UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
Commission file number: 0-26836
WIRELESS ONE, INC.
(Exact name of registrant specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
72-1300837
(I.R.S. Employer Identification No.)
1080 River Oaks Drive, Suite A150
Jackson, Mississippi
(Address of principal executive office)
39208
(Zip code)
(601) 936-1515
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO ________
Number of shares of Common Stock outstanding as of August 6, 1998:
16,910,064
<PAGE>
INDEX
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements Page No.
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997
(unaudited) 2
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1998 and 1997,
and the six months ended June 30, 1998 and 1997
(unaudited) 3
Condensed Consolidated Statements of Cash
Flows for the six months ended June 30, 1998
and 1997 (unaudited) 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II.OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K 14
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
WIRELESS ONE, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
June December
30, 31,
1998 1997
Assets
Current assets:
Cash and cash equivalents $ 5,784,771 $ 15,528,215
Marketable investment securities-
restricted 10,143,166 19,258,789
Subscriber receivables, net 1,983,546 2,071,689
Accrued interest and other
receivables 821,859 729,237
Prepaid expenses 1,286,664 1,136,303
----------- -----------
Total current assets 20,020,006 38,724,233
Property and equipment, net 98,330,033 110,099,016
License and leased license
investment, net 149,127,793 151,386,399
Other assets 15,385,079 17,377,550
----------- -----------
Total assets $ 282,862,911 $ 317,587,198
=========== ===========
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable $ 1,307,711 $ 2,913,209
Accrued expenses 5,212,913 5,117,451
Accrued interest 4,800,121 4,942,119
Current maturities of long-term
debt 1,917,970 871,408
----------- -----------
Total current liabilities 13,238,715 13,844,187
Deferred income taxes 2,600,000 5,200,000
Long-term debt 326,645,651 317,529,032
----------- -----------
329,245,651 336,573,219
Stockholders' equity (deficit):
Preferred stock, $.01 par value,
10,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.01 par value,
50,000,000 shares authorized,
16,910,064 shares issued
and outstanding 169,101 169,101
Additional paid-in capital 119,772,011 119,772,011
Accumulated deficit (179,562,567) (138,927,133)
----------- -----------
Total stockholders' equity
(deficit) (59,621,455) (18,986,021)
----------- -----------
$ 282,862,911 $ 317,587,198
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WIRELESS ONE, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 9,888,918 $ 8,325,863 $ 20,505,204 $ 15,402,782
----------- ----------- ----------- -----------
Operating expenses:
Systems operations 5,827,190 5,724,078 12,225,811 10,570,841
Selling, general and administrative 5,543,137 6,832,133 11,337,969 12,997,996
Depreciation and amortization 10,320,427 7,923,792 19,950,117 14,181,233
----------- ----------- ----------- -----------
21,690,754 20,480,003 43,513,897 37,750,070
----------- ----------- ----------- -----------
Operating loss (11,801,836) (12,154,140) (23,008,693) (22,347,288)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (11,038,397) (10,364,644) (21,820,558) (20,669,747)
Interest income 358,715 1,348,161 883,089 3,090,931
Equity in losses of affiliate (126,161) (172,434) (268,911) (324,569)
Gain on sale of investment - - 1,000,000 -
Other (20,361) 2,403 (20,361) 5,735
----------- ----------- ----------- -----------
Total other expense (10,826,204) (9,186,514) (20,226,741) (17,897,650)
----------- ----------- ----------- -----------
Loss before income taxes (22,628,040) (21,340,654) (43,235,434) (40,244,938)
Income tax benefit 1,300,000 650,000 2,600,000 650,000
----------- ----------- ----------- -----------
Net loss (21,328,040) (20,690,654) (40,635,434) (39,594,938)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (1.26) $ (1.22) $ (2.40) $ (2.34)
=========== =========== =========== ===========
Basic and diluted weighted average common
shares outstanding 16,910,064 16,946,697 16,910,064 16,946,697
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WIRELESS ONE, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
Six
Months Ended
June 30,
1998 1997
Cash flows used in operating
activities:
Net loss $ (40,635,434) $ (39,594,938)
Adjustments to reconcile net
loss to net cash used in
