CELLULARVISION USA INC, 10-K/A, 1997-04-09

CELLULARVISION USA INC
10-K/A, 1997-04-09
CABLE & OTHER PAY TELEVISION SERVICES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996 Commission File No. 000-27582

CELLULARVISION USA, INC.
(Exact name of Registrant as specified in its charter)

Delaware 13-3853788
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

505 Park Avenue, New York, New York 10022
(Address of Principal Executive Offices)
(212) 751-0900
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X) No ( )

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K/A or
any amendment to this Form 10-K/A. ( )

The aggregate market value of the Registrant's Common Stock held by
nonaffiliates of the Registrant was $50,461,000 on March 26, 1997, based on the
closing sale price of the Common Stock on the NASDAQ National Market system on
that date.

The number of shares of Common Stock outstanding as of March 26, 1997
was 16,000,000.

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DOCUMENTS INCORPORATED BY REFERENCE

Sections of the Registrant's Definitive Proxy Statement (as defined in Part III
herein) for its Annual Meeting of Stockholders scheduled to be held in May 1997.

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CELLULARVISION USA, INC.
TABLE OF CONTENTS

PART I

Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders

PART II

Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8 Consolidated Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

PART III

Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions

PART IV

Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K

The Private Securities Litigation Reform Act of 1995 provides
a "safe harbor" for forward-looking statements. Certain information included in
this Annual Report on Form 10-K/A for the year ended December 31, 1996 is
forward-looking, such as information relating to future capital expenditures and
the effects of future regulation and competition. Such forward-looking
information involves important factors that could significantly affect expected
results in the future from those expressed in any forward-looking statements
made by, or on behalf of, the Company. These factors include, but are not
limited to, uncertainties relating to economic conditions, government and
regulatory policies, pricing and availability of equipment, technological
developments and changes in the competitive environment in which the Company
operates. Each such forward-looking statement is qualified by reference to the
following cautionary statements.

Changes in the factors set forth above may cause the Company's
results to differ materially from those discussed in the forward-looking
statements. The factors described herein are those that the Company believes are
significant to the forward-looking statements contained herein and reflect
management's subjective judgment as of the date hereof (which is subject to
change). However, not all factors which may affect such forward-looking
statements have been set forth. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.

(i)
<PAGE>

PART I
ITEM 1. BUSINESS

Overview

CellularVision USA, Inc. (together with its operating subsidiary,
CellularVision of New York, L.P. ("CVNY"), the "Company") owns and operates a
multichannel broadband cellular television system in an area which includes New
York City under a 1,000 MHz commercial license from the Federal Communications
Commission (the "FCC"). The Company has been operating a 49-channel broadband
cellular television system in portions of Brooklyn on a limited basis since
1992. In December 1995, the FCC granted the Company 34 applications for
additional commercial transmitter sites. In 1996, the Company expanded its
subscription television services to cover approximately one-third of its
licensed service area, the 8.3 million population, New York Primary Metropolitan
Statistical Area ("PMSA"), a region consisting of New York City and three
suburban counties. Currently, there are approximately 2.9 million people in the
area covered by the Company's ten operational transmitters in Brooklyn, Queens
and Manhattan. The Company intends to have 17 transmitters in operation by the
end of 1997, which are expected to give it access to subscribers throughout most
of the New York PMSA. The Company's transmitter permits are conditional upon,
and subject to conformance with the final FCC rules for Local Multipoint
Distribution Service ("LMDS").

On March 13, 1997, the FCC released its Second Report and Order, Order
on Reconsideration, and Fifth Notice of Proposed Rulemaking ("Second Report and
Order") which adopted the service, auction and eligibility rules for the
nationwide licensing of LMDS. The FCC stated in the Second Report and Order that
it will commence processing the Company's renewal application by placing the
application on Public Notice not later than 30 days after the March 13, 1997
release date of the Second Report and Order. The new LMDS service rules will
apply to this renewal application. As a result of its deployment efforts since
1992, and based on the license renewal expectancy earned by the Company, the
Company believes the renewal application should be granted promptly by the FCC.

The FCC's rules for LMDS set forth in the Second Report and Order
authorize the Company, upon receiving its license renewal, and future providers
of LMDS services in other areas, to offer a variety of two-way broadband
services, such as wireless local loop telephone services, high-speed data
transmission (including Internet access), video teleconferencing (including
distance learning and telemedicine) and interactive television (collectively,
"two-way services"). The Company believes that future implementations of its
multichannel broadband cellular telecommunications system will not only support
these two-way services, but also be able to accommodate additional television
channel capacity through the use of digital compression and other techniques, if
and when the costs of such technologies make implementation commercially
feasible. In addition, the FCC rules for LMDS provide for the granting, through
a competitive auction process, of licenses to offer these services in Basic
Trading Areas ("BTAs") throughout the United States. The Company believes that,
as a result of the licenses awarded through this proposed auction process, a new
segment of the telecommunications industry will emerge based upon the multiple
uses for this wide band of spectrum. The Company expects to bid in the LMDS
auctions, alone or in partnership with others, to expand its operations to other
territories, thus leveraging the experience and expertise it has obtained
through operation of its existing LMDS system, presently the only commercial
operation of LMDS in the United States. The Company believes it will be in the
forefront of this new industry segment due to its early operational start date,
its unique LMDS operating experience, and its existing commercial license to
serve the nation's largest media market.

In addition, pursuant to the Company's Pioneer's Preference request, the
FCC may grant the Company the option to purchase on a discounted basis, an
expansion of its existing licensed territory to include the entire New York BTA,
a region consisting of the New York PMSA and 18 additional counties located in
New York, New Jersey, Connecticut and Pennsylvania, which would bring
approximately 8.9 million additional people into the Company's service area. In
the Second Report and Order the FCC deferred action on the Company's tentative
Pioneer's Preference award and instead ordered a "peer review" process, whereby
the FCC would select a panel of technical, non-FCC experts to review the
Company's technology and advise the FCC whether the Pioneer's Preference should
be granted. The Company believes, based on the 1994 General Agreement on Tariffs
and Trade ("GATT") legislation and the FCC's prior determinations not to subject
parties to peer review whose Pioneer's Preference applications were accepted for
filing before September 1, 1994, that this is an unnecessary regulatory
requirement. The Company is currently seeking FCC clarification on this issue.
Accordingly, there can be no assurance that the FCC will grant the Company's
Pioneer's Preference.

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Company History

Hye Crest Management, Inc., a predecessor of the Company ("Hye Crest"),
was formed in 1988 by Messrs. Shant S. Hovnanian, Bernard B. Bossard and Vahak
S. Hovnanian, directors of the Company (the "Founders"). Prior to the
consummation of the Incorporation Transactions (as defined below), each of the
Founders held one-third of the outstanding capital stock of Hye Crest. In 1991,
Hye Crest received permission from the FCC to commence commercial broadcast
operations using the LMDS technology developed by Suite 12 Group, which was
formed in 1986 and is also owned by the Founders in equal shares ("Suite 12").
From 1986 through 1992, Suite 12's principal operations consisted of the
development of the LMDS technology. Hye Crest began service to subscribers in
1992. Suite 12 permitted Hye Crest to use certain patent rights, the LMDS
technology, and head-end and transmitter equipment supporting commercial
broadcast operations under an informal arrangement that was formalized in 1993
when (i) Suite 12 conveyed that equipment to Hye Crest, and (ii) Suite 12's
successor, CellularVision Technology & Telecommunications, L.P. ("CT&T"),
entered into a license agreement (the "CT&T License Agreement") with CVNY. The
Founders collectively own 80%, and a subsidiary of Philips Electronics North
America Corporation ("Philips") holds 20%, of the outstanding equity interests
of CT&T.

CVNY was formed in 1993 and initially financed by the Founders to carry
on the business of Hye Crest and commercialize a multiple-use cellular
telecommunications service in the New York PMSA, beginning in the Brighton Beach
area of Brooklyn. Hye Crest contributed all of its operations and assets,
including its FCC commercial license, to CVNY in exchange for managing general
partnership interests constituting more than 90% of CVNY's outstanding equity
interests. For regulatory reasons which are no longer applicable, Hye Crest
temporarily held title to the head-end facilities, which have now been
transferred to CVNY. Suite 12 contributed an FCC experimental license to CVNY in
exchange for limited partnership interests. In July 1993, a subsidiary of Bell
Atlantic Corporation ("Bell Atlantic") became the Company's first corporate
investor. From 1993 to 1995, Bell Atlantic also provided certain start-up
operational and management services to the Company. In October 1993, Philips
purchased an equity interest in the Company from its Founders, and in December
1993, investment funds managed by affiliates of J.P. Morgan & Co. Incorporated
("Morgan" and, together with Bell Atlantic and Philips, the "Corporate
Investors") invested in the Company.

The Company was formed in October 1995 to serve as a holding company
for 100% of both Hye Crest and CVNY. In February 1996, the Company consummated
the initial public offering (the "Initial Public Offering" or "IPO") of shares
of its common stock, par value $.01 per share (the "Common Stock"). Immediately
prior to the Initial Public Offering, the Company consummated the following
events (collectively, the "Incorporation Transactions"): (i) Morgan converted
$10 million principal amount of the $15 million principal amount of convertible
exchangeable subordinated notes of CVNY (the "Morgan Notes") into 4,547 shares
of Common Stock and exchanged $5 million principal amount, together with
interest accrued thereon as of December 15, 1995, for non-convertible debt
securities (the "Morgan Exchange Notes") of the Company, (ii) the Company issued
an aggregate of 93,180 shares of Common Stock to the Founders in exchange for
all outstanding capital stock of Hye Crest, and to Bell Atlantic, Philips and
Suite 12 in exchange for all of their respective partnership interests in CVNY,
and (iii) the Company effected a 133.0236284-for-1 stock split of the
outstanding shares of Common Stock and issued an aggregate of 13,000,000 shares
of Common Stock to the holders thereof. As a result of the Incorporation
Transactions, the Company is the sole stockholder of Hye Crest, which has no
independent business, and CVNY is a wholly owned subsidiary of the Company and
continues to carry on its business. In December 1995, the FCC approved the pro
forma transfer of control of CVNY from Hye Crest to the Company. In July, 1996,
Hye Crest changed its name to CellularVision Capital Corporation.

Business Strategy

The Company's strategy for successful operation is based upon the
following principles:

Capture New York Cable Television Market Share. The Company intends to
capture a significant portion of the 8.3 million population New York PMSA
subscription television market by instituting a mass marketing program
highlighting the Company's dependable, high quality picture and low prices. The
Company currently offers 49 of the most popular cable and broadcast television
channels at prices 20% to 30% less than its franchised cable competitors.

The Company's prompt, courteous and effective customer service
specialists are central to differentiating the Company from competitors. At
present, the Company's average response time to a phone call is under 10 seconds
and

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over 90% of calls are answered within 30 seconds, a response time that is better
than industry standards. The Company offers same-day repair services, and
customers' calls are handled 24-hours a day.

Expand Business Class Market in New York. The Company has implemented a
strategy which brings business-oriented television programming to workplaces in
the New York City business and financial community where cable television
connections are now unavailable or not economically viable. The Company has
formed a strategic cross promotion alliance with Bloomberg Information
Television (BIT). The Company currently markets a 14 channel "Business Class"
service, featuring BIT and other popular news and business channels, to offices
in Lower and Mid-town Manhattan.

Expand Service Territory; Pursue New Markets. Depending upon the
confirmation of the Company's tentative Pioneer's Preference and prices paid at
the LMDS auctions for other BTA licenses, the Company plans to expand its
service area to include the entire New York BTA, adding approximately 8.9
million people to its service area. Under its tentative Pioneer's Preference, if
granted, the Company would have the exclusive right to extend its license to add
this additional territory at a 15% discount from the average price paid at the
LMDS auctions for licenses in comparable service areas. The FCC has permitted
broadband Personal Communications Services Pioneer's Preference awardees to pay
for their licenses over five years, with interest only payments for the first
two years, at an interest rate equal to the five-year U.S. Treasury Note plus
2.5 percent. The Company believes that it will be permitted to pay for its
Pioneer's Preference license, if granted, under similar terms, although there
can be no assurance that this will be the case. If the FCC does not grant the
Company's Pioneer's Preference, the FCC can be expected to auction this
remaining portion of the New York BTA and the Company may then acquire this
remaining service area at auction.

Introduce Two-Way Broadband Services. The Company expects to be among
the first LMDS operators to introduce two-way services, such as wireless local
loop telephone services, high-speed data transmission (including Internet
access), video teleconferencing (including distance learning and telemedicine)
and interactive television, which services were authorized by the FCC in the
rules for LMDS adopted in the Second Report and Order.

In 1996 the Company demonstrated the first high-speed wireless modem to
the New York market. Field trials of a 500 Kbps modem began in September 1996
and have been successfully completed. The $200 product operates at data rates
approximately 20 times faster than conventional 28.8 Kbps modems, and
approximately 4 times faster than ISDN. The Company recently began marketing
trials that will continue until the expected commercial launch later in 1997.

The CellularVision (TM) System

The Company's multichannel broadband cellular television system
operates in the 28 GHz frequency range. Prior to the development of the
Company's system, transmission of communication signals in the 28 GHz frequency
range was not commercially pursued apart from limited satellite applications
because technical impediments, such as intercell interference and rainfade, were
thought to be insurmountable. The Company's system eliminates or significantly
reduces these impediments through the placement of its cells and its unique
system architecture.

Video, telephone services ("telephony") or data signals transmitted
through the Company's system, such as television programming, are received by
the system from satellite transponders, terrestrial microwave facilities and/or
studios at a head-end. Signals from the head-end are then transmitted to
omnidirectional transmitters or a small number of broad-beam transmitting
antennas (each, a "transmitter") located in each adjacent cell which, in turn,
transmits the signals to subscribers within the cell. Point-to-point relays (the
"relays"), which are installed with the transmitter, are used to transmit
signals to cells not adjacent to the head-end. The Company then deploys small
solid-state repeaters to transmit signals into shadowed areas. The signal is
received at the subscriber's premises by a small (approximately six and
five-eighths inches square) flat plate, high-gain antenna connected to one or
more fully-addressable set-top converters. One remote control unit is provided
with each set-top converter.

Competitive Advantages

The Company's system has a number of significant cost and technical
attributes that the Company believes will affect its competitiveness:

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Low Cost Infrastructure. The Company believes that its system offers a
low cost, high quality and dependable alternative to both franchised cable
systems and satellite systems, such as Direct Broadcast Satellite ("DBS"). The
Company believes that it can consistently offer substantially the same services
at significantly lower prices than franchised cable systems because the
Company's system does not require the extensive networks of cables and
amplifiers or the constant maintenance and repair of system architecture
inherent in such systems. DBS systems have a lower cost per household passed but
involve the expense associated with high-powered direct broadcast satellites.
The leading DBS provider currently requires its subscribers to invest in
receiving equipment which the Company believes currently retails for
approximately $200, and pay up to an additional $200 for installation. In
addition, subscribers are required to pay monthly charges comparable to cable
rates. By comparison, the Company's subscribers have to pay up to a $50
installation fee, all or a portion of which may be waived during promotions, and
monthly charges that are significantly lower than cable rates.

High Quality Picture. The Company's system has been designed to deliver a
generally superior picture quality as compared to the quality generally
characteristic of franchised cable or current Multichannel Multipoint
Distribution Service ("MMDS") systems. In a franchised cable system, each time a
television signal passes through an amplifier, some measure of noise is added
which results in a grainier picture. As a result, franchised cable picture
quality generally degrades significantly depending on the distance the signal
travels from the head-end to the subscriber. Current MMDS systems lack the FM
video fidelity associated with the Company's system and the Company believes
that these systems are also generally subject to perceptible interference. The
Company's system, by contrast, has been designed to deliver its subscribers a
video picture without perceptible interference under most conditions. The
superior quality of the Company's system is particularly striking on
large-screen and projection televisions, which amplify the distortions and
graininess characteristic of other transmission technologies.

Dependability. As compared to franchised cable systems, the Company
believes that its system provides a highly reliable signal because there is no
cable, amplifiers or processing and filtering equipment between the transmitter
which serves the subscriber and the subscriber's household to potentially break
or malfunction. Failure of any one of these components in the chain may
"black-out" large portions of franchised cable systems, and diagnosis and repair
efforts involve a network consisting of hundreds of miles of cable and related
relay equipment, in contrast to the Company's simpler subscriber/cell alignment.
The Company's transmitter installations are fully redundant, with automatic
fault detection and switch-over to a back-up transmitter and an uninterruptable
power supply allowing continuous broadcasts during temporary local power
outages.

Compact Antenna. Unlike currently available MMDS systems, which require
rooftop mounted antennas of varying sizes up to three feet in diameter, or DBS
systems, which require an 18-inch outdoor dish aimed directly at a satellite
stationed low above the southern horizon, the Company's antennas, in many cases,
permit reception of signals when mounted inside the subscriber's window,
eliminating the need for outdoor installations.

The Company believes that these antennas, in many cases, permit
delivery of its services to the apartment buildings and office towers which are
characteristic of much of its service territory without extensive in-building
wiring. This wiring is necessary not only in the case of franchised cable, but
also with wireless technologies such as MMDS, Satellite Master Antenna ("SMATV")
service and DBS, whose signals require a direct line-of-sight to the
transmitter, and, consequently, in a densely populated urban environment such as
New York City, generally require rooftop antenna installation in apartment or
office buildings and internal wiring of the building to deliver service to
subscribers. Because the Company believes that its system will in many cases be
able to be installed for an individual subscriber without such wiring, the
Company expects that its marketing efforts will be simplified.

Localized Programming and Advertising Options. The Company's channel
offerings can be localized on a cell-by-cell basis, permitting, for example,
channels targeted to demographic or linguistic groups in particular
neighborhoods, as well as micro-marketing. In comparison, cable operators
generally offer uniform programming throughout a geographic service area, and
DBS systems offer the same programming on a nationwide basis and do not offer
any local programming.

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Accurate, High-Speed Data Transmission. The system's high
signal-to-noise ratio enables it to transmit large volumes of data at least as
accurately as fiber optic systems. This capability enables it to support a
high-speed, broadband data network for Internet access and private data
transmission applications.

Mitigation of the Multipath Phenomenon. Multipath is a phenomenon in
broadcast transmission which results in the reception of multiple signals at the
receiver (literally on multiple transmission paths) which can severely degrade
the picture and audio quality or cause undesirable levels of errors in digital
systems. Multipath can be a severe drawback in systems such as VHF/UHF
television and currently available MMDS systems, which use AM modulation and
relatively broadbeam receive antennas. The Company's system, which employs FM
modulation and narrow beam receive antennas, can reject multipath degradation of
the signal. Because of this advantage, the Company believes that its service
will be relatively immune to the picture "ghosting" and other degradations that
result from multipath.

Large Spectrum Grant and Efficient Spectrum Usage. The Company
currently has the right to use 1,000 MHz of spectrum, one of the largest blocks
of spectrum ever awarded, and its system permits reuse of this spectrum in each
one of its cells. This may result in advantages over competing technologies,
such as MMDS systems, which typically have access to a maximum of 200 MHz of
fragmented spectrum and use frequencies only once in a metropolitan area. The
Company believes that its spectrum-efficient system will enhance its ability to
provide localized programming and advertising options and, eventually, to
examine and address on a selective basis additional business opportunities for
two-way services as are permitted by the FCC in the Second Report and Order. The
Company, consistent with the rules adopted in the Second Report and Order, will
have exclusive access to an additional 150 MHz of 31 GHz spectrum once its
current New York PMSA license is renewed, bringing its total spectrum grant to
1,150 MHz.

