-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I1nHfh3j6qr5nIQwLCTNGeYFrX1c3UkAwR+o8KQyihsQdHVz9+i08dKDKYiwMHvF h8h3cgjEbSwj4ZForfQh8g== 0000906602-97-000197.txt : 19971119 0000906602-97-000197.hdr.sgml : 19971119 ACCESSION NUMBER: 0000906602-97-000197 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971118 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAI WIRELESS SYSTEMS INC CENTRAL INDEX KEY: 0000914749 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 061324691 STATE OF INCORPORATION: CT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22888 FILM NUMBER: 97723309 BUSINESS ADDRESS: STREET 1: 18 CORPORATE WOODS BLVD STREET 2: THIRD FLOOR CITY: ALBANY STATE: NY ZIP: 12211 BUSINESS PHONE: 5184622632 MAIL ADDRESS: STREET 1: 18 CORPORATE WOODS BLVD STREET 2: 3RD FLOOR CITY: ALBANY STATE: NY ZIP: 12211 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended SEPTEMBER 30, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File Number: 0-22888 CAI WIRELESS SYSTEMS, INC. (Exact name of registrant as specified in its charter) Connecticut 06-1324691 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 18 Corporate Woods Boulevard, Albany, New York 12211 (Address and zip code of principal executive offices) (518) 462-2632 (Registrant's telephone number, including area code) 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 _____ Number of shares outstanding of each of registrant's class of common stock at October 31, 1997: CLASS OUTSTANDING SHARES Common Stock, no par value 40,540,539 PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS.
CAI WIRELESS SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 MARCH 31, 1997 ------------------ -------------- (UNAUDITED) ASSETS Cash and cash equivalents $ 861,071 $10,471,918 Subscriber accounts receivable, net 764,762 695,707 Prepaid expenses 791,017 1,034,106 Property and equipment, net 66,544,638 69,767,017 Wireless channel rights, net 205,518,500 207,680,551 Investment in CS Wireless Systems, Inc. 74,649,527 88,389,527 Investment in TelQuest Satellite Services LLC 3,126,252 - Goodwill, net of accumulated amortization 100,097,416 104,204,716 Debt service escrow 32,387,339 47,865,389 Debt financing costs, net 13,406,310 9,249,934 Other assets 3,133,797 2,980,650 ----------- ----------- Total Assets $501,280,629 $542,339,515 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Accounts payable $ 6,997,613 $ 6,600,584 Accrued expenses 19,462,787 16,138,811 Wireless channel rights obligations 4,203,350 5,302,600 Interim debt financing 12,709,226 - Notes payable 36,666,068 36,786,596 Notes payable to TelQuest Satellite Services LLC 1,341,192 - Senior notes 275,000,000 275,000,000 ----------- ----------- 356,380,236 339,828,591 ----------- ----------- Commitments and Contingencies Mandatorily Redeemable Preferred Stock 14% Senior convertible preferred stock (liquidation value $70,000,000) 69,230,000 69,160,000 Accrued preferred stock dividends 25,865,593 18,660,734 ----------- ----------- 95,095,593 87,820,734 ----------- ----------- SHAREHOLDERS' EQUITY Common stock, 100,000,000 Shares Authorized, No Par Value; 40,540,539 shares issued and outstanding 275,769,414 275,769,414 Accumulated deficit (225,964,614) (161,079,224) ----------- ----------- 49,804,800 114,690,190 ----------- ----------- Total Liabilities and Shareholders' Equity $501,280,629 $542,339,515 =========== ===========
See notes to consolidated financial statements.
CAI WIRELESS SYSTEMS, INC. Consolidated Statements of Operations (unaudited) Six-Months Ended Three-Months Ended September 30, September 30, ------------------------------------- ------------------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Revenues $ 15,386,043 $ 18,487,778 $ 7,294,791 $ 9,182,955 ------------ ------------ ------------ ----------- Costs and expenses Programming and licensing 7,271,163 7,859,550 3,568,253 3,966,954 Marketing 829,936 1,226,017 461,088 651,412 General and administrative 13,941,679 14,340,890 6,838,194 7,427,376 Depreciation and amortization 15,907,088 16,550,788 7,968,256 8,455,561 ------------ ------------ ------------ ----------- 37,949,866 39,977,245 18,835,791 20,501,303 ------------ ------------ ------------ ----------- Operating loss (22,563,823) (21,489,467) (11,541,000) (11,318,348) ------------ ------------ ------------ ----------- Other income (expense) Interest expense (22,929,735) (20,304,553) (11,956,062) (10,143,719) Equity in net loss of CS Wireless Systems, Inc. (13,740,000) (7,800,000) (7,124,000) (4,800,000) Interest and other income 1,623,027 4,116,571 762,390 1,905,053 ------------ ------------ ------------ ----------- (35,046,708) (23,987,982) (18,317,672) (13,038,666) ------------ ------------ ------------ ----------- Loss before income tax benefit (57,610,531) (45,477,449) (29,858,672) (24,357,014) Income tax benefit - 9,000,000 - 4,500,000 ------------ ------------ ------------ ----------- Net loss (57,610,531) (36,477,449) (29,858,672) (19,857,014) Preferred stock dividends (7,274,859) (6,270,364) (3,706,901) (3,194,747) ------------ ------------ ------------ ----------- Loss applicable to common stockholders $(64,885,390) $(42,747,813) $ (33,565,573) $(23,051,761) ============ ============ ============ =========== Loss per common share $ (1.60) $ (1.08) $ (0.83) $ (0.57) ============ ============ ============ =========== Average common and equivalent shares outstanding 40,540,539 39,638,851 40,540,539 40,384,787 ============ ============ ============ ===========
CAI WIRELESS SYSTEMS, INC. Consolidated Statements of Shareholders'Equity For the Six Months Ended September 30, 1997 (unaudited) AND THE YEAR ENDED MARCH 31, 1997 Common Stock Accumulated Shares Amount Deficit Total ---------- ----------- ----------- ----------- Balance at April 1, 1996 37,829,482 $257,701,130 $(65,090,206) $192,610,924 Senior preferred stock issuance costs reclassified from project costs - - (661,212) (661,212) Series A 8% redeemable convertible preferred stock converted into 2,637,742 18,049,955 - 18,049,955 common Value assigned to warrants exercised 73,315 18,329 (18,329) - Preferred stock dividends accrued - - (13,011,270) (13,011,270) Net loss - - (82,298,207) (82,298,207) ---------- ----------- ----------- ----------- BALANCE AT MARCH 31, 1997 40,540,539 275,769,414 (161,079,224) 114,690,190 Preferred stock dividends accrued - - (7,274,859) (7,274,859) Net loss - - (57,610,531) (57,610,531) ---------- ----------- ----------- ----------- Balance at September 30, 1997 40,540,539 $275,769,414 $(225,964,614) $ 49,804,800 ========== =========== =========== ===========
See notes to consolidated financial statements.
