per annum. The obligations of
the Company under the July 2001 Bridge Loan mature on December 31, 2001 and may
be prepaid at any time without penalty. The obligations of the Company under the
July 2001 Bridge Loan are unsecured and subordinate in right of payment to
Nortel Networks Inc., an existing senior lender to the Company. The Company may
not incur additional debt, make cash payments or make new investments except as
expressly permitted by the lenders of the July 2001 Bridge Loan. The Company
has outstanding borrowings of $10 million under the July 2001 Bridge Loan.

Both the July 2001 Bridge Loan and the July 2001 Amendment are subject to
certain post-closing conditions, certain of which have not yet been satisfied.

The Company and Cisco Systems Capital Corporation (Cisco Capital) entered into a
three-year, $50 million equipment financing line of credit, dated as of June 30,
1999, and several amendments. As of December 31, 2000, the Company had borrowed
approximately $26.5 million under this credit facility and incurred interest at
approximately 12.7 percent. Borrowings under the facility were permitted during
the first two years of the facility provided the Company met certain financial
performance requirements, including EBITDA targets, revenue targets and leverage
ratios. Borrowings under the facility were also secured by a first priority lien
in all assets of the Company, other than its property securing the Nortel
facility, in which assets Cisco Capital will have a second priority lien. As of
December 31, 2000, the Company was not in compliance with certain financial
covenants, and, as a result, the availability for additional borrowings were
suspended. During May 2001, the Company reached an agreement with Cisco Capital
regarding a resolution to the default status. Funds were disbursed from the
$40.5 million escrow account established in the sale of CAISSoft assets to Cisco
to repay the outstanding debt to Cisco Capital of approximately $26.5 million of
principal plus accrued interest and fees and to pay $13.5 million to satisfy the
Science Applications International Corporation (SAIC) attachment described in
Note 5. As part of the resolution of matters with Cisco Capital, the Company is
obligated to provide patent indemnification on Cisco's behalf, or deposit
$5,000,000 in cash back into the escrow account, prior to June 30, 2001. This
requirement was extended until July 31, 2001, but has not yet been satisfied.
Although the Company and Cisco are holding discussions, no agreement has yet
been reached that would change the Company's obligation. As noted above, each of
the July 2001 Bridge Loan and the July 2001 Amendment is subject to certain
post-closing conditions. Included in these post-closing conditions is the
resolution of this patent indemnification with Cisco Capital, although the
Company notes that these funds have already been provided to the Company under
the July 2001 Bridge Loan.

During 2001, the Company has refinanced approximately $9,509,000 of its December
31, 2000 outstanding accounts payables into vendor promissory notes, with most
of the principal due in 2002 and 2003. The vendor promissory notes require
quarterly interest payments at a rate of 10% per annum with principal to be
repaid in equal quarterly installments over 2002 and 2003. The restructuring of
these payables into vendor promissory notes has been recorded in the
accompanying consolidated condensed financial statements.

Deferred debt financing costs represent direct financing costs incurred in
connection with entering into the equipment financing agreements. The Company
has approximately $241,000 and $1,036,000 of unamortized deferred debt financing
costs remaining as of June 30, 2001 and December 31, 2000, respectively. The
deferred debt financing costs are being amortized using the effective interest
rate method over the terms of the equipment financing agreements and are
included in interest expense. Amortization expense was approximately $99,000 and
$183,000, for the three months ended June 30, 2001 and 2000, respectively and
$351,000 and $348,000 for the six months ended June 30, 2001 and 2000,
respectively.

In connection with the Cisco Capital equipment financing line of credit, the
Company recorded deferred debt financing costs of approximately $831,000. Upon
the repayment of the Cisco Capital equipment financing line of credit the
Company recognized an extraordinary charge of $444,000 related to the write-off
of the unamortized deferred debt financing costs.

4. Stockholders' Equity:

Convertible Preferred Stock

In September 1999, the Company issued 125,000 shares of Series C Cumulative
Mandatory Redeemable Convertible Preferred Stock (the "Series C Preferred
Stock") and warrants to acquire 500,000 shares of the Company's common stock at
$12.00 per share to Qwest Communications Corporation ("Qwest") for total gross
proceeds of $15,000,000, less approximately $40,000 of offering costs paid to
third parties. The Series C Preferred Stock ranks prior to the Company's common
stock with respect to dividends and rights upon liquidation, dissolution, or
winding up of the Company. Each holder of Series C Preferred Stock is entitled:
(i) to receive, when, as and if declared by the Company's Board of Directors,
cumulative dividends of $10.20 per annum per share; (ii) to a liquidation
preference equal to the sum of $120.00 per share, plus any accrued but unpaid
dividends; (iii) to the number of votes equal to the number of whole shares of
Common Stock into which all of the shares of Series C Preferred Stock held by
such holder are convertible; and (iv) to certain demand and piggyback
registration rights. Subject to certain limitations, each share of Series C
Preferred Stock is convertible, at the option of the holder, into such number of
fully paid and nonassessable shares of common stock at the ratio of ten common
shares for each share of Series C Preferred Stock. The Company shall redeem (i)
up to 41,667 shares of the Series C Preferred Stock by the second anniversary of
the date of issuance of the Series C Preferred Stock or September 2001; and (ii)
the remaining shares of the Series C Preferred Stock upon the third anniversary
of the date of issuance of the Series C Preferred Stock, or September 2002.

5. Commitments and Contingencies:

Litigation

From time to time, the Company has been, and expects to continue to be, subject
to legal proceedings and claims in connection with the business.