used in operating activities:
Bad debt expense 860,812 680,257
Depreciation and amortization 19,950,117 14,181,233
Amortization of debt discount 10,892,265 9,707,237
Accretion of interest income (295,377) (317,766)
Deferred income tax benefit (2,600,000) (650,000)
Equity in losses of affiliate 268,911 324,569
Gain on sale of assets (1,000,000) (5,735)
Changes in assets and liabilities:
Receivables (865,291) (1,263,756)
Prepaid expenses (150,361) (759,959)
Deposits (94,578) (103,047)
Accounts payable and
accrued expenses (1,652,034) (2,324,400)
------------ -----------
Net cash used in
operating activities (15,320,970) (20,126,305)
----------- -----------
Cash flows used in investing activities:
Purchase of investments and other assets (260,000) (1,777,500)
Capital expenditures (5,572,908) (34,866,847)
Acquisition of license intangibles (349,628) (3,211,523)
Proceeds from sale of assets 2,500,000 68,649
Proceeds from maturities of securities 9,411,000 9,139,000
----------- -----------
Net cash (used in)
provided by investing
activities 5,728,464 (30,648,221)
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (150,938) (148,853)
----------- -----------
Net decrease in cash (9,743,444) (50,923,379)
Cash and cash equivalents at beginning
of period 15,528,215 104,448,583
----------- -----------
Cash and cash equivalents at end of period $ 5,784,771 $ 53,525,204
=========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
WIRELESS ONE, INC.
Notes to the Condensed Consolidated Financial Statements
June 30, 1998
(1) Description of Business and Summary of Significant Accounting
Policies
(a) Description of Organization
Wireless One, Inc. is engaged in the business of developing, owning,
and operating wireless cable television systems and a high-speed,
two-way Internet access product, primarily in select southern and
southeastern United States markets. At June 30, 1998, the Company had
37 wireless cable television systems in operation ("Operating
System") and 43 other markets either under construction or in
development ("Future Development Markets"), 13 of which are held by a
50% owned joint venture.
(b) Consolidation Policy
The condensed consolidated financial statements include the accounts
of the Company and its majority-owned subsidiaries. All significant
inter-company balances and transactions are eliminated in
consolidation.
(c) Interim Financial Information
The condensed consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim periods. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto, contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997. The
results of operations for the interim periods are not necessarily
indicative of the results for the entire fiscal year ending December
31, 1998.
(d) Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128,
"Earnings Per Share." SFAS No. 128 requires the replacement of
previously reported primary and fully diluted earnings per share
under Accounting Principles Board Opinion No. 15 with basic earnings
per share and diluted earnings per share. The calculation of basic
earnings per share excludes any dilutive effect of potential
issuances of common stock, while diluted earnings per share includes
the dilutive effect of such potential issuances. Shares issuable
upon exercise of the Company's stock options and warrants are anti-
dilutive and have been excluded from the calculation of diluted
earnings per share. Per share amounts for all periods presented have
been restated to conform to the requirements of SFAS No. 128.
(e) Reclassification
Certain expenses for prior periods have been reclassified to conform
to current period's presentation. These reclassifications had no
effect on previously reported net loss.
<PAGE>
WIRELESS ONE, INC.
Notes to the Condensed Consolidated Financial Statements
June 30, 1998
(f) Liquidity
The Company's business requires substantial amounts of capital and
liquidity, principally for the acquisition and installation of
equipment, the development and launch of new products and markets,
debt service and working capital requirements. To date, the Company
has funded operating losses and capital expenditures principally with
funds raised during 1995 and 1996 through its initial public offering
of common stock and the issuance of debt securities. Management
projects that the Company will require significant additional funds
for the continued implementation of its business plan, including
capital expenditures and debt service requirements in 1998 and
beyond.