Future Two-Way Broadband Services

The Company expects that future implementations of its system will
support two-way services such as wireless local loop telephony, high-speed data
transmission (including Internet access), video teleconferencing (including
distance learning and telemedicine) and interactive television. The Company's
system can support two-way communication by inserting communication channels
between the Company's 49 polarized video channels and transmitting such
communication channels in the opposite polarization. An alternative approach to
this configuration can be achieved through separation of the two-way services in
a separate band assigned to LMDS in the higher frequencies. In the Second Report
and Order, the FCC adopted flexible rules for LMDS that will expand the range of
services that the Company is authorized to offer to its subscribers to include
two-way services. Implementation of such services will be predicated upon the
availability of the requisite two-way LMDS equipment, which the Company's
suppliers and other third parties currently have under development and, in the
case of interactive video, upon the emergence of available programming.

The Company believes that it will have a substantial competitive
advantage in providing these services to certain markets because of its inherent
ability to access many sites without the cost of installing and maintaining
telephone or fiber optic lines in a crowded metropolitan environment, or
accessing and wiring individual buildings. This advantage will be enhanced in
the case of potential two-way customers who are already multichannel television
subscribers. Thus, residential subscribers may be offered an upgrade to
telephony services, interactive television and high-speed data access services,
such as the Internet, and business subscribers who have subscribed to Business
Class Service, a package of video, voice and data services, may be offered high
speed broadband links for private data networks.

The Company has demonstrated a non-line-of-site, 28 GHz wireless
telephone link and video-telephony link using a prototype transceiver that
supports such services. A commercial version is currently under development. The
other hardware necessary to support two-way services would consist of minor
modifications to off-the-shelf equipment such as switches and converters to
permit existing input devices other than television sets, such as telephones and
computers, to be connected to the system.

The Company believes that two-way services can be supported without
interference with its existing analog 49-channel multichannel broadband cellular
television system, and that this system will support digital compression
technologies when commercially viable, permitting a significant increase in the
number of cable channels and at the same time permitting enhanced two-way
services. Nonetheless, like any wireless system, the Company's operations will
ultimately be subject to total bandwidth constraints, and the Company intends to
manage its service offerings to focus on high value-added telecommunications
markets for which the Company's technologies are best suited. Because the

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Company's offerings of two-way services could potentially be locally tailored on
a cell-by-cell basis, various combinations of two-way services could be
deployed.

While the Company is not currently authorized to provide two-way
services, and may not be technically prepared to begin offering any of these
services on a commercial basis upon receiving authorization to do so (which will
occur upon renewal of its New York PMSA license), the Company believes its
system can be configured to support, and intends to offer, some or all of the
following two-way services:

Wireless local loop telephony. The Company's system could be adapted to
support ordinary voice telephony, giving customers equipped with a two-way
antenna the ability to plug both their television and their telephone into the
same specially adapted converter box, paying for both services with a single
monthly bill. Calls would be switched either at a site co-located with the local
telephone company, or at a private switching facility. The Company believes
deregulatory trends in the telephone industry may make this type of alternate
access service an increasingly attractive business for the Company, either
solely or through an alliance with strategic partners. For this reason, the
Company has commenced negotiations with NYNEX, the local exchange carrier, for
an interconnection and resale agreement, and has begun preparation of an
application to the state authorities for the necessary approvals to provide
local telephone service.

High speed data transmission. Given the low cost of build-out, the
Company believes its system provides an attractive method of linking wide area
networks on a primary or back-up basis and providing individuals and businesses
with high-speed data transmission, including Internet access.

Video teleconferencing. The Company has demonstrated in tests the
capacity of its system to support full-duplex, full motion two-way video
teleconferencing, and is evaluating the purchase of equipment that would support
such a service among its subscribers within its service territory in the future.
The Company intends to select a transmission standard that will permit an
interface with video teleconferencing systems in other areas. The system
requires a standard video camera and a two-way antenna/transceiver, and produces
a quality of service attainable today on a commercial basis only through
expensive fiber optic cabling and/or broadband satellite linkages. Video
teleconferencing has a number of applications, including personal and business
communications and specialized applications such as distance learning and
telemedicine.

Interactive television. The Company expects that demand will exist in
the future for a communications medium that can support interactive television
programming such as interactive home shopping, mass audience participation
programs and sophisticated, multiplayer video games. The Company believes that
its system's technical characteristics of low-cost build-out (especially as
compared with the cost of laying fiber optic cable), high quality and two-way
capability can make it a leading technology supporting these services.

Current Operations

The Company is licensed by the FCC to conduct operations in the New
York PMSA and, based on the FCC's December 1995 grant of the Company's 34
applications for additional commercial transmitter sites, intends to deploy
additional transmitters that will give it access to subscribers throughout most
of the New York PMSA by the end of 1997. These grants are subject to
modification to conform with the FCC's final rules for LMDS. According to
industry estimates, the New York PMSA includes approximately 8.3 million people,
of which the Company believes a large proportion will be capable of being served
by the Company's system. In addition, if the FCC grants the Company a Pioneer's
Preference, under the FCC's most recent proposal, the Company would be allowed
to expand its service area to include the entire New York BTA, of which the New
York PMSA is a part, by paying a fee representing the difference between the
value of a license to serve the New York BTA and the value of the Company's
current commercial license to serve the New York PMSA, subject to a 15% discount
from the average auction price paid at the LMDS auctions for licenses in
comparable service areas. See "--Industry Regulation." The expansion of the
Company's licensed territory to include all of the New York BTA would bring
approximately 8.9 million additional people into its service area.

In the Second Report and Order, the FCC deferred action on the
Company's tentative Pioneer's Preference award and instead ordered a "peer
review" process, whereby the FCC would select a panel of technical, non-FCC
experts to review the Company's technology and advise the FCC whether the
Pioneer's Preference should be granted. The Company believes, based on the 1994
GATT legislation and the FCC's prior determinations not to subject parties to
peer review whose Pioneer's Preference applications were accepted for filing
before September 1, 1994, that this is an unnecessary

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regulatory requirement. The Company is currently seeking FCC clarification on
this issue. Accordingly, there can be no assurance that the FCC will grant the
Company's Pioneer's Preference.

The Company's head-end has been fully operational since 1992 and is
currently being used to transmit programming to the 10 operational cells located
in Brooklyn, Queens and Manhattan. In 1996, the Company expanded its
subscription television services to cover one-third of its licensed service
area, the 8.3 million population New York PMSA, a region consisting of New York
City and three suburban counties. Currently, there are approximately 2.9 million
people in the area covered by the Company's 10 operational transmitters. The
Company intends to have 17 transmitters in operation by the end of 1997, which
are expected to give it access to subscribers throughout most of the New York
PMSA. The Company's transmitter permits are subject to modification to conform
with the final rules for LMDS.

The Company has leased space on 15 rooftops for its transmitters, and
believes that leased space on rooftops in New York City and other locations in
the New York PMSA will be readily available to serve as additional transmitter
sites. The Company is in negotiations for rooftop space on four additional sites
in New York City, for transmitter deployment. The Company is actively pursuing
over 50 sites for its repeaters. The Company has letters of intent from
landlords to lease space at an additional 24 sites throughout the New York PMSA.

The Company offers subscribers a full range of local, basic and premium
programming choices. Since all of the Company's set-top converters are fully
addressable, the Company also offers regular pay-per-view movies and special
pay-per-view events. In addition, due to its system architecture, the Company
can vary programming and advertising on a cell-by-cell basis in order to appeal
to specific demographic groups. For example, the Company currently carries
Russian language programming targeted to the large Russian-speaking population
of the Brighton Beach area of Brooklyn, New York.

<TABLE>
<CAPTION>
The following table sets forth the Company's current channel line-up:
<S> <C> <C>
Encore* The Disney Channel Univision (WXTV)
Plex* CNBC BET
Starz* C-SPAN The International Channel
Showtime* MSNBC Russian American Broadcasting
The Movie Channel* Headline News The Prevue Guide
Flix* CNN ESPN
HBO* Bloomberg Information Television Madison Square Garden Network
Cinemax* The Weather Channel MSG 2
Playboy Television* Nickelodeon MSG 3
Pay Per View Movies TV Food Network ESPN 2
Pay Per View Special MTV SportsChannel
Pay Per View Events VH-1 WCBS
USA Network E! Entertainment WNBC
TNT Comedy Central WNYW
Turner Classic Movies The Discovery Channel WABC
WTBS The Learning Channel WWOR
Lifetime Court TV WPIX
Arts & Entertainment Sci-Fi Channel WNET
</TABLE>
* Denotes premium programming.

Marketing

Presently the Company's sales strategy incorporates a variety of
targeted tactics. Direct mail is used as a response vehicle as well as a
softener for door to door sales, consisting of an in-house sales force
complemented by subcontractors. The Company utilizes telemarketing for both
acquisition and retention purposes. In addition to sales related calls,
telemarketing representatives perform installation reminder calls, customer
research and welcome calls. As the build-out of its system continues, the
Company intends to augment current efforts with mass marketing programs,
including radio advertising and print media, to bring about increased awareness
of its quality and cost advantages. During this time, the

7
<PAGE>

Company may supplement its direct sales force by marketing subscriber-installed
units through consumer electronics and telephone retail stores.

Customer Service

The Company's prompt, courteous and effective customer service
specialists are central to differentiating the Company from competitors and
attracting and retaining subscribers. To offer superior customer service as its
subscriber base expands, the Company intends to provide a ratio of customer
service specialists to subscribers significantly higher than that currently
offered by its subscription television competitors. Presently, the Company
offers same-day repair services and, customers' calls are handled 24-hours a
day.

Competition

The telecommunications industry and all of its segments are highly
competitive. The Company competes with franchised cable systems and also faces
or may face competition from several other sources, such as MMDS, SMATV, DBS,
video service from telephone companies and television receive-only satellite
dishes. Moreover, The Telecommunications Reform Act of 1996 (the
"Telecommunications Reform Act"), which was passed by the U.S. Congress and
signed into law by President Clinton on February 8, 1996, eliminates
restrictions that prohibit local telephone exchange companies from providing
video programming in their local telephone service areas, thus potentially
resulting in significant additional competition from local telephone companies.

Pay television operators face competition from other sources of
entertainment, such as movie theaters and computer on-line services. Further,
premium movie services offered by cable television systems have encountered
significant competition from the home video industry. In areas where several
off-air television broadcasts can be received without the benefit of cable
television, cable television systems have experienced competition from such
broadcasters. Many actual and potential competitors have greater financial,
marketing and other resources than the Company. No assurance can be given that
the Company will be able to compete successfully.

Franchised Cable. The Company believes that its primary competition in
providing video programming to subscribers is from franchised cable operators.
In the New York PMSA, these operators include Time Warner, TCI and Cablevision,
all of which are significantly larger and have substantially greater financial
resources than the Company. The technology used by such operators is a cable
system which transmits signals from a head-end, delivering local and
satellite-delivered programming via a distribution network consisting of
amplifiers, cable and other components to subscribers. Regular system
maintenance is required due to flooding, temperature changes and other events
that may lead to equipment problems. To reduce these problems, some traditional
cable companies have begun installing hybrid fiber-coaxial cable networks.
Although hybrid fiber-coaxial plants may substantially remedy the transmission
and reception problems currently experienced by coaxial cable distribution
plants, hybrid fiber-coaxial systems will still be subject to outages resulting
from severed lines and failure of electronic equipment, and are very expensive
to install and maintain.

Franchised cable systems cost significantly more to build and to
maintain than the Company's system. Although the Company believes its head-end
equipment costs are comparable to those of franchised cable systems, the
installation of cable and amplifiers required by franchised cable operators is
considerably more costly than the installation of transmitters and repeaters
required by the Company's system. At present, the franchised cable systems in
the Company's service area offer 25 to 30 more channels than the Company's
system, although the Company believes that many of these channels carry less
frequently viewed programming. Moreover, the cellular architecture used by the
Company will permit it to vary its channel line-up on a cell-by-cell basis,
enabling it to offer the channels most in demand in individual segments of the
larger media market.

The Telecommunications Reform Act contains a provision that would
reduce the regulatory burden on the Company's franchised cable competitors. See
"--Industry Regulation-Telecommunications Reform Act."

Multichannel Multipoint Distribution Service. MMDS "wireless cable"
systems such as CAI Wireless Systems, Inc. use microwave AM signals in the 2.5
to 2.7 GHz frequency band to transmit programming directly from a head-end
located on top of a local vantage point to receive antennas currently up
to three feet in diameter and generally located on subscribers' rooftops.
The Company believes that smaller MMDS antennas may be under development. The
microwave signal is then converted to frequencies that can pass through
conventional coaxial cable to a set-top converter. The

8
<PAGE>

Company's system, which employs FM modulation and narrow beam receive antennas,
can reject multipath degradation of the signal. Because of this advantage, the
Company believes that its service will be relatively immune to the picture
"ghosting" and other degradations that result from multipath phenomena. The
Company believes that this latter characteristic, unless mitigated by future
technical developments, will limit MMDS's suitability for service in large urban
areas. MMDS also operates with substantially less spectrum than the Company's
1,000 MHz allocation, limiting its video channel capacity. MMDS systems must
aggregate spectrum from three separate blocks of spectrum in the 2.5 to 2.7 GHz
frequency range, almost 70% of which spectrum is not available exclusively for
wireless cable operations and must be leased from and shared with educational
licensees, in order to provide a maximum 32 to 33 channels of video programming
under current technology. Therefore, as a result of MMDS's limited spectrum and
other technical constraints, the Company believes that LMDS has a distinct
advantage over MMDS in providing viable competition in today's video programming
marketplace.

Satellite Master Antenna Service ("SMATV"). SMATV service operators
such as Liberty Cable, typically receive signals from satellites with small
satellite dishes located on a rooftop and then retransmit the signals by wire to
units within a building or complex of buildings. Additionally, the FCC permits
point-to-point delivery of video programming by SMATV operators with microwave
licenses in the 18 GHz frequency band, which allows operators to realize
economic efficiencies by linking multiple buildings from a common head-end
without crossing public rights-of-way and avoiding the need for costly head-end
facilities at each building served. SMATV operators delivering programming in
these manners are not required to obtain a franchise from local authorities.

Direct Broadcast Satellite ("DBS"). DBS service, which has recently
been introduced in the United States, consists of the transmission of a high
powered signal from a satellite directly to the home user, who is able to
receive the signal on a relatively small (18 inch diameter) dish mounted on a
rooftop or in the yard. DBS service does not deliver local television broadcast
stations and requires the purchase of receiving equipment at a significant cost
to the subscriber. The leading DBS provider currently requires its subscribers
to invest in receiving equipment which the Company believes currently retails
for approximately $200, and pay up to an additional $200 for installation. DBS
system operators must also incur costs related to satellite launches and
satellite maintenance and repair. DBS antennas in the United States must be
aimed directly at a satellite stationed low above the southern horizon, and are
therefore not generally practicable in urban environments such as New York City
where multiple dwellings may block this line-of-sight.

Telephone Company Provision of Video Programming. The current
regulatory framework that traditionally prohibited local telephone companies,
also known as local exchange companies ("LECs"), from providing video
programming directly to subscribers in their telephone service areas is evolving
rapidly to permit LECs to play a broader role in the competitive video
marketplace. In this regard, the Telecommunications Reform Act repealed the
telco-cable cross-ownership restriction, and allows LECs several options for
providing video services to their telephone customers under various regulatory
frameworks. Among other things, under the Telecommunications Reform Act, LECs
can provide video programming to customers in their telephone service areas
either as common carriers, cable systems or "open video systems," an entirely
new regulatory framework. In March 1996, the FCC eliminated rules implementing
the telco-cable cross-ownership restriction, and commenced a rulemaking to
implement the open video systems framework in a way that will promote
congressional goals of flexible market entry, enhanced competition, diversity of
programming choices and increased consumer choice. In June 1996, the Commission
adopted streamlined certification and regulations under which LECs (and
non-LECs) can operate as open video systems providers under various conditions.
On October 11, 1996, the FCC certified the first open video system. Since that
time, additional certifications have been granted, including three within
various portions of the Company's New York PMSA.

While LEC delivery of video programming likely will require extensive
deployment of fiber optic transmission facilities and/or highly sophisticated
electronics at a substantial capital investment, LECs could provide a
significant source of competition in the future.

Television Receive-Only Satellite Dishes. Satellite dishes are used by
individuals and commercial establishments for direct reception of video
programming that is also shown on franchised cable and wireless cable television
systems. Satellite dishes are generally more competitive in rural markets than
in urban areas, principally because rural subscribers do not have access to
franchised cable. Satellite dish service currently requires each subscriber to
purchase and install a seven-to-ten foot diameter satellite dish, at a cost in
excess of $3,000, although some operators have reduced those charges to as low
as $750 for limited offerings. Additionally, cable programming (e.g., ESPN, CNN,
HBO) is delivered

9
<PAGE>

"scrambled," requiring owners of satellite receivers to purchase descrambling
units and pay annual authorization fees directly to programming suppliers. In
addition, satellite systems do not deliver local broadcast television stations.

Regulatory History

The Company's FCC Licenses. The Company holds a fixed station
commercial license pursuant to a waiver of the FCC's rules in the Point-to-Point
Microwave Radio Service granted by the FCC in January 1991 which authorizes the
Company to use the 27.5-28.5 GHz frequency band to operate a multicell video
delivery system throughout the New York PMSA. The 1,000-plus square mile New
York PMSA includes the five boroughs of New York City, and Putnam, Rockland and
Westchester counties. In its 1991 decision granting the Company's license, the
FCC authorized the location of the Company's first transmitter in Brighton
Beach, Brooklyn, and set forth a procedure for the filing of additional
applications for authority to operate additional transmitters throughout the
Company's authorized service area. The January 1991 decision authorized a
24-channel video system and was modified in March 1992 to authorize operation of
a 49-channel system. In addition, on December 7, 1995, the FCC granted the
Company's 34 transmitter applications, conditional upon and subject to
conformance with the final actions taken by the FCC in the LMDS Rulemaking
proceeding.

The Company's license is the only commercial license for this service
granted by the FCC. This license was granted for a five-year term rather than
the general fixed service license term of ten years in order to encourage the
prompt deployment of the Company's system throughout its authorized service
area, and expired in February 1996. A timely application for renewal of this
fixed commercial station license was filed on December 29, 1995. The FCC stated
in the Second Report and Order that it will commence processing the Company's
renewal application by placing the application on Public Notice not later than
30 days after the March 13, 1997 release date of the Order. The new LMDS service
rules will apply to this renewal application. While the Company has an
expectation of a renewal of this license, as a result of its deployment efforts
since 1992 and the FCC's adoption of a renewal expectancy provision in the
Second Report and Order, there is no guarantee that the FCC will renew the
license.