The Company is currently involved in a number of legal proceedings, some of
which could have a material adverse effect on the business, financial position,
results of operations or cash flows. Additionally, the Company's present and
possible future legal proceedings and claims, whether with or without merit,
could be expensive to defend, divert management's attention, and consume
management time and resources. The Company is actively defending itself in such
proceedings and where appropriate seeks to settle certain cases pending against
it on acceptable terms. However, there can be no assurance concerning the
outcome of any current or future legal proceedings or claims or the ability of
the Company to settle such proceedings on acceptable terms, and accordingly the
Company is not able to provide an assessment of the potential losses with such
proceedings.

On July 17, 2001, Amherst, LLC filed a complaint against the Company alleging
its failure to pay for computer equipment and seeking $245,223 in damages. The
Company was ordered on August 3, 2001 to identify assets for attachment. A
settlement with Amherst is being concluded.

On June 3, 2001, BreezeCOM, Inc. filed a complaint against the Company alleging
breach of contract in the purchase of wireless equipment by the Company and
seeking $2,592,000 in damages. BreezeCOM, Inc. filed a Motion for Summary
Judgment on July 26, based upon the Company's alleged breach of the Settlement
Agreement between the parties dated July 25, 2001. The Company has initiated
settlement discussions in this case and those discussions are ongoing.

The Company is a defendant in a lawsuit filed in January, 2001, in the U.S.
District Court for Central District Court of California, Santa Ana Division by
Kim Kao, an officer of its wholly-owned subsidiary, Business Anywhere, and his
wife, Amy Hsiao. The plaintiffs were the primary stockholders of Business
Anywhere prior to its purchase by the Company and Mr. Kao is currently the
General Manager of that business unit. The lawsuit alleges breach by the Company
of the merger agreement in which the former shareholders of Business Anywhere
sold their interests to the Company. The lawsuit also alleges breach by the
Company of his employment agreement, and seeks damages of approximately
$5,300,000. On April 6, 2001, an order was issued by the court compelling
arbitration of all the plaintiffs' claims. A companion order was issued staying
the court action pending the outcome of arbitration. Plaintiffs' motion for an
attachment was denied. The Company is currently unable to predict the outcome of
the case, or estimate a range of possible loss.

On April 3, 2001, Knowlogy Corporation filed a complaint in the Circuit Court of
Fairfax County, Virginia, alleging breach of contracts for data gathering and
invoicing, as well as alleged tortious interference with contract and business
expectancy as a result of the Company hiring a Knowlogy employee. The suit seeks
$136,080 in damages, and discovery is currently in process. The Company is not
able to provide any assessment of the potential loss expense.

On June 29, 2001, NABI Networks, Inc. (NABI), a reseller of the Company, filed
an arbitration action with the American Arbitration Association in Washington,
D.C., alleging wrongful termination of service by the Company as well as
tortious interference, and seeking $300,000 in damages. NABI owed the Company
approximately $250,000, which has been asserted by a counterclaim. A temporary
restraining order was entered against the Company on June 19th, and an
Arbitrator is currently being selected. The Company has initiated settlement
discussions with NABI. The Company is unable to provide any assessment of the
potential loss exposure.

On May 11, 2001, Omni Hotels Management Corporation and certain individual
hotels (collectively, "Omni") filed a complaint against the Company and
VirtuaLINC Corporation alleging breach of contractual agreements with Omni, and
claiming $5,571,600 in damages and $10,000,000 in exemplary damages. The Company
has filed its answer in the suit and a discovery request is pending. In
addition, a settlement offer is being prepared by the Company. The Company is
unable to provide any assessment of the potential loss exposure.

On May 4, 2001, Prime Hospitality Corp. ("Prime") filed a demand for arbitration
against the Company with the American Arbitration

Association. The claim alleges that the Company failed to perform its
obligations under of the Master Agreement For Hotel Internet Service entered
between Prime and the Company. In particular, Prime seeks an award in the amount
of $1,512,050, plus an additional amount for ongoing damages, pre and
post-judgment interest and costs. Prime's total damage calculation is
approximately $20,000,000, which has been challenged by the Company. The Company
has filed a counter-claim for $12,000,000, which represents the installed value
of its equipment. The Company is unable to provide any assessment of the
potential loss exposure.

On January 25, 2001, a complaint was filed against the Company by VirtuaLINC in
the U.S. District Court for the Northern District of Texas, although the
complaint was not actually served until May 24th. The complaint alleges a breach
of contract and related claims arising from an alleged commitment by the Company
to provide high speed Internet and video services to hotels jointly with
VirtuaLINC. Plaintiff VirtuaLINC is seeking a total recovery of $10,000,000, of
which $135,000 is alleged to be due on account. The Company has filed its
answer and is in the process of filing a discovery request. The Company is
unable to provide any assessment of the potential loss exposure.

In February 2001, Prudential Securities Incorporated ("Prudential"), successor
in interest to Volpe Brown Whelan and Co., LLC ("Volpe"), filed a complaint
against the Company for breach of a contract between Volpe and the Company to
provide certain investment banking and related services. Prudential alleges that
the Company failed to pay Volpe for its services, and seeks approximately
$3,600,000, plus interest. In March 2001, the Company filed an answer to the
complaint and also filed a counterclaim for $15,000,000 against Prudential for
breach of contract, fraudulent misrepresentation and negligent
misrepresentation. The parties have agreed to the terms for settlement and the
settlement documents are being completed.

On May 1, 2001, The Siemon Company filed a complaint against the Company in the
U.S. District Court for the Eastern District of Virginia. The complaint alleges
breach of contract to purchase telecommunications equipment components. The
Siemon Company is seeking damages of $250,000 for unpaid invoices plus $300,000
development costs. The Company is responding to discovery. It is unable to
provide an assessment of potential loss exposure.