The Company's revised business plan for the remainder of 1998 reflects a
net cash requirement of approximately $15.7 million to finance the launch
and buildout of additional video and Internet systems, fund operating
losses and meet certain debt obligations in 1998. The Company will also
require an estimated $11.6 million in additional capital funding to meet
its estimated cash requirements for the first quarter of 1999. The Company
is seeking to enter into definitive documentation with Merrill Lynch Global
Allocation Fund, Inc. ("MLGAF") for a proposed note facility under which
the Company would issue, and certain of its subsidiaries would guarantee on
a secured basis, up to $25 million of secured notes to MLGAF (the "MLGAF
Facility"). The issuance of notes under the MLGAF Facility will require
amendments to the indentures governing the Company's outstanding debt
securities, and the Company is currently seeking the consent of the holders
of such securities to such amendments. There can be no assurance that such
consent will be obtained or, if obtained, that the Company will be able to
enter into the MLGAF Facility.
In addition, the notes issued under the MLGAF Facility would mature in
April 1999, when the Company will also begin to be obligated to make semi-
annual interest payments of $9,750,000 on its 1995 Senior Notes. Following
an initial issuance of notes under the MLGAF Facility, the Company will
thus continue to explore various alternatives to address its short- and
long-term capital needs, which alternatives may include raising additional
funds through other financing arrangements, restructuring its existing
indebtedness, modifying its business plan or a combination of the
foregoing; BT Alex. Brown, Incorporated has been retained with respect to
these items. Many factors, some of which may be beyond the Company's
control, may affect the Company's ability to resolve its long-term capital
needs. These factors include the availability of sufficient financing on
terms acceptable to the Company; the willingness of the holders of the
Company's debt securities to agree to any restructuring of the Company's
indebtedness that the Company may seek; prevailing and perceived economic
conditions, both in general and with respect to the Company's industry; and
other factors that could affect the Company's performance, such as
competition or regulatory restrictions. There can be no assurance that the
Company will be able to generate sufficient cash flow and obtain sufficient
additional financing to repay the notes issued under the MLGAF Facility,
cover required interest and principal payments when due on the 1995 Senior
Notes and resolve its long-term capital needs.
If the Company is not able to obtain financing under the MLGAF Facility or
otherwise address its short- and long-term capital needs, the Company would
be required to revise its current business plan and, as a result, to reduce
its operating expenses and capital expenditures; the Company may not be
able to continue to launch new systems or to further develop its Internet
product; and the Company's DirecTV MDU and SFU products may be curtailed.
(g) Use of Estimates
The preparation of financial statements in accordance 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 date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The significant
estimates impacting the preparation of the Company's consolidated
financial statements include the allowance for doubtful accounts on
subscriber receivables, the valuation allowances on deferred tax
assets and estimated useful lives of property and equipment and
intangible assets, and estimates of projected operating results for
purposes of assessing potential impairment of long-lived assets.
Actual results could differ from those estimates.
<PAGE>
(h) New Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income". Effective January 1, 1998, this
statement establishes standards for reporting and disclosure of
comprehensive income and its components in a full set of general-
purpose financial statements. Because the Company has no elements of
comprehensive income, other than net income, no further disclosure is
included within these consolidated financial statements.
(2) Income Taxes
The Company recorded a net deferred tax liability in conjunction with
its acquisition of TruVision. The liability principally relates to
differences in the basis of the underlying assets and liabilities in
excess of net operating loss carryforwards. The Company recognized
$2,600,000 of deferred income tax benefit for the six months ended
June 30, 1998, representing the tax effect of the portion of net
operating loss carryforwards generated in the current period which
the Company utilized to reduce the deferred tax liability.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results ofOperations
Management's Discussion and Analysis of Financial
Condition and Results of Operations contains certain "forward looking
statements" within the meaning of Section 27A of the Securities Act
of 1933 (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"), which reflect management's
best judgment based on factors currently known. Actual results could
differ materially from those anticipated in these "forward looking
statements" as a result of a number of factors, including but not
limited to those discussed below, particularly in "Cautionary
Statements." "Forward looking statements" provided by the Company
pursuant to the safe harbor established by the federal securities
laws should be evaluated in the context of these factors.
