-----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, VOfcFRdvvgcOu38Hf0RPhaiIlE6ufVDa811wTVzfI6HBMMmxRa5hlWkDxaK9Ml1c PcHNe5QmWlYFLc3Kr8lJsw== 0000914749-96-000011.txt : 19961106 0000914749-96-000011.hdr.sgml : 19961106 ACCESSION NUMBER: 0000914749-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961105 SROS: NASD 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: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22888 FILM NUMBER: 96654235 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 x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 1996 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, 1996: CLASS OUTSTANDING SHARES Common Stock, no par value 40,384,787 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 MARCH 31, 1996 1996 (UNAUDITED) *
ASSETS
Cash and cash equivalents $ 45,483,937 $103,263,094 Subscriber accounts receivable, less allowance for bad debts of $1,085,000 for September and $1,296,000 for March 1,276,633 1,432,674 Prepaid expenses 625,795 698,482 Property and equipment, net 71,565,759 52,568,619 Wireless channel rights, net 203,292,785 205,973,840 Investment in CS Wireless Systems, Inc. 105,525,153 113,054,069 Debt service escrow 62,940,778 77,621,088 Goodwill 126,762,356 131,282,996 Loan acquisition costs, net 9,838,309 10,631,263 Other assets 3,679,401 2,268,847 Total Assets $630,990,906 $698,794,972 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable $ 9,688,020 $ 8,244,577 Accrued expenses 12,395,825 10,186,37 Senior debt 275,000,000 275,000,000 Notes payable 37,160,004 43,434,667 Wireless channel rights obligations 21,332,611 41,025,866 Deferred income taxes 26,410,000 35,410,000 381,986,460 413,301,484 Commitments Mandatorily Redeemable Preferred Stock 14% Senior convertible preferred stock (liquidation value $70,000,000) 69,090,004 69,020,002 Series A 8% redeemable convertible preferred stock (liquidation value $577,500) 577,500 18,050,000 Accrued preferred stock dividends 12,001,374 5,812,562 Shareholders' Equity Preferred stock - - Common stock, shares issued and outstanding March 31, 1996 - 37,829,482 September 30, 1996 - 40,384,787 275,191,915 257,701,130 Accumulated deficit (107,856,347) (65,090,206) 167,335,568 192,610,924 Total Liabilities and Shareholders' Equity $630,990,906 $698,794,972
* Summarized from the Company's audited Consolidated Balance Sheet as of that date. See notes to condensed consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX-MONTH THREE-MONTH PERIODS ENDED PERIODS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1996 1995 1996 1995 REVENUES $ 18,487,778 $ 7,891,508 $ 9,182,955 $ 3,899,641 Costs and expenses Programming and license 7,859,550 3,463,916 3,966,954 1,799,011 Marketing 1,226,017 1,764,780 651,412 718,777 General and administrative 14,340,890 9,171,468 7,427,376 4,527,393 Depreciation and amortization 16,550,788 5,589,886 8,455,561 2,980,961 39,977,245 19,990,050 20,501,303 10,026,142 Operating loss (21,489,467) (12,098,542) (11,318,348) (6,126,501) Other income (expense) Equity in net loss of affiliate (7,800,000) - (4,800,000) - Interest income 4,039,174 329,453 1,867,110 241,141 Other income 77,397 41,504 37,943 3,558 Interest expense (20,304,553) (3,808,507) (10,143,719) (1,868,229) (23,987,982) (3,437,550) (13,038,666) (1,623,530) Loss before provision for income tax benefit and minority interest (45,477,449) (15,536,092) (24,357,014) (7,750,031) Provision for income tax benefit 9,000,000 - 4,500,000 - Loss before minority interest (36,477,449) (15,536,092) (19,857,014) (7,750,031) Minority interest in loss - 321,910 - 42,164 Net loss (36,477,449) (15,214,182) (19,857,014) (7,707,867) Preferred stock dividend (6,270,364) (743,265) (3,194,747) (390,816) Loss applicable to common stock shareholders $(42,747,813) $(15,957,447) $(23,051,761) $(8,098,683) Loss per common share $ (1.08) $ (0.98) $ (0.57) $ (0.48) Average common and equivalent shares outstanding 39,638,851 16,321,674 40,384,787 16,725,006
See notes to condensed consolidated financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX-MONTH PERIODS ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (36,477,449) $ (15,214,182) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 16,550,788 5,589,886 Equity in net loss of affiliate 7,800,000 - Deferred income tax benefit (9,000,000) - Amortization of loan costs and other 990,042 871,769 Minority interest in loss - (321,910) Debt service escrow interest income 835,968 - Other - 130,814 Changes in assets and liabilities, net of effects from acquisitions Subscriber accounts receivable 107,366 (265,655) Other assets (670,899) 110,281 Accounts payable and accrued expenses 694,115 835,461 Net cash used in operating activities (19,170,069) (8,263,536) CASH FLOWS FROM INVESTING ACTIVITIES Cash paid for companies, net of cash acquired - (77,153,085) Purchase