On May 18, 2001, PC Specialists, Inc. (d/b/a Technology Integration Group, and
referred to herein as "TIG") filed suit against the Company in the Superior
Court for the County of San Diego, California, alleging breach of contract and a
quantum meruit claim for $890,000. The court has granted TIG an attachment for
$767,463. Settlement discussions are underway.

On August 13, 2001 Manning, Selvage & Lee ("MS&L") filed a complaint in the
Supreme Court of New York, alleging breach of its contract with the Company for
public relations services. The complaint seeks damages of $226,000 plus
interest.

The Company has received various notices of potential claims from equipment
suppliers, circuit providers and former employees. While the Company believes
these obligations could total approximately $10 million, the Company also
believes that it has substantial defenses to these claims, but it is unable to
provide any assessment of the potential loss exposure.

The Company has also received correspondence from several trade creditors
regarding the payment of past due account balances. The Company is in
discussions with these vendors regarding the resolution of certain disputes
relating to these charges and the timing of the payments.

The Company has also received correspondence from several hotel and multi-family
entities regarding its contractual obligations under agreements to provide high-
speed Internet service to such properties. As a result of the failure of the
Company's service to generate anticipated revenues, and the change in business
strategy due to limited capital availability, the Company has notified the
owners of many installed properties that it is discontinuing service. In
addition, the Company has indicated that it is no longer financially possible to
install certain services in new properties. The Company is in discussions with
these entities about the resolution of certain disputes that have resulted.

Network Capacity

The Company and Qwest entered into a twenty-year Indefeasible Right of Use (IRU)
agreement, dated as of September 28, 1999. The Company purchased approximately
$44 million of capacity on Qwest's fiber network, of which approximately $14.5
million is included in accrued expenses in the accompanying consolidated
condensed balance sheets as of June 30, 2001 and December 31, 2000. The Qwest
capacity will support the delivery of the Company's network services to 29
metropolitan areas across the United States.

The Company has received correspondence from Qwest, notifying the Company that
it is in default of its IRU agreement and requesting payment of the outstanding
balance of $14.5 million. Qwest has also asserted that the Company's failure to
pay the obligation could result in termination of the IRU agreement. The Company
is in discussions with Qwest regarding a renegotiation of the payment obligation
and terms.

The Company issued 123,000 shares of Series C Cumulative Mandatory Redeemable
Convertible Preferred Stock to Qwest. Under the terms for the issuance of the
preferred shares Qwest may require the Company to redeem up to 41,667 shares in
September 2001 at a cost of $5.0 million (see Note 4). The company is in
discussions with Qwest concerning these redemptions rights.
Regulatory Matters

At the present time, ISPs like the Company are not subject to direct regulation
by the Federal Communications Commission (FCC) even though they provide Internet
access through transmission over public telephone lines. However, as the growth
of the Internet industry continues, there has been considerable discussion and
debate about whether the industry should be subjected to regulation. This
regulation could include universal service subsidies for local telephone
services and enhanced communications systems for schools, libraries and certain
health care providers. Local telephone companies could be allowed to charge ISPs
for the use of their local telephone network to originate calls, similar to
charges currently assessed on long distance telecommunications companies. In
addition, many state and local government officials have asserted the right or
indicated a willingness to impose taxes on Internet-related services and
commerce, including sales, use and excise taxes.

6. Segment Reporting:

The Company has two reportable segments: Data Connectivity and Hospitality. The

Data Connectivity segment comprises high speed Internet services and bundled
data solutions provided to businesses nationwide. The Hospitality segment
comprises Internet access solutions provided to hotels and other public venues
and business center solutions. The accounting principles for both segments are
the same as those applied in the consolidated condensed financial statements.
Shared network expenses and corporate overhead are allocated to the segments
based on estimated usage. This reporting methodology is a change from that
utilized in the Company's year 2000 filings under the Securities Exchange Act of
1934 in which Data Connectivity was referred to as Internet Services and
Hospitality was referred to as Networks. Further, in the Company's year 2000
filings, the revenues and costs of the Data Connectivity Segment were reported
on an incremental basis, without any allocations of shared network expenses and
corporate overhead, since the Company's expansion and capital expenditures were
driven by expected growth in the Hospitality segment. The new methodology for
2001 reflects the Company's revised business plan and focus on the Data
Connectivity segment. Year 2000 segment information has been restated to be
consistent with the new methodology. Interest is allocated based upon the
respective percentage of losses before interest income (expense), net of the two
segments.

The following is a summary of information about each of the Company's reportable
segments that is used by the Company to measure the segment's operations (in
thousands, unaudited):

Three Months Ended June 30, 2001
------------------------------------------
Data
Connectivity Hospitality Consolidated
------------- ------------ -------------
Revenues $ 9,343 $ 1,662 $ 11,005
Depreciation and amortization 1,671 2,351 4,022
Interest income (expense), net (610) (778) (1,388)
Segment income (loss) (10,684) 21,320 10,636
Segment assets 51,620 45,429 97,049
Expenditures for segment assets 358 328 686

Three Months Ended June 30, 2000
------------------------------------------
Data
Connectivity Hospitality Consolidated
------------- ------------ -------------
Revenues $ 4,036 $ 4,614 $ 8,650
Depreciation and amortization 1,142 7,389 8,531
Interest income (expense), net (31) (85) (116)
Segment losses (11,048) (30,248) (41,296)
Segment assets 56,044 166,194 222,238
Expenditures for segment assets -- 43,371 43,371