Under the FCC's rules, a license automatically stays in effect pending
FCC action on a timely filed renewal application. In addition, the
Communications Act of 1934 (the "Communications Act") provides procedures under
which any party in interest may file a Petition to Deny the renewal of a fixed
point-to-point microwave license by setting forth specific allegations of fact
sufficient to show that the petitioner is a party in interest and that grant of
the renewal application would be prima facie inconsistent with the public
interest, convenience and necessity. While the Company is not aware of any facts
or circumstances to justify the filing of such a petition, there can be no
assurance that such a petition will not be filed, or to predict the outcome of
the FCC's deliberations on any such petition in advance.

In the First Report and Order the FCC grandfathered the Company's
continued operations in the 27.5-28.5 GHz spectrum (which the Company currently
is licensed to use) for a period of two years from the release date of the First
Report and Order, July 22, 1996, or until the first GSO/FSS satellite intended
to operate in the 28.35-28.50 GHz band is launched, whichever occurs later.
Additionally, under the grandfather provision adopted by the FCC, the Company is
authorized to use the newly designated 150 MHz at 29.1-29.25 GHz for
hub-to-subscriber operations during the grandfathered period, thus allowing the
Company currently to use 1,150 MHz in the New York PMSA. At the conclusion of
the grandfathered period, the Company will be required to cease its operations
in the 28.35-28.50 GHz spectrum thus maintaining its 1,000 MHz spectrum
allocation, at 27.5-28.35 GHz and 29.1-29.25 GHz, along with an additional 150
MHz in the 31 GHz band, subject to license renewal, as explained below. In
addition, the Second Report and Order confirms that the FCC will allow the
renewed license to conform to the final rules for LMDS, including the
authorization of the Company to offer the panoply of LMDS services the
technology is expected to offer.

The Company also holds an experimental license authorizing limited
market tests which was granted by the FCC in 1988 and has been renewed for full
two-year terms on a bi-yearly basis. Other entities hold experimental licenses
for LMDS use outside of the New York BTA as well. In August 1993, the FCC
approved the modification of this license to authorize two-way video, voice and
data transmissions with variable modulation and bandwidth characteristics. On
June 30, 1995, the Company filed a timely application for renewal of its
experimental license which had an expiration date of September 1, 1995. The FCC
granted the renewal application, effective September 1, 1995, for a new two-year
license term. In addition, on November 26, 1996, the Company filed for an
experimental license in the 31.0-31.3 GHz in the New York BTA in order to
conduct limited market studies of various packages of video, telephony and/or
data services delivered through 31 GHz LMDS technology. This application
currently is pending before the FCC.

10
<PAGE>

The FCC's LMDS Rulemaking Proceedings. The subscription television
service currently offered by the Company in New York is one example of a diverse
range of telecommunications services including two-way video, telephony and data
services, which could be supported by the Company's system in the 28 GHz
frequency band. This range of services developed by the Company using the
technology licensed from CT&T has become known as LMDS. In response to a
Petition for Rulemaking and Petition for Pioneer's Preference filed by the
Company in 1991, the FCC adopted a Notice of Proposed Rulemaking, Order,
Tentative Decision and Order on Reconsideration ("First NPRM") in December 1992,
which proposed to redesignate the 27.5-29.5 GHz band for point-to-multipoint
use, and to license LMDS as a new service on a nationwide basis with the
issuance of two 1 GHz licenses per service area. At that time, the FCC also
tentatively granted the Company's request for a Pioneer's Preference, by which
the Company would be awarded a license for the service area of its choice in
recognition of its significant efforts in developing the innovative LMDS
technology.

On July 17, 1996, by unanimous vote, the FCC adopted the First Report
and Order and Fourth NPRM, which formally established a band plan and sharing
rules as previously proposed by the FCC in the Third NPRM. This plan allocated
to LMDS the 28 GHz frequency band nationwide, 850 MHz spectrum from 27.5-28.35
GHz on a primary basis for two-way LMDS transmissions, with an additional
non-contiguous 150 MHz from 29.1-29.25 GHz to be shared on a co-primary basis
with MSS systems. While the sharing rules adopted for the 150 MHz limit LMDS to
hub-to-subscriber transmissions due to concerns about potential interference
between LMDS and MSS, in the First Report and Order the FCC stated that it will
revisit that limitation if the LMDS industry can demonstrate definitively that
LMDS return links do not interfere with MSS systems.

Further, in the Fourth NPRM portion of the decision, in an effort to
provide additional spectrum for LMDS, the FCC proposed to allocate 300 MHz from
31.0-31.3 GHz on a primary basis for two-way LMDS use. The FCC reiterated the
potential value of LMDS as "real competition" in the local telephony and
multichannel video distribution markets, and stated that this additional
spectrum would provide consumers access to more choices in the new services and
innovative technologies. The FCC proposed to license the 850 MHz and 150 MHz
blocks of 28 GHz spectrum, together with the 300 MHz of 31 GHz spectrum as a
single, 1.3 GHz block of spectrum for LMDS licenses. The Fourth NPRM sought
additional comment on whether local exchange carriers and cable operators should
be permitted to hold an LMDS license in their service areas.

In the First Report and Order, the FCC explicitly recognized the role
of the Company as the only commercial Licensee of LMDS in the United States.
Moreover, the FCC stated "its intention to facilitate the development of LMDS in
New York and the rest of the nation," and noted that `permitting CellularVision
to proceed with its business plan and existing system design in the contiguous 1
GHz for which it was originally licensed will help ensure a seamless transition
for CellularVision's customers as LMDS is licensed pursuant to the band plan
implemented in the Report and Order." Accordingly, demonstrating its commitment
to the Company's build-out of its system in the New York PMSA, in the First
Report and Order the FCC grandfathered the Company's continued operations in the
27.5-28.5 GHz spectrum (which the Company currently is licensed to use) for a
period of two years from the release date of the First Report and Order, July
22, 1996, or until the first GSO/FSS satellite intended to operate in the
28.35-28.50 GHz band is launched, whichever occurs later. Additionally, under
the grandfather provision adopted by the FCC, the Company is authorized to use
the newly designated 150 MHz at 29.1-29.25 GHz for hub-to-subscriber operations
during the grandfathered period, thus allowing the Company currently to use
1,150 MHz in the New York PMSA. At the conclusion of the grandfathered period,
the Company will be required to cease its operations in the 28.35-28.50 GHz
spectrum thus maintaining its 1000 MHz spectrum allocation, at 27.5-28.35 GHz
and 29.1-29.25 GHz, along with an additional 150 MHz in the 31 GHz band, subject
to license renewal, as explained below.

On March 13, 1997, the FCC adopted the LMDS Second Report and Order in
this proceeding, which includes service, auction and eligibility rules for LMDS,
and addresses the proposed allocation of 300 MHz in the 31 GHz band for LMDS.
This Second Report and Order largely concludes the LMDS rulemaking proceeding
except for undecided issues regarding the implementation of disaggregation and
partitioning, which is subject to a Fifth Notice of Proposed Rulemaking. FCC
officials have stated their intent to commence the nationwide licensing of LMDS
through spectrum auctions by the summer of 1997.

The FCC in the Second Report and Order provides for two LMDS licenses
per BTA: one license for 1,150 MHz, the other for 150 MHz, amounting to 1,300
MHz allocated to LMDS. In addition to the non-contiguous 1 GHz of 28

11
<PAGE>

GHz spectrum allocated to LMDS in the First Report and Order, the FCC has
allocated an additional 300 MHz in the 31 GHz band for LMDS, 150 MHz of which
will be allocated to one LMDS license, the other 150 MHz will be combined with
the 1,000 MHz in the 28 GHz band.

The 1,150 MHz license will consist of: 850 MHz in the 27.5-28.35 GHz
band on a primary protected basis; 150 MHz in the 29.1-29.25 GHz band, at the
present time for LMDS hub-to-subscriber transmissions only, on a co-primary
basis with Mobile Satellite Service (MSS) systems; and 150 MHz in the
31.075-31.225 GHz band on a protected basis. The 150 MHz license will consist of
two 75 MHz bands located at each end of the 300 MHz block in the 31.0-31.075 GHz
and 31.225-31.3 GHz bands on a protected basis. LMDS licenses operating in this
bifurcated 31 GHz band will be required to afford interference protection to
incumbent licensees. Also, this second 150 MHz block can be combined with the
1,150 MHz license to create a 1.3 GHz LMDS system.

In order to encourage competition in the video and telephony markets,
the FCC decided to substantially restrict LECs and cable companies from
acquiring the 1,150 MHz LMDS license. Under the rules adopted in the Second
Report and Order, LECs and cable companies will be ineligible to acquire a 20%
or greater ownership interest in an 1,150 MHz LMDS license in their service
region for a period of three years. An incumbent LEC or cable company is
considered `in-region' and, therefore, ineligible to acquire an 1,150 MHz
license, if 10% of the BTA's population is within its authorized service area.
This eligibility restriction may be extended beyond the three-year period by the
FCC based on a determination that Incumbent LECs or cable companies continue to
have substantial market power. Also, the eligibility restriction will be
examined by the FCC at the time of its annual review, the first of which will
take place in the year 2000, to determine whether competition in the local
telephone and video distribution industries has increased sufficiently to make
these restrictions unnecessary. Finally, upon a showing of good cause by a
petitioning LEC or cable company, the FCC may waive the eligibility restriction
on a case-by-case basis. Cable companies and LECs will be able to bid on the 150
MHz license in their service area, as there is no such eligibility restriction
on this LMDS license.

In order to encourage small businesses to enter the LMDS industry, the FCC
has adopted several opportunity enhancing measures for qualifying small
businesses. The FCC will define a "small business" as an entity whose average
annual gross revenues, together with controlling principals and affiliates for
the three preceding years does not exceed $40 million. A small business will be
entitled to a 25% bidding credit. Small businesses are also entitled to
installment payments at an interest rate based on the rate for U.S. Treasury
obligations of maturity equal to the license term (10 years) fixed at the time
of licensing, plus 2.5%. Payments shall include interest only for the first two
years and payments of interest and principal amortized over the remaining eight
years. The rate of interest on ten-year US Treasury obligations will be
determined by taking the coupon rate of interest on ten-year US Treasury notes
most recently auctioned by the Treasury Department before licenses are
conditionally granted. Moreover, entities with gross revenues exceeding $40
million but not exceeding $75 million, will be entitled to a 15% bidding credit
and the same ten-year repayment plan as small businesses except interest and
principal will be amortized over the whole ten-year period.

The FCC also initiated a Fifth Notice of Proposed Rulemaking ("Fifth
NPRM") to address the issues of disaggregation and partitioning which will
enable a licensee to assign a portion of its bandwidth or geographic service
area to another entity. The FCC tentatively concluded to allow disaggregation
and partitioning without imposing substantial regulatory requirements and issued
the Fifth NPRM to solicit public comment regarding the most effective way to
implement partitioning and disaggregation for LMDS licensees.

Based on the Second Report and Order, wherein the FCC confirmed that it
will commence processing the Company's commercial license renewal application
for the New York PMSA within 30 days of the March 13, 1997 release of the Order,
the outcome of the Pioneer's Preference award has no impact on the Company's
license to operate in the New York PMSA. As previously stated by the FCC in the
Third NPRM, the Pioneer's Preference would apply only to the outer portion of
the New York BTA not covered by the Company's existing license for the New York
PMSA. If the

12
<PAGE>

Company ultimately is awarded the Pioneer's Preference, the Company would be
licensed to use the portion of the New York BTA outside the New York PMSA
pursuant to the FCC's band segmentation plan (i.e., 27.5-28.35 GHz, 29.1-29.25
GHz and 30.0-30.3 GHz). While the remainder of the New York BTA would be awarded
to the Company without being subject to a spectrum auction, under the FCC's most
recent proposal the Company would have the exclusive right to extend its license
to add the portion of the New York BTA not included in the 1,000-plus square
mile area covered by the Company's existing license for the New York PMSA by
paying a fee representing the difference between the value of a license to serve
the New York BTA and the value of the Company's current commercial license to
serve the New York PMSA, subject to a 15% discount from the average price paid
at the LMDS auctions for licenses in comparable service areas. In addition, the
FCC is considering the adoption of conditions on the Company's Pioneer's
Preference similar to those placed on the Pioneer's Preferences granted to
Personal Communications Service licensees. If adopted, these conditions may
require the Company to construct the system subject to the Pioneer's Preference
using substantially the same technology upon which its Pioneer's Preference
award is based.

Industry Regulation

General. The proprietary LMDS technology licensed by the Company from
CT&T has been repeatedly recognized formally by the FCC as a pioneering wireless
communications innovation, opening a previously underutilized frequency band for
terrestrial applications. At present, the Company is the only entity
commercially licensed by the FCC to transmit multichannel services in the 28 GHz
frequency band. Moreover, the unique LMDS technology is capable of providing a
diverse range of services, including interactive, high-quality video, telephony
and data services. Subsequent to the grant of the Company's commercial license
in 1991, the FCC in 1992 commenced the LMDS rulemaking proceeding to develop
rules for the licensing of LMDS nationwide. With the release of the Second
Report and Order on March 13, 1997 providing LMDS service, auction and
eligibility rules, the LMDS rulemaking is largely completed and FCC officials
have stated that auctions for LMDS licenses nationwide could commence by the
summer of 1997.

From a regulatory standpoint, the Company's subscription television
service currently offered in the New York PMSA is not treated as a "cable
system," as that term is defined by 42 U.S.C. ss. 522(7) and interpreted by the
FCC's rules and relevant decisions including the Second Report and Order. As the
FCC has formally recognized in the Second Report and Order, as a wireless
service provider, the LMDS licensee providing video programming services is not
subject to franchising or regulation as a cable system. As a result, the Company
is not required to comply with the FCC's onerous rules applicable to franchised
cable systems, including, among other things, rate regulation and the
requirement to obtain a franchise from local government authorities in order to
provide its video services.

While the Company's video operations are not subject to the FCC's
requirements applicable to franchised cable systems, the FCC has the power to
issue, revoke, modify and renew licenses within the spectrum utilized by the
Company's subscription television service, subject to FCC and judicial case law
precedent, which relies on the equitable concept of renewal expectancy for any
FCC licensee who acts in accord with the terms of its license and seeks to serve
the public interest, convenience and necessity. The FCC also may approve changes
in the ownership of such licenses, regulate equipment used by the Company's
video operations, and impose certain equal employment opportunity and
retransmission consent requirements.

Telecommunications Reform Act. On February 8, 1996, President Clinton
signed into law the Telecommunications Reform Act, landmark communications
reform legislation that significantly relaxes various restrictions applicable to
franchised cable operators and local and long distance telephone providers.
Among other things, the Telecommunications Reform Act (i) allows Regional Bell
Operating Companies ("RBOCs") to offer in-region video services and long
distance telephone service, subject to certain requirements; (ii) preempts state
laws, where applicable, allowing cable and long distance telephone companies to
offer local telephone service; and (iii) amends the 1992 Cable Act to
substantially deregulate cable rates.

With regard to franchised cable operators, the Telecommunications
Reform Act also contains provisions that will reduce the regulatory burdens on
franchised cable systems by freeing them from rate regulation of the cable
programming services tier by March 31, 1999, or immediately for systems with
fewer than 50,000 subscribers. Under this new legislation, franchised cable
operators also will be allowed to offer special discounts to residents of
multiple dwelling units, thereby intensifying competition between franchised
cable and wireless operators.

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<PAGE>

1984 Cable Act. Under the Cable Communications Policy Act of 1984, as
amended by the Telecommunications Reform Act (the "1984 Cable Act"), "cable
systems" may not be operated without a franchise from applicable local
government authorities. Federal law exempts from the definition of a "cable
system" those systems that (i) use wire or cable within the premises of a single
building only; (ii) interconnect one or more buildings only through radio
facilities; or (iii) interconnect buildings, by cable or wire, provided that the
system does not use public rights-of-way. Such systems, therefore, are not
required to obtain franchises from applicable local government authorities and
are subject to fewer regulations than traditional franchised cable operators. As
the FCC has recognized in the Second Report and Order, an LMDS video
distribution system, such as that operated by the Company in the New York PMSA,
would not be considered a "cable system" since signals are transmitted to
subscribers by radio spectrum. Moreover, all transmission and reception
equipment associated with the Company's LMDS video distribution operations can
be located on private property, eliminating the need for utility poles and
dedicated easements.

1992 Cable Act. On October 5, 1992, the U.S. Congress passed the 1992
Cable Act which imposes greater regulation on franchised cable operators and
permits regulation of cable service rates by local franchising authorities in
areas in which there is no "effective competition." The 1992 Cable Act, while
primarily known for regulating cable rates, also covers numerous other issues,
including (i) equal employment opportunity hiring policies; (ii) subscriber home
wiring ownership; (iii) compatibility of set-top converters with television
sets; (iv) carriage by private and franchise cable systems of local television
stations so-called "retransmission consent" and "must carry rules;" (v) customer
service standards; and (vi) non-discriminatory access to programming by Multiple
Video Programming Distributors ("MVPDs").

The Company's operations will not be subject to the rate regulation and
"must carry" rules of the 1992 Cable Act which restrict the business practices
of franchised cable companies.

Retransmission Consent. Under the 1992 Cable Act, MVPDs, including the
Company's wireless LMDS video distribution system, are prohibited from carrying
local television signals without first obtaining the television station's
consent, commonly known as a station's "retransmission consent" right. The
Company has obtained all necessary retransmission consents.

Program Access. The 1992 Cable Act also contains provisions designed to
ensure access by all MVPDs to programming on fair, reasonable and
non-discriminatory terms. The program access provisions prohibit vertically
integrated cable programmers, programmers in which a cable operator holds a five
percent or greater voting or non-voting ownership interest, a partnership
interest or has a common officer or director, from discriminating against MVPDs
in the prices they charge for programming. Moreover, the 1992 Cable Act's
program access provisions prohibit most exclusive dealing agreements that have
in the past enabled franchised cable operators to procure programming that is
unavailable to competitors. The program access provisions also prohibit
"non-price" discrimination by a programmer between competing MVPDs, including
the unreasonable refusal to sell programming to a class of video provider, or
refusing to offer particular terms to an individual video provider. On August
24, 1995, the FCC, acting on a complaint filed by the Company, ordered
SportsChannel Associates, a unit of Cablevision Systems Corporation
("SportsChannel"), to offer its sports programming to the Company on
non-discriminatory terms based on the FCC's finding that SportsChannel had
unreasonably refused to sell such programming. SportsChannel challenged the
FCC's decision by filing a Petition for Reconsideration and a Petition for Stay
pending FCC action on reconsideration, which the Company opposed, and the FCC
denied the petition for Stay. Additionally, on March 12, 1996, the FCC affirmed
its decision in favor of the Company. In October 1995, the Company executed a
contract with SportsChannel, and now offers SportsChannel programming to its
subscribers.

Compulsory Copyright License. Under federal copyright laws, permission
from a television program's copyright holder generally must be secured before
the video programming may be retransmitted. Cable systems, however, may obtain a
compulsory copyright license and retransmit local television broadcast
programming without securing the prior approval of the holders of the copyrights
for such programming, by filing reports and remitting semiannual royalty fee
payments to the Registrar of Copyrights.