of wireless channel rights (2,941,307) (18,885,763) Purchase of property and equipment (22,152,837) (4,391,687) Proceeds from the sale of property and equipment 463,900 209,851 Investment in CS Wireless (436,202) - Purchase of investments - (250,000) Proceeds from the sale of investments 13,844,342 208,858 Loans to related parties (800,000) - Other (26,264) (498,694) Net cash used in investing activities (12,048,368) (100,760,520) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of senior notes, other debt and warrants - 307,931,686 Payment of senior and other debt (26,549,127) (34,044,261) Cash paid for debt service escrow - (90,638,756) Proceeds from issuance of senior preferred stock and warrants - 70,000,000 Debt financing costs paid - (1,750,568) Proceeds from issuance of common stock - 1,545,979 Registry and other stock issuance costs paid - (1,899,588) Other (11,593) - Net cash provided by (used in) financing activities (26,560,720) 251,144,492 Net increase (decrease) in cash and cash equivalents (57,779,157) 142,120,436 Cash and cash equivalents, beginning 103,263,094 1,201,932 Cash and cash equivalents, ending $ 45,483,937 $ 143,322,368
See notes to condensed consolidated financial statements PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of CAI Wireless Systems, Inc. and its wholly-owned subsidiaries (the "Company" or "CAI"). The balance sheets presented herein reflect the acquisitions of ACS Enterprises, Inc. and its subsidiaries ("ACS") and Eastern Cable Networks of Washington, Inc. ("ECNW") which were effective as of September 29, 1995. However, consistent with the purchase method of accounting, the statement of operations for the six and three-month periods ended September 30, 1995 do not include any operating activity of ACS or ECNW. A 54% owned subsidiary, CS Wireless Systems, Inc. ("CS") is accounted for on the equity method. Current summarized financial information regarding CS is presented in Note 3 below. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of the Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending March 31, 1997. Note 2. Shareholders' Equity During the three-month period ended June 30, 1996, a total of 174,725 shares of 8% Series A Preferred Stock were converted into 2,481,990 shares of common stock, resulting in an increase of $17,472,457 in common stock. Also during that same period, warrants were exercised in a cashless transaction whereby 75,000 warrants were surrendered for 73,315 shares of common stock with a charge to accumulated deficit and a credit to common stock for $18,329, the warrant conversion value. Note 3. Investment in CS Wireless Systems, Inc. The Company's equity in net loss of affiliate of approximately $7,800,000 is based on CAI's pro-rata share of CS Wireless Systems, Inc.'s net loss of $10,847,000 for the six-month period ended June 30, 1996, taking into account CAI's complete ownership prior to February 23, 1996, plus CAI's amortization of the excess of its cost less its pro-rata share of equity acquired over a fifteen year period as follows: CAI's share of affiliate's net loss $6,700,000 Amortization of CAI's excess cost 1,100,000 Equity in net loss of affiliate $7,800,000 The summarized financial information disclosed below is extracted from CS Wireless Systems, Inc. unaudited historical June 30, 1996 financial statements. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 3. Investment in CS Wireless Systems, Inc. (continued) The following is an unaudited condensed consolidated balance sheet of CS Wireless Systems, Inc. and Subsidiaries as of June 30, 1996: ASSETS
Cash and cash equivalents $157,637,000 Subscriber receivables, net 683,000 Prepaid expenses and other 275,000 Plant and equipment, net 38,835,000 Wireless channel rights, net 166,918,000 Goodwill, net 52,948,000 Debt issuance costs and other assets, net 9,438,000 $426,734,000 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable and accrued expenses $ 6,532,000 FCC Auction payable 14,328,000 Other liabilities 574,000 Debt 253,358,000 Deferred income taxes 13,006,000 287,798,000 STOCKHOLDERS' EQUITY Common stock 10,000 Additional paid-in-capital 150,980,000 Accumulated deficit (12,054,000) Total Stockholders' Equity 138,936,000 $426,734,000
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 3. Investment in CS Wireless Systems, Inc. (continued) The following is an unaudited condensed consolidated statement of operations of CS Wireless Systems, Inc. and Subsidiaries for the six months ended June 30, 1996:
Revenues $ 9,720,000 Operating expenses: Systems operations 8,275,000 General and administrative 3,136,000 Depreciation and amortization 7,779,000 Total operating expenses 19,190,000 Operating loss (9,470,000) Other income (expense): Interest income 2,977,000 Interest expense (10,244,000) Total other income (expense), net ( 7,267,000) Loss before income taxes (16,737,000) Income tax benefit 5,890,000 Net loss $(10,847,000)