CAI WIRELESS SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended September 30, ---------------------------------------- 1997 1996 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (57,610,531) $ (36,477,449) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 15,907,088 16,550,788 Equity in net loss of CS Wireless Systems, Inc. 13,740,000 7,800,000 Deferred income tax benefit - (9,000,000) Debt financing costs and discount amortization 2,040,626 990,042 Debt service escrow interest income 394,106 835,968 Changes in assets and liabilities: Subscriber accounts receivable (69,055) 107,366 Other assets 164,236 (670,899) Accounts payable and accrued expenses 2,507,288 694,115 ------------ ------------ Net cash used in operating activities (22,926,242) (19,170,069) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of wireless channel rights (1,761,760) (2,941,307) Purchase of equipment (5,224,875) (22,152,837) Proceeds from the sale of equipment 39,145 463,900 Investment in TelQuest Satellite Services LLC (1,512,488) - Proceeds from sale of escrow investments 15,150,387 13,844,342 Payments received from CS Wireless Systems, Inc. 2,514,542 - Loan to related parties (197,758) (800,000) Cash paid for investment (356,025) (436,202) Other (153,823) (37,857) ------------ ------------ Net cash provided by (used in) investing activities 8,497,345 (12,059,961) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from interim debt financing 9,500,000 - Repayment of debt (2,167,578) (26,549,127) Debt financing costs paid (2,514,372) - ------------ ------------ Net cash provided by (used in) financing activities 4,818,050 (26,549,127) ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (9,610,847) (57,779,157) Cash and cash equivalents, beginning of year 10,471,918 103,263,094 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 861,071 $45,483,937 ============ ============ CASH PAYMENTS FROM THE DEBT SERVICE ESCROW ACCOUNT DURING THE PERIOD FOR INTEREST $ 17,429,098 $ 17,338,065 ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and notes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of CAI Wireless Systems, Inc. and its wholly-owned subsidiaries (the "Company" or "CAI"). All intercompany transactions have been eliminated in consolidation. The Company's 50.7% investment in CS Wireless Systems, Inc. ("CS") is accounted for on the equity method. Current summarized financial information regarding CS is presented in Note 3. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of results for interim periods have been included. Certain items in the prior period financial statements have been reclassified to conform with the current period's presentation. Operating results for the quarter and six months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 1998. The unaudited financial statements presented herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended March 31, 1997 which is on file with the Securities and Exchange Commission. GOING CONCERN CAI's recurring losses, restrictions on its ability to obtain additional financing, and substantial commitments raise substantial doubt about the continuation of CAI as a going concern. For the last half of the fiscal year ending March 31, 1998, the Company is obligated to pay approximately $4,300,000 for minimum license fees and lease payments, approximately $1,100,000 in remaining MMDS license auction fees and to fund current operating costs. On a long-term basis, CAI has substantial indebtedness which, beginning in fiscal year 1999, will include significant debt service requirements and senior preferred stock dividend payments. As of September 30, 1997, CAI has outstanding consolidated long-term debt of $325,717,000 and senior preferred stock including accrued dividends totaling $95,096,000. The Company's business strategy has been to explore digital wireless cable systems for its MMDS subscription television services and alternative uses of its MMDS spectrum for a variety of applications, including data and voice transmission such as Internet access and telephony delivery services. In management's opinion, this strategy will help meet the current and perceived future competition and, in relation to obtaining a new strategic partner, show the flexibility and increased value of the Company's MMDS spectrum, if such exploration is successful. In connection with achieving these objectives, CAI is committed through additional open purchase orders as of October 24, 1997 to spend approximately $5,000,000, primarily for capital expenditures associated with additional development of the Boston digital transmission facilities. These commitments are to be funded in part by the Interim Debt Financing (see Note 4). The Company's operating plans, including digital video, two-way voice and data, Internet and Intranet access services and testing, will require additional funding. Such additional funds may take the form of debt or equity securities issuances, borrowings under loan arrangements or sales of assets including channel rights or wireless cable systems. CAI's ability to engage in financings, asset sales or acquisition transactions is limited by the contractual arrangements entered into with the BANX Partnership (defined below), the Interim Debt Lenders (defined below) or the Investor (defined below). Significant transactions likely will require the prior consent of one or all of such parties. In addition, the Company's 12.25% Senior Notes due 2002 impose certain restrictions on the incurrence of additional debt and on the ability of CAI to effect asset sales. NOTE 2. LITIGATION SHAREHOLDERS' CLASS ACTION During the year ended March 31, 1997, the Company was named in six class action lawsuits, each alleging various violations of the federal securities laws. These actions were consolidated into one lawsuit entitled IN RE CAI WIRELESS SYSTEMS, INC. SECURITIES LITIGATION (96-CV-1857) (the "Securities Lawsuit"), which is currently pending in the United States District Court for the Northern District of New York. The Securities Lawsuit is in its preliminary stages. The amended, consolidated complaint, which names the Company and certain officers and directors of CAI as defendants, alleges a variety of violations of the antifraud provisions of the federal securities laws by the aforementioned defendants. The defendants filed a motion to dismiss, which motion was heard by the Northern District of New York on October 17, 1997. While the motion is pending, all other deadlines affecting motions and discovery have been postponed. The Company and the individual defendants continue to contest the Securities Lawsuit vigorously and believe it is entirely without merit. Accordingly, management believes that this lawsuit will not have a material adverse effect on the Company's earnings, financial condition, or liquidity. OTHER LITIGATION The Company is involved in various claims and legal actions arising in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's earnings, financial condition or liquidity. NOTE 3. INVESTMENT IN CS The Company's investment in CS reflects an equity loss of $12,540,000 (based on CAI's pro-rata share of CS's net loss of $24,754,000 for the six- month period ended June 30, 1997) along with $1,200,000 of amortization of the goodwill associated with this investment. CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. INVESTMENT IN CS (CONTINUED) The following is an unaudited condensed consolidated balance sheet of CS derived from its Form 10-Q as of June 30, 1997:
ASSETS Cash and cash equivalents $102,844,000 Other current assets 1,826,000 Systems and equipment, net 40,624,000 Wireless channel rights, net 170,969,000 Goodwill, net of accumulated amortization 50,108,000 Net assets held for sale 4,609,000 Debt issuance costs, net 12,651,000 ----------- Total Assets $383,631,000 =========== LIABILITIES AND EQUITY Accounts payable and accrued expenses $ 4,448,000 FCC Auction payable 5,256,000 Other liabilities 624,000 Debt 270,548,000 Deferred income taxes 2,715,000 Common stock and paid-in-capital 154,528,000 Accumulated deficit (54,488,000) ----------- Total Liabilities and Equity $383,631,000 ===========
The following are unaudited condensed consolidated statements of operations of CS derived from its June 30, 1997 Form 10-Q for the periods presented:
Quarter Ended Six Months Ended June 30, 1997 June 30, 1997 --------------- --------------- Revenues $ 6,822,000 $ 13,500,000 ----------- ------------ Operating expenses: Systems operations 3,657,000 7,352,000 General and administrative 3,959,000 7,774,000 Depreciation and amortization 6,705,000 13,290,000 ----------- ------------ Total operating expenses 14,321,000 28,416,000 ----------- ------------ Operating loss ( 7,499,000) ( 14,916,000) Interest income 1,432,000 2,882,000 Interest expense (8,093,000) (16,089,000) Other 655,000 655,000 ----------- ------------ Loss before income tax benefit (13,505,000) (27,468,000) Income tax benefit 1,357,000 2,714,000 ----------- ------------ Net loss $(12,148,000) $(24,754,000) =========== ============