This discussion and analysis should be read in
conjunction with the Company's condensed consolidated financial
statements and notes thereto.
RESULTS OF OPERATIONS FOR THE FIRST AND SECOND QUARTER ENDED JUNE 30,
1998, COMPARED TO THE FIRST AND SECOND QUARTER ENDED JUNE 30, 1997.
Overview
Since its inception, the Company has significantly increased its
Operating Systems and number of subscribers. This controlled growth
has been achieved from internal expansion and through acquisitions
and mergers. The Company has sustained substantial net losses,
primarily due to fixed operating costs associated with the
development of its systems, interest expense and charges for
depreciation and amortization.
Beginning in the third quarter of 1997, the Company focused its
marketing efforts on developing its new long-term cooperative
marketing agreement with DirecTV (the "DirecTV Agreement") which
offers subscription video services to multiple dwelling units
(MDU's). In April 1998, the Company announced an agreement to expand
the DirecTV Agreement to include marketing of DirecTV program
offerings to Single Family Units (SFU) located in the Company's
markets. The Company intends to initially offer this DirecTV SFU
product to those residents in the Company's markets who are not
currently passed by a hard-wire cable competitor or, due to
topographical restrictions or blockage by trees, are unable to
receive the Company's wireless video product. Because of the lower
capital and operating costs per subscriber and the enhanced
programming available through its DirecTV MDU and SFU products, the
Company believes that this focus will provide the Company with the
best use of its wireless spectrum, existing infrastructure, and the
opportunities provided by the marketplace. Because of the increased
opportunity provided by its DirecTV MDU and SFU products, the Company
has determined to de-emphasize the growth of its traditional wireless
video SFU business and currently does not plan to launch new systems
focused on SFUs. Accordingly, the Company has implemented changes
to its business operations to reduce personnel and other operating
expenses to the levels needed to implement these refocused business
objectives, including significant reductions in the number of Company
employees.
While managing its core wireless video subscription business, the
Company has devoted resources to the development of new products to
generate additional revenue streams, while providing economies of
scale for its existing wireless spectrum and system infrastructure.
The Company has developed and commenced the commercial launch of a
two-way wireless internet access product. The Company believes that
significant opportunities exist for this product with small and mid-
size commercial customers, who typically do not have access to high-
speed internet access services from local exchange carriers or other
dedicated service providers. In April 1998 the Company completed
its first commercial launch of this product in its Jackson,
Mississippi market and in July 1998 completed its commercial launch
in the Baton Rouge, Louisiana market.
The Company does not anticipate being able to generate net income for
the foreseeable future and there can be no assurance that other
factors, such as, but not limited to, economic conditions, its
inability to raise additional financing or disruptions in its
operations, will not result in further delays in operating on a
profitable basis. Net losses are expected to continue as the Company
focuses its resources on the marketing of its DirecTV MDU and SFU
products, development of its internet access product and as
additional systems are commenced or acquired. The Company's revised
business plan for the remainder of 1998 reflects a net cash
requirement of approximately $15.7 million to finance the launch and
buildup of additional video and internet systems, fund operating
losses, and meet certain debt obligations in 1998. As of June 30,
1998, the Company had $5.8 million in unrestricted cash on hand.
See "Liquidity and Capital Resources."
Results of Operations
Revenues - The Company's revenues consist of monthly fees paid by
subscribers for the basic programming package and for premium
programming services. The Company's subscription revenues for the
three months ended June 30, 1998 were $9.9 million as compared to
$8.3 million for the same period of 1997, an increase of 19%.