Six Months Ended June 30, 2001
------------------------------------------
Data
Connectivity Hospitality Consolidated
------------- ------------ -------------
Revenues $16,969 $ 4,107 $ 21,076
Depreciation and amortization 3,338 4,453 7,791
Interest income (expense), net (1,092) (1,420) (2,512)
Segment income (loss) (22,138) 6,162 (15,976)
Segment assets 51,620 45,429 97,049
Expenditures for segment assets 657 2,856 3,513

Six Months Ended June 30, 2000
------------------------------------------
Data
Connectivity Hospitality Consolidated
------------- ------------ -------------
Revenues $ 6,842 $ 8,675 $ 15,517
Depreciation and amortization 1,481 12,802 14,283
Interest income (expense), net 71 151 222
Segment losses (21,101) (44,844) (65,945)
Segment assets 56,044 166,194 222,238
Expenditures for segment assets -- 73,512 73,512

The following is a reconciliation of the reportable segments' assets to the
Company's consolidated totals (in thousands, unaudited):

June 30, June 30,
2001 2000
--------- ---------

Assets
Total assets for reportable segments $ 97,049 $222,238
Total current assets, excluding reportable segment assets 3,566 39,796
Deferred financing and offering costs, net 241 1,230
Receivable from officer -- 450
Restricted cash 1 --
Other long term assets, excluding reportable segment assets 764 5,488
-------- --------
Consolidated total assets $101,621 $269,202
======== ========

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion should be read in conjunction with the Consolidated
Condensed Financial Statements and the Notes thereto contained elsewhere in this
report.

The cautionary statements set forth below and elsewhere in this Report identify
important risks and uncertainties that could materially adversely affect our
business, financial condition, results of operations or prospects.

The Company

Ardent Communications, Inc., formerly CAIS Internet, Inc ("the Company") is a
nationwide supplier of broadband Internet access solutions and provides price
competitive high speed Internet services and bundled data solutions to
businesses nationwide. The Company offers always-on, broadband Internet access
to commercial and residential customers through its various bandwidth products
in 29 major metropolitan areas throughout the U.S. It also provides service to
certain hotel properties utilizing several different technology platforms. All
of the Company's broadband services utilize its own tier-one, nationwide
Internet network and several proprietary technologies. The Company also
maintains unmanned business centers and Internet kiosks nationwide to deliver
broadband Internet access and content to public venues, such as airports, retail
centers, hotel lobbies and cruise ships.

Organization

The Company was incorporated under the name CGX Communications, Inc.
(CGX) as a C corporation in Delaware in December 1997 to serve as a holding
company for two operating entities, CAIS, Inc., a Virginia S Corporation, and
Cleartel Communications Limited Partnership (Cleartel), a District of Columbia
limited partnership. The Company completed a reorganization in October 1998 such
that CAIS Inc. and Cleartel became wholly-owned subsidiaries of the Company. In
February 1999, the Company spun-off Cleartel to the Company's stockholders and
changed its name from CGX Communications, Inc. to CAIS Internet, Inc. In May
1999, the Company became a public company through the completion of an initial
public offering (IPO) of its common stock. During July 2001, the Company changed
its name from CAIS Internet, Inc. to Ardent Communications, Inc.

Liquidity, Going Concern Risk and Capital Resources

As of June 30, 2001, the Company had cash and cash equivalents of approximately
$865,000. Total current liabilities as of June 30, 2001 exceeded current assets
by approximately $71.1 million. Current liabilities include $11.1 million due to
Nortel Networks, Inc (Nortel) related to an equipment financing line of credit.

On July 5, 2001 the Company entered into a credit agreement with CII Ventures II
LLC, an affiliate of Kohlberg Kravis Roberts & Company, Ulysses G. Auger, II, a
founder and director of the Company and R. Theodore Ammon, a major shareholder
and director of the Company. The credit agreement will provide for availability
of borrowings up to $19,500,000 which will be used to continue funding the
Company's operations. The borrowings will incur interest at 15% per annum and
will mature December 31, 2001. The credit agreement is unsecured and is
subordinated to Nortel Networks Inc., an existing senior creditor. The Company
has made an initial borrowing in the amount of $10,000,000. If the Company is
unable to raise additional capital before the end of the third quarter of 2001,
the Company may not be able to meet its projected obligations beyond 2001. If
such sources of financing are insufficient or unavailable, the Company would
further reduce headcount, defer payments, sell operating assets and or seek
protection under appropriate bankruptcy statutes.

Management plans to raise additional capital through the sale of equity,
additional borrowings, the sale of non-strategic assets, including intellectual
property and proprietary technology, or the sale of selected operations. These
transactions would be dilutive to existing shareholders and there can be no
assurances that adequate funds will be available, or available on terms that are
reasonable or acceptable to the Company. As a result of this material
uncertainty, there is substantial doubt about the Company's ability to continue
to operate as a going concern for a reasonable period of time. If the Company is
unable to generate additional financing and adequate cash by the end of the
third quarter of 2001, there will be a material and adverse effect on the
financial condition of the Company, to the extent that a restructuring, sale, or
liquidation of the Company will be required, in whole or in part.

The Company commenced a number of initiatives before year-end 2000 to improve
liquidity and will continue to pursue some of those initiatives in 2001. Those
include:

. In December 2000, the Company sold certain assets of CAIS Software Solutions,
Inc. (CAISSoft) to Cisco Systems, Inc. (Cisco) for net proceeds of
approximately $102 million, which have been used to fund operations and to
reduce outstanding financial obligations. In connection with that transaction,
an additional $40.5 million was placed into escrow, to be released upon the
resolution of certain contingencies, of which $13.5 million was to be paid to
SAIC. During May 2001 the contingencies were resolved and the $40.5 million
escrow was released.