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, which are not historical fact are "forward- looking statements" that involve various important assumptions, risks and other factors which could cause the Company's actual results for fiscal 1997 and beyond to differ materially from those expressed in such forward looking statements. These important factors include, without limitation, the assumptions, risks and uncertainties set forth below in this "Management's Discussion and Analysis of Financial Condition and Results of Operations", as well as other assumptions, risks, uncertainties and factors disclosed elsewhere in this Form 10-Q and the Company's other securities filings. OPERATIONS As of September 30, 1996, CAI Wireless Systems, Inc. and Subsidiaries (the "Company" or "CAI") had approximately 80,900 wireless systems' subscribers as compared to 118,500 subscribers as of September 30, 1995, including subscribers from the acquisitions of ACS Enterprises, Inc. ("ACS") and Eastern Cable Networks of Washington, Inc. ("ECNW") on September 29, 1995. Approximately 32,900 subscribers for September 30, 1995 are attributable to CS Wireless Systems, Inc. ("CS"), which became an unconsolidated subsidiary of the Company on February 23, 1996 upon the closing of the transactions contemplated by the Participation Agreement dated December 12, 1995, among the Company, CS and Heartland Wireless Communications, Inc. On a pro forma basis, giving effect to the ACS and ECNW acquisitions and the CS transaction as if such transactions had occurred on September 30, 1995, the Company would have had as of September 30, 1995 approximately 85,600 subscribers compared to 80,900 subscribers as of September 30, 1996. The net decrease in subscribers is due primarily to the New York System decrease of approximately 3,800 subscribers for the comparable periods. The New York system is losing subscribers to hardwire cable operators primarily due to its inferior channel capacity. This trend in New York will likely continue until CAI builds digital transmission facilities which are expected to provide greater channel capacity than the hardwire cable operators currently have. CAI has substantially completed construction of digital video delivery systems in Boston, Massachusetts and Hampton Roads, Virginia in anticipation of the implementation of the Business Relationship Agreement (the "BR Agreement") among CAI and affiliates of Bell Atlantic Corporation and NYNEX Corporation (the "BANX Affiliates") in those markets. The BANX Affiliates have not yet formally implemented the BR Agreement in any market, however, Bell Atlantic has recently announced its intention to begin providing video programming services in Hampton Roads using CAI's delivery system in early 1997 and NYNEX has announced a launch of the Boston system some time during the second quarter of 1997. Each of the BANX Affiliates has until September 1997 to make the election for any market in its operating territory specified in the BR Agreement. The option of Bell Atlantic and NYNEX to implement the BR Agreement in each market is within the sole discretion of Bell Atlantic and NYNEX, as applicable. The passage of the Telecommunications Act of 1996, enacted after the parties entered into the BR Agreement, may impact the decision of the BANX Affiliates to exercise their option to implement the BR Agreement. As a result of the construction experience in Boston and Virginia Beach, both CAI and the BANX Affiliates have proposed amendments to the BR Agreement including, but not limited to, the length of the option exercise period, the length of time within which CAI must build a digital video delivery system and the waiver of certain technical defaults under the BR Agreement, as well as proposed amendments concerning other aspects of the relationship. The parties have not yet reached a definitive agreement with respect to the proposed amendments, and there can be no assurance that such agreement will be reached. The Company's digital transmission facilities located in Boston and Norfolk/Virginia Beach are currently being tested by NYNEX and Bell Atlantic, respectively. The testing is not yet complete. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES During the six-month period ended September 30, 1996, CAI expended approximately $22.2 million to purchase equipment, $19.2 million to fund operating activities of which $16.8 million represents senior note interest expense paid from the escrow account, $2.9 million to acquire wireless channel rights and $26.5 million to pay senior and other debt including $17.2 million against the amount due on the FCC MMDS license auctions. During this period, CAI funded its cash requirements out of existing cash balances. At September 30, 1996, CAI had cash and cash equivalents of approximately $45.5 million. Pursuant to the Company's capital expenditure plans for fiscal 1997, CAI is committed as of September 30, 1996 through open purchase orders to expend approximately $16.4 million primarily for capital expenditures associated with the development of digital transmission facilities. In addition, during the six-month period ending March 31, 1997, the Company is obligated to pay approximately $21.9 million in MMDS license auction fees, of which CS is obligated to reimburse CAI $4.1 million for licenses transferred to CS, and approximately $3.2 million of minimum license fees and lease payments. Management believes that the Company's growth plan will require additional funds during the 1997 fiscal year, especially if CAI determines to effect additional acquisitions or if the BANX Affiliates fails to exercise their options with respect to markets as contemplated by the BR Agreement. 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 BANX Partnership, and significant transactions likely will require its prior consent. In addition, the Company's 12 1/4 % Senior Notes due 2002 (the "Senior Notes") impose similar restrictions on the incurrence of additional debt and on the ability to effect asset sales. There is no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event that such additional financings are not available to the Company, management can and will defer capital expenditures and other costs currently contemplated, including the deployment of Digital head-end equipment which will affect the Company's ability to implement its obligations under the BR Agreement. The present revenue stream and cash resources available to the Company are adequate to sustain the Company's needs into the first quarter of fiscal 1998 if such actions were taken. However, expansion plans would be adversely impacted. There is no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SIX AND THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX AND THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 CAI's total revenue was $18.5 million and $9.2 million for the six and three-month periods ended September 30, 1996 as compared to $7.9 million and $3.9 million for the six and three-month periods ended September 30, 1995, respectively. While the ACS and ECNW acquisitions were reflected in the balance sheet as of September 30, 1995, no operating activity was reflected until after September 29, 1995, the date of acquisition, pursuant to purchase accounting principles. Accordingly, the six and three-month periods of operations for the Philadelphia and Washington systems reflected in the 1996 period are not included in the comparable 1995 period. The Philadelphia and Washington systems (the "Acquired Systems") accounted for $11.5 million and $5.7 million of revenue for the six and three-month periods ended September 30, 1996, respectively. The revenue derived from the systems included in both the six and three-month periods ended September 30, 1996 and 1995 (the "Same Systems") decreased by $0.9 million and $0.5 million, respectively. The decrease in revenue is primarily attributable to decreased revenues in the New York system of $1.3 million for the six-month period and $0.6 million for the three-month period due to decreased subscribers offset by increases totaling $0.4 million and $0.1 million, respectively, due to growth of subscribers in other systems. Operating expenses of $40.0 million and $20.5 million for the six and three-month periods ended September 30, 1996 increased by $20.0 million and $10.5 million over the $20.0 million and $10.0 million reported for the six and three-month periods ended September 30, 1995, respectively. Depreciation and amortization accounted for $11.0 million and $5.5 million of the six and three-month period increases, respectively, substantially resulting from the ACS and ECNW acquisitions. Programming and license fees were up by $4.4 million for the six-month period ended September 30, 1996, also resulting from the Acquired Systems. The $0.5 million marketing expense decrease consists of a $0.7 million increase attributable to Acquired Systems, offset by a $1.2 million decrease attributable to the Same Systems, reflecting CAI's change from an aggressive growth strategy in the 1995 period to a limited growth strategy in the 1996 period, as the Company awaits the commercial availability of digital wireless subscriber equipment. General and administrative expenses increased by $5.2 million for the six-month period ended September 30, 1996, primarily attributable to the Acquired Systems. CAI's operating loss was $21.5 million and $11.3 million for the six and three-month periods ended September 30, 1996, or $9.4 million and $5.2 million