Subscription revenues for the six months ended June 30, 1998 were
$20.5 million versus $15.4 million for the comparable period of 1997,
an increase of 33%. The increase in revenue for the second quarter
ended June 30, 1998 over the comparable prior year period was due
principally to the implementation of a price increase effective
January 1998. At June 30, 1998 SFU subscribers decreased
approximately 5% versus June 30, 1997, as a result of reduced
marketing efforts as the Company's focus shifted to its MDU and
internet products. The MDU subscriber count at June 30, 1998
increased approximately 120% from June 30, 1997. Management believes
this change will provide increased revenues as well as lower
operating and capital costs per subscriber.
Systems Operations Expenses - Systems operations expense includes
programming costs, channel lease payments, tower and transmitter site
rentals, cost of program guides, certain repairs and maintenance
expenditures, vehicle expenses and other direct operating and labor
expenses. Programming costs, cost of program guides, channel lease
payments and certain labor (with the exception of minimum payments)
are variable expenses that increase as the number of subscribers
increases. Systems operations expenses for the three months ended
June 30, 1998 were $5.8 million as compared to $5.7 million for the
same period of 1997, an increase of $.1 million. Systems Operations
expense for the six months ended June 30, 1998 were $12.2 million as
compared to $10.6 million for the same period in 1997, an increase of
$1.6 million or 15%. However, as a percent of revenues, systems
operations expenses were approximately 59% of revenues for both the
three months and six months ended June 30, 1998 compared to 69% for
the same periods of 1997. Systems operations expenses declined as a
percent of revenue compared to the prior year due primarily to the
headcount reduction in field operations. This reduction was caused
by shifting the Company's business focus away from the more labor
intense SFU business and resulted in lower personnel costs.
Selling, General and Administrative - SG&A expenses for the three
months ended June 30, 1998 were $5.5 million compared to $6.8 million
for the same period of 1997, a decrease of $1.3 million. SG&A
expenses for the six months ended June 30, 1998 were $11.3 million as
compared to $13.0 million for the same period of 1997, a decrease of
$1.7 million. SG&A expenses decreased due primarily to lower
advertising and marketing expenses. However, as a percent of
revenues, SG&A expenses decreased to 56% and 55% of revenues for the
three and six months ended June 30, 1998 from 82% and 84% for the
same period of 1997, respectively. The reduction of SG&A expense
as a percent of revenue reflects the Company's strategy to focus on
MDUs, therefore decreasing expenditures relative to the SFU
subscriber base.
The Company believes such SG&A costs will not stabilize until all
planned video and internet markets are launched. At that time,
administrative expenses should remain constant with selling and
general expense stabilizing when desired penetration rates are
achieved. In order for such stabilization to occur, the Company's
anticipated schedule of system and product launches needs to be met
and desired penetration rates need to be achieved. The Company's
ability to meet its currently anticipated launch schedule is
dependent on numerous factors, including the ability of the Company
to achieve the necessary regulatory approvals for such systems in a
timely manner and its ability to finance the launch of such systems.
Although management currently expects to meet the anticipated systems
and product launch schedule, there can be no assurance that such
schedule will be met or the necessary penetration rates will be
achieved in such markets to provide for the stabilization of SG&A
costs.
Depreciation and Amortization Expense - Depreciation and
amortization expense for the quarter ended June 30, 1998 was $10.3
million versus $7.9 million for the same period of 1997, an increase
of $2.4 million. Depreciation and amortization expense for the six
months ended June 30, 1998 was $20 million as compared to $14.2
million for the same period of 1997, an increase of $5.8 million.
The increase in depreciation expense during the period was due to
additional capital expenditures related to (i) construction of
repeater sites in compliance with the Mississippi Ednet contracts and
(ii) the installation of MDU subscriber equipment. The Ednet
contracts provide the commercial use of 20 ITFS channels in each of
the Mississippi markets.