CAI WIRELESS SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. INTERIM DEBT FINANCING On June 6, 1997, the Company consummated a $30 million interim credit facility (the "F/C Credit Facility") provided by Foothill Capital Corporation and affiliates of Canyon Capital Management, L.P. (the "Interim Debt Lenders"). The F/C Credit Facility is governed by the terms of Loan and Security Agreement dated as of May 16, 1997 (the "LSA"), and is comprised of $25 million of term debt, of which approximately $11.1 million was outstanding at September 30, 1997, and a $5 million revolving loan, none of which was outstanding at September 30, 1997. The LSA provides that the term debt bears interest at 13% per annum. So long as the Company is not in default of its obligations under the LSA, the Company can elect to have one-half of the interest on the term debt accrue and be added to the principal amount outstanding on the term debt. The remaining portion of the term debt interest is payable monthly in arrears. Since the June 6th closing, the Company has elected to have one-half of the term debt interest accrue and be added to the principal amount outstanding. The term debt matures on March 1, 1999, at which time all accrued and unpaid interest on and principal of the outstanding amount of the term debt shall be due and payable in full. The $5 million revolving loan bears interest at four and three-quarters percent above the Reference Rate, as announced from time to time by Norwest Bank. Principal and interest on the revolving loan is payable monthly, and the revolving loan expires on March 1, 1999. The F/C Credit Facility is collateralized by a pledge of the assets of CAI, including the stock of its wholly-owned subsidiaries, certain investments held by CAI and a pledge of the stock of CS Wireless held by CAI. In connection with the closing of the F/C Credit Facility, the Company was required to effect certain corporate restructurings in an effort to increase the flexibility and options available to the Interim Debt Lenders with respect to their collateral position. In addition to $1.5 million in cash fees payable to the Interim Debt Lenders at the closing of the F/C Credit Facility and the fees and expenses (including fees and expenses of counsel and special FCC counsel to the Interim Debt Lenders) incurred in connection therewith, CAI was also required to (i) pay an additional $1.5 million fee, evidenced by a two-year promissory note bearing interest at 14% per annum (the "Fee Note"), which interest shall accrue and be payable in full at maturity, and (ii) issue warrants to purchase CAI common stock at any time between the loan closing and the fifth anniversary of the closing. The warrants entitle the holders thereof to purchase, in the aggregate, that number of shares of CAI common stock equal to the quotient of (i) the maximum amount outstanding (including principal and interest) on the Fee Note, DIVIDED BY (ii) the lowest of (A) $1.90 per share, or (B) the lowest price per share of CAI common stock (or its equivalent) that CAI receives in connection with any new capital investment, merger, strategic partnership, joint venture or other significant corporate transaction, which makes available to CAI in excess of $50 million or following certain specified transactions. The warrants contain certain anti-dilution provisions and registration rights, and have been allocated among the Interim Debt Lenders. The availability of loans under the F/C Credit Facility is based upon the achievement by CAI of certain operational benchmarks. In addition, the Company is required to satisfy certain post-closing conditions primarily relating to the Company's corporate structure. The post-closing restructuring was required to be completed on or before September 4, 1997. On September 4, 1997, the Company delivered evidence of all actions taken in furtherance of the restructuring. Concurrently, the Company presented materials demonstrating achievement by CAI of the initial operational benchmark and the Company requested $5 million of funds. Following an initial review of the CAI materials, the Interim Debt Lenders informed CAI that it was not in complete compliance with the requirements of the LSA with respect to the post-closing restructuring matters. On September 24, 1997, the Interim Debt Lenders waived such compliance to complete their review of such materials. Pursuant to a waiver agreement (the "First Waiver Agreement"), the Interim Debt Lenders advanced $1 million to the Company under the revolving loan on September 25, 1997. The First Waiver Agreement also suspended the requirement that any outstanding balance on the revolving loan be repaid out of the daily cash receipts of the Company, and permitted CAI to sell identified non-core assets. In exchange for the waiver, CAI was required to pay a $75,000 fee, which amount was added to the principal of the Fee Note, and agree to a 2% per annum increase in the revolving loan rate of interest for the $1 million advanced thereunder. Additionally, CAI was required to deliver to the Interim Debt Lenders a general release, which release was contained in the First Waiver Agreement. The Interim Debt Lenders informed the Company that they would continue their review of the F/C Credit Facility and that a term sheet outlining new or modified terms for the continuing relationship would be distributed to CAI during the waiver period. No term sheet or other indication of modifications to F/C Credit Facility was delivered and a continuing waiver was entered into as of October 10, 1997 (the "Second Waiver Agreement"). In addition to the aforementioned, the Second Waiver Agreement provided CAI with a term loan advance of $1.347 million on October 14, 1997, and an additional term loan advance of $1.65 million on October 24, 1997. In exchange for the extended waiver, in the Second Waiver Agreement CAI agreed to a three percent (3%) per annum interest rate increase on all outstanding obligations owing by CAI to the Interim Debt Lenders during the waiver period, which also replaced the 2% rate increase on the revolving loan advance under the First Waiver Agreement. The Second Waiver Agreement imposed additional, and/or modified existing, negative covenants relating to the sale of assets, certain fundamental changes to the Company and the Company's ability to incur additional indebtedness. The Interim Debt Lenders informed CAI that they were continuing their review of the F/C Credit Facility. In the absence of a proposed term sheet for new or modified terms, a further continuing waiver was executed (the "Third Waiver Agreement"), effective as of October 31, 1997, extending the waiver of compliance with the specified provisions of the LSA until November 14, 1997. Pursuant to the Third Waiver Agreement, $1 million was advanced to the Company in exchange for a continuation of the terms of the Second Waiver Agreement, including the increased interest rate, imposition of additional and/or modified existing negative covenants, and a general release. The Third Waiver indicated that the waiver period was intended to permit the Interim Debt Lenders to continue to analyze various aspects of the F/C Credit Facility, and attempt to negotiate a mutually agreeable resolution of the identified non- compliance with CAI. The Third Waiver Agreement expired on November 14, 1997 and the parties are currently in good faith negotiations with respect to a fourth waiver agreement. In this connection, the Interim Debt Lenders have informed the Company of additional conditions upon which they would continue to lend money to the Company under the LSA. The Interim Debt Lenders set forth a number of outstanding issues relating to the Company's business, to which the Company has responded in full. Following discussions regarding the outstanding issues, the Interim Debt Lenders have proposed a fourth waiver agreement (the "Fourth Waiver Agreement"), which, if signed, will be effective as of November 14, 1997, through December 5, 1997. In addition to providing the Company with a waiver of compliance of various provisions of the LSA, the Fourth Waiver Agreement requires CAI to achieve certain operational benchmarks on or before December 5, 1997, in certain instances, and December 31, 1997, in other instances. The Company had originally intended that the full $30 million F/C Credit Facility would allow CAI to meet its cash requirements through the end of calendar 1997. As a result of the issues giving rise to the various waiver agreements, the Company has not had available to it the entire amount contemplated by the LSA. In an effort to satisfy its cash requirements