higher, as compared to the six and three-month periods ended September 30, 1995 operating loss of $12.1 million and $6.1 million, respectively. While revenue increased by $10.6 million for the six-month period ended September 30, 1996, operating expenses also increased (by $20.0 million). However, after considering the non-cash depreciation and amortization increase discussed above, operating expenses requiring cash increased by $9.0 million while revenue increased by $10.6 million. For the three-month period ended September 30, 1996, operating expenses increased by $10.5 million of which non-cash depreciation and amortization accounted for $5.5 million of that increase, leaving operating expenses requiring cash increasing $5.0 million against a revenue increase of $5.3 million. CAI's six and three-month periods ended September 30, 1996 include a $7.8 million and a $4.8 million loss relating to CAI's investment in CS, representing its pro-rata share of CS's net loss for CS's six-month period ended June 30, 1996 and three-month period ended June 30, 1996, respectively. CAI acquired ACS Ohio, Inc., the predecessor of CS on September 29, 1995. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (continued) Interest income was $4.0 million and $1.8 million for the six and three-month periods ended September 30, 1996 as compared to $0.3 million and $0.2 million for the six and three-month periods ended September 30, 1995. The increase is primarily due to interest earned on the Debt Service Escrow established in connection with the Company's offering of the Senior Notes and the investment of the cash remaining from the net proceeds of the Senior Notes offering and other concurrent September 29, 1995 transactions. Interest expense increased to $20.3 million and $10.1 million for the six and three-month periods ended September 30, 1996 up from $3.8 million and $1.9 million for the six and three-month periods ended September 30, 1995, a change of $16.5 million and $8.3 million, respectively, primarily due to interest expense incurred on the Senior Notes issued on September 29, 1995. PART I. FINANCIAL INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The Annual Meeting of Shareholders of CAI Wireless Systems, Inc. was held on October 16, 1996, for the purposes of electing a Board of Directors, approving a new 1996 Outside Directors' Stock Option Plan, and approving certain amendments to the Company's 1993 Stock Option and Incentive Plan. (b) All of management's nominees for directors as listed in the proxy statement were elected with the following vote: Shares Voted Shares "For" "Withheld" Jared E. Abbruzzese 28,839,707 1,003,588 John J. Prisco 28,839,807 1,003,488 George M. Williams 28,839,807 1,003,488 James P. Ashman 28,839,807 1,003,488 Arthur C. Belanger 28,839,707 1,003,588 Harold A. Bouton 28,839,807 1,003,488 David M. Tallcott 28,791,707 1,051,588 Alan Sonnenberg 28,839,807 1,003,488 Robert D. Happ 28,839,807 1,003,488 (c) The other matters voted upon were as follows: The 1996 Outside Directors' Stock Option Plan was approved with the following vote: Votes For: 27,280,367 Votes Against: 2,404,621 Abstentions: 62,507 Broker non-votes: 95,800 The Amendments to the Company's 1993 Stock Option and Incentive Plan were approved with the following vote: Votes For: 22,531,807 Votes Against: 7,115,671 Abstentions: 100,017 Broker non-votes: 95,800 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION The Company issued the following media releases, each of which is attached hereto as an exhibit:
For details, see the following exhibits: CAI RESPONDS TO RECENT SHARE PRICE VOLATILITY Exhibit 99.1 CAI WIRELESS SYSTEMS, INC. ANNOUNCES APPOINTMENT OF NEW OFFICER Exhibit 99.2 CAI WIRELESS SYSTEMS, INC. TO COMMENCE LIMITED COMMERCIAL ROLL-OUT OF HIGH-SPEED INTERNET SERVICE Exhibit 99.3 CAI WIRELESS SYSTEMS, INC. FILES FOR FCC APPROVAL TO USE WIRELESS MMDS SPECTRUM FOR TWO-WAY FLEXIBLE USE Exhibit 99.4
PART II. OTHER INFORMATION 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) REFERENCE 3.1 Amended and Restated Certificat of 1-Exhibit 3.1 Incorporation of CAI 3.2 Amended and Restated Bylaws of CAI 1-Exhibit 3.2 11.1 Schedule Regarding Computation of Loss Per 17 Common Share 11.2 Schedule Regarding Computation of Fully Diluted 18 Loss Per Common Share 27 Financial Data Schedule 19 99.1 Media Release - CAI Responds to Recent Share 20 Price Volatility 99.2 Media Release - CAI Announces Appointment of 22 New Officer 99.3 Media Release - CAI to Commence Limited 23 Commercial Roll-Out of High-Speed Internet Service 99.4 Media Release - CAI files for FCC Approval to 25 Use Wireless MMDS Spectrum for Two-Way Flexible Use