. The Company has undertaken several initiatives to improve its capital
structure. Approximately $9,509,000 of trade payables were restructured into
vendor promissory notes and capital leases in the first half of 2001 with most
of the principal due in 2002 and 2003. Negotiations are continuing with other
vendors regarding this restructuring.

. In connection with operating expense reductions and the revisions to the
Company's business plan, employee headcount has been reduced from 801 as of
September 30, 2000 to 650 as of December 31, 2000 and 365 at August 1, 2001.
This downsizing, along with related overhead cost reductions, is expected to
result in a considerable cost savings in 2001 in selling, general and
administrative expenses over calendar year 2000.

. The Company undertook an analysis of future cash flow streams from its
installed hospitality properties. The Company believes that only a portion of
the properties can be serviced in a cost-effective manner. These typically tend
to be the larger properties in larger cities that have the infrastructure and
meeting room facilities to support greater usage and revenues. The Company is in
discussions with the low-performing properties to renegotiate terms of the
business arrangement to allow the Company to cover its recurring cost shortfall
of operating that hotel. For those non-performing hotels who have not agreed to
cover the recurring operating cost shortfall, the Company has initiated the
termination of service. As of March 31, 2001 716 hotels were being serviced by
the Company. As of June 30, 2001 the Company was servicing 319 hotel properties.

. The Company has also determined that the capital and monthly recurring costs
associated with operation of its multifamily business line do not permit an
acceptable return on assets. Accordingly, beginning in 2001, the Company has
discontinued the provision of services to customers in most multi-family
buildings. At June 30, 2001, the Company is continuing to provide service to
customers in 2 multi-family buildings.

. As a result of the termination of service to some hotels and all multi-family
properties, the Company has also begun to eliminate any of the applicable costs.
Wherever cost-efficient, the Company is also recovering its equipment from the
properties.

During the six months ended June 30, 2001, the Company financed its operations
with cash remaining from the sale of certain CAISsoft assets to Cisco. Net cash
used in operating activities for the six months ended June 30, 2001 and 2000 was
approximately $77.1 million and $38.0 million, respectively. During the six
months ended June 30, 2001, the Company paid down accounts payable and accrued
expenses by approximately $34.0 million, of which approximately $8.3 million
related to payments to vendors who agreed to accept vendor promissory notes and
capital lease as a restructuring of obligations.

During the six months ended June 30, 2001 and 2000, cash flows provided by (used
in) investing activities were approximately $37.6 million and $(72.6) million,
respectively.

Investing activities in the six months ended June 30, 2001 and 2000 include
approximately $3.5 million and $70.8 million, respectively, in purchases of
property and equipment, primarily related to the deployment of the Company's
technologies and services.

A description of the Company's capital equipment credit facilities follows:

In November 2000, the credit facility was amended such that the maximum
borrowings were limited to approximately $16,100,000. The amendment also
terminated borrowing availability as of November 30, 2000, modified the
repayment terms, and increased the interest rate on the facility to LIBOR plus
6%. If the Company raises a minimum of $75 million in debt or equity while any
balance was outstanding, the Company agreed to pay any remaining balance due to
Nortel at that time. The Company repaid $4,000,000 of the outstanding balance in
December 2000 and was required to repay the remaining balance in equal monthly
installments over the 2001 calendar year. Although the Company made the January
2001 payment of approximately $1,010,000, the Company did not make any
subsequent payments in February through June 2001, and was in default of the
agreement at June 30, 2001. The Company had received a Notice of Default from
Nortel, and was in discussions with Nortel regarding a resolution of the default
status at June 30, 2001.

In July 2001, the Company signed an additional amendment to the Nortel credit
agreement. The amendment granted a waiver for the July 2001 Bridge Loan,
modified the repayment terms to call for a repayment of approximately $448,000
of principal plus approximately $552,000 of accrued interest in July 2001 with
the remaining principal and any additional accrued interest after that date to
be paid in December 2001, called for accelerated principal repayment of 20% of
the net proceeds of issuances or placements of debt or capital stock in excess
of $25 million (not including the July 2001 Bridge Loan) and full repayment of
all net proceeds in excess of $25 million, granted a first priority lien on
substantially all assets of the Company, other than approximately $6 million of
property represented by purchase money liens securing several vendor promissory
notes, required the release of the Cisco liens on or before September 30, 2001,
waived any and all non-compliance with all financial and certain other covenants
contained in the original credit agreement through the end of 2001, and allowed
the sale of approximately $2 million of excess equipment which would otherwise
be covered by Nortel's security interest. As part of the Nortel amendment, the
lenders to the July 2001 Bridge Loan also agreed to subordinate that debt to the
Nortel principal obligation. The amendment also called for an extension of the
repayment date for the Nortel principal to February 15, 2002 if the July 2001
Bridge Loan is converted into equity or to three business days prior to the
extended maturity date of the July 2001 Bridge Loan if the July 2001 Bridge
Loan is extended.

Based upon the changes in the terms of the Nortel credit facility in the July
2001 Amendment and the $1 million payment to Nortel upon its execution, the
Company will be in compliance with the terms of the Nortel credit facility.