On January 1, 1994, the U.S. Copyright Office held that certain
wireless video programming distributors, such as satellite carriers and MMDS
operators, were not "cable systems" eligible for a compulsory copyright license.
Subsequently, the Congress enacted the Satellite Home Viewer Act of 1994, which
broadened the U.S. Copyright Office's "cable system" definition to include all
wireless cable operators, arguably making the Company eligible for a copyright
compulsory license. Accordingly, the Company has filed all necessary Statements
of Account with the Copyright Office.

14
<PAGE>

Restrictions on Over-the-Air Reception Devices. The Telecommunications
Act of 1996 directed the FCC to promulgate regulations to prohibit restrictions
that impair a viewer's ability to receive video programming services through
devices designed for over-the-air reception of television broadcast signals,
multichannel multipoint distribution service, or direct broadcast satellite
services. In a Report and Order released on August 6, 1996, the FCC established
a rule that prohibits restrictions impairing the installation, maintenance or
use of an antenna designed to receive numerous video programming services,
specifically including LMDS. However, the Commission limited the interim
applicability of this rule to antennas located on property within the exclusive
use or control of the antenna user where the user has a direct or indirect
ownership interest in the property. In a Further Notice of Proposed Rulemaking
that is ongoing, the FCC is requesting further comment on situations involving:
(i) property not under the exclusive use and control of a person who has a
direct or indirect ownership interest; and, (ii) residential or commercial
property subject to a lease agreement.

Equipment and Facilities

The unique feature of the Company's customer premises equipment is its
highly-directional, flat plate, window, roof or wall mounted antenna
(approximately six and five-eighths inches square) which, based on its unique
characteristics and design, reduces the risk of theft of service. This antenna,
which is connected to and powered by a set-top converter, makes reception of the
Company's high quality signal possible. The Company's antenna permits indoor
installations, in many cases, thereby avoiding the costs involved in outdoor
installations. All of the Company's set-top converters are fully addressable,
making pay-per-view services available to all of its subscribers, and enabling
the Company to control access to all of its channels, further reducing the risk
of theft of services. Subscribers are also supplied with a hand-held, wireless
remote control unit. The Company presently obtains its customer premises
equipment through CT&T. CT&T obtains the customer premises equipment it supplies
to the Company from sole-source, third party suppliers.

The principal physical assets of the Company's system consist of
head-end equipment (including satellite signal reception equipment,
demodulators, multiplexers and encoders), transmitters, repeaters and subscriber
equipment, as well as office space. The Company's head-end facility collects and
feeds voice, video and data information from external sources such as
satellites, local television broadcast programming and Information Service
Providers into the Company's system, which transmits the signals from cell to
cell. The cells transmit the Company's signal directly to the subscriber's home
or office where it is received by an antenna connected to a set-top converter.
The Company deploys repeaters to service those shadowed areas not served
directly from the cell sites.

ITEM 2. PROPERTIES

The Company subleases approximately 9,800 square feet for its executive
offices in Manhattan pursuant to a sublease which expires in July 1999. In
addition, the Company leases approximately 9,350 square feet for its
administrative, customer service and warehouse needs in Brooklyn, New York. The
Company's lease for such facility terminates in May 1999. In November 1996, the
Company entered into a lease for an additional 20,400 square feet of space at
its Brooklyn location. This space will be utilized for the addition of a new
head-end facility and for the expansion of the Company as the employee base
increases. This lease expires in October 2004.

In addition, as the Company expanded into the Queens area in September
1996, an additional satellite office for installation, service and sales was
leased. The lease for 10,000 square feet expires in August 2004. The Company
also leases one New York City apartment for system demonstration and general
corporate purposes.

The Company leases approximately 3,250 square feet of indoor and
outdoor space on which it has constructed its head-end facility. These leases
expire in 1998 and 1999.

The Company anticipates that the 17 transmitters it plans to have in
operation by the end of 1997 will give it access to subscribers throughout most
of the New York PMSA. The Company leases approximately 100 square feet of space
on each of fifteen rooftops for its transmitters. These leases, several of which
contain seven-year renewal options, expire from 1999 to 2003. The Company is
currently in final negotiations for rooftop space on four additional sites in
New York City. In addition, the Company has letters of intent from landlords to
lease space at a total of 24 additional sites

15
<PAGE>

throughout the New York PMSA. The Company believes that leased space on rooftops
in New York City and other locations in the New York PMSA will be readily
available to serve as additional transmitter sites.

ITEM 3. LEGAL PROCEEDINGS

In February 1996, a suit was filed against the Company alleging that
the Company caused the U.S. Army to breach a contract with the plaintiff wherein
the plaintiff was to have an exclusive right to provide cable television
services at an army base located in Brooklyn, New York. The suit alleges that by
entering into a franchise agreement with the Army which grants the Company the
right to enter the army base to build, construct, install, operate and maintain
its multi-channel broadband cellular television system, the Company induced the
Army to breach its franchise agreement with the plaintiff. The Army has advised
the Company that it has the right to award the franchise to the Company and the
Company is continuing to provide service at the army base. The suit seeks $1
million in damages and is in its preliminary stages. The Company cannot make a
determination at this time as to the possible outcome of the action or whether
the case will go to trial. A summary judgment motion has been filed by the
Company and is currently pending, requesting that the court dismiss the case.
The Company does not believe that in the event an adverse judgment is rendered,
the effect would be material to the Company's financial position, but it could
have a material effect on operating results in the period in which the matter is
resolved.

In November 1995, a purported class action suit was filed against the
Company in New York State Supreme Court alleging that the Company had engaged in
a systematic practice of installing customer premises equipment in multiple
dwelling units without obtaining certain landlord or owner consents allegedly
required by law. The Suit seeks injunctive relief and $4 million in punitive
damages. The Company believes, based upon advice of counsel, that this suit is
likely to be resolved without a material adverse effect on the financial
position of the Company, but could have a material effect on operating results
in the period in which the matter is resolved.

Prior to 1992, Vahak and Shant Hovnanian were officers, directors and
principal shareholders of Riverside Savings Bank, a state-chartered savings and
loan association that entered receivership in 1991. In certain civil litigation
against the Hovnanians and others that ensued, which is pending in the U.S.
District Court for the District of New Jersey, the Resolution Trust Corporation
has alleged simple and gross negligence and breaches of fiduciary duties of care
and loyalty on the part of the defendants. Although this action is still in its
preliminary stages, the defendants have obtained dismissal of certain
allegations and intend to continue to vigorously defend the action.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Common Stock is listed for quotation on the NASDAQ National Market
system (the "NNM") under the symbol "CVUS." The following table sets forth high,
low and closing sale prices for the Common Stock for the fiscal quarters
indicated, as reported by the NNM.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 High Sale Low Sale Closing Sale
- ---- --------- -------- ------------

First Quarter* $15.750 $10.125 $11.000
Second Quarter 16.750 8.875 15.750
Third Quarter 16.750 9.250 10.000
Fourth Quarter 9.500 4.375 7.000
</TABLE>
- -----------
* Commencing February 8, 1996, the first day of public trading of the Common
Stock, through March 31, 1996.

16
<PAGE>

On December 31, 1996, the last sale price of the Common Stock as
reported on the NNM was $7.00 per share. As of December 31, 1996, there were 41
registered shareholders of the Common Stock. During the year ended December 31,
1996, the Company did not make any sales of securities that were not registered
under the Securities Act of 1933, as amended (the "Securities Act").

The Company has never declared or paid any cash dividends and does not
intend to declare or pay cash dividends on the Common Stock at any time in the
foreseeable future. Future earnings, if any, will be used to finance the
build-out of the Company's multichannel broadband cellular television system in
the New York PMSA.

17
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be
read in conjunction with Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements of the Company and related Notes thereto included elsewhere in this
Report.

Year Ended December 31,
------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of Operations
Data:
<S> <C> <C> <C> <C> <C>
Revenue........................ $2 $55 $51 $1,196 $2,190
Service cost................... 3 24 39 603 1,175
Selling general and
administrative................. 499 1,799 2,884 5,637 10,574
Management fees................ - 250 1,546 2,699 -
Depreciation and
amortization................... 51 73 188 1,376 2,258
-- -- --- ----- -----
Total operating expenses....... 553 2,146 4,657 10,315 14,007
--- ----- ----- ------ ------
Operating loss................. (551) (2,091) (4,606) (9,119) (11,817)
Net interest income (expense) - 100 (1,393) (2,184) 186
--- --- ------- ------- ---
Net loss....................... $(551) $(1,991) $(5,999) $(11,303) $(11,631)
====== ======== ======== ========= =========

Loss per common share (1)...... $ (0.91) $ (0.75)

Weighted average common shares
outstanding(1)................. 12,395,142 15,576,478
</TABLE>
<TABLE>
<CAPTION>

December 31,
----------------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and short- term
investments.................... $14 $18,705 $12,544 $3,536 $19,600
Working capital
(deficiency)................... (34) 17,766 10,470 (1,647) 16,765
Net property and equipment..... 353 407 3,469 6,322 14,158
Total assets................... 559 20,096 16,922 12,995 35,924
Total debt..................... - 15,000 16,756 18,871 6,260
Total liabilities.............. 239 16,115 18,861 26,314 8,972
Total equity (deficit)......... 320 3,981 (1,939) (13,319) 26,952

</TABLE>
1) Historical loss per common share and weighted average common shares
outstanding for the years ended December 31, 1992, 1993 and 1994 are not
presented as they are not considered indicative of the on-going entity.

18
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto and the other financial
information appearing elsewhere in this Report.

Information Relating to Forward-Looking Statements

Management's Discussion and Analysis and other sections of this Annual
Report include forward-looking statements that reflect the Company's current
expectations concerning future results. The words "expects", "intends",
"believes", "anticipates", "likely", "will", and similar expressions identify
forward looking statements. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements.

General

The Company owns a multichannel broadband cellular television system in
an area which includes New York City under a 1,000 MHz commercial license from
the FCC. The Company has been operating its 49-channel broadband cellular
television system in portions of Brooklyn on a limited basis since 1992. The
December 1995 grant by the FCC of the Company's 34 applications for additional
commercial transmitter sites has now put the Company in a position to expand its
subscription television services to cover most of the 8.3 million population New
York PMSA, a region consisting of the five boroughs of New York City and three
suburban counties. Currently, there are approximately 2.9 million people in the
area covered by the Company's ten commercially operational transmitters. The
Company intends to have 17 transmitters in operation by the end of 1997, which
are expected to give it access to subscribers throughout most of the New York
PMSA. The Company's recently granted transmitter permits are conditional upon,
and subject to, conformance with the final FCC rules for LMDS.

The cost structure of the build-out of the Company's system is
significantly different from that of a hard-wire cable company, which typically
incurs substantial amounts of debt during infrastructure build-out, without
offsetting revenues. The cost associated with infrastructure, or the ability to
"pass homes," is a relatively small portion of the Company's total capital
expenditure requirements. The predominant share of capital expenditures required
to build out the Company's system is related to customer premises equipment,
consisting of a receive antenna and set-top converter which are installed in the
subscriber's home or office. Other direct costs relating to subscriber
installation include sales commission and installation costs. The Company
capitalizes costs associated with subscriber installation, including material
and labor. These costs are then depreciated over the shorter of the estimated
average period that the subscribers are expected to remain connected to the
Company's system or five years. Installation revenue, when charged to a
subscriber, is recorded in current period revenue to the extent of direct sales
commissions and deferred thereafter.

Operations

The focus of 1996 operations was the construction of the
CellularVision system throughout the New York PMSA and continued subscriber
growth. The Company deployed eight additional transmitters in 1996, bringing the
current total to ten serving all of Brooklyn, and parts of Manhattan and Queens.
Five additional transmitters are under construction and the Company expects to
have 17 transmitters in operation by the end of 1997. The Company expects that
these transmitters, with the deployment of repeaters to service shadowed areas
within each cell, will cover over 85% of the 8.3 million population in the New
York PMSA.

Sales and marketing efforts include door-to-door, direct mail and
telemarketing campaigns. Since the launch of this three-pronged approach in the
second quarter of 1996, the Company's subscribers and revenues have grown each
month. The subscribers as of March 24, 1997, totaled approximately 12,500, more
than triple the number reported at this time in 1996.

As significant market areas (i.e., boroughs) are passed, the Company
will incorporate mass media into its marketing plan. Television and radio
advertising will follow a newspaper strategy designed to increase CellularVision
brand awareness. The Company has introduced its "Business Class Service" in a
series of advertisements running in The Wall Street Journal and The New York
Times.

19
<PAGE>

"Business Class Service" is a package of video, voice and data
services developed for delivery to TVs and PCs in New York's financial
institutions and corporations. Business Class Service includes 14 news and
business oriented video channels, data services including high-speed Internet
access, and future two-way services like telephony and video teleconferencing.
In 1996, the Company announced a strategic marketing alliance with Bloomberg
Information Television. As a result, the Company now delivers Bloomberg
Information Television to hundreds of computer screens in Manhattan.

The Company was among the first to offer high-speed Internet access. In
1996 the Company demonstrated the first high-speed wireless modem to the New
York market. Field trials of a 500 Kbps modem began in September 1996 and have
been successfully completed. The $200 product operates at data rates
approximately 20 times faster than conventional 28.8 Kbps modems, and
approximately 4 times faster than ISDN. The Company recently began marketing
trials that will continue until the expected commercial launch later in 1997.

Twelve Months Ended December 31, 1996 Compared to Twelve Months Ended
December 31, 1995. Revenue increased $994,000 from $1,196,000 for the twelve
months ended December 31, 1995 to $2,190,000 for the twelve months ended
December 31, 1996. The increase in revenue is due to an increase in subscribers,
and a full year of premium and pay-per-view services which were introduced in
April and June 1995, respectively.

Operating expenses increased $3,692,000 from $10,315,000 for the twelve
months ended December 31, 1995 to $14,007,000 for the twelve months ended
December 31, 1996. This increase is attributable to costs associated with the
continued commercial roll-out, including service costs, selling, general and
administrative expenses, and depreciation and amortization, offset in part by
the elimination of management fees.

Service costs increased $572,000 from $603,000 for the twelve months
ended December 31, 1995 to $1,175,000 for the twelve months ended December 31,
1996. Service costs are fees paid to providers of television programming and
royalties paid to CT&T under a license agreement between CT&T and CVNY (the
"CT&T License Agreement"). These costs increase as the subscriber count and
associated revenues increase.

Selling, general and administrative expense increased $4,937,000 from
$5,637,000 for the twelve months ended December 31, 1995 to $10,574,000 for the
twelve months ended December 31, 1996. The increase in selling, general and
administrative expenses is primarily attributable to headcount-related costs (as
the Company's employee base rose from 55 at December 31, 1995 to 104 at December
31, 1996), and increased payments in equipment rentals and legal fees associated
primarily with the FCC rulemaking, offset in part by a decrease in contractor
sales as part of the sales force was brought in-house. The Company expects that
its legal costs associated with FCC matters will vary dependent upon the timing
and resolution of matters such as the recently approved transmitter applications
and the pending final FCC rules for LMDS. CT&T paid 50% of all such legal costs
through the date of the consummation of the Initial Public Offering, at which
time the Company assumed all ongoing legal expenses relating to FCC matters.
Following the build-out of its network of transmitters, the Company intends to
implement a variety of mass marketing programs which the Company expects will
result in an increase in total sales and marketing expenses.

Management fees decreased $2,699,000 from $2,699,000 for the twelve
months ended 31, 1995 to $0 for the twelve months ended December 31, 1996. The
decrease in management fees is attributable to the termination of a management
agreement with Bell Atlantic Corporation (the "Management Agreement") as of
December 31,1995.

Depreciation and amortization increased $882,000 from $1,376,000 for
the twelve months ended December 31, 1995 to $2,258,000 for the twelve months
ended December 31, 1996. The increase in depreciation and amortization costs is
due primarily to the purchase of customer premises equipment and equipment for
the Company's transmitter sites.

Interest expense decreased $1,483,000 from $2,588,000 for the twelve
months ended December 31, 1995 to $1,105,000 for the twelve months ended
December 31, 1996. The decrease is due primarily to the conversion of
$10,000,000 of convertible exchangeable subordinated notes payable in
conjunction with the Company's Initial Public Offering. Interest income
increased $888,000 from $404,000 for the twelve months ended December 31, 1995
to $1,292,000 for the twelve months ended December 31, 1996. The increase is due
primarily to the interest earned on the proceeds from the Company's Initial
Public Offering in 1996.

20
<PAGE>

The net loss for the twelve months ended December 31, 1995 was
$11,303,000 compared to a net loss of $11,631,000 for the twelve months ended
December 31, 1996. This increase is due to increased service costs, selling,
general and administrative expenses, and depreciation and amortization expense,
offset by increased revenue and interest income and decreased management fees
and interest expense.

Twelve Months Ended December 31, 1995 Compared to Twelve Months Ended
December 31, 1994. Revenue increased $1,145,000 from $51,000 for the twelve
months ended December 31, 1994 to $1,196,000 for the twelve months ended
December 31, 1995. The increase in revenue was attributable to an increase in
subscribers and the addition of premium and pay-per-view services during April
and June 1995, respectively.

Operating expenses increased $5,658,000 from $4,657,000 for the twelve
months ended December 31, 1994 to $10,315,000 for the twelve months ended
December 31, 1995. This increase was primarily attributable to costs associated
with commercial roll-out, including service costs, selling, general and
administrative expenses, management fees and depreciation and amortization.

Service costs increased $564,000 from $39,000 for the twelve months
ended December 31, 1994 to $603,000 for the twelve months ended December 31,
1995. Such costs, primarily fees paid to providers of television programming and
royalties paid to CT&T under the CT&T License Agreement, increased with the
growth in subscribers and revenues.

Selling, general and administrative expenses increased $2,753,000 from
$2,884,000 for the twelve months ended December 31, 1994 to $5,637,000 for the
twelve months ended December 31, 1995. The increase in selling, general and
administrative expenses was primarily attributable to headcount-related costs
(as the Company's employee base rose from 13 at December 31, 1994 to 55 at
December 31, 1995), sales and marketing-related costs and increased legal costs
associated with the FCC licensing process.

Management fees increased $1,153,000 from $1,546,000 for the twelve
months ended December 31, 1994 to $2,699,000 for the twelve months ended
December 31, 1995. The increase in management fees was attributable to
contractual increases in amounts due to Bell Atlantic under the terms of the
Management Agreement. Other costs reimbursed under this agreement, primarily for
salary and benefits, were reflected in selling, general and administrative
expenses and continued to be incurred separately by the Company in 1996.

Depreciation and amortization increased $1,188,000 from $188,000 for
the twelve months ended December 31, 1994 to $1,376,000 for the twelve months
ended December 31, 1995. The increase in depreciation and amortization costs was
due primarily to the purchase of customer premises equipment, equipment for
three transmitter sites and the build-out of the Company's customer
service/administrative facility.

Interest expense increased $669,000 from $1,919,000 for the twelve
months ended December 31, 1994 to $2,588,000 for the twelve months ended
December 31, 1995. This increase was due to increases in the prime interest rate
along with additional interest associated with the compounding of previously
accrued interest and principal on the Morgan Notes. In connection with the
consummation of the Initial Public Offering, $10 million of the $15 million
principal amount of the Morgan Notes was converted into Common Stock of the
Company. Interest accrued, in an amount proportionate to the amount of principal
converted, from the date of issue of such notes through the conversion date was
irrevocably waived and classified to additional paid-in capital. Interest income
declined from $527,000 for the twelve months ended December 31, 1994, to
$404,000 for the twelve months ended December 31, 1995.