Interest Expense - Interest expense for the quarter ended June 30,
1998 was $11.0 million versus $10.4 million for the same period of
1997, an increase of $.6 million. Interest expense for the six
months ended June 30, 1998 was $21.8 million as compared to $20.7
million for the same period of 1997, an increase of $1.1 million.
This increase in interest expense was due to higher non-cash interest
costs associated with the amortization of the discount associated
with the 1996 Senior Discount Notes (as defined in "Liquidity and
Capital Resources") in August 1996.
Interest Income - Interest income for the quarter ended June 30,
1998 was $.4 million versus $1.3 million for the same period of 1997,
a decrease of $.9 million. Interest income for the six months ended
June 30, 1998 was $.9 million as compared to $3.1 million for the
same period of 1997, a decrease of $2.2 million. This decrease in
interest income was due to a decrease in the amount of funds
available for investment that resulted from the net proceeds from the
1995 Senior Notes and 1996 Unit Offering (as defined in "Liquidity
and Capital Resources") and the utilization of cash balances to
further develop the Company's Operating Systems.
<PAGE>
Liquidity and Capital Resources
The wireless cable television and internet access product businesses
are capital intensive. The Company's operations require substantial
amounts of capital for (i) the installation of equipment at
subscribers' premises, (ii) the construction of transmission and
headend facilities and related equipment purchases, (iii) the funding
of start-up losses and other working capital requirements, (iv) the
acquisition of wireless cable channel rights and systems, (v)
investments in vehicles and administrative offices, and (vi) the
development, testing and launch of new products, such as the internet
access product. Since inception, the Company has expended funds to
lease or otherwise acquire channel rights in various markets, to
construct or acquire its Operating Systems, to commence construction
of Operating Systems in different markets and to finance initial
operating losses.
In order to finance the expansion of its Operating Systems and the
launch of additional markets, in October 1995, the Company completed
the initial public offering of 3,450,000 shares of its common stock
(the "Common Stock Offering"). The Company received approximately
$32.3 million in net proceeds from the Common Stock Offering.
Concurrently, the Company issued 150,000 units (the "1995 Unit
Offering") consisting of $150 million aggregate principal amount of
senior notes due 2003 (the "1995 Senior Notes") and 450,000 warrants
to purchase an equal number of shares of common stock at an exercise
price of $11.55 per share. The Company placed approximately $53.2
million of the approximately $143.8 million of net proceeds realized
from the sale of the units into an escrow account to cover the first
three years' interest payments on the 1995 Senior Notes as required
by terms of the indenture governing the 1995 Senior Notes. At June
30, 1998, there was approximately $10.1 million remaining in the
escrow account to be used to pay interest on the 1995 Senior Notes
due in October 1998. After the October payment on the 1995 Senior
Notes is made, the Company will be required to fund future interest
payments on the 1995 Senior Notes along with its other debt service
obligations from other sources of funds.
In August 1996, the Company issued 239,252 units (the "1996 Unit
Offering") consisting of $239 million aggregate principal amount of
senior discount notes (the "1996 Senior Discount Notes") and 239,252
warrants to purchase 544,059 shares of common stock at an exercise
price of $16.64 per share. The Company received $118.6 million after
expenses. The proceeds are being used to fund marketing of the
Company's new DirecTV MDU and SFU products, development of the
Company's internet product, the launch of new systems and expansion
of the Company's existing markets.
For the six months ended June 30, 1998, cash used in
operating activities was $15.3 million consisting primarily of a net
loss of $40.6 million, in addition to an increase in receivables of
$.9 million and a $1.0 million gain on the sale of the Company's
investment in Telecorp Holding Corporation, Inc. (Telecorp),
partially offset by depreciation and amortization of $20.0 million.