The Company and Cisco Systems Capital Corporation (Cisco Capital) entered into a
three-year, $50 million equipment financing line of credit, dated as of June 30,
1999, and several amendments. As of December 31, 2000, the Company had borrowed
approximately $26.5 million under this credit facility and incurred interest at
approximately 12.4 percent. Borrowings under the facility were permitted during
the first two years of the facility provided the Company met certain financial
performance requirements, including EBITDA targets, revenue targets and leverage
ratios. Borrowings under the facility are secured by a first priority lien in
all assets of the Company, other than its property securing the Nortel facility,
in which assets Cisco Capital will have a second priority lien. As of December
31, 2000, the Company was not in compliance with certain financial covenants,
and, as a result, the availability for additional borrowings were suspended.
During May 2001, the Company reached an agreement with Cisco Capital regarding a
resolution to the default status. Funds were disbursed from the $40.5 million
escrow account established in the sale of CAISSoft assets to Cisco to repay the
outstanding debt to Cisco Capital of approximately $26.5 million of principal
plus accrued interest and fees and to pay $13.5 million to satisfy the Science
Applications International Corporation (SAIC) attachment described in Note 4.
The Company is obligated to provide a $5,000,000 patent indemnification on
Cisco's behalf, or deposit $5,000,000 in cash back into the escrow account,
prior to June 30, 2001. This requirement was extended until July 31, 2001, but
has not yet been satisfied. Although the Company and Cisco are holding
discussions, no agreement has yet been reached that would change the Company's
obligation.

Transition of Business Strategy

Since the Company's IPO in May 1999, the Company's goal had been to become a
leader in the delivery of broadband Internet access, content, software and
systems to large new markets nationwide. This primarily entailed a strategy of
rapidly installing hardware and software in a large number of hospitality and
multi-family properties to provide Internet services. As an additional source of
revenue, the Company marketed broadband data connections and services to
businesses nationwide in these serviced markets.

By virtue of the network it built to support its primary hospitality and
multi-family business model, the Company became a fully operational tier-one
ISP, with a nationwide broadband OC-12 and OC-3 network with 29 POPs in major
metropolitan areas throughout the country. While the Company's primary business
focus through December 2000 was on the hospitality and multi-family access
market, the Company is now focused on its Internet business and currently
supports over 18,000 customers nationwide with data connectivity services,
primarily DSL, always-on access and web hosting.

The Company's key business strategy, offering high speed Internet services to
the hospitality and multi-family markets, required a substantial investment in
capital expenditures and overhead structure due to the high costs of
installation and customer service. The Company's original business models
indicated a breakeven point of approximately 2-3 years for a hotel property and
3-4 years for a multi-family property. Since most hotel contracts were for five
years and most multi-family contracts were for seven years, the later years of
the contract with higher usage levels allowed for a sufficient rate of return
over the life of the contract.

However, the change in the current capital markets and other factors has forced
the Company to reassess its primary business model and turn its focus to its
less capital intensive ISP services and business model where the Company already
has the infrastructure, the nationwide network, a full suite of data product
offerings, and a trained sales team necessary to compete in an efficient and
cost-effective manner.

The hospitality and multi-family business model was based on the continued
availability of additional capital to meet the Company's building rollout
forecasts, a specific level of projected building installation costs, minimal
technical problems, and average customer penetration rates across most
properties. In addition to other challenges, the Company's costs of installation
were higher than expected during fiscal year 2000 and the lack of capital
available for technology and telecommunication companies forced the Company to
make significant modifications to the business plan to conserve cash and reduce
operating losses and building installation expenditures. The Company, similar to
other Internet providers in the hospitality and multi-family businesses, did not
have the available capital for the rollout of a sufficient number of buildings
that would provide critical mass to achieve acceptable profit margin returns
over the life of existing building contracts.

During the fourth quarter of 2000, the Company announced that it would undertake
a complete strategic review of its business lines, including analysis of capital
deployment and profitability. In response to changing equity market conditions,
the Company indicated that its strategy would focus on maximizing profits rather
than accelerated growth. The Company also reported that, in the short term, it
would reduce the building installation schedule in order to conserve capital and
improve EBITDA results.

The Company has begun to implement a new business model, and is undertaking a
restructuring of its business goals to capitalize on its under-exploited status
as one of the nation's few tier-one nationwide ISPs, streamline the Company and
maximize shareholder value. The Company's main focus will now be in the
following two areas:

DATA CONNECTIVITY SEGMENT
-------------------------

. Expand the core Internet Services segment through sales of retail and
wholesale dedicated bandwidth connections and web hosting and co- location
services to businesses nationwide. The Company will increase its emphasis on
direct sales of bundled data broadband solutions such as Virtual Private Network
(VPN), Web hosting and colocation services with a retail focus primarily on
mid-market businesses that require dedicated Internet connectivity. The Company
believes that its national network is under-utilized and provides an opportunity
to provide multi-location connectivity and VPN services to a wide range of
customers.

HOSPITALITY SEGMENT
-------------------

. Continue to provide high-speed Internet service to certain larger profitable
hotels and utilize the business center, meeting room and kiosk products as the
core offerings for growth of properties.

Statements of Operations

The Company records revenues for all services when the services are provided to
customers. Amounts for services billed in advance of the service period and cash
received in advance of revenues earned are recorded as unearned revenues and
recognized as revenue when earned. Upfront charges in connection with service
contracts are recognized ratably over the contract period. Customer contracts
for

Internet access, DSL and web hosting services are typically for periods ranging
from one to three years. The Company typically charges an installation fee for
the new dedicated access customers. This installation fee is amortized over the
estimated life of the customer, typically eighteen months. Revenues from
equipment sales are recorded when title to the equipment passes to the
purchaser.

Cost of revenues include recurring expenses for the long haul bandwidth lease
and local interconnection charges from national and local fiber providers. It
also includes wholesale DSL resale charges, equipment costs and amortization of
DSL installation and equipment charges incurred in connection with term
contracts.

Research and development costs include internal research and development
activities and external product development agreements.

Selling, general and administrative expenses are incurred in the areas of sales
and marketing, customer support, network operations and maintenance,
engineering, research and development, accounting and administration.

Operating results for any period are not necessarily indicative of results for
any future period. In addition, the operating results for any interim period are
not necessarily indicative of the results that might be expected for the entire
year.