LEGEND 1 Incorporated by reference to the exhibits to the Quarterly Report on Form 10-Q for September 30, 1995. Filed herewith (b) Reports on Form 8-K b1) Form 8-K dated June 27, 1996 (filed July 3, 1996), regarding the following item: Item 5. OTHER EVENTS The Company successfully transmitted digital video, audio programming and data signals on June 27, 1996 at a demonstration held in Rochester, New York, for members of the financial community. b2) Form 8-K dated August 12, 1996 (filed August 13, 1996), regarding the following item: Item 5. OTHER EVENTS The Company announces 1996 first quarter results on August 12, 1996. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) b3) Form 8-K dated September 16, 1996 (filed September 20, 1996), regarding the following item: Item 5. OTHER EVENTS The Company announced on September 16, 1996 that it will conduct a market trial of its high-speed wireless Internet access service in Rochester, NY, beginning by the end of September, and also announced on September 20, 1996 that all of its operating subsidiaries would subcontract all of their installation and service work to outside contractors in an effort designed to cut overhead costs and promote safety. b4) Form 8-K dated September 27, 1996 (filed September 27, 1996), regarding the following item: Item 5. OTHER EVENTS The BANX Affiliates have elected to extend the option exercise period with respect to all option service areas set forth in the Business Relationship Agreement, dated as of March 28, 1995, as amended (the "BR Agreement"), among CAI and the BANX Affiliates to the second anniversary of the Stage II Closing Date, as defined in the BR Agreement. 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 4, 1996 JARED E. ABBRUZZESE and Director (Principal Executive Officer) /S/ JAMES P. ASHMAN Executive Vice President, Chief November 4, 1996 JAMES P. ASHMAN Financial Officer and Director (Principal Financial Officer) /S/ CRAIG J. KESSLER Vice President and Controller November 4, 1996 CRAIG J. KESSLER (Principal Accounting Officer)
EX-11.1 2 EXHIBIT 11.1 CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES Computation of Loss per Common Share For the Six-Month Period Ended September 30, 1996
Net loss $ (36,477,449) Preferred stock dividend (6,270,364) Loss applicable to common stock shareholders $ (42,747,813) Weighted average number of shares outstanding 39,638,851 Loss per common share $ (1.08) COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Weighted Average SHARES SHARES FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 Beginning Balance 37,829,482 37,829,482 Series A Preferred Stock - converted 2,481,990 1,760,092 Warrants exercised 73,315 49,227 Series A Preferred Stock - not converted 115,500 0 Warrants - BANX 36,751,083 0 Warrants - Other 2,235,541 0 Options 1,274,134 0 39,638,851
(a) Outstanding convertible preferred stock, warrants and options are not considered for the purposes of calculating the weighted average shares outstanding since these securities are anti-dilutive. (b) The Series A Redeemable Convertible Preferred Stock of 5,775 shares which have not been converted are assumed converted at a conversion price of $5 per share. EX-11.2 3 Exhibit 11.2 CAI WIRELESS SYSTEMS, INC. AND SUBSIDIARIES Computation of Fully Diluted Loss Per Common Share For the Six-Month Period Ended September 30, 1996
Loss applicable to common stock shareholders $ (47,747,813) Less: Preferred stock dividends 6,270,364 Net loss used to calculate fully diluted loss per common share, before adjustments (36,477,449) LESS : ADJUSTMENTS Interest expense on term notes assumed to be converted, net of deferred tax effect....................... 1,458,000 Interest expense reduction resulting from the assumed proceeds from exercise of warrants and options in excess of the 20 % buyback applied against short and long term debt, net of deferred tax effect................................... 6,300,000 Adjusted net loss $(28,719,449) Weighted average fully diluted loss per common share $ (0.40) Weighted average common and equivalent shares outstanding as of September 30, 1996 39,638,851 ADD SHARES ASSUMING CONVERSION OF : Warrants, BANX 36,751,083 Warrants, other 2,235,541 Options 1,274,134 Series A preferred stock 115,500 Treasury stock repurchase with proceeds (8,076,957) Weighted average number of shares used to compute fully diluted loss per common share 71,938,152
a. Interest expense reduction resulting from excess proceeds ( over 20 % treasury stock purchase) used to reduce debt is calculated based on actual interest expense incurred on the Senior Notes. b. Treasury stock method used to the extent of the 20% limit on the shares outstanding as of September 30, 1996. This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result. EX-27 4