For the six months ended June 30, 1998, cash provided by investing
activities was $5.7 million, consisting primarily of proceeds from
the maturities of securities of $9.4 million which was offset by
capital expenditures and payments for licenses and organization costs
of approximately $5.6 million and $.3 million, respectively. In
addition, the Company received $2.5 million in net proceeds from the
sale of its investment in Telecorp. These investing activities were
principally related to the acquisition of equipment in certain of the
Company's Operating Systems, as well as the development of its new
high-speed internet product, and certain license and organization
costs related to those markets. For the six months ended June 30,
1998, cash flows used in financing activities were $.15 million
consisting of repayments of long-term debt.
For the six months ended June 30, 1997, cash used in operating
activities was $20.1 million consisting primarily of a net loss of
$39.6 million in addition to a decrease in accounts payable and
accrued expenses of $2.3 million, an increase in receivables and
prepaid expenses of $2.0 million, an increase in deposits of $ .1
million, and offset by depreciation and amortization of $14.2
million, and net non-cash expenses of $9.7 million. For the six
months ended June 30, 1997, cash used in investing activities was
$30.6 million, consisting primarily of capital expenditures and
payments for licenses and organization costs of approximately $34.9
million and $3.2 million, respectively. In addition, the Company
received proceeds from the maturities of securities of $9.1 million,
made investments and purchased other assets at a cost of
approximately $1.7 million, and received proceeds of $.07 million
from the sale of capital assets. These investing activities were
principally related to the acquisition of equipment in certain of the
Company's Operating Systems, as well as in Future Launch Markets and
certain license and organization costs related to those markets. For
the six months ended June 30, 1997, cash flows used in financing
activities were $.15 million consisting of payments on long-term
debt.
For the six months ended June 30, 1998, the Company made capital
expenditures of $5.6 million versus $34.9 million for the same period
in 1997, a decrease of $29.3 million. This reduction reflects the
Company's business strategy to de-emphasize growth of its traditional
wireless video SFU business, focus on developing its DirecTV MDU and
SFU products and the development of new products to generate
additional revenue streams.
Historically, the Company has generated operating and
net losses and is expected to do so for at least the foreseeable
future as it continues to market its new DirecTV MDU and SFU
products, and in the development of its internet product and
additional Operating Systems. Such losses may increase as these
products are implemented and operations in additional systems are
commenced or acquired. There can be no assurance that the Company
will be able to achieve or sustain positive net income or operating
cash flow in the future. As the Company continues to develop
systems, operating cash flow from more mature systems is expected to
be partially or completely offset by negative operating cash flow
from less developed systems and from development costs associated
with establishing its new products and its Operating Systems in new
markets. This trend is expected to continue until the Company has a
sufficiently large subscriber base to absorb operating and
development costs of recently launched systems. The Company's
ability to meet its currently anticipated video and internet launch
schedules and achieve its targeted penetration rates and subscriber
levels is dependent on numerous factors, including the Company's
ability to finance new launches and expansion of existing systems,
its experience with its DirecTV MDU and SFU products (which remain
new products for the Company), the acceptance and performance of its
internet access product (a new product for the Company), the ability
of the Company to achieve the necessary regulatory approvals for
anticipated video/internet product launches in a timely manner, and
general economic and competitive factors with respect to the wireless
cable business, many of which are beyond the Company's control.
There can be no assurance that the Company will be able to achieve
the necessary subscriber or revenue levels to attain positive
operating cash flow levels at any time.
Based on the factors and results discussed above, the Company
believes that the $5.8 million in unrestricted cash at June 30, 1998
will not be sufficient to meet its forecasted capital and operating
requirements for 1998. The Company's revised business plan for the
remainder of 1998 reflects a net cash requirement of approximately
$15.7 million to finance the launch and buildout of additional video
and Internet systems, fund operating losses and meet certain debt
obligations in 1998. The Company will also require an estimated $11.6
million in additional capital funding to meet its estimated cash
requirements for the first quarter of 1999. The Company is seeking
to enter into definitive documentation with Merrill Lynch Global
Allocation Fund, Inc. ("MLGAF") for a proposed note facility (the
"MLGAF Facility").