since late September 1997, the Company has increased its cost-cutting efforts, curtailed operations and sold approximately $1.1 million of assets not used or useful in the Company's operations. The Company also has been actively seeking to replace the F/C Credit Facility with another secured credit facility and to explore additional sources of capital. To assist the Company with this project, CAI retained Donaldson, Lufkin & Jenrette Securities Corporation on June 20, 1997 to act as a financial advisor to the Company. On November 14, 1997, the Company signed a commitment letter with an existing investor (the "Investor") to purchase from the Company up to $25 million of senior secured notes pursuant to the terms of a new secured credit facility (the "Refinancing Facility"). The Company is currently discussing with the Investor the possibility of increasing the Refinancing Facility by $5 million and having the Investor purchase the F/C Credit Facility. Under the terms of the commitment letter for the Refinancing Facility, the Investor has agreed to advance $25 million to the Company at closing, which the Company believes shall occur not later than November 26, 1997. The Refinancing Facility will bear interest at 13% per annum, and will be secured by a lien on all of the assets of the Company, including its stock in CS Wireless Systems, Inc. and its interest in TelQuest Satellite Services LLC, in substantially identical fashion as the F/C Credit Facility. The Company plans to use the proceeds of the loan to repay all outstanding amounts currently owing to the Interim Debt Lenders (approximately $17.5 million) and the balance for general corporate purposes and to pay fees and expenses of the Refinancing Facility transaction. The commitment letter provides that the Refinancing Facility will be subject to covenants that are usual and customary for a transaction of this type. The closing of the loans is subject to a number of usual and customary conditions, including the successful completion of a due diligence investigation of the Company by the Investor. There can be no assurance that the Company will be able to negotiate the Fourth Waiver Agreement on terms and conditions satisfactory to the Company. If the Fourth Waiver Agreement is entered into by the parties, there can be no assurance that the Company will be able to achieve the operational benchmarks currently being discussed among the parties, or, if such benchmarks are achieved, that the Interim Debt Lenders will advance additional funds under the F/C Credit Facility. Furthermore, there can be no assurance that the transactions contemplated by the commitment letter between the Company and the Investor will be consummated, and if consummated, there can be no assurance that all of the funds contemplated by the commitment letter will be made available to the Company, or that additional funds will be available to the Company from the Investor. NOTE 5. SIGNIFICANT EVENTS TELQUEST SATELLITE SERVICES On August 4, 1997, the Company entered into an agreement with TelQuest Communications, Inc. ("TelQuest"), a company controlled by Mr. Jared E. Abbruzzese, Chairman and Chief Executive Officer of CAI, and CS to create a joint venture, TelQuest Satellite Services LLC ("TSS"). TSS was created to develop and operate satellite systems utilizing C-band and Ku-band satellite capacity to provide digital video programming to MMDS and hard-wire cable operators and other users through head-end and direct-to-home services. Pursuant to the terms of an affiliation agreement between TSS and the Company, the Company will receive digital video programming for its various markets, when and as it launches digital video services, in exchange for payment of a monthly fee based on the number of subscribers receiving the service. The affiliation agreement alleviates the need for CAI to construct a digital compression center in any of its markets in which it may launch a digital video service. The Company expects to use the TSS programming in Boston in connection with the launch of its first digital video service. In connection with the formation of TSS, CAI agreed to contribute $2,500,000 in cash and lease to TSS $2,500,000 of equipment at a nominal rental amount under a five-year renewable lease in exchange for a minority interest in TSS. Upon the achievement of certain benchmarks, TSS is required to purchase the equipment from the Company at not less than its then-current fair market value. The cash portion of the contribution is payable in installments, the first of which was paid on August 4, 1997 in the amount of $711,744, and included principal and accrued interest from an investment by the Company in TelQuest in March 1997. The balance of the cash portion is payable in four equal quarterly installments of $447,064, the first of which was paid on September 1, 1997. CAI DATA SYSTEMS CAI Data Systems, Inc. ("Data Systems"), a subsidiary of CAI, announced on July 23, 1997 that it had filed an application with the Federal Communications Commission ("FCC") to construct, launch and operate a Ka-band satellite. The application, which is currently pending before the FCC, contemplates a July 1999 launch date for the satellite. The estimated cost of constructing and launching the satellite is approximately $292,500,000, which Data Systems plans to finance through the issuance of its own debt and/or equity securities. There can be no assurance that Data Systems' application will be granted by the FCC or, if granted, that Data Systems will be able to secure financing necessary to construct and launch a satellite. REFINANCING FACILITY On November 14, 1997, the Company signed a commitment letter with the Investor to purchase from the Company up to $25 million of senior secured notes pursuant to the terms of the Refinancing Facility. The Company is currently discussing with the Investor the possibility of increasing the Refinancing Facility by $5 million and having the Investor purchase the F/C Credit Facility. Under the terms of the commitment letter for the Refinancing Facility, the Investor has agreed to advance $25 million to the Company at closing, which the Company believes shall occur not later than November 26, 1997. The Refinancing Facility will bear interest at 13% per annum, and will be secured by a lien on all of the assets of the Company, including its stock in CS Wireless Systems, Inc. and its interest in TelQuest Satellite Services LLC, in substantially identical fashion as the F/C Credit Facility. The Company plans to use the proceeds of the loan to repay all outstanding amounts currently owing to the Interim Debt Lenders (approximately $17.5 million) and the balance for general corporate purposes and to pay fees and expenses of the Refinancing Facility transaction. The commitment letter provides that the Refinancing Facility will be subject to covenants that are usual and customary for a transaction of this type. The closing of the loans is subject to a number of usual and customary conditions, including the successful completion of a due diligence investigation of the Company by the Investor. There can be no assurance that the transactions contemplated by the commitment letter between the Company and the Investor will be consummated, and if consummated, there can be no assurance that all of the funds contemplated by the commitment letter will be made available to the Company, or that additional funds will be available to the Company from the Investor. NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 128 ("SFAS 128") - "Earnings Per Share." This statement which is effective for financial statements issued for periods ending after December 15, 1997, simplifies the computation of earnings per share (EPS) by replacing the "primary" EPS requirements with a "basic" EPS computation based upon weighted-average shares outstanding. This new standard requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Due to the Company's net losses, the loss per share amounts included in the accompanying Statements of Operations would not differ from the basic or the dilutive loss per share amounts calculated under SFAS 128. Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income", which was issued in June 1997 is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and disclosure of comprehensive income and its components in a full set of general-purpose financial statements. The Company believes that it does not have a significant amount of comprehensive income (loss) as defined, if any. Accordingly, the Company believes that this statement will not have a material effect on CAI's future financial statement presentations. In June 1997, Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") was also issued. This pronouncement is effective for fiscal years beginning after December 15, 1997 and requires disclosures about operating segments and enterprise-wide disclosures about products and services, geographic areas and major customers. Effective April 1, 1998, the Company will comply with the requirements of SFAS 131 and make the necessary disclosures. NOTE 7. SUBSEQUENT EVENTS Reference is made to the discussion regarding the Interim Debt Financing contained in Note 4 above. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The statements contained in this Quarterly Report on Form 10-Q, including the exhibits hereto, relating to the Company's future operations may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Actual results of the Company may differ materially from those in the forward-looking statements and may be affected by a number of factors including the availability of new strategic partners and their willingness to enter into arrangements with CAI, the terms of such arrangements, the ability of CAI to achieve the operating benchmarks necessary to receive the balance of the funds contemplated by the F/C Credit Facility (defined below), the successful consummation of the Refinancing Facility (defined below), the successful launch of a digital MMDS system, the receipt of regulatory approvals for alternative uses of its MMDS spectrum, the success of CAI's trials in various of its markets, the commercial viability of any alternative use of MMDS spectrum, consumer acceptance of any new products offered or to be offered by CAI, subscriber equipment availability, tower space availability, absence of interference and the ability of the Company to redeploy or sell excess equipment, the assumptions, risks and uncertainties set forth below in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere herein, as well as other factors contained herein and in the Company's other securities filings. BUSINESS DEVELOPMENTS BOSTON DIGITAL PROJECT In Boston, Massachusetts, the Company intends to commercially launch its digital subscription television service and to provide high speed Internet access during late 1997/early 1998. The digital programming signals will enable the Company to deliver laser disc picture quality as well as CD quality sound. Furthermore, the Company anticipates offering its subscribers more than 70 channels of video programming, which the Company believes will be competitive with other subscription television providers in this market. The Internet service to be offered will have the capacity to transmit data at speeds of up to 27 Mbps, many times faster than traditional telephone lines. The initial high speed Internet service offering will be one-way, utilizing a telephony return path. There can be no assurance, however, that the Company will be able to successfully launch and operate a digital subscription video business in this market, nor can there be any assurance that the Company will be able to successfully deploy, in a commercial manner, an Internet access service over its MMDS spectrum in Boston or any other market in which it may seek to initiate such a service. TELQUEST SATELLITE SERVICES On August 4, 1997, the Company entered into an agreement with TelQuest Communications, Inc. ("TelQuest"), a company controlled by Mr. Jared E. Abbruzzese, Chairman and Chief Executive Officer of CAI, and CS to create a joint venture, TelQuest Satellite Services LLC ("TSS"). TSS was created to develop and operate satellite systems utilizing C-band and Ku-band satellite capacity to provide digital video programming to MMDS and hard-wire cable operators and other users through head-end and direct-to-home services. Pursuant to the terms of an affiliation agreement between TSS and the Company, the Company will receive digital video programming for its various markets, when and as it launches digital video services, in exchange for payment of a monthly fee based on the number of subscribers receiving the service. The affiliation agreement alleviates the need for CAI to construct a digital compression center in any of its markets in which it may launch a digital video service. The Company expects to use the TSS programming in Boston in connection with the launch of its first digital video service. In connection with the formation of TSS, CAI agreed to contribute $2,500,000 in cash and lease to TSS $2,500,000 of equipment at a nominal rental amount under a five-year renewable lease in exchange for a minority interest in TSS. Upon the achievement of certain benchmarks, TSS is required to purchase the equipment from the Company at not less than its then-current fair market value. The cash portion of the contribution is payable in installments, the first of which was paid on August 4, 1997 in the amount of $711,744, and included principal and accrued interest from an investment by the Company in TelQuest in March 1997. The balance of the cash portion will be payable in four equal quarterly installments of $447,064, the first of which was paid by the Company on September 1, 1997. CAI DATA SYSTEMS CAI Data Systems, Inc. ("Data Systems"), a subsidiary of CAI, announced on July 23, 1997 that it had filed an application with the Federal Communications Commission ("FCC") to construct, launch and operate a Ka-band satellite. The application, which is currently pending before the FCC, contemplates a July 1999 launch date for the satellite. The estimated cost of constructing and launching the satellite is approximately $292,500,000, which Data Systems plans to finance through the issuance of its own debt and/or equity securities. There can be no assurance that Data Systems' application will be granted by the FCC or if granted that data systems will be able to secure financing necessary to construct and launch a satellite. LIQUIDITY AND CAPITAL RESOURCES SIX MONTHS ENDED SEPTEMBER 30, 1997 For the six months ended September 30, 1997, cash and cash equivalents decreased by $9,611,000. Cash provided from financing activities of $4,818,000 included the proceeds from the S/C Credit Facility (defined below), net of fees. Cash utilized by operations of $22,926,000 included the loss for the quarter of $57,611,000 reduced for non-cash expenditures including depreciation and amortization totaling $15,907,000 and the $13,740,000 equity loss related to the CS investment, and further offset by a $2,507,000 increase in accruals (primarily interest). The Company's capital expenditures during the six months ended September 30, 1997 included the purchase of $5,225,000 in equipment and $1,762,000 in wireless channel rights. INTERIM DEBT FINANCING On June 6, 1997, the Company consummated a $30 million interim credit facility (the "F/C Credit Facility") provided by Foothill Capital Corporation and affiliates of Canyon Capital Management, L.P. (the "Interim Debt Lenders"). The F/C Credit Facility is governed by the terms of Loan and Security Agreement dated as of May 16, 1997 (the "LSA"), and is comprised of $25 million of term debt, of which approximately $11.1 million was outstanding at September 30, 1997, and a $5 million revolving loan, none of which was outstanding at September 30, 1997. The LSA provides that the term debt bears interest at 13% per annum. So long as the Company is not in default of its obligations under the LSA, the Company can elect to have one-half of the interest on the term debt accrue and be added to the principal amount outstanding on the term debt. The remaining portion of the term debt interest is payable monthly in arrears. Since the June 6th closing, the Company has elected to have one-half of the term debt interest accrue and be added to the principal amount outstanding. The term debt matures on March 1, 1999, at which time all accrued and unpaid interest on and principal of the outstanding amount of the term debt shall be due and payable in full. The $5 million revolving loan bears interest at four and three-quarters percent above the Reference Rate, as announced from time to time by Norwest bank. Principal and interest on the revolving loan is payable monthly, and the revolving loan expires on March 1, 1999. The F/C Credit Facility is collateralized by a pledge of the assets of CAI, including the stock of its wholly-owned subsidiaries, certain investments held by CAI and a pledge of the stock of CS Wireless held by CAI. In connection with the closing of the F/C Credit Facility, the Company was required to effect certain corporate restructurings in an effort to increase the flexibility and options available to the Interim Debt Lenders with respect to their collateral position. In addition to $1.5 million in cash fees payable to the Interim Debt Lenders at the closing of the F/C Credit Facility and the fees and expenses (including fees and expenses of counsel and special FCC counsel to the Interim Debt Lenders) incurred in connection therewith, CAI was also required to (i) pay an additional $1.5 million fee, evidenced by a two-year promissory note