The net loss for the twelve months ended December 31, 1994 was
$5,999,000 compared to a net loss of $11,303,000 for the twelve months ended
December 31, 1995. The increase in net loss was due primarily to increased
operating expenses and interest expense.

Twelve Months Ended December 31, 1994 Compared to Twelve Months Ended
December 31, 1993. Revenues decreased $4,000 from $55,000 for the twelve months
ended December 31, 1993 to $51,000 for the twelve months ended December 31,
1994. This decrease was attributable to subscriber attrition during the testing
phase of the Company's operations.

Operating expenses increased $2,511,000 from $2,146,000 for the twelve
months ended December 31, 1993 to $4,657,000 for the twelve months ended
December 31, 1994. This increase was primarily attributable to costs associated

21
<PAGE>

with commercial roll-out, including selling, general and administrative
expenses, management fees and depreciation and amortization.

Selling, general and administrative expenses increased $1,085,000 from
$1,799,000 for the twelve months ended December 31, 1993 to $2,884,000 for the
twelve months ended December 31, 1994. The increase in selling, general and
administrative expenses was primarily attributable to headcount-related costs
(as the Company's employee base rose from two at December 31, 1993 to 13 at
December 31, 1994), sales and marketing related expenses and increased legal
expenses. Legal expenses increased in connection with the LMDS rule making
proceeding, the Company's transmitter applications, litigation regarding access
to programming and an action to protect certain trade secrets.

Management fees increased $1,296,000 from $250,000 for the twelve
months ended December 31, 1993 to $1,546,000 for the twelve months ended
December 31, 1994. The increase in management fees was attributable to
contractual increases due to Bell Atlantic under the terms of the Management
Agreement.

Depreciation and amortization increased $115,000 from $73,000 for the
twelve months ended December 31, 1993 to $188,000 for the twelve months ended
December 31, 1994. The increase in depreciation and amortization costs was
primarily attributable to increased purchases of customer premises equipment in
anticipation of a commercial roll-out and acquisition of equipment for one
transmitter site.

Interest expense was $1,919,000 for the twelve months ended December
31, 1994 with no interest expense incurred for the twelve months ended December
31, 1993. The increase in interest expense related to the issuance of the Morgan
Notes on December 29, 1993. Interest income increased $427,000 from $100,000 for
the twelve months ended December 31, 1993 to $527,000 for the twelve months
ended December 31, 1994. This increase related to the interest earnings on the
unexpended portion of the proceeds of the Morgan Notes.

The net loss for the twelve months ended December 31, 1994 was
$5,999,000 compared to a net loss of $1,991,000 for the twelve months ended
December 31, 1993. The increase in the net loss was due primarily to increased
operating expenses and interest expense.

Liquidity and Capital Resources

For the year ended December 31, 1996, the Company expended $9,106,000
on operating activities. During the same period, capital expenditures were
$10,191,000, consisting primarily of transmitter deployment and the purchase of
customer premises equipment.

In February 1996, the Company consummated the Initial Public Offering
of 3,333,000 shares of Common Stock (including an aggregate of 333,000 shares
sold by certain shareholders of the Company) at the initial offering price of
$15.00 per share. The net proceeds to the Company from the Initial Public
Offering, after deducting underwriting discounts and commissions of $1.05 per
share and approximately $2 million of other expenses, were approximately
$39,850,000.

Prior to the consummation of the Initial Public Offering, the Company
had financed its cash flow requirements primarily with proceeds obtained from
private placements of debt and equity. In 1993, the Company consummated a $10
million private placement of equity with Bell Atlantic and the $15 million
private placement of the Morgan Notes. The Company utilized the proceeds of
these private placements to finance operations, build out its system, purchase
customer premises equipment and fund distributions totaling $4 million to the
Founders in 1993 and 1994. The Morgan Notes accrued interest at Morgan's prime
lending rate plus 4%, with a minimum rate of 8% and a maximum rate of 12%.
Effective December 15, 1995, $5 million principal amount of the Morgan Notes,
together with accrued interest thereon of approximately $1.3 million, was
exchanged for the Morgan Exchange Notes. Prior to such exchange accrued interest
on the Morgan Notes was added to the outstanding principal balance. The Morgan
Exchange Notes accrue interest at Morgan's prime lending rate plus 6%, with a
minimum rate of 10% and a maximum rate of 15%. Interest on the Morgan Exchange
Notes is payable quarterly, beginning March 28, 1996. Principal is payable as
follows: 4/15 of the outstanding balance is payable on June 30, 1997, 5/11 of
the then outstanding balance is payable on June 30, 1998 and the remaining
balance is payable on April 30, 1999. The Morgan Exchange Notes are not
convertible. Upon the consummation of the Incorporation Transactions in February
1996, the remaining $10 million principal amount of the Morgan Notes was
converted into 604,858 shares of Common Stock. Interest accrued, in an amount
proportionate to the amount of principal

22
<PAGE>

converted, from the date of issue of the Morgan Notes through the conversion
date was irrevocably waived and reclassified to additional paid-in capital upon
such conversion.

On September 30, 1995, the Company exercised its option to terminate
the Management Agreement, effective December 31, 1995. Effective December 1,
1995, the Company entered into an agreement with Bell Atlantic which converted
outstanding fees and related interest thereon due to Bell Atlantic pursuant to
the terms of the Management Agreement, totaling approximately $3.5 million, to a
senior convertible note (the "Bell Atlantic Note"). From the proceeds of the
Initial Public Offering, the Company paid Bell Atlantic approximately $3.5
million due under the Bell Atlantic Note together with approximately $100,000 of
accrued interest thereon and $675,000 for fees accrued during the fourth quarter
of 1995 under the Management Agreement.

On December 15, 1995, the Company entered into two sale and leaseback
transactions totaling approximately $2.6 million. The minimum lease term for
each piece of equipment under the sale and leaseback facility in the amount of
$1.1 million is 36 months, with a renewal period of an additional twelve months.
The minimum lease term for each piece of equipment under the sale and leaseback
facility in the amount of $1.5 million is 48 months, with a renewal period of an
additional twelve months. Rental payments are due monthly in advance.

The Company expects that the remaining proceeds from the Initial Public
Offering, and internally generated funds will be sufficient for the continued
build-out of its multichannel broadband cellular television system. The Company
believes that its sources of capital, including internally generated funds and
the remaining proceeds from the Initial Public Offering will be adequate to
satisfy anticipated capital needs and operating expenses for the next twelve
months. Additional funding would be required for the Company to expand into the
New York BTA (if acquired) or other BTAs, or to provide additional services such
as high-speed Internet access, telephony and other two-way services.

The Company has recorded net losses and negative operating cash flow in
each period of its operations since inception. While such losses and negative
operating cash flow are attributable to the start-up costs incurred in
connection with the roll-out of the Company's system, the Company expects to
continue experiencing operating losses and negative cash flow for at least one
year as a result of its planned expansion within the New York PMSA.

The Company is able to control the timing of deployment of capital
resources based on the variable cost nature of the business and the incremental
fixed cost per transmitter site constructed. The Company's current business
strategy is based on rapid subscriber growth. Should capital conservation
measures be required, the Company may slow the rate of subscriber growth or
delay additional transmitter deployment, enabling the Company to operate for an
extended period of time.

Transmitter Deployment. The Company anticipates that the 17
transmitters it plans to have in operation by the end of 1997 will give it
access to subscribers throughout most of the New York PMSA. The Company has
leased space on 15 rooftops for its transmitters, and believes that leased space
on rooftops in New York City and other locations in the New York PMSA will be
readily available to serve as additional transmitter sites. The Company is in
negotiations for rooftop space on four additional sites in New York City for
transmitter deployment. The Company is actively pursuing over 50 sites for its
repeaters. The Company has letters of intent from landlords to lease space at an
additional 24 sites throughout the New York PMSA.

The average rental cost for existing transmitter sites is approximately
$1,000 per month. The average cost of a cell site, including a fully redundant
transmitter, leasehold improvements, an uninterruptable power supply and an
inter-cell relay is currently approximately $500,000. The final engineering of a
cell may require deployment of repeaters to provide signal to shadowed areas.
The number of repeaters required within a cell may vary significantly based upon
the topography of the cell and the location of the transmitter. The Company
anticipates the cost of cell engineering, on average, to be $150,000 per cell.

Customer Premises Equipment. Customer premises equipment consists of at
least one set-top converter and at least one receive antenna. At December 31,
1996, the Company had outstanding long-term orders with CT&T for the purchase of
set-top converters, receive antennas, high-speed modems, transmitters and
repeaters, aggregating approximately $11.6 million (net of deposits) to be
delivered to the Company during 1997 and 1998.

23
<PAGE>

CT&T License Agreement. CT&T has licensed its proprietary LMDS
technology to CVNY pursuant to the CT&T License Agreement to permit the Company
to construct and operate its multichannel broadband cellular television system
and sell communications services on an exclusive basis for the New York PMSA and
the New York BTA (to the extent the Company holds or obtains a commercial
license from the FCC). CT&T has also agreed to license its technology to the
Company in other BTAs in which the Company obtains LMDS licenses from the FCC.
The economic terms and conditions of such licenses will be, in the aggregate, at
least as favorable as the terms of any other license granted by CT&T within the
United States. Under the CT&T License Agreement, the Company pays CT&T a royalty
currently equal to 7.5% of gross revenues on a quarterly basis. The Company has
also granted CT&T an exclusive, royalty-free license to use any improvements the
Company makes in the licensed technology. CT&T has the right to sublicense its
rights under the agreement with Philips Electronics N.V. and its affiliates and
the unrestricted right to sublicense its rights outside the Company's service
area to other parties. CT&T has also granted CVNY a non-exclusive, royalty-free
sublicense within the Company's licensed territory for certain patents and
know-how owned or controlled by Philips. The royalty rate payable to CT&T may be
reduced by operation of the above-mentioned "most favored nation" clause, and is
also subject to reduction in the event of expiration, revocation or invalidation
of certain CT&T patent rights. The term of the CT&T License Agreement extends
through the year 2028, subject to earlier termination upon certain events.

Other Transactions with CT&T. As of December 31, 1996, the Company had
an amount due from CT&T of approximately $760,000, which represents the
Company's allocation of costs to CT&T, net of royalties. The Company and CT&T
have agreed, as of the consummation of the Incorporation Transactions, to apply
royalties over and above $80,000 in each calendar year otherwise due to CT&T to
the outstanding amounts due from CT&T, which will bear interest from and after
such date at the rate of 6% per annum. Effective upon the consummation of the
Incorporation Transactions in February 1996, the Company assumed all ongoing
legal expenses of FCC counsel in recognition of the potential scope of the
Company's operations outside the New York BTA. Prior to the Initial Public
Offering, because of the common interest of the Company and CT&T in the outcome
of the FCC's LMDS rule making proceeding, the Company and CT&T had shared
equally the fees and disbursements of joint FCC counsel. Prior to the
consummation of the Incorporation Transactions, the Company paid certain general
and administrative expenses which were shared equally with, and subsequently
billed to, CT&T.

Income Taxes. The Company's predecessors were established as
partnerships and as a corporation organized under Subchapter S (a "Subchapter S
Corporation") of the Internal Revenue Code of 1986, as amended (the "Code"). The
partners or Subchapter S Corporation stockholders, as applicable, are required
to report their share of the Company's losses in their respective income tax
returns.

The Company has been organized as a Subchapter C Corporation of the
Code, and, accordingly, is subject to federal and state income taxes. On
December 31, 1996, the Company recorded a deferred tax asset of approximately
$13.9 million, primarily related to current year operating losses and
differences between the book and tax basis of the Company's investment in CVNY.
Additionally, under the provisions of Statement of Financial Accounting Standard
No. 109 "Accounting for Income Taxes" ("SFAS 109"), the Company recorded an
offsetting valuation allowance of $13.9 million against the aforementioned tax
asset since the Company has no ability to carryback these losses and has a
limited earnings history. The Company believes this asset may be realized upon
existence of sufficient taxable income or other persuasive evidence as defined
by SFAS No. 109.

New Accounting Pronouncements. In February 1997, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 specifies new
standards designed to improve the earnings per share (EPS) information provided
in financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of EPS
data on an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that common
stock equivalents (CSEs) are not considered in computing basic EPS, (b)
eliminating the modified treasury stock method and the three percent materiality
provision, and (c) revising the contingent share provisions and the supplemental
EPS data requirements. SFAS No. 128 also makes a number of changes to existing
disclosure requirements. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
The Company has not yet determined the impact of the implementation of SFAS No.
128 on its financial statements and related disclosures.

24
<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company and related Notes
thereto and the financial information required to be filed herewith are included
on pages 29 to 49 and S-1 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

PART III

The information called for by Item 10, Directors and Executive
Officers of the Registrant; Item 11, Executive Compensation; Item 12, Security
Ownership of Certain Beneficial Owners and Management and Item 13, Certain
Relationships and Related Transactions, is hereby incorporated by reference to
the corresponding sections of the Registrant's definitive proxy statement (the
"Definitive Proxy Statement") for its Annual Meeting of Stockholders to be held
in May, 1997.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements and Financial Schedules

(1) Consolidated Financial Statements Page(s)
-------

Report of Independent Accountants....................................29

Consolidated Balance Sheets as of December 31, 1995 and December
31, 1996.............................................................30

Consolidated Statements of Operations for the years ended December
31, 1994, 1995 and 1996 and for the period January 1, 1992 (date of
inception) to December 31, 1996......................................31

Consolidated Statements of Changes in Partners' Capital and
Stockholders' Equity (Deficit) for the years ended December
31, 1994, 1995 and 1996 and for the period January 1, 1992
(date of inception) to December 31, 1996 ............................32

Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the period January 1,
1992 (date of inception) to December 31, 1996.....................33-34

Notes to Consolidated Financial Statements........................35-49

(2) Financial Statement Schedule

Schedule II -- Valuation and Qualifying Accounts....................S-1

(b) Reports on Form 8-K

None.

25
<PAGE>

3.1* Certificate of Incorporation.

3.2* By-laws.

4.1* Form of Common Stock Certificate.

4.2* Stockholders Agreement, dated as of January 12, 1996, by and among
CellularVision USA, Inc., Shant S. Hovnanian, Bernard B. Bossard and
Vahak S. Hovnanian.

4.3* Registration Rights Agreement, dated as of January 12, 1996, by and
among CellularVision USA, Inc., Bell Atlantic Ventures XXIII, Inc.,
Philips PGNY Corp., Inc. and Morgan Guaranty Trust Company of New
York, as Trustee of the Commingled Pension Trust Fund (Multi-Market
Special Investment) of Morgan Guaranty Trust Company of New York, and
as Investment Manager and Agent for an Institutional Investor.

10.1* Amended and Restated License Agreement, together with Addendum to
License Agreement, each dated as of July 7, 1993, by and
between CellularVision Technology & Telecommunications, L.P.
and CellularVision of New York, L.P. and certain amendments and
supplements thereto.

10.2* Reserved Channel Rights Agreement, dated as of July 7, 1993, by
and between Vahak S. Hovnanian, Shant S. Hovnanian, Bernard B.
Bossard, CellularVision of New York, L.P. and Bell Atlantic Ventures
XXIII, Inc.

10.3* Restructuring Agreement, dated as of January 12, 1996, by and among
the Company, CellularVision of New York, L.P., Hye Crest Management,
Inc., Suite 12 Group, Bell Atlantic Ventures XXIII, Inc., Philips
PGNY Corp., Morgan Guaranty Trust Company of New York, as Trustee of
the Commingled Pension Trust Fund (Multi-Market Special Investment)
of Morgan Guaranty Trust Company of New York, and as Investment
Manager and Agent for an Institutional Investor, Shant S. Hovnanian,
Bernard B. Bossard and Vahak S. Hovnanian.

10.4* CellularVision USA, Inc. 1995 Stock Incentive Plan.

10.5* Employment Agreement, dated as of October 18, 1995, between
CellularVision USA, Inc. and Bernard B. Bossard.

10.6* Employment Agreement, dated as of October 18, 1995, between
CellularVision USA, Inc. and Shant S. Hovnanian.

10.7* Employment Agreement, dated as of January 1, 1996, between
CellularVision USA, Inc. and John Walber.

10.8** Employment Agreement, dated as of July 31, 1996, between
CellularVision USA, Inc. and Charles N. Garber.

10.9* Intercompany Agreement, dated January 12, 1996, by and among
CellularVision USA, Inc., CellularVision Technology &
Telecommunications, L.P., CellularVision of New York, L.P., Shant S.
Hovnanian, Bernard B. Bossard and Vahak S. Hovnanian.

10.10* Second Addendum to License Agreement, dated as of January 12, 1996,
by and between CellularVision Technology & Telecommunications, L.P.
and CellularVision of New York, L.P.

10.11* Corporate Name License and Grant of Future Licenses Agreement, dated
as of January 12, 1996, by and between CellularVision Technology &
Telecommunications, L.P. and CellularVision USA, Inc.

26
<PAGE>

10.12* Amended and Restated Agreement of Limited Partnership of
CellularVision of New York, L.P., dated as of July 7, 1993, by and
between Hye Crest Management, Inc., Bell Atlantic Ventures, XXIII,
Inc. and the limited partners set forth on the signature page
thereto.

10.13* Master Amendment Agreement, dated as of October 8, 1993, by and
among Vahak S. Hovnanian, Shant S. Hovnanian, Bernard B. Bossard,
Hye Crest Management, Inc., Suite 12 Group, CellularVision of New
York, L.P., CellularVision Technology & Telecommunications, L.P.,
Bell Atlantic Ventures XXIII, Inc. and Philips PGNY Corp.

10.14* Second Master Amendment Agreement, dated as of December 29, 1993, by
and among Hye Crest Management, Inc., Suite 12 Group, CellularVision
of New York, L.P., CellularVision Technology & Telecommunications,
L.P., Bell Atlantic Ventures XXIII, Inc., Philips PGNY Corp., Morgan
Guaranty Trust Company of New York, as trustee of the Commingled
Pension Trust Fund (Multi-Market Special Investment) of Morgan
Guaranty Trust Company of New York, and as Investment Manager and
Agent for an Institutional Investor.

10.15*+ Note Purchase Agreement, dated as of December 29, 1993, between
CellularVision of New York, L.P. and Morgan Guaranty Trust Company of
New York, as trustee of the Commingled Pension Trust Fund
(Multi-Market Special Investment) of Morgan Guaranty Trust Company of
New York with respect to the issuance and sale of $12,000,000
principal amount of Convertible Exchangeable Subordinated Notes of
CellularVision of New York, L.P.

10.16* Agreement of Lease, dated May 9, 1994, by and between Cellular Vision
of New York and New York City Economic Development Corporation and
Sublease, dated March 8, 1995, between CellularVision of New York,
L.P. and Harvard Fax, Inc.

10.17* Communications Antenna Site Agreement, dated December 6, 1994,
between CellularVision of New York L.P. and Tower Owners, Inc., as
amended.