5 This schedule contains summary financial information extracted from the September 30, 1996 financial statements contained in this Form 10-Q and is qualified in its entirety by reference to such financial statements. 6-MOS MAR-31-1997 SEP-30-1996 45,483,937 0 2,362,028 1,085,395 0 0 93,384,965 21,819,206 630,990,906 0 315,685,004 69,667,504 0 275,191,915 (107,856,347) 630,990,906 0 18,487,778 0 15,341,345 7,800,000 1,165,830 20,304,553 (45,477,449) (9,000,000) (36,477,449) 0 0 0 (36,477,449) (1.08) 0
EX-99.1 5 EXHIBIT 99.1 FOR IMMEDIATE RELEASE INVESTOR CONTACT: Jason Thompson COMPANY CONTACT: Jared E. Abbruzzese Lippert/Heilshorn & Assoc. CAI Wireless Systems, Inc. 518/462-2632 CAI RESPONDS TO RECENT SHARE PRICE VOLATILITY ALBANY, N.Y., October 8, 1996 - Jared E. Abbruzzese, Chairman and Chief Executive Officer of CAI Wireless Systems, Inc. (NASDAQ: CAWS) made the following statement in light of the volatility in the Company's common stock price over the last three trading days: "CAI continues to be the only independent MMDS company with a significant continuing investment by regional bell operating companies. CAI remains committed to a mutually beneficial relationship with their video services organizations," said Abbruzzese. "CAI is also extremely confident in its MMDS spectrum and in the Company's ability to fully exploit its spectrum, notwithstanding the recent downturn in the Company's stock price. "CAI is the national leader in LOS households and was the industry leader in obtaining awards of BTAs in the recently-concluded FCC auction. With this valuable asset base, in addition to its existing video delivery strategy, CAI is exploring a variety of uses for MMDS technology to enhance the value of its substantial spectrum capacity," continued Abbruzzese. "The Company is particularly excited about the use of the spectrum for data transmission, including Internet capabilities, which the Company has been testing successfully in Rochester and Washington, DC. Subject to regulatory approval, CAI expects to be able to offer enhanced services, such as data transmission services, coupled with video service, in its Rochester market. CAI anticipates that the integrated service will become available in selected markets in its CS Wireless Systems, Inc. affiliate as well. - more - "It has been the Company's experience that the incremental cost of these additional uses of the spectrum is relatively small. Any limitations the Company may now have on its ability to access the public capital markets should not, in the Company's view, hinder the initial development of these uses or access to alternative sources of capital, including from sales of selected assets, although there can be no assurance that the Company would be successful with this or any other financing strategy." CAI, based in Albany, NY, operates six analog-based wireless systems in New York City, Rochester and Albany, NY, Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, Va. CAI also has a portfolio of wireless cable channel rights in eight additional markets, including Long Island, Buffalo and Syracuse, NY. Providence, RI, Hartford, Boston, Baltimore and Pittsburgh. ### EX-99.2 6 EXHIBIT 99.2 FOR IMMEDIATE RELEASE Investor Relation Contact: Company Contact: Jason Thompson John Prisco Lippert/Heilshorn & Associates President, CAI Wireless Systems, Inc. 212/838-3777 518/462-2632 CAI WIRELESS SYSTEMS, INC. ANNOUNCES APPOINTMENT OF NEW OFFICER ALBANY, N.Y., OCTOBER 9,1996 -- CAI WIRELESS SYSTEMS, INC. ("CAI") (NASDAQ NM: CAWS) today announced the appointment of Robert B. Gore as Senior Vice President Business Development of CAI. Mr. Gore comes to CAI as a 16-year veteran of Bell Atlantic Corporation (NYSE: BEL), where he most recently served as Executive Director - Bell Atlantic International, Inc. Business Development. Mr. Gore, who will be responsible for overseeing CAI's business development, said, "I am pleased to be joining CAI. I believe that the Company has tremendous potential to add to its success and I am excited by the opportunity to participate." John Prisco, CAI President and Chief Operating Officer, said, "We are extremely pleased with the addition of Robert Gore to the CAI management team. His experience should prove valuable to CAI's further development." CAI, based in Albany, New York, operates six analog-based wireless systems in New York City, Rochester and Albany, NY, Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, VA. CAI also has a portfolio of wireless cable channel rights in eight additional markets, including, Long Island, Buffalo and Syracuse, NY, Providence, RI, Hartford, Boston, Baltimore and Pittsburgh. # # # EX-99.3 7 EXHIBIT 99.3 FOR IMMEDIATE RELEASE Investor Relations Contact: Company Contact: Jason Thompson John Prisco Lippert/Heilshorn & Associates President, CAI Wireless Systems, Inc. 212/838-3777 518/462-2632 CAI WIRELESS SYSTEMS, INC. TO COMMENCE LIMITED COMMERCIAL ROLL-OUT OF HIGH-SPEED INTERNET SERVICE - 500 Initial Subscribers Permitted In Rochester, New York - ALBANY, N.Y., OCTOBER 15,1996 -- CAI WIRELESS SYSTEMS, INC. ("CAI") (NASDAQ NM: CAWS) today announced it has been granted approval by the Federal Communications Commission ("FCC") to begin commercial roll-out of its Internet and Intranet services to up to 500 subscribers in Rochester, New York. CAI expects to begin marketing its service and signing-up customers in Rochester within the next several days. Furthermore, the Company anticipates that the FCC will acknowledge broader authority with respect to the use of MMDS spectrum for data transmission on an industy-wide basis in the near future, which the Company believes will enable it to expand its services in Rochester and in other CAI markets. John Prisco, President and Chief Operating Officer of CAI, said, "We believe this is an important step that enables CAI to begin roll-out of complementary commercial services including video, high-speed Internet access and eventually other services, such as two-way wireless data transmission. In addition to our high-speed Internet service, the Company will make its facilities available for corporate Intranet transmissions on CAI servers. CAI and others in the industry have already shown, in several highly successful technical trials, that the marriage of the wireless cable spectrum with digital technology holds the transmission potential for a variety of commercially attractive applications." - more - CAI, Page 2 CAI's Rochester wireless Internet service will initially send information to its customers' computer terminals at a rate of 10 megabits per second (Mbps), nearly seven times the rate of today's fastest T1 telephone lines, which transfer data at 1.5 Mbps. The system's return path receives information from customers through traditional telephony. CAI, based in Albany, New York, operates six analog-based wireless systems in New York City, Rochester and Albany, NY, Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, VA. CAI also has a portfolio of wireless cable channel rights in eight additional markets, including, Long Island, Buffalo and Syracuse, NY, Providence, RI, Hartford, Boston, Baltimore and Pittsburgh. # # # EX-99.4 8 EXHIBIT 99.4 FOR IMMEDIATE RELEASE Investor Relations Contact: Company Contact: Jason Thompson John Prisco Lippert/Heilshorn & Associates President, CAI Wireless Systems, Inc. 212/838-3777 518/462-2632 CAI WIRELESS SYSTEMS, INC. FILES FOR FCC APPROVAL TO USE WIRELESS MMDS SPECTRUM FOR TWO-WAY FLEXIBLE USE ALBANY, N.Y., OCTOBER 16, 1996 -- CAI WIRELESS SYSTEMS, INC. ("CAI") (NASDAQ NM: CAWS) is filing today with the Federal Communications Commission ("FCC") requests for authority for one- and two-way flexible use of its MMDS wireless spectrum in Hartford, Connecticut, announced Jared E. Abbruzzese, Chairman and Chief Executive Officer of CAI, at its Annual Meeting of Shareholders. If FCC approval is granted, CAI would have the authority to offer consumers in the greater Hartford metropolitan area a variety of services, including high-speed Internet and Intranet access, voice and data transmission, including home shopping and banking, and other interactive services. Recently, CAI and others in the industry have sought and obtained FCC approval for market trials to test the technical and commercial viability of one-way digital transmission-based services. Today's filings seek permanent, unrestricted authority for commercial deployment of both one-way and two-way interactive services. CAI's filings are consistent with the FCC's stated goal of affording spectrum auction winners maximum flexibility to respond to market forces. John Prisco, President and Chief Operating Officer, said, "These FCC filings represent a logical and important step in the evolution of the use of MMDS spectrum. CAI will create a digital platform from which reasonably-priced video, voice and data ("VV&D") services can be launched. But more importantly, just as hard-wire cable and telephone companies are entering each other's businesses, the wireless industry is rapidly approaching the point where it will be able to offer individuals and businesses a variety of - more - CAI, Page 2 consumer-friendly telecommunications services. What excites us at CAI is the anticipated ability, afforded by the combination of digital technology and wireless MMDS spectrum, to respond quickly to competitive forces and offer, in a cost-effective way, a wide array of consumer VV&D services." CAI, based in Albany, New York, operates six analog-based wireless systems in New York City, Rochester and Albany, NY, Philadelphia, PA, Washington, DC and Norfolk/Virginia Beach, VA. CAI also has a portfolio of wireless cable channel rights in eight additional markets, including, Long Island, Buffalo and Syracuse, NY, Providence, RI, Hartford, Boston, Baltimore and Pittsburgh. # # # -----END PRIVACY-ENHANCED MESSAGE-----