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Net revenues. Net revenues for the three months ended June 30, 2001 increased
27% to approximately $11,005,000 from approximately $8,650,000 for the three
months ended June 30, 2000. Net revenues increased primarily due to an increase
of approximately $5,307,000 in data connectivity service revenues. The increase
was due to an increase in the number of customers for these services. Software
and equipment sales decreased by $2,654,000 due to the sale of CAISSoft assets
to Cisco in the fourth quarter of 2000.

Cost of revenues. Cost of revenues for the three months ended June 30, 2001
totaled approximately $11,990,000 or 109% of net revenues, compared to
approximately $7,600,000 or 88% of net revenues for the three months ended June
30, 2000. This increase resulted primarily from increases of approximately
$3,385,000 in data connectivity service charges for customer connectivity,
equipment and installation and $1,756,000 in hospitality service charges for
bandwidth, local loop and network installation. Cost of equipment and software
decreased by $751,000 due to sale of CAISSoft assets to Cisco.

Selling, general and administrative. Selling, general and administrative
expenses for the three months ended June 30, 2001 totaled approximately
$17,315,000 or 157% of net revenues, compared to approximately $21,577,000 or
249% of net revenues for the three months ended June 30, 2000. This decrease
resulted primarily from decreases of $2,983,000 related to payroll and payroll
related administrative costs, and $1,279,000 related to marketing, advertising,
and other administrative expenses.

Research and development. Research and development costs for the three months
ended June 30, 2001 were zero, compared to approximately $1,364,000 or 16% of
net revenues for the three months ended June 30, 2000. This decrease resulted
from research and development labor costs associated with the CAISSoft assets
sold in December 2000.

Depreciation and amortization. Depreciation and amortization totaled
approximately $4,022,000 for the three months ended June 30, 2001, compared to
approximately $8,531,000 for the three months ended June 30, 2000. This decrease
resulted from the write-off of long-lived assets in the fourth quarter of 2000.
As a result, amortization related to goodwill decreased by $3,113,000 and
amortization related to contract fees decreased by $783,000. Capital
depreciation also decreased by $520,000.

Non-cash compensation. Non-cash compensation was zero the three months ended
June 30, 2001, compared to approximately $410,000 for the three months ended
June 30, 2000. This decrease resulted from the cancellation of options upon
termination of employment during March 2001.

Impairment of long-lived assets. Impairment of long-lived assets totaled
approximately $608,000 for the three months ended June 30, 2001. This expense
was attributable to the write-off of the Company's actual and committed
investment in a hospitality portal media venture of $8,000 and the impairment of
leasehold improvements of $600,000. There was no comparable expense during the
three months ended June 30, 2000.

Gain on sale of assets. In December, 2000 the Company sold substantially all
assets of its CAISSoft subsidiary for an aggregate cash purchase price of $146.8
million of which $40.5 million is held in escrow. The $40.5 million escrow
amount was not recognized as a gain on sale of assets in 2000 and was recorded
in the December 31, 2000 balance sheets as restricted cash and deferred gain on
sale of assets. Pursuant to a Loan Repayment and Settlement Agreement dated May
18, 2001 between the Company and Cisco Capital the escrow was released and a
deferred gain on the sale of assets of $35,398,000 was recognized. The balance
of $5,000,000 will remain deferred until certain patent indemnity provisions are
met.

Interest income (expense), net. Interest income (expense), net totaled expense
of approximately $1,388,000 for the three months ended June 30, 2001, compared
to expense of approximately $116,000 for the three months ended June 30, 2000.
This expense total was attributable primarily to interest related to the
Company's financing agreements and increased indebtedness from June 2000 to June
2001.

Net income (loss). Net income (loss) totaled approximately $10,636,000 for the
three months ended June 30, 2001, compared to approximately $(41,296,000) for
the three months ended June 30, 2000, due to the foregoing factors.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Net revenues. Net revenues for the six months ended June 30, 2001 increased 36%
to approximately $21,076,000, from approximately $15,517,000 for the six months
ended June 30, 2000. Net revenues increased primarily due to an increase of
approximately $10,127,000 in data connectivity service revenues and $942,000 in
hospitality service revenues. The increases were due to an increase in the
number of customers for these services. Software and equipment sales decreased
by $5,510,000 due to the sale of CAISSoft assets to Cisco in the fourth quarter
of 2000.

Cost of revenues. Cost of revenues for the six months ended June 30, 2001
totaled approximately $25,526,000 or 121% of net revenues, compared to
approximately $13,612,000 or 88% of net revenues for the six months ended June
30, 2000. This increase resulted primarily from increases of approximately
$5,497,000 in data connectivity service charges for customer connectivity,
equipment and installation and $7,232,000 in hospitality service charges for
bandwidth, local loop and network installation. Cost of equipment and software
decreased by $815,000 due to sale of CAISSoft assets to Cisco.

Selling, general and administrative. Selling, general and administrative
expenses for the six months ended June 30, 2001 totaled approximately
$32,593,000 or 155% of net revenues, compared to approximately $40,063,000 or
258% of net revenues for the six months ended June 30, 2000. This decrease
resulted primarily from decreases of $4,326,000 related to payroll and payroll
related administrative costs, and $3,144,000 related to marketing, advertising,
and other administrative expenses.

Research and development. Research and development costs for the six months
ended June 30, 2001 totaled approximately $241,000 or 1% of revenues, compared
to approximately $2,549,000 or 16% of net revenues for the six months ended June
30, 2000. This decrease resulted from research and development labor costs
associated with the CAISSoft assets sold in December 2000.