10.18* Master Lease Agreement No. 6035, dated December 12, 1995,
between Linc Capital Management, a division of Scientific Leasing
Inc., and CellularVision of New York, L.P., together with the
Schedules and Addendum No. 1 thereto; Warrant Certificate Nos. 1, 2
and 3, dated December 14, 1995, issued to Linc Capital Partners, Inc.
by the Company.

10.19* Master Equipment Lease, dated December 14, 1995 between Boston
Financial & Equity Corporation and CellularVision of New York, L.P.,
together with the Schedules and the Addendum thereto; Warrant
Certificate Nos. 4 and 5, dated December 14, 1995, issued to Boston
Financial & Equity Corporation by the Company.

10.20* Senior Convertible Term Note, dated December 1, 1995, in the
principal amount of $3,521,257 issued to Bell Atlantic Ventures
XXIII, Inc. by CellularVision of New York, L.P. and CellularVision
USA, Inc. and the Agreement, dated as of December 1, 1995, by and
among CellularVision USA, Inc., CellularVision of New York, L.P., and
Bell Atlantic Ventures XXIII, Inc.

10.21* Warrant, dated June 1, 1994, issued by CellularVision of New
York, L.P. to Alex. Brown & Sons Incorporated.

10.22* Warrant, dated June 1, 1994, issued by CellularVision of New York,
L.P. to Mark B. Fisher.

10.23* Warrant, dated December 29, 1993, issued by CellularVision of New
York, L.P. to Peter Rinfret.

10.24* Warrant, dated October 8, 1993, issued by Vahak S. Hovnanian and
Shant S. Hovnanian to Alex. Brown Financial Corporation.

27
<PAGE>

10.25* Warrant, dated October 8, 1993, issued by Vahak S. Hovnanian and
Shant S. Hovnanian to Mark B. Fisher.

10.26* Non-qualified Stock Option Agreement under the CellularVision USA,
Inc. 1995 Stock Incentive Plan, dated as of January 15, 1996, by and
between the Company and John Walber.

10.28* Agreement, dated as of January 12, 1996, by and among CellularVision
USA, Inc., CellularVision of New York, L.P., Hye Crest Management,
Inc., Shant S. Hovnanian, Vahak S. Hovnanian, Bernard B. Bossard
and Bell Atlantic Ventures XXIII, Inc.

10.29 Exchange Notes, dated as of December 15, 1995, of CellularVision USA,
Inc. issued to Morgan Guaranty Trust Company of New York, as trustee
of the Commingled Pension Trust Fund (Multi-Market Special
Investment) of Morgan Guaranty Trust Company of New York, and as
Investment Manager and Agent for an Institutional Investor, in the
principal amounts of approximately $5.0 million and $1.3 million,
respectively (form of Exchange Note included as Exhibit A-2 to
Exhibit 10.15 above).

21* Subsidiaries of CellularVision USA, Inc.

23.1 Consent of Coopers & Lybrand L.L.P.

27.1 Financial Data Schedule.

27.2 Restated Financial Data Schedule.

- ------------------

* Incorporated by reference to the Company's Registration Statement
in Form S-1 (File No. 33-98340) which was declared effective by the
Commission on February 7, 1996.

** Incorporated by reference to the Company's Form 10-Q for the
quarterly period ended June 30, 1996 filed by the Registrant on August
12, 1996.

+ An identical note purchase agreement has been entered into
by CellularVision of New York, L.P. and Morgan Guaranty Trust Company of
New York, as Investment Manager and Agent for an Institutional Investor
with respect to the issuance and sale of $3,000,000 principal
amount of Convertible Exchangeable Subordinated Notes of CellularVision
of New York, L.P.

28
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of CellularVision USA, Inc.:

We have audited the accompanying consolidated financial statements and
the financial statement schedule of CELLULARVISION USA, INC. (the "Company," a
Development Stage Company) listed in Item 14(a) of this Form 10-K/A. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CellularVision USA, Inc. as of December 31, 1995 and 1996, and the consolidated
results of its operations and its cash flows for the years ended December 31,
1994, 1995 and 1996 and for the period January 1, 1992 (date of inception) to
December 31, 1996, in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

Coopers & Lybrand L.L.P.

New York, New York
February 14, 1997,
except for Note 4, as to which the date is
March 17, 1997

29
<PAGE>

CELLULARVISION USA, INC.
(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------

ASSETS 1995 1996
---- ----

Current assets:
<S> <C> <C>
Cash and cash equivalents......................... $ 3,536,354 $19,600,070
Accounts receivable, net of allowance
for doubtful accounts of $133,730
and $124,370................................. 410,141 530,333
Prepaid expenses and other........................ 228,803 255,800
Due from affiliates............................... - 759,527
Deferred offering costs........................... 1,619,972 -
----------- ----------
Total current assets................. 5,795,270 21,145,730
Property and equipment, net of
accumulated depreciation of
$981,466 and $2,753,841....................... 6,321,768 14,157,666
Intangible assets, net of accumulated
amortization of $39,564 and
$77,383....................................... 97,177 187,160
Debt placement fees............................... 622,678 181,069
Notes receivable from related parties............. - 91,275
Other noncurrent assets........................... 158,594 160,982
------------ -----------
Total assets......................... $ 12,995,487 $35,923,882
============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable.................................. $ 355,490 $ 893,861
Accrued liabilities............................... 2,246,349 1,562,982
Due to affiliates................................. 1,294,812 -
Note payable to affiliate......................... 3,521,257 -
Current portion of Exchange notes................. - 1,669,244

Other current liabilities......................... 24,799 255,008
----------- -------------
Total current liabilities............ 7,442,707 4,381,095
Convertible exchangeable
subordinated notes payable................ 12,576,324
Exchange notes.................................... 6,295,017 4,590,421
----------- ------------
Total liabilities.................... 26,314,048 8,971,516
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Common Stock, ($.01 par value; 40,000,000
shares authorized; 12,395,142 and
16,000,000 shares issued and
outstanding)........................... 123,951 160,000
Preferred Stock, ($.01 par value;
20,000,000 shares authorized; none issued
and outstanding)................................... - -

Additional paid-in capital......................... 6,401,454 58,267,533
Deficit accumulated during the development stage... (19,843,966) (31,475,167)
------------ -------------
Stockholders' equity (deficit)..................... (13,318,561) 26,952,366
------------ ------------
Total liabilities and
stockholders' equity (deficit)....... $12,995,487 $ 35,923,882
=========== ============

</TABLE>

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

30
<PAGE>

CELLULARVISION USA, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

January 1, 1992
Year Ended December 31, (date of inception)
------------------------------------------ to December 31,
1994 1995 1996 1996
----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C>
Revenue.............................. $ 50,743 $ 1,195,593 $ 2,189,766 $ 3,492,983
----------- ----------- ------------- -------------

Expenses:
Service costs................... 38,710 602,995 1,174,619 1,843,313
Selling, general and
administrative................ 2,884,005 5,637,066 10,574,362 21,393,173
Management fees................. 1,546,377 2,698,564 - 4,494,941
Depreciation and amortization... 187,925 1,376,140 2,258,415 3,946,832
----------- ----------- ------------- -------------
Total operating expenses........ 4,657,017 10,314,765 14,007,396 31,678,259
----------- ----------- ------------- -------------
Operating loss.................. ( 4,606,274) (9,119,172) (11,817,630) (28,185,276)
------------ ------------ -------------- --------------

Interest income...................... 526,546 403,914 1,291,516 2,322,054
Interest expense..................... (1,918,942) (2,587,916) (1,105,087) (5,611,945)
----------- ----------- -------------- --------------
Loss before provision for
income taxes.................... (5,998,670) (11,303,174) (11,631,201) (31,475,167)
------------ ------------ ------------ ------------

Provision for income taxes........... - - - -

Net loss................ $ (5,998,670) $(11,303,174) $(11,631,201) $ (31,475,167)
============= ============= ============= ==============

Loss per common share.......... $(0.91) $(0.75)
======= =======

Weighted average common shares
outstanding.................... 12,395,142 15,576,478
========== ==========
</TABLE>

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

31
<PAGE>

CELLULARVISION USA, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AND STOCKHOLDERS' EQUITY (DEFICIT)

For the years ended December 31, 1994, 1995 and 1996
and for the period January 1, 1992
(date of inception) to December 31, 1996
<TABLE>
<CAPTION>

Total
Partners'
Net Deficit Capital and
Unrealized Accumulated Stock-
Additional Gain on During the holders'
Partners' Common Paid-in Marketable Development Equity
Capital Stock Capital Securities Stage (Deficit)
--------- ------ ---------- ---------- ----------- -----------

<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992.... $ 26,152 $ 100 $ 26,252
Contributions............... 1,019,688 1,019,688
Distributions............... (175,156) (175,156)
Net loss........... (550,997) (550,997)
---------- ----------- ---------- ------------

Balance, December 31, 1992.. 870,684 100 (550,997) 319,787
Contributions................ 9,707,728 9,707,728
Advance to HCM stockholders.. (3,000,000) (3,000,000)
Distribution................. (1,054,947) (1,054,947)
Net loss........... (1,991,125) (1,991,125)
---------- ----------- ---------- -----------

Balance, December 31, 1993. 6,523,465 100 (2,542,122) 3,981,443
Contributions................ 94,462 94,462
Distributions................ (3,038,889) (3,038,889)
Repayment from HCM
stockholders................. 3,000,000 3,000,000
Net unrealized gain on 22,574 22,574
marketable securities...
Net loss........... (5,998,670) (5,998,670)
--------- ----------- --------- ----------- -----------

Balance, December 31, 1994... 6,579,038 100 22,574 (8,540,792) (1,939,080)
Distributions................ (53,733) (53,733)
Change in net unrealized
gain on marketable
securities................... (22,574) (22,574)
Restatement of equity
to reflect issuance of
Common Stock (12,385,142
shares)...................... (123,851) 123,851 -0-
Net loss........... (11,303,174) (11,303,174)
--------- ----------- --------- ------------ ------------

Balance, December 31, 1995... 6,401,454 123,951 -0- (19,843,966) (13,318,561)
Conversion of stock
existing prior to
IPO.......................... (100) (100)
Common Stock issued at IPO
(3,614,858 shares)........... 36,149 36,149
Conversion of Partners'
Capital to additional
paid-in capital at
IPO........................... (6,401,454) 6,401,454 -0-
Additional paid-in capital.... 51,866,079 51,866,079
Net loss............ (11,631,201) (11,631,201)
--------- ----------- ----------- -------- ------------ ------------

Balance, December 31, 1996.... $ -0- $ 160,000 $58,267,533 $ -0- $ (31,475,167) $ 26,952,366
========= =========== ========== ======== ============= ===========
</TABLE>

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

32
<PAGE>

CELLULARVISION USA, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

January 1, 1992
(date of
Year Ended December 31, inception) to
--------------------------------------------------- December 31,
1994 1995 1996 1996
----- -------- -------- ----------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net loss............................... $ (5,998,670) $ (11,303,174) $ (11,631,201) $ (31,475,167)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization...... 187,925 1,376,140 2,258,415 3,946,832
Amortization of placement fees..... 163,128 189,507 98,783 451,418
Provision for doubtful accounts.... - 202,108 351,839 553,947
Stock option compensation expense.. - - 150,000 150,000

Changes in assets and liabilities:
Accounts receivable.............. (5,521) (604,413) (472,031) (1,084,283)
Prepaid expenses and other....... 149,392 (204,232) (26,997) (67,346)
Notes receivable from related
parties.......................... - - (91,275) (91,275)
Accounts payable and accrued
liabilities...................... (309,242) 622,277 2,077,817 3,025,309
Other current liabilities........ 33,181 (8,382) 230,209 252,758
Due to affiliates................ 1,191,753 3,203,046 (2,054,339) 2,595,501
Accrued interest................. 1,755,814 2,115,527 4,955 3,876,296
Other noncurrent assets.......... (88,234) (57,340) (2,388) (160,982)
Net cash used in ----------- ----------- ----------- ------------
operating activities........ (2,920,474) (4,468,936) (9,106,213) (18,026,992)
----------- ----------- ----------- ------------
Cash flows from investing activities:
Intangibles.......................... (135,838) (903) (127,802) (264,543)
Property and equipment additions..... (3,163,310) (6,809,719) (10,191,494) (20,629,861)
Proceeds from sale of property
and equipment...................... - 2,608,261 135,000 2,743,261
Purchase of available-for-sale
securities......................... (20,008,383) (6,907,826) - (26,916,209)
Maturities of available-for-sale
securities......................... 14,908,612 12,007,597 - 26,916,209
Net cash used in investing ----------- ---------- ------------ ------------
activities.................. (8,398,919) 897,410 (10,184,296) (18,151,143)
Cash flows from financing activities: ----------- ---------- ------------ ------------
Advance to HCM stockholders.......... - - - (3,000,000)
Contributions........................ 94,462 - - 10,821,878
Distribution......................... (38,889) (53,733) (13,889) (1,336,614)
Convertible exchangeable subordinated
notes payable...................... - - - 15,000,000
Proceeds from sale of stock............... - - 41,850,000 41,850,000
Repayment of note payable to affiliate.... (3,521,257) (3,521,257)
Deferred offering costs.............. - (99,862) (2,960,629) (3,060,491)
Placement costs...................... (20,000) (159,696) _ (975,311)
Net cash provided by financing ------------ ---------- ---------- -----------
activities.................. 35,573 (313,291) 35,354,225 55,778,205
Net increase (decrease) in cash ------------ ---------- ---------- -----------
and cash equivalents......... (11,283,820) (3,884,817) 16,063,716 19,600,070
Cash and cash equivalents, beginning of
period.................................... 18,704,991 7,421,171 3,536,354 -
---------- ---------- ----------- -----------
Cash and cash equivalents, end of period.. $7,421,171 $3,536,354 $19,600,070 $19,600,070
========== ========== =========== ===========

</TABLE>

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

33
<PAGE>

CELLULARVISION USA, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

January 1, 1992
Year Ended December 31, (date of inception)
----------------------- to December 31,
1995 1996 1996
---- ---- ----
Supplemental Cash Flow Disclosures:
<S> <C> <C> <C>

Cash paid for interest during period............ - $ 1,100,133 $ 1,100,133
=========== ===========

Cash paid for income taxes during
period.......................................... - - -

Noncash transactions:

Common Stock issued for
convertible debt................................ - $12,731,450 $12,731,450
=========== ===========

</TABLE>

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

34
<PAGE>

CELLULARVISION USA, INC.
(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Company Background

CellularVision USA, Inc. ("CVUS") was formed on October 3, 1995, as
described below, to combine the ownership of Hye Crest Management, Inc. ("HCM")
and CellularVision of New York, L.P. ("CVNY") which are companies under common
control (herein referred to on a consolidated basis as the "Company"). In July,
1996, HCM changed its name to CellularVision Capital Corporation ("CVCC").

The Company owns and operates a multichannel broadband cellular
television system (the "System") within the 28 Gigahertz ("GHz") spectrum using
Local Multipoint Distribution Service ("LMDS") technology licensed from
CellularVision Technologies & Telecommunications, L.P. ("CT&T"), an affiliate of
the Company. The Federal Communications Commission's (the "FCC") final rules for
LMDS authorize the Company and future providers of LMDS to offer a variety of
two-way broadband services, such as wireless local loop telephony, high-speed
data transmission (including Internet access), video teleconferencing (including
distance learning and telemedicine) and interactive television. The initial
service territory licensed to the Company on a commercial basis is the New York
Primary Metropolitan Statistical Area ("PMSA"), encompassing New York City and
three suburban counties. In addition, the FCC may grant to the Company a
Pioneer's Preference pursuant to which the Company would be allowed to expand
its service area to include the entire New York Basic Trading Area ("BTA"), of
which the New York PMSA is a part, by paying a fee representing the difference
between the value of a license to serve the New York BTA and the value of the
Company's current commercial license to serve the New York PMSA, subject to a
15% discount from the average auction price paid at the LMDS auctions for
licenses in comparable service areas.

Predecessor Companies and Basis of Presentation

The consolidated financial statements for the years ended December 31,
1994, 1995 and 1996 include the accounts of CVCC and CVNY. All significant
intercompany accounts and transactions have been eliminated in consolidation.
HCM and Suite 12 Group are collectively referred to herein as the "Predecessor".
Certain prior year amounts have been reclassified to conform to the current
year's presentation.

Suite 12 Group was formed as a general partnership in 1986, and its
principal operations from 1986 until 1992 consisted of the development of the
LMDS technology licensed from CT&T for use by the Company in its System. The
accounts of Suite 12 Group included in the consolidated financial statements
consist primarily of legal and related costs associated with the FCC licensing
procedures and costs associated with the head-end and transmitter facilities
which were subsequently contributed to the Company. The FCC commercial license
for use of the 28 GHz spectrum was obtained in 1991 by HCM. The build-out of the
head-end and transmitter facilities began in January 1992, with service to the
first subscribers beginning in July 1992. In July 1993, the Predecessor, along
with Bell Atlantic Ventures XXIII, Inc. ("Bell Atlantic"), an indirect wholly
owned subsidiary of Bell Atlantic Corporation, formed CVNY to market and sell
telecommunications services. Upon the inception of CVNY, Suite 12 Group
contributed an experimental license and certain equipment to CVNY in exchange
for a limited partnership interest, contributed its head-end and certain other
equipment to HCM and contributed its LMDS technology to CT&T, which in turn
licensed the LMDS technology to CVNY. As such, these consolidated financial
statements present the Company as if it began operations on January 1, 1992, and
exclude all costs of Suite 12 Group related to the development of the LMDS
technology.

35
<PAGE>

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents. Cash and
cash equivalents consisted of the following:
<TABLE>
<CAPTION>

December 31,
-------------------------------------------
1995 1996
---- ----
<S> <C> <C>
Cash in bank.............................. $ 165,816 $ 312,218
Overnight reverse repurchase agreements... 3,370,538 19,287,852
----------- ------------
Total............................ $ 3,536,354 $ 19,600,070
=========== ============
</TABLE>

Securities purchased under agreement to resell (reverse repurchase
agreements) result from transactions that are collateralized by U.S. Government
securities and are carried at the amounts for which the securities will
subsequently be resold. The overnight repurchase agreements are collateralized
by U.S. Government securities at approximately 130% of the investment amount.
The collateral securities are held by the Company's designated custodian.

At December 31, 1995 and 1996, the Company had the majority of its cash
deposits with two banking institutions. The Company reviews the credit ratings
of its banking institutions on a regular basis.

Revenue Recognition

Revenue is primarily derived from subscriber fees, billed one month in
advance, and recorded as revenue in the period in which the service is provided.
Deferred revenue associated with advanced billings is recorded as a current
liability.

Installation revenue is recognized as revenue to the extent of direct
selling costs incurred. The remainder is deferred and amortized to income over
the estimated average period that the subscribers are expected to remain
connected to the Company's System.

Property and Equipment

Property and equipment, consisting of head-end equipment, customer
premises equipment, transmitters, furniture and fixtures, and leasehold
improvements, are recorded at cost and depreciated on a straight-line basis over
the estimated useful lives of the assets, ranging from three to seven years.
Transmitters are not depreciated until such assets are constructed or placed in
service. Depreciation on customer premises equipment commences the month
following receipt of the equipment. When assets are fully depreciated, it is the
Company's policy to remove the costs and related accumulated depreciation from
its books and records. Advance payments for customer premises equipment and
transmitters approximating $645,000 and $3,358,000 at December 31, 1995 and
1996, respectively, are recorded as property and equipment.