bearing interest at 14% per annum (the "Fee Note"), which interest shall accrue and be payable in full at maturity, and (ii) issue warrants to purchase CAI common stock at any time between the loan closing and the fifth anniversary of the closing. The warrants entitle the holders thereof to purchase, in the aggregate, that number of shares of CAI common stock equal to the quotient of (i) the maximum amount outstanding (including principal and interest) on the Fee Note, DIVIDED BY (ii) the lowest of (A) $1.90 per share, or (B) the lowest price per share of CAI common stock (or its equivalent) that CAI receives in connection with any new capital investment, merger, strategic partnership, joint venture or other significant corporate transaction, which makes available to CAI in excess of $50 million or following certain specified transactions. The warrants contain certain anti-dilution provisions and registration rights, and have been allocated among the Interim Debt Lenders. The availability of loans under the F/C Credit Facility is based upon the achievement by CAI of certain operational benchmarks. In addition, the Company is required to satisfy certain post-closing conditions primarily relating to the Company's corporate structure. The post-closing restructuring was required to be completed on or before September 4, 1997. On September 4, 1997, the Company delivered evidence of all actions taken in furtherance of the restructuring. Concurrently, the Company presented materials demonstrating achievement by CAI of the initial operational benchmark and the Company requested $5 million of funds. Following an initial review of the CAI materials, the Interim Debt Lenders informed CAI that it was not in complete compliance with the requirements of the LSA with respect to the post-closing restructuring matters. On September 24, 1997, the Interim Debt Lenders waived such compliance to complete their review of such materials. Pursuant to a waiver agreement (the "First Waiver Agreement"), the Interim Debt Lenders advanced $1 million to the Company under the revolving loan on September 25, 1997. The First Waiver Agreement also suspended the requirement that any outstanding balance on the revolving loan be repaid out of the daily cash receipts of the Company, and permitted CAI to sell identified non-core assets. In exchange for the waiver, CAI was required to pay a $75,000 fee, which amount was added to the principal of the Fee Note, and agree to a 2% per annum increase in the revolving loan rate of interest for the $1 million advanced thereunder. Additionally, CAI was required to deliver to the Interim Debt Lenders a general release, which release was contained in the First Waiver Agreement. The Interim Debt Lenders informed the Company that they would continue their review of the F/C Credit Facility and that a term sheet outlining new or modified terms for the continuing relationship would be distributed to CAI during the waiver period. No term sheet or other indication of modifications to F/C Credit Facility was delivered and a continuing waiver was entered into as of October 10, 1997 (the "Second Waiver Agreement"). In addition to the aforementioned, the Second Waiver Agreement provided CAI with a term loan advance of $1.347 million on October 14, 1997, and an additional term loan advance of $1.65 million on October 24, 1997. In exchange for the extended waiver, in the Second Waiver Agreement CAI agreed to a three percent (3%) per annum interest rate increase on all outstanding obligations owing by CAI to the Interim Debt Lenders during the waiver period, which also replaced the 2% rate increase on the revolving loan advance under the First Waiver Agreement. The Second Waiver Agreement imposed additional, and/or modified existing, negative covenants relating to the sale of assets, certain fundamental changes to the Company and the Company's ability to incur additional indebtedness. The Interim Debt Lenders informed CAI that they were continuing their review of the F/C Credit Facility. In the absence of a proposed term sheet for new or modified terms, a further continuing waiver was executed (the "Third Waiver Agreement"), effective as of October 31, 1997, extending the waiver of compliance with the specified provisions of the LSA until November 14, 1997. Pursuant to the Third Waiver Agreement, $1 million was advanced to the Company in exchange for a continuation of the terms of the Second Waiver Agreement, including the increased interest rate, imposition of additional and/or modified existing negative covenants, and a general release. The Third Waiver indicated that the waiver period was intended to permit the Interim Debt Lenders to continue to analyze various aspects of the F/C Credit Facility, and attempt to negotiate a mutually agreeable resolution of the identified non- compliance with CAI. The Third Waiver Agreement expired on November 14, 1997 and the parties are currently in good faith negotiations with respect to a fourth waiver agreement. In this connection, the Interim Debt Lenders have informed the Company of additional conditions upon which they would continue to lend money to the Company under the LSA. The Interim Debt Lenders set forth a number of outstanding issues relating to the Company's business, to which the Company has responded in full. Following discussions regarding the outstanding issues, the Interim Debt Lenders have proposed a fourth waiver agreement (the "Fourth Waiver Agreement"), which, if signed, will be effective as of November 14, 1997, through December 5, 1997. In addition to providing the Company with a waiver of compliance of various provisions of the LSA, the Fourth Waiver Agreement requires CAI to achieve certain operational benchmarks on or before December 5, 1997, in certain instances, and December 31, 1997, in other instances. The Company had originally intended that the full $30 million F/C Credit Facility would allow CAI to meet its cash requirements through the end of calendar 1997. As a result of the issues giving rise to the various waiver agreements, the Company has not had available to it the entire amount contemplated by the LSA. In an effort to satisfy its cash requirements since late September 1997, the Company has increased its cost-cutting efforts, curtailed operations and sold approximately $1.1 million of assets not used or useful in the Company's operations. The Company also has been actively seeking to replace the F/C Credit Facility with another secured credit facility and to explore additional sources of capital. To assist the Company with this project, CAI retained Donaldson, Lufkin & Jenrette Securities Corporation on June 20, 1997 to act as a financial advisor to the Company. On November 14, 1997, the Company signed a commitment letter with an existing investor (the "Investor") to purchase from the Company up to $25 million of senior secured notes pursuant to the terms of a new secured credit facility (the "Refinancing Facility"). The Company is currently discussing with the Investor the possibility of increasing the Refinancing Facility by $5 million and having the Investor purchase the F/C Credit Facility. Under the terms of the commitment letter for the Refinancing Facility, the Investor has agreed to advance $25 million to the Company at closing, which the Company believes shall occur not later than November 26, 1997. The Refinancing Facility will bear interest at 13% per annum, and will be secured by a lien on all of the assets of the Company, including its stock in CS Wireless Systems, Inc. and its interest in TelQuest Satellite Services LLC, in substantially identical fashion as the F/C Credit Facility. The Company plans to use the proceeds of the loan to repay all outstanding amounts currently owing to the Interim Debt Lenders (approximately $17.5 million) and the balance for general corporate purposes and to pay fees and expenses of the Refinancing Facility transaction. The commitment letter provides that the Refinancing Facility will be subject to covenants that are usual and customary for a transaction of this type. The closing of the loans is subject to a number of usual and customary conditions, including the successful completion of a due diligence investigation of the Company by the Investor. There can be no assurance that the Company will be able to negotiate the Fourth Waiver Agreement on terms and conditions satisfactory to the Company. If the Fourth Waiver Agreement is entered into by the parties, there can be no assurance that the Company will be able to achieve the operational benchmarks currently being discussed among the parties, or, if such benchmarks are achieved, that the Interim Debt Lenders will advance additional funds under the F/C Credit Facility. Furthermore, there can be no assurance that the transactions contemplated by the commitment letter between