Depreciation and amortization. Depreciation and amortization totaled
approximately $7,791,000 for the six months ended June 30, 2001, compared to
approximately $14,283,000 for the six months ended June 30, 2000. This
decrease resulted from the write-off of long-lived assets related to the
impairment analysis in the fourth quarter of 2000. As a result, amortization
related to goodwill decreased by $6,153,000 and amortization related to contract
fees decreased by $1,562,000. Capital depreciation increased by $1,223,000 due
to the expansion of the Company's network in fiscal year 2000.

Non-cash compensation. Non-cash compensation for the six months ended June
30, 2001, totaled approximately $385,000 compared to approximately $829,000
for the six months ended June 30, 2000. This decrease resulted from the
cancellation of options upon termination of employment during March 2001.

Impairment of long-lived assets. Impairment of long-lived assets totaled
approximately $2,958,000 for the six months ended June 30, 2001. This expense
was attributable to the write-off of the Company's actual and committed
investment in a hospitality portal media venture of $2,358,000 and the
impairment of leasehold improvements of $600,000. There was no comparable
expense during the three months ended June 30, 2000.

Gain on sale of assets. In December, 2000 the Company sold substantially all
assets of its CAISSoft subsidiary for an aggregate cash purchase price of $146.8
million of which $40.5 million is held in escrow. The $40.5 million escrow
amount was not recognized as a gain on sale of assets in 2000 and was recorded
in the December 31, 2000 balance sheets as restricted cash and deferred gain on
sale of assets. During May 2001, pursuant to a Loan Repayment and Settlement
Agreement between the Company and Cisco Capital the escrow was released and a
deferred gain on the sale of assets of $35,398,000 was recognized. The balance
of $5,000,000 will remain deferred until certain patent indemnity provisions are
met.

Interest income (expense), net. Interest income (expense), net totaled expense
of approximately $2,512,000 for the six months ended June 30, 2001, compared
to income of approximately $222,000 for the six months ended June 30, 2000. This
expense total was attributable primarily to interest related to the Company's
financing agreements and increased indebtedness from June 2000 to June 2001.

Net loss. Net loss totaled approximately $15,976,000 for the six months ended
June 30, 2001, compared to approximately $65,945,000 for the six months ended
June 30, 2000, due to the foregoing factors.

Recent Accounting Pronouncements

In June 2001 the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 prospectively
prohibits the pooling of interest method of accounting for business combinations
initiated after June 30, 2001, SFAS No. 142 requires companies to cease
amortizing goodwill that existed at June 30, 2001. The amortization of existing
goodwill will cease on December 31, 2001. Any goodwill resulting from
acquisitions completed after June 30, 2001 will not be amortized. SFAS No. 142
also establishes a new method of testing goodwill for impairment on an annual
basis or on an interim basis if an event occurs or circumstances change that
would reduce the fair value of a reporting unit below is carrying value. The
adoption of SFAS No. 142 will result in the Company's discontinuation of
amortization of its goodwill; however, the Company will be required to test its
goodwill for impairment under the new standard beginning in the first quarter of
2002, which could have an adverse effect on the Company's future results of
operations if an impairment occurs.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

At June 30, 2001, the Company had debt in the aggregate amount of $44.9 million,
$11.1 million of which is subject to variable interest rates. A change of
interest rates would affect its obligations under these agreements. Increases in
interest rates would increase the interest expense associated with future
borrowings and borrowings under its equipment financing agreements. An increase
of 1% in interest rates would increase interest expense by approximately
$111,000 per year.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Litigation

From time to time, the Company has been, and expects to continue to be, subject
to legal proceedings and claims in connection with the business.

On May 4, 2001, Prime Hospitality Corp. ("Prime") filed a demand for arbitration
against the Company with the American Arbitration Association. The claim alleges
that the Company failed to perform its obligations under of the Master Agreement
For Hotel Internet Service entered between Prime and the Company. In particular,
Prime seeks an award in the amount of $1,512,050, plus an additional amount for
ongoing damages, pre and post-judgment interest and costs. Prime's total damage
calculation is approximately $20,000,000, which has been challenged by the
Company. The Company has filed a counter-claim for $12,000,000, which represents
the installed value of its equipment. The Company is unable to provide any
assessment of the potential loss exposure.

On August 13, 2001, Manning, Selvage & Lee ("MS&L") filed a complaint in the
Supreme Court of New York Aleging breach of its contract with the Company for
public relations services. The complaint seeks damages of $226,000, plus
interest.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

SALES OF UNREGISTERED SECURITIES

None.

Item 3. Default Upon Senior Securities

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

None.

A. EXHIBITS

See Exhibit Index.

B. REPORTS ON FORM 8-K

ARDENT COMMUNICATIONS, INC.

EXHIBIT INDEX

Exhibit
No. Description
- -------- -----------

10.1 Credit Agreement dated as of July 3, 2001, among CAIS, Inc., as
Borrower, CAIS Internet, Inc., as Guarantor, The Lenders Party Hereto,
and CII Ventures II LLC as Administrative Agent.

10.2 Subordination agreement dated as of July 3, 2001.

10.3 Sixth Amendment to Credit Agreement dated July 3, 2001.

10.4 Loan Repayment and Settlement Agreement dated May 18, 2001.

10.5 First Amendment to Asset Purchase Agreement and First Amendment to
Escrow Agreement dated May 18, 2001.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, D.C., on the
dates indicated.

ARDENT COMMUNICATIONS, INC.

Signature Capacity Date
--------- -------- ----

/s/ MICHAEL LEE President and August 20, 2001
- ------------------- Chief Executive Officer
Michael Lee

/s/ ANDREW P. HINES Executive Vice President/ August 20, 2001
- -------------------- Chief Financial Officer
Andrew P. Hines (Principal Financial and
Accounting Officer)