The Company capitalizes subcontractor labor and materials incurred in
connection with the installation of customer premises equipment and depreciates
them over the shorter of the estimated average period that the subscribers are
expected to remain connected to the Company's System, or five years.

36
<PAGE>

Intangible Assets

The costs of field studies to determine line-of-sight transmission
capabilities are capitalized and amortized over five years by the straight-line
method. If a site is abandoned or deemed inoperable, all costs associated with
that site are charged to expense.

Income Taxes

As a result of the consummation of the Incorporation Transactions (as
defined in Note 10), HCM's status as an S Corporation terminated, and the
Company and HCM became subject to federal and state income taxes. The Company
has adopted Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" ("SFAS No. 109"). As required by SFAS No. 109, the Company is
required to provide for deferred tax assets or liabilities arising due to
temporary differences between the book and tax basis of assets and liabilities
existing at the time of the consummation of the Incorporation Transactions. As
of December 31, 1996, the Company recorded a deferred tax asset of $13.9 million
primarily related to operating losses and the difference between the book and
tax basis of the Company's investment in CVNY. An offsetting valuation allowance
of $13.9 million was established as the Company has no ability to carryback its
losses and has limited earnings history.

Debt Placement Fees

Unamortized debt issuance costs are amortized over the term of the
related debt by the effective interest rate method.

Estimates

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

Net Loss Per Share

Net Loss per common share for the years ended December 31, 1995 and
1996, is computed by dividing net loss by weighted average number of common
shares outstanding during the year, including common stock equivalents (unless
anti-dilutive).

Presentation of earnings per share is not presented for the year ended
December 31, 1994, as it is not considered indicative of the on-going entity.

Fair Value of Financial Instruments

Fair value is a subjective and imprecise measurement that is based on
assumptions and market data which require significant judgment and may only be
valid at a particular point in time.

The Company's financial instruments at December 31, 1995 and 1996
consist of overnight reverse repurchase agreements and long-term debt. The
carrying value of each of these financial instruments approximates its market
value, since the overnight reverse repurchase agreements mature daily and the
interest rate on the long-term debt is a floating rate based on the prime rate,
which periodically adjusts.

37
<PAGE>

Deferred Offering Costs

Expenses associated with the Initial Public Offering (as defined in
Note 10) (e.g., legal fees, filing fees, accounting and printing costs) were
capitalized as deferred offering costs at December 31, 1995. Upon the successful
completion of the Initial Public Offering in 1996, such costs were deducted from
the proceeds of the Initial Public Offering and recorded as a reduction to
additional paid-in capital.

New Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128 specifies new standards designed to improve the
earnings per share (EPS) information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of EPS data on an international
basis. Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic EPS,
with the principal difference being that common stock equivalents (CSEs) are not
considered in computing basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision, and (c) revising the
contingent share provisions and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company has not yet determined
the impact of the implementation of SFAS No. 128 on its financial statements and
related disclosures.

3. Property and Equipment

Property and equipment consisted of the following:

December 31,
---------------------------
1995 1996
---------- ------------
<C> <S> <S>
Transmission and head-end equipment....... $ 740,227 $ 4,240,899
Customer premises equipment............... 4,186,685 6,891,570
Leasehold improvements.................... 519,483 643,586
Office equipment.......................... 461,619 768,487
Equipment deposits........................ 645,000 3,357,864
Capitalized installation costs............ 750,220 1,009,101
--------- ---------
7,303,234 16,911,507
Less Accumulated depreciation............. 981,466 2,753,841
---------- ---------
Total............................ $6,321,768 $14,157,666
========== ===========
</TABLE>

Depreciation expense was $176,000, $1,349,000 and $2,221,000 for the periods
ended December 31, 1994, 1995 and 1996 respectively.

38
<PAGE>

4. FCC Matters

CVNY holds a fixed station commercial license granted by the FCC in
January 1991 which authorizes the Company to use the 27.5-28.5 GHz frequency
band to operate a multicell LMDS video delivery system throughout the New York
PMSA. The Company's license is the only commercial license for this service
granted by the FCC. Moreover, on December 7, 1995, the FCC granted the Company's
34 transmitter applications, conditional upon, and subject to, conformance with
the final actions taken by the FCC in the LMDS rulemaking proceeding. The
commercial license was granted in 1991, with an initial term of five years, and
expired in February 1996. An application for renewal of this fixed station
license was filed on December 29, 1995. The FCC stated in the Second Report and
Order that it will commence processing the Company's renewal application by
placing the application on Public Notice not later than 30 days after the March
13, 1997 release date of the Order. The new LMDS service rules will apply to
this renewal application. While the Company has an expectation of renewal of
this license, as a result of its deployment efforts since 1992 and the FCC's
adoption of a renewal expectancy provision in the Second Report and Order, there
is no guarantee that the FCC will renew the license. Under the FCC's rules, a
license automatically stays in effect pending FCC action on a timely filed
renewal application.

CVNY also holds an experimental license authorizing limited market
tests which was granted by the FCC in 1988 and has been renewed for full two
year terms on a bi-yearly basis. In August 1993, the FCC approved the
modification of this license to authorize two-way video, voice and data
transmissions with variable modulation and bandwidth characteristics. On June
30, 1995, the Company filed a timely application for renewal of its experimental
license which had an expiration date of September 1, 1995. The FCC granted the
renewal application, effective September 1, 1995, for a new two-year license
term. In addition, on November 26, 1996, the Company filed for an experimental
license in the 31.0-31.3 GHz band in the New York BTA in order to conduct
limited market studies of various packages of video, telephony and /or data
services delivered through 31 GHz LMDS technology. This application currently is
pending before the FCC.

On March 13, 1997, the FCC adopted the LMDS Second Report and Order,
which includes service, auction and eligibility rules for LMDS. This Second
Report and Order largely concludes the LMDS rulemaking proceeding except for
unresolved issues regarding disaggregation and partitioning, which is subject to
a Fifth Notice of Proposed Rulemaking ("Fifth NPRM"). FCC officials have stated
their intent to commence the nationwide licensing of LMDS through spectrum
auctions by the summer of 1997.

The FCC in the Second Report and Order provides for two LMDS licenses
per Basic Trading Area ("BTA"): one license for 1,150 MHz, the other for 150
MHz, amounting to 1,300 MHz allocated to LMDS. In addition to the non-contiguous
1 GHz of 28 GHz spectrum allocated to LMDS in the First Report and Order, the
FCC has allocated an additional 300 MHz in the 31 GHz band for LMDS, 150 MHz of
which will be allocated to one LMDS license, the other 150 MHz will be combined
with the 1,000 MHz in the 28 GHz band.

39
<PAGE>

The 1,150 MHz license will consist of: 850 MHz in the 27.5-28.35 GHz
band on a primary protected basis; 150 MHz in the 29.1-29.25 GHz band, at the
present time for LMDS hub-to-subscriber transmissions only, on a co-primary
basis with Mobile Satellite Service (MSS) systems; and 150 MHz in the
31.075-31.225 GHz band on a protected basis. The 150 MHz license will consist of
two 75 MHz bands located at each end of the 300 MHz block in the 31.0-31.075 GHz
and 31.225-31.3 GHz bands on a protected basis. LMDS licensees operating in this
bifurcated 31 GHz band will be required to afford interference protection to
incumbent licensees. Also, this second 150 MHz block can be combined with the
1,150 MHz license to create a 1.3 GHz LMDS system.

In order to encourage competition in the video and telephony markets,
the FCC decided to substantially restrict local exchange carriers ("LECs") and
cable companies from acquiring the 1,150 MHz LMDS license. Under the rules
adopted in the Second Report and Order, LECs and cable companies will be
ineligible to acquire a 20% or greater ownership interest in an 1,150 MHz LMDS
license in their service region for a period of three years. This eligibility
restriction may be extended or eliminated by the FCC upon a future review of its
regulations. Also, upon a showing of good cause by a petitioning LEC or cable
company, the FCC may waive the eligibility restriction on a case-by-case basis.
Cable companies and LECs will be able to bid on the 150 MHz license in their
service area as there is no such eligibility restriction on this LMDS license.

The FCC has adopted several opportunity enhancing measures for
qualifying small businesses. The FCC will define a small business as an entity
whose average annual gross revenues, together with controlling principals and
affiliates for the three preceding years does not exceed $40 million. A small
business will be entitled to a 25% bidding credit. Small businesses are also
entitled to installment payments at an interest rate based on the rate for U.S.
Treasury obligations of maturity equal to the license term (10yrs) fixed at the
time of licensing, plus 2.5%. Payments shall include interest only for the first
two years and payments of interest and principal amortized over the remaining
eight years. The rate of interest on ten-year US Treasury obligations will be
determined by taking the coupon rate of interest on ten-year US Treasury notes
most recently auctioned by the Treasury Department before licenses are
conditionally granted. Moreover, entities with gross revenues exceeding $40
million but not exceeding $75 million will be entitled to a 15% bidding credit
and the same ten-year repayment plan as small businesses, except interest and
principal will be amortized over the whole ten-year period.

The FCC also initiated a Fifth NPRM to address the issues of
disaggregation and partitioning which will enable a licensee to partition a
portion of its bandwidth or geographic service area to another entity. The FCC
tentatively concluded to allow disaggregation and partitioning without imposing
substantial regulatory requirements and issued the Fifth NPRM to solicit public
comment regarding the most effective way to implement partitioning and
disaggregation for LMDS licensees.

In the LMDS Second Report and Order, The FCC deferred action on the
Company's tentative Pioneer's Preference award and instead ordered a "peer
review" process, whereby the FCC would select a panel of technical, non-FCC
experts to review the Company's technology and advise the FCC whether the
Pioneer's Preference should be granted. The Company believes, based on the 1994
General Agreement on Tariffs and Trade ("GATT") legislation and the FCC's prior
determinations not to subject parties to peer review whose Pioneer's Preference
applications were accepted for filing before September 1, 1994, that this is an
unnecessary regulatory requirement. The Company is currently seeking FCC
clarification on this issue. Accordingly, there can be no assurance that the FCC
will grant the Company's Pioneer's Preference.

40
<PAGE>

Based on the Second Report and Order, wherein the FCC confirms that it
will commence processing the Company's commercial license renewal application
for the New York PMSA within 30 days of the March 13, 1997 release of the Order,
the outcome of the Pioneer's Preference award has no impact on the Company's
License to operate in the New York PMSA. As previously stated by the FCC in the
Third Notice of Proposed Rulemaking, the Pioneer's Preference would apply only
to the outer portion of the New York BTA not covered by the Company's existing
license for the New York PMSA. If the Company ultimately is awarded the
Pioneer's Preference award, the Company would be licensed to use the portion of
the New York BTA outside the New York PMSA pursuant to the FCC's band
segmentation plan (i.e., 27.5-28.35 GHz, 29.1-29.25 GHz and 30.0-30.3 GHz).
While the remainder of the New York BTA would be awarded to the Company without
being subject to a spectrum auction, under the FCC's most recent proposal, the
Company would have the exclusive right to extend its license to add the portion
of the New York BTA not included in the 1,000-plus square mile area covered by
the Company's existing license for the New York PMSA by paying a fee
representing the difference between the value of a license to service the New
York BTA and the value of the Company's current commercial license to serve the
New York PMSA, subject to a 15% discount from the average price paid at the LMDS
auctions for licenses in comparable service areas. In addition, the FCC is
considering the adoption of conditions on the Company's Pioneer's Preference
similar to those placed on the Pioneer's Preferences granted to Personal
Communications Service licensees. If adopted, these conditions may require the
Company to construct the system subject to the Pioneer's Preference using
substantially the same technology upon which its Pioneer's Preference award is
based.

5. Related Party Transactions

CT&T License Agreement

In July 1993, CVNY entered into a license agreement with CT&T for use
of certain patented technologies owned by CT&T and for CT&T know-how related to
the LMDS technology. The license agreement grants to CVNY the right to utilize
the licensed LMDS technology to construct and operate its system and sell
communications services on an exclusive basis for the New York PMSA and the New
York BTA (to the extent the Company holds or obtains a commercial license from
the FCC). CT&T has also agreed to license the LMDS technology to the Company in
other BTAs in which the Company obtains LMDS licenses from the FCC. The economic
terms and conditions of such licenses will be, in the aggregate, at least as
favorable as the terms of any other license granted by CT&T within the United
States. Under the license agreement, the Company pays CT&T a royalty currently
equal to 7.5% of gross revenues on a quarterly basis. The license will remain in
effect until either the expiration, revocation or invalidation of CT&T patent
rights directly related to the operation of the Company's system, or the year
2028. The license fees were $4,000, $79,000 and $149,000 for the years ended
December 31, 1994, 1995 and 1996.

Under the license agreement, the Company's ability to procure capital
equipment relating to its system from sources other than CT&T had been limited.
Pursuant to an amendment dated January 12, 1996, subject to certain conditions
and except for outstanding purchase orders, CVNY is under no obligation to
continue to purchase equipment or supplies from CT&T, although it may continue
to do so. The total amount of such equipment purchased from CT&T for the years
ended December 31, 1995 and 1996 was $5,595,000 and $6,198,000, respectively.
CT&T entered into certain purchase commitments during 1996 on behalf of CVNY for
the manufacture of antennas, receivers, modems and transmitters, and CVNY
intends to fulfill the remaining obligations under these commitments which
totaled approximately $11.6 million, net of deposits of $3.4 million, at
December 31, 1996. Over 83% of the deposits are covered by a pledge agreement
which collateralizes CT&T's security interest in equipment ordered from its
vendors.

41
<PAGE>

Management Agreement

In July 1993, CVNY entered into a management agreement with Bell
Atlantic (the "Management Agreement") pursuant to which Bell Atlantic, under the
control and direction of the Board of Directors of the Company, performed
certain operational and technical functions including, without limitation,
installation, engineering and network operations, accounting, procurement,
business planning, marketing, government relations and related services in order
to develop the commercial infrastructure necessary to deploy the LMDS technology
licensed from CT&T. The Company exercised its option to terminate the Management
Agreement with Bell Atlantic on September 30, 1995, effective December 31, 1995.
The terms of the agreement were for five years and provided for management fees
at agreed upon scheduled amounts, a percentage of gross revenue, 0.5% of
aggregate average Bell Atlantic equity from the preceding quarters, and
reimbursement of salary-related and benefit-related costs incurred by Bell
Atlantic. Since January 1, 1996, the Company has been responsible for hiring all
of its own employees, including senior management, and administering its own
services.

For the years ended December 31, 1994 and 1995, CVNY incurred
$1,546,000 and $2,699,000 respectively, of management fees from Bell Atlantic.
The reimbursed costs are included in selling, general and administrative
expenses and totaled $640,000 and $1,949,000 for the years ended December 31,
1994 and 1995, respectively. For the year ended December 31, 1996, there are no
costs as the Management Agreement was terminated by CVNY at the end of 1995.

Bell Atlantic Senior Convertible Note

Effective December 1, 1995, the Company entered into a senior
convertible note agreement with Bell Atlantic which converted outstanding fees
and related interest thereon due to Bell Atlantic under the Management
Agreement, totaling approximately $3.5 million to a senior convertible note (the
"Bell Atlantic Note"). Interest accrued on the Bell Atlantic Note at a per annum
rate equal to the lesser of (a) Morgan's prime lending rate plus 3% or (b) 12%.
Interest was compounded monthly. Principal plus accrued interest would have been
payable as follows: one-third of the outstanding balance would have been payable
on June 30, 1997, one-third of the then outstanding balance would have been
payable on June 30, 1998 and the remaining balance would have been payable on
June 30, 1999.

In February 1996, from the proceeds of the Initial Public Offering, the
Company paid Bell Atlantic approximately $3.5 million due under the Bell
Atlantic Note, together with approximately $100,000 of accrued interest thereon,
and $675,000 in fees accrued during the fourth quarter of 1995 under the
Management Agreement.

Other Transactions with CT&T

In the past, CVNY paid certain legal, general and administrative
expenses on behalf of CT&T. The total of such expenditures for the years ended
December 31, 1994 and 1995 was $754,000 and $612,000, respectively. Similarly,
CVNY reimbursed certain legal, general and administrative expenses paid by CT&T.
The total of such expenditures for the years ended December 31, 1994 and 1995
were $503,000 and $268,000, respectively. Commencing on January 1, 1996 there
were no such payments or reimbursements as the Company and CT&T now pay their
own expenditures. In addition, all "joint use" costs which resulted in benefits
to both parties (e.g., salaries and benefits for the limited personnel
performing functions for both entities, office rent and related expenses, office
equipment and supplies) were allocated to the respective parties on a
cost-causative basis. The Company also paid to CT&T an annual royalty amount
which totaled $80,000 for each of the years ended December 31, 1994, 1995 and
1996.

42
<PAGE>

The Founders are parties to an agreement with CVNY, pursuant to which
they have the nontransferable right to require CVNY to make available 60 MHz of
continuous spectrum per polarization in the spectrum awarded to CVNY by the FCC
for the purpose of providing certain programming (other than telephony, two-way
voice or data communication services) developed by them.

Other Transactions

In 1996, CVNY entered into agreements with certain executives of CVNY
and the Company to loan them money for the purpose of purchasing Common Stock of
the Company. The amount due to CVNY is $91,275 at December 31, 1996.

An affiliate of certain directors of HCM provided administrative, legal
and operational functions to CVNY. These costs aggregated $131,000 and $94,000
for the years ended December 31, 1994 and 1995. There were no related costs for
the year ended December 31, 1996.

In July 1993, CVNY entered into compensation and consulting agreements,
aggregating $480,000 annually plus 0.291% of gross revenues, with certain
executive officers and directors of CVNY which were terminated upon the
consummation of the Incorporation Transactions (as defined in Note 10). These
officers and directors are also partners in CT&T.

On December 29, 1993, concurrently with the closing of the issuance of
the convertible exchangeable notes discussed in Note 6, CVNY advanced $3,000,000
to the managing general partner. This advance was interest-free. In June 1994,
this advance was settled through a non-cash capital distribution to the HCM
stockholders. This amount was presented as a reduction in partners' capital at
December 31, 1993.

Amounts due to certain partners of CVNY consisted of the following:

<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1996
------------ ---------------
<S> <C> <C>
Due (to) from Bell Atlantic............... $(1,116,480) $ -0-
Due (to) from CT&T........................ (178,332) 759,527
------------- ---------------
Total............................ $(1,294,812) $ 759,527
============ ===============
</TABLE>

CVNY has entered into an agreement with the International
CellularVision Association ("ICVA"), whose members include licensees of CT&T's
proprietary LMDS technology and other interested members, to fund, along with
all other members of ICVA, operating expenses of ICVA. CVNY funded $72,500,
$179,434 and $286,934 of such expenses for the years ended December 31, 1994,
1995 and 1996 respectively. The Company also subleases certain office space for
ICVA on a month-to-month basis. As of December 31, 1996, the monthly charge was
$2,884.