The Company anticipates that the MLGAF Facility will provide for up to $25
million in availability on a senior secured basis through note purchases
from the Company, guaranteed by certain subsidiaries of the Company, which
note purchases would be made at the sole discretion of MLGAF. The Company
expects the MLGAF Facility to accrue interest at a rate of 13% per annum,
payable at maturity, which is expected to be April 15, 1999. MLGAF has
requested that the MLGAF Facility be secured by all stock of the Company's
present and future material subsidiaries, and such other present and future
material property and assets, real and personal, of the Company and its
subsidiaries as MLGAF shall request. MLGAF has requested to receive seven-
year detachable warrants to purchase a "pro rata portion" of 7.5% of the
Company's common stock on a fully diluted basis, exercisable at 110% of the
market price per share at the time of issuance of the initial note. Such
warrants would contain usual and customary registration rights and anti-
dilution provisions. "Pro rata portion" means a fraction the numerator of
which is equal to the face amount of the notes issued on each issuance date
and the denominator of which is equal to $25 million. The Company believes
that the notes issued under the MLGAF Facility will be subject to certain
mandatory and optional redemption provisions, and will contain covenants
and events of default, customary for facilities of this type.
The MLGAF Facility will, if obtained, be discretionary and there can be no
assurance that MLGAF will purchase any notes thereunder or, if notes are
purchased, that the terms of the MLGAF Facility will not vary from the
terms described above.
The issuance of notes under the MLGAF Facility will require amendments to
the indentures governing the Company's outstanding debt securities, and the
Company is currently seeking the consent of the holders of such securities
to such amendments. There can be no assurance that such consent will be
obtained or, if obtained, that the Company will be able to enter into the
MLGAF Facility. In addition, the notes issued under the MLGAF Facility
would mature in April 1999, when the Company will also begin to be
obligated to make semi-annual interest payments of $9,750,000 on its 1995
Senior Notes. Following an initial issuance of notes under the MLGAF
Facility, the Company will thus continue to explore various alternatives to
address its short- and long-term capital needs, which alternatives may
include raising additional funds through other financing arrangements,
restructuring its existing indebtedness, modifying its business plan or a
combination of the foregoing; BT Alex. Brown, Incorporated ("BT Alex.
Brown") has been retained with respect to these items.
If the Company is unable to obtain the consents needed to amend its
indentures in order to enter into the MLGAF Facility, the Company will not
be able to seek to issue notes under the MLGAF Facility and will seek to
pursue a financing, on the best terms that it could then negotiate,
pursuant to a preliminary proposal received from another financial
institution with respect to a senior secured credit facility. Such
financing facility would not require amendments to the Company's
indentures, but was proposed on terms which would be less advantageous to
the Company. The proposal was not a commitment but only an expression of
interest as of the date received, and there can be no assurance that a
financing would be agreed between the parties or, if agreed, thereafter
consummated. Even if such financing were obtained, it would, as with the
MLGAF Facility, be on a short-term basis, requiring refinancing or
restructuring prior to April 1999, when the Company will be obligated to
devote a substantial portion of its cash flow to debt service on the 1995
Senior Notes. The Company would thus, whether or not such financing were
obtained, be required to continue to seek alternatives to address its need
for funds to cover required interest and principal payments when due on the
1995 Senior Notes, to the extent not provided from operating cash flow, and
to resolve its long-term capital needs.
Many factors, some of which may be beyond the Company's control, may affect
the Company's ability to resolve its short- and long-term capital needs.
These factors include the availability of sufficient financing on terms
acceptable to the Company; the willingness of the holders of the Company's
debt securities to agree to any restructuring of the Company's indebtedness
that the Company