the Company and the Investor will be consummated, and if consummated, there can be no assurance that all of the funds contemplated by the commitment letter will be made available to the Company, or that additional funds will be available to the Company from the Investor. AMENDED RELATIONSHIP WITH BELL ATLANTIC AND NYNEX Through a series of amendments to the investment and business relationship agreements among the Company and affiliates of Bell Atlantic Corporation ("Bell Atlantic") and NYNEX Corporation ("NYNEX"), the Company has been granted the right to purchase the $30,000,000 of BANX Term Notes, $70,000,000 of Senior Preferred Stock and BANX Warrants (collectively the "CAI Securities"), for an aggregate purchase price of $40,000,000 and the issuance of 100,000 shares of a series of CAI junior preferred stock having a liquidation value of $30,000,000. The right to purchase the CAI Securities has been granted to CAI through February 28, 1998 (the "Option Period"), and CAI must give notice to Bell Atlantic and NYNEX of its election to exercise this right no later than November 21, 1997. Upon the consummation of such purchase, the BR Agreement would terminate, eliminating CAI's strategic relationship with the BANX Affiliates including all restrictions relating thereto. The Company is actively seeking a new strategic partner to replace the BANX Partnership and to provide the necessary interim and long-term funding to carry out CAI's short and long term objectives. CAI's ability to locate such strategic partner(s) to replace BANX may be limited by the BANX Partnership's willingness to negotiate the terms and conditions of the purchase of the CAI Securities. In the event that CAI does not deliver, on or before November 21, 1997, a notice of election to exercise its right to purchase the CAI Securities, Bell Atlantic and NYNEX have the right to sell the CAI Securities. If CAI does not purchase the CAI Securities on or before February 28, 1998, the BR Agreement will be reinstated with respect to each market contemplated thereby with the exception of Boston, MA, Pittsburgh, PA and Albany, Syracuse and Buffalo, NY. The amendments also relieve CAI from any of its obligations under the BR Agreement with respect to its Boston, MA, Pittsburgh, PA and Albany, Syracuse and Buffalo, NY markets with the same effect as such markets had never been subject to the BR Agreement, and suspend, through February 28, 1998, CAI's obligations under the BR Agreement with respect to the remaining markets contemplated by the BR Agreement. Upon consummation of the purchase of the CAI Securities, the BR Agreement will terminate as to such remaining markets. In addition, Bell Atlantic and NYNEX have granted to CAI an irrevocable proxy during the Option Period with respect to the approximately 10% interest held by Bell Atlantic and NYNEX in CS, and have agreed to transfer such interest to CAI upon consummation of a purchase of the CAI Securities held by Bell Atlantic and NYNEX. GOING CONCERN CAI's recurring losses, restrictions on its ability to obtain additional financing, and substantial commitments raise substantial doubt about the continuation of CAI as a going concern. For the last half of the fiscal year ending March 31, 1998, the Company is obligated to pay approximately $4,300,000 for minimum license fees and lease payments, approximately $1,100,000 in remaining MMDS license auction fees and to fund current operating costs. On a long-term basis, CAI has substantial indebtedness which, beginning in fiscal year 1999, will include significant debt service requirements and senior preferred stock dividend payments. As of September 30, 1997, CAI has outstanding consolidated long-term debt of $325,717,000 and senior preferred stock including accrued dividends totaling $95,096,000. The Company's business strategy has been to explore digital wireless cable systems for its MMDS subscription television services and alternative uses of its MMDS spectrum for a variety of applications, including data and voice transmission such as Internet access and telephony delivery services. In management's opinion, this strategy will help meet the current and perceived future competition and, in relation to obtaining a new strategic partner, show the flexibility and increased value of the Company's MMDS spectrum, if such exploration is successful. In connection with achieving these objectives, CAI is committed through additional open purchase orders as of October 24, 1997 to spend approximately $5,000,000, primarily for capital expenditures associated with additional development of the Boston digital transmission facilities. These commitments are to be funded in part by the Interim Debt Financing (see Note 4 to the Notes to Consolidated Financial Statements). The Company's operating plans, including digital video, two-way voice and data, Internet and Intranet access services and testing, will require additional funding. Such additional funds may take the form of debt or equity securities issuances, borrowings under loan arrangements or sales of assets including channel rights or wireless cable systems. CAI's ability to engage in financings, asset sales or acquisition transactions is limited by the contractual arrangements entered into with the BANX Partnership, the Interim Debt Lenders or the Investor. Significant transactions likely will require the prior consent of one or all of such parties. In addition, the Company's 12.25% Senior Notes due 2002 impose certain restrictions on the incurrence of additional debt and on the ability of CAI to effect asset sales. RESULTS OF OPERATIONS SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996 The Company's strategy is not to pursue analog-based television subscriber growth while it evaluates its business opportunities in addition to subscription television including high speed Internet and Intranet access, as well as digital video and telephony services. The policy has had a negative impact on the Company's subscription revenues. As of September 30, 1997, the Company's subscriber base had decreased by approximately 19,000 to 62,500 subscribers from approximately 81,500 at September 30, 1996. Consequently, subscriber revenues have decreased $1,811,000 and $3,025,000 for the quarter and six months ended September 30, 1997, compared to the corresponding periods last year. Operating expenses were approximately $37,950,000 and $39,977,000 for the six months ended September 30, 1997 and 1996, respectively. The decrease of approximately $2,027,000, of which approximately $1,666,000 occurred in the September 1997, versus 1996 quarter is primarily attributable to programming, licensing and marketing costs which were lower as a result of the decline in subscribers. Interest expense was $22,930,000 and $20,305,000 for the six months ended September 30, 1997 and 1996, respectively, and was $11,956,000 and $10,144,000 for the quarter ended September 30, 1997 and 1996, respectively, and relates primarily to the interest recorded on the $275,000,000 of 12.25% Senior Notes due 2002 and the $30,000,000 of 16% Term Notes issued to Bell Atlantic and NYNEX. On June 6, 1997, the Company closed the $30,000,000 F/C Credit Facility. Interest incurred on the amount outstanding on the F/C Credit Facility through September 30, 1997 plus the amortization of the loan fees accounted for the increase in interest expense. The decrease in CAI's investment in CS Wireless, Inc. ("CS") reflects primarily the Company's 50.7% pro rata share of the $24,754,000 net loss reported by CS for the six months ended June 30, 1997, along with $1,200,000 of amortization of the goodwill associated with the Company's investment compared to an aggregate loss of $7,800,000 for the same period last year. . Other income, comprised primarily of interest income, for the six months ended September 30, 1997 was $1,623,000 compared to $4,117,000 for the comparable period last year and for the quarter ended September 30, 1997 and 1996 was $762,000 and $1,905,000, respectively. Current period interest income on investments declined due to the use of cash in the escrow account for semi- annual interest payments totaling approximately $33,700,000 for the prior twelve-month period in addition to usage of the Company's unrestricted accounts for operational requirements and capital expenditures. The Company recorded an income tax benefit of $4,500,000 for the first and second quarter of 1996 to offset existing deferred tax liabilities. There is no tax benefit for the current period since there were no available deferred tax liabilities and it is more likely than not that any benefit recorded on the Company's current losses would not be realized in the foreseeable future. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 128 ("SFAS 128") - "Earnings Per Share." This statement which is effective for financial statements issued for periods ending after December 15, 1997, simplifies the computation of earnings per share (EPS) by replacing the "primary" EPS requirements with a "basic" EPS computation based upon weighted-average shares outstanding. This new standard requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Due to the Company's net losses, the loss per share amounts included in the accompanying Statements of Operations would not differ from the basic or the dilutive loss per share amounts calculated under SFAS 128. Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income", which was issued in June 1997 is effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting and disclosure of comprehensive income and its components in a full set of general-purpose financial statements. The Company believes that it does not have a significant amount of comprehensive income (loss) as defined, if any. Accordingly, the Company believes that this statement will not have a material effect on CAI's future financial statement presentations. In June 1997, Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") was also issued. This pronouncement is effective for fiscal years beginning after December 15, 1997 and requires disclosures about operating segments and enterprise-wide disclosures about products and services, geographic areas and major customers. Effective April 1, 1998, the Company will comply with the requirements of SFAS 131 and make the necessary disclosures, as applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) EXHIBITS. The following Exhibits are filed herewith or incorporated by reference as indicated:
Incorporation by Reference Page EXHIBIT NO. Description (SEE LEGEND) Refereence ------------ ----------- ------------ ---------- 3.1 Amended and Restated Certificate of Incorporation [1] Exhibit 3.1 of CAI 3.2 Amended and Restated Bylaws of CAI [1] Exhibit 3.2 10.1 Affiliation Agreement as of August 4, 1997 between [2] Exhibit 10.1 CAI and TelQuest Satellite Services LLC 11.1 Schedule Regarding Computation of Loss Per Common Share for the Quarter Ended September 30, 1997 and 1996 11.2 Schedule Regarding Computation of Loss Per Common Share for the Six Months Ended September 30, 1997 and 1996 27. Financial Data Schedule 99.1 MMDS Affiliation Agreement [3] Exhibit 99.1
LEGEND ------ [1] Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for September 30, 1995. [2] Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for June 30, 1997 [3] Incorporated by reference to the exhibit to the Current Report on Form 8-K dated August 4, 1997 Filed herewith. b) REPORTS ON FORM 8-K. Form 8-K dated August 4, 1997 was filed August 27, 1997, regarding the following items under Item 5, Other Events: CAI Wireless Systems, Inc. entered into an MMDS Affiliation Agreement with TelQuest Satellite Services LLC, a Delaware limited liability company owned by the Chairman of CAI, on August 4, 1997. TelQuest intends to develop and operate a satellite system with CAI as partial owner and user of this satellite system. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURE TITLE DATE --------- ----- ---- /S/ JARED E. ABBRUZZESE Chairman, Chief Executive Officer November 17, 1997 JARED E. ABBRUZZESE and Director (Principal Executive Officer) /S/ JAMES P. ASHMAN Executive Vice President, Chief November 17, 1997 JAMES P. ASHMAN Financial Officer and Director (Principal Financial Officer) /S/ ARTHUR J. MILLER Vice President and Controller November 17, 1997 ARTHUR J. MILLER (Principal Accounting Officer)
EX-99 2
EXHIBIT 11.1 CAI WIRELESS SYSTEMS, INC. COMPUTATION OF LOSS PER COMMON SHARE Quarter Ended September 30, -------------------------------- 1997 1996 ---- ---- PRIMARY LOSS PER COMMON SHARE: 1 Net loss $(29,858,672) $(19,857,014) 2 Less preferred dividends (3,706,901) (3,194,747) ----------- ----------- 3 Loss applicable to common shareholders $(33,565,573) $(23,051,761) =========== =========== 4 Weighted average shares outstanding 40,540,539 40,384,787 5 Add additional shares issuable upon exercise of outstanding stock options and warrants * - - ----------- ----------- 6 Adjusted weighted average shares outstanding 40,540,539 40,384,787 =========== =========== 7 Net loss per common share (line 3 line 6) $(0.83) $(0.57) ===== ===== FULLY DILUTED LOSS PER COMMON SHARE: 8 Line 3 above $(33,565,573) $(23,051,761) 9 Add back preferred dividends 3,706,901 3,194,747 10 Add back interest, net of tax, assuming conversion of Term Notes 999,000 729,000 11 Add back interest, net of tax, assuming proceeds from exercise of warrants and options in excess of the 20% treasury stock buyback applied against short-term debt 1,366,000 3,673,000 ----------- ----------- 12 Adjusted net loss $(27,493,672) $(15,455,014) =========== =========== 13 Weighted average shares outstanding (line 4) 40,540,539 40,384,787 14 Add additional shares issuable upon the assumed exercise of outstanding stock options 2,195,937 1,274,134 15 Add additional shares issuable upon the assumed exercise of BANX warrants (Term Notes and Senior Preferred Stock) 36,751,085 36,751,083 16 Add additional shares issuable upon the assumed exercise of other warrants 2,852,453 2,235,541 17 Add Series A preferred stock (not converted until November 1996) - 115,500 18 Deduct treasury stock repurchased with proceeds from theassumed exercise of all options and warrants (8,108,108) (8,076,957) ----------- ----------- 19 Adjusted weighted average shares outstanding 74,231,906 72,684,088 =========== =========== 20 Net loss per common share (line 12 line 19) ** $(0.37) $(0.21) ===== =====
* For the calculation of loss per share, the inclusion of the assumed exercise of options and warrants is not dilutive for the periods presented and, therefore, such assumed exercise is excluded from the per share calculations. ** The fully diluted loss per share is anti-dilutive and is, therefore, not presented in the Consolidated Statements of Operations. EX-99 3
EXHIBIT 11.2 CAI WIRELESS SYSTEMS, INC. COMPUTATION OF LOSS PER COMMON SHARE Six Months Ended September 30, -------------------------------- 1997 1996 ---- ---- PRIMARY LOSS PER COMMON SHARE: 1 Net loss $(57,610,531) $(36,477,449) 2 Less preferred dividends (7,274,859) (6,270,364) ----------- ----------- 3 Loss applicable to common shareholders $(64,885,390) $(42,747,813) =========== =========== 4 Weighted average shares outstanding 40,540,539 39,638,851 5 Add additional shares issuable upon exercise of outstanding stock options and warrants * - - ----------- ----------- 6 Adjusted weighted average shares outstanding 40,540,539 39,638,851 =========== =========== 7 Net loss per common share (line 3 line 6) $(1.60) $(1.08) -==== ===== FULLY DILUTED LOSS PER COMMON SHARE: 8 Line 3 above $(64,885,390) $(42,747,813) 9 Add back preferred dividends 7,274,859 6,270,364 10 Add back interest, net of tax, assuming conversion of Term Notes 1,998,000 1,458,000 11 Add back interest, net of tax, assuming proceeds from exercise of warrants and options in excess of the 20% treasury stock buyback applied against short-term debt 2,871,000 6,300,000 ----------- ----------- 12 Adjusted net loss $(52,741,531) $(28,719,449) =========== =========== 13 Weighted average shares outstanding (line 4) 40,540,539 39,638,851 14 Add additional shares issuable upon the assumed exercise of outstanding stock options 2,195,937 1,274,134 15 Add additional shares issuable upon the assumed exercise of BANX warrants (Term Notes and Senior Preferred Stock) 36,751,085 36,751,083 16 Add additional shares issuable upon the assumed exercise of other warrants 2,852,453 2,235,541 17 Add Series A preferred stock (not converted until November1996) - 115,500 18 Deduct treasury stock repurchased with proceeds from the assumed exercise of all options and warrants (8,108,108) (8,076,957) ----------- ----------- 19 Adjusted weighted average shares outstanding 74,231,906 71,938,152 =========== =========== 20 Net loss per common share (line 12 line 19) ** $(0.71) $(0.40) -==== =====
* For the calculation of loss per share, the inclusion of the assumed exercise of options and warrants is not dilutive for the periods presented and, therefore, such assumed exercise is excluded from the per share calculations. ** The fully diluted loss per share is anti-dilutive and is, therefore, not presented in the Consolidated Statements of Operations. EX-27 4
5 EXHIBIT 27
CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES FINANCIAL DATA SCHEDULE AS OF AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 APR-01-1997 6-MOS MAR-31-1998 SEP-30-1997 861,071 0 1,137,519 372,757 0 0 102,347,624 35,802,986 501,280,629 0 325,716,486 95,095,593 0 275,769,414 (225,964,614) 501,280,629 0 15,386,043 0 37,949,866 13,740,000 426,200 22,929,735 (57,610,531) 0 (57,610,531) 0 0 0 (57,610,531) (1.60) 0
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