43
<PAGE>

6. Long-term Notes

On December 29, 1993, CVNY issued convertible exchangeable subordinated
notes aggregating $15,000,000 ("Convertible Notes"). Interest on the Convertible
Notes was at a floating rate equal on any given date to the prime rate plus 4%
per annum, subject to a minimum of 8% per annum and a maximum of 12% per annum.

A portion of the notes was subject to mandatory and automatic
conversion into shares of Common Stock upon the consummation of a public
offering pursuant to a registration statement on Form S-1 with minimum aggregate
proceeds of $35 million (a "qualified public offering").

Prior to the exchange of the notes, interest was accrued quarterly and
added to the principal balance and treated as principal. For the year ended
December 31, 1995, $2,116,000 of accrued interest was added to principal.

In conjunction with the Initial Public Offering that occurred in 1996,
$10 million of Convertible Notes and the associated accrued interest of
approximately $2.7 million was converted into shares of Common Stock and
recorded primarily as Additional Paid in Capital. Also, in conjunction with the
IPO and effective December 15, 1995 the remaining $5 million of Convertible
Notes and approximately $1.3 million of accrued interest was converted into
Exchange Notes. The Exchange Notes bear interest at the prime rate plus 6% per
annum, subject to a minimum of 10% and a maximum of 15% per annum. Interest on
the Exchange Notes is payable quarterly and began on March 28, 1996.

The scheduled repayment dates in respect of the Exchange Notes are as
follows:

Date Amount Payable
---- --------------

June 30, 1997.............4/15 of the aggregate outstanding principal balance
June 30, 1998.............5/11 of the aggregate outstanding principal balance
June 30, 1999.............Remaining amounts outstanding

7. Commitments and Contingencies

The Company has entered into various operating lease arrangements for
automobiles, office equipment and rent expiring at various dates.

On December 15, 1995, the Company entered into two sale and leaseback
transactions totaling approximately $2.6 million which reflected the net book
value of assets sold on that date. Accordingly, there was no gain or loss
recorded on these transactions. The minimum lease term for each piece of
equipment under the sale and leaseback facility in the amount of $1.1 million is
36 months, with a renewal period of an additional twelve months. The minimum
lease term for each piece of equipment under the sale and leaseback facility in
the amount of $1.5 million is 48 months, with a renewal period of an additional
twelve months. Rental payments are due monthly in advance. The Company has a
firm commitment under the first of these sale and leaseback facilities for
additional lease financing in the amount of $400,000. In connection with these
sale and leaseback facilities, the Company issued to the lessors warrants to
purchase an aggregate of 20,000 shares of common stock, par value $.01 per share
(the "Common Stock"), of the Company at the initial public offering price of
$15.00 per share.

44
<PAGE>

At December 31, 1996, future minimum rental and lease payments due
under these arrangements are as follows:

1997................................................. $1,815,975
1998................................................. 1,664,430
1999................................................. 868,956
2000................................................. 293,990
2001................................................. 265,290
Thereafter........................................... 562,439
------------
Total....................................... $5,471,080
==========

Rent expense was approximately $120,000, $180,000 and $432,000 for
the years ended December 31, 1994, 1995 and 1996 respectively.

CT&T entered into certain purchase commitments during 1996 on behalf of
CVNY for the manufacture of antennas, receivers, modems and transmitters, and
CVNY intends to fulfill the remaining obligations under these commitments which
totaled approximately $11.6 million (net of deposits) at December 31, 1996. See
Note 5.

The Company has entered into a series of noncancelable agreements to
purchase entertainment programming for rebroadcast which expire through the year
2001. The agreements generally require monthly payments based upon the number of
subscribers to the Company's system, subject to certain minimums. Total
programming costs, including but not limited to, the aforementioned minimums
were approximately $35,000, $510,000 and $1,026,000 for the years ended December
31, 1994, 1995 and 1996, respectively.

The Company obtained an irrevocable standby letter of credit in April
1995, in the amount of $90,000, for which no amounts have been drawn upon. The
standby letter of credit expires December 1, 1999, and collateralizes the
Company's programming rebroadcast agreement with one of its programming
providers. The fair value of this standby letter of credit is estimated to be
the same as the contract value based on the nature of the fee arrangement with
the issuing bank.

8. Stock Options and Warrants

In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes financial accounting and
reporting standards for employee stock-based compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. Under this statement, the Company has the option
of either charging against income the estimated fair value of stock-based
compensation, or in lieu of a direct charge, disclosing the effect on earnings
and earnings per share as if the charge had been applied. The Company has
elected to follow the disclosure-only alternative and to continue to account for
its stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25 and its related interpretations.

In October 1995, the Board of Directors of the Company adopted the
CellularVision 1995 Stock Incentive Plan (the "Plan") which provides for the
grant of non-qualified and incentive stock options. The Plan has reserved
authorized, but unissued, shares of common stock for issuance of both Qualified
Incentive Stock Options and Non-Qualified Stock Options to employees, officers
and directors of the Company. The minimum purchase price in the case of
non-qualified stock options granted under the Plan is the par value of the
Common Stock and, in the case of incentive stock options granted under the Plan
is the fair market value, as defined in the Plan, of the Common Stock on the
date the option is granted. The vesting period and expiration dates of any
option granted may vary.

45
<PAGE>

The purpose of the Plan is to attract and motivate able persons to
remain with the Company and its Subsidiaries by providing a means whereby
employees, directors and consultants of the Company and its Subsidiaries can
acquire and maintain Common Stock ownership, or be paid incentive compensation
measured by reference to the value of Common Stock, thereby strengthening their
commitment to the welfare of the Company and its Subsidiaries and promoting a
common identity of interest between stockholders and these employees, directors
and consultants.

As of January 1, 1996, there were no outstanding options. During 1996,
a total of 213,700 non-qualified stock options were granted and 13,000 options
were terminated, leaving a balance of 200,700 options outstanding as of December
31, 1996. All such options were granted at prices at or above the market price
per share on the date of grant, and all have ten-year terms. Exercise price per
share ranges from $9.875 to $15.00. The weighted average exercise price at
December 31, 1996 was $11.46 per share.

In connection with employment agreements with three officers of the
Company, non-qualified stock options to purchase an aggregate of 50,000 shares
of Common Stock were issued pursuant to the Plan. The options, which have a
ten-year term, were immediately exercisable at the date of grant at exercise
prices ranging from $10.50 to $15.00 per share. Following the resignation of an
officer of the Company in 1996, 10,000 of those options were terminated.

In February 1996, the Company granted options to each director who is
not employed by the Company or any of its affiliates to purchase 5,000 shares of
Common Stock at the initial public offering price of $15.00 per share. A total
of 35,000 options were granted to directors in February 1996. The options have a
ten-year term and are immediately exercisable at the date of grant.

On August 1, 1996, a total of 93,700 options was granted to employees.
During 1996, 3,000 of those options were terminated, leaving a balance of 90,700
options outstanding. On August 1, 1996, 30,233 of those options were
exercisable. Of the remaining options, 30,234 are exercisable on April 1, 1997
and 30,233 are exercisable on April 1, 1998.

Since the exercise price of all stock options granted to employees
under the 1995 Plan in 1996 was equal to the closing price of the Common Stock
on the NASDAQ on the date of grant, no compensation expense has been recognized
by the Company for its stock-based compensation plans during the year.
Compensation expense would have been $1,297,000 in 1996, had compensation cost
for stock options awarded in 1996 under the Company's stock option agreements
been determined based upon the fair value at the grant date consistent with the
methodology prescribed under SFAS No. 123, "Accounting for Stock-Based
Compensation," and the Company's pro forma net loss and earnings per share would
have been a net loss of $12,928,000 and $0.83 loss per share for 1996.

46
<PAGE>

The stock options were valued using the Black-Scholes option pricing
model. Key assumptions used in valuing the options included: risk free interest
rates of 5.3%-6.8%, an expected life of five years and a volatility factor of
80%.

A total of 35,000 options were issued to a legal consultant during
1996. Exercise prices ranged from $9.875 to $12.50. On August 1, 1996, 28,333 of
the options were immediately exercisable, 3,334 are exercisable on April 1, 1997
and 3,333 are exercisable on April 1, 1998.

At December 31, 1996 and 1995, there were 1,049,300 and 1,250,000
shares available for future grants, respectively.

At December 31, 1995, the Company had issued warrants to purchase up to
190,862 shares of Common Stock. No additional warrants were issued in 1996. At
December 31, 1995, an aggregate (i) up to 113,256 shares were issuable by the
Company, and (ii) 77,606 shares were issuable by Suite 12 Group from its Common
Stock holdings. The warrants issued by the Company have a ten-year term and are
exercisable at a price per share ranging from $12.50 to $15.03. The holders of
all outstanding warrants have registration rights in respect of the shares of
Common Stock issuable upon exercise.

9. Employment Agreements

The Company has entered into an employment agreement with Mr. Shant S.
Hovnanian, dated October 18, 1995. The agreement provides that Mr. Hovnanian
will act as President and Chief Executive Officer of the Company and will devote
substantially all of his working time and efforts to the Company's affairs.
Pursuant to the agreement, Mr. Hovnanian may devote such working time and
efforts to CT&T and its affiliates as the due and faithful performance of his
obligations under the agreement permits. The agreement has a one year term and
provides for an annual salary of $250,000, effective February 7, 1996. Mr.
Hovnanian is currently negotiating an extension of his contract with the
Company, and is continuing to serve as Chairman, President and CEO pending the
successful conclusion of these discussions.

The Company has also entered into an employment agreement with the
inventor of the LMDS technology licensed from CT&T, Mr. Bernard B. Bossard,
dated October 18, 1995. The agreement provides that Mr. Bossard will act as
Executive Vice President and Chief Technical Officer of the Company and will
devote such substantial portion of his time and effort to the affairs of the
Company as the Company's Board of Directors reasonably requires. The agreement
has a three year term and provides for an annual salary of $170,000, the use of
an automobile and the Company's New York City apartment, effective February 7,
1996.

The Company has entered into an employment agreement with Mr. Charles
N. Garber, dated July 31, 1996. The agreement provides that Mr. Garber will
serve as Chief Financial Officer of the Company and Vice President - Finance of
CVNY, effective as of July 15, 1996. The agreement has a three year initial term
and provides for an annual salary of $175,000, a signing bonus of $50,000, a
relocation allowance of $50,000, an annual bonus of no less than $50,000 subject
to review based on executive's attainment of performance goals established by
the Compensation Committee, 25,000 options exercisable at the market value as of
the agreement date, a monthly commuting allowance of $350, and a bonus of
$50,000 upon completion of a financing by the Company or CVNY in excess of $50
million. The agreement also provides that Mr. Garber's compensation shall be
reviewed for a potential increase no less frequently than annually.

47
<PAGE>

The Company has entered into an employment agreement with Mr. John
Walber, dated January 1, 1997. The agreement provides that Mr. Walber will
continue to serve as Vice President of CVUS and as President and Chief Operating
Officer of CVNY. The agreement has an initial term of two years and provides for
an annual salary of $195,000, a monthly commuting expense allowance of $1,500,
an annual bonus in the amount of up to $195,000 based on the executive's
attainment of certain performance goals. Pursuant to the terms of this
agreement, Mr. Walber was granted 50,000 options to purchase CVUS shares at the
market value as of the effective date of the agreement. On December 31, 1997,
25,000 options are exercisable, and the remaining 25,000 options are exercisable
on December 31, 1998.

10. Initial Public Offering

Initial Public Offering

The Company filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (the "Registration Statement") in connection
with the initial public offering (the "Initial Public Offering") of 3,333,000
shares of Common Stock, including 333,000 shares sold by certain existing
shareholders of the Company. The initial public offering price per share of
Common Stock was $15.00. The Registration Statement was declared effective on
February 7, 1996 and the Initial Public Offering was consummated on February 13,
1996. The net proceeds to the Company from the Initial Public Offering, after
deducting underwriting discounts and commissions of $1.05 per share and
approximately $2 million in other expenses, were $39,850,000.

Immediately prior to the Initial Public Offering, the Company effected
the following events (collectively, the "Incorporation Transactions"): (i) $10
million principal amount of the convertible exchangeable subordinated notes was
converted into 4,547 shares of Common Stock pursuant to their conversion
provisions, (ii) the Company issued an aggregate of 93,180 shares of Common
Stock to the stockholders of HCM (the "Founders") in exchange for all
outstanding capital stock of HCM, and the holders of certain partnership
interests of CVNY in exchange for all of their partnership interests in CVNY,
and (iii) the Company effected a 133.0236284-for-1 stock split of the
outstanding shares of Common Stock and issued an aggregate of 13,000,000 shares
of Common Stock to the holders thereof. As a result of the consummation of the
Incorporation Transactions, the Company is the sole stockholder of HCM, the
managing general partner of CVNY, and CVNY continues to carry on its business as
an indirect wholly owned subsidiary of the Company. In December 1995, the FCC
approved the pro forma transfer of control of HCM from the Founders to the
Company. The capital stock of the Company consists of Common Stock, $.01 par
value, 40,000,000 shares authorized, and 16,000,000 shares issued and
outstanding immediately prior to the Initial Public Offering. The Company has
also authorized 20,000,000 shares of Preferred Stock, $.01 par value. No shares
of Preferred Stock have been issued.

Stockholders' equity has been restated at December 31, 1995 to give
retroactive recognition to the stock split of the 93,180 shares of Common Stock
issued to the stockholders of HCM.

48
<PAGE>

11. Legal Proceedings

In February 1996, a suit was filed against the Company alleging that
the Company caused the U.S. Army to breach a contract with the plaintiff wherein
the plaintiff was to have an exclusive right to provide cable television
services at an army base located in Brooklyn, New York. The suit alleges that by
entering into a franchise agreement with the Army which grants the Company the
right to enter the army base to build, construct, install, operate and maintain
its multichannel broadband cellular television system, the Company induced the
Army to breach its franchise agreement with the plaintiff. The Army has advised
the Company that it has the right to award the franchise to the Company and the
Company is continuing to provide service at the army base. The suit seeks $1
million in damages and is in its preliminary stages. The Company cannot make a
determination at this time as to the possible outcome of the action or whether
the case will go to trial. A summary judgment motion has been filed by the
Company and is currently pending, requesting that the court dismiss the case.
The Company does not believe that in the event an adverse judgment is rendered,
the effect would be material to the Company's financial position, but it could
have a material effect on operating results in the period in which the matter is
resolved.

In November 1995, a purported class action suit was filed against the
Company in New York State Supreme Court alleging that the Company had engaged in
a systematic practice of installing customer premises equipment in multiple
dwelling units without obtaining certain landlord or owner consents allegedly
required by law. The suit seeks injunctive relief and $4 million in punitive
damages. The Company believes, based upon advice of counsel, that this suit is
likely to be resolved without a material adverse effect on the financial
position of the Company, but could have a material effect on operating results
in the period in which the matter is resolved.

49
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized, in New York,
New York on April 9, 1997.

CELLULARVISION USA, INC.

/s/ Shant S. Hovnanian
------------------------
Shant S. Hovnanian

President, Chief Executive Officer and
Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

Signature Title Date

/s/ Shant S. Hovnanian President and Chief April 9, 1997
- -------------------------- Executive Officer and
Shant S. Hovnanian Chairman of the Board
of Directors

/s/ Charles N. Garber Chief Financial Officer April 9, 1997
- --------------------------
Charles N. Garber

/s/ Bernard B. Bossard Executive Vice President, April 9, 1997
- -------------------------- Chief Technical
Bernard B. Bossard Officer and Director

/s/ Vahak S. Hovnanian Director April 9, 1997
- --------------------------
Vahak S. Hovnanian

/s/ Bruce G. McNeill Director April 9, 1997
- --------------------------
Bruce G. McNeill

/s/ Roy H. March Director April 9, 1997
- --------------------------
Roy H. March

/s/ Matthew J. Rinaldo Director April 9, 1997
- --------------------------
Matthew J. Rinaldo

/s/ Dennis G. Spickler Director April 9, 1997
- --------------------------
Dennis G. Spickler

50
<PAGE>

CELLULARVISION USA, INC.
(A Development Stage Company)

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>

Balance at Charged to
Beginning of Costs and Balance at end
Description Period Expenses Deductions of Period
----------- ------ -------- ---------- ---------

<S> <C> <C> <C> <C>
1996
- ----

Allowance for doubtful accounts......... $133,730 $351,839 $361,199 $124,370
========= ======== ======== ========

1995
- ----

Allowance for doubtful accounts......... $ 2,402 $202,108 $ 70,780 $133,730
========= ======== ======== ========

1994
- ----

Allowance for doubtful accounts......... $ 1,000 $ 1,402 $ 0 $2,402
========= ======== =========== ======

1996
- ----

Deferred Tax Asset Valuation Reserve.... $ 0 $13,900,000 $ 0 $ 13,900,000
========= =========== =========== ============

1995
- ----

Deferred Tax Asset Valuation Reserve.... $ 0 $ 0 $ 0 $ 0
========= =========== =========== ============

1994
- ----

Deferred Tax Asset Valuation Reserve.... $ 0 $ 0 $ 0 $ 0
========= =========== =========== ============

</TABLE>

S-1

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<PAGE>

Exhibit 27.1 - Financial Data Schedule

<ARTICLE> 5
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,600,070
<SECURITIES> 0
<RECEIVABLES> 654,703
<ALLOWANCES> 124,370
<INVENTORY> 0
<CURRENT-ASSETS> 21,145,730
<PP&E> 16,911,507
<ACCUMULATED-DEPRECIATION> 2,753,841
<TOTAL-ASSETS> 35,923,882
<CURRENT-LIABILITIES> 4,381,095
<BONDS> 4,590,421
0
<COMMON> 160,000
<OTHER-SE> 26,792,366
<TOTAL-LIABILITY-AND-EQUITY> 35,923,882
<SALES> 0
<TOTAL-REVENUES> 2,189,766
<CGS> 0
<TOTAL-COSTS> 1,174,619
<OTHER-EXPENSES> 12,832,777
<LOSS-PROVISION> 351,839
<AMORTIZATION-DEBT> 98,783
<INCOME-PRETAX-OTHER> (11,817,630)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,631,201)
<DISCOUNTED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,631,201)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> 0.00

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<PAGE>

Exhibit 27.2 - Restated Financial Data Schedule

<ARTICLE> 5
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,536,354
<SECURITIES> 0
<RECEIVABLES> 543,871
<ALLOWANCES> 133,730
<INVENTORY> 0
<CURRENT-ASSETS> 5,795,270
<PP&E> 7,303,234
<ACCUMULATED-DEPRECIATION> 981,466
<TOTAL-ASSETS> 12,995,487
<CURRENT-LIABILITIES> 7,442,707
<BONDS> 18,871,341
0
<COMMON> 123,951
<OTHER-SE> (13,194,610)
<TOTAL-LIABILITY-AND-EQUITY> 12,995,487
<SALES> 0
<TOTAL-REVENUES> 1,195,593
<CGS> O
<TOTAL-COSTS> 602,995
<OTHER-EXPENSES> 9,711,770
<LOSS-PROVISION> 202,108
<AMORTIZATION-DEBT> 189,507
<INCOME-PRETAX-OTHER> (9,119,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,303,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,303,174)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> 0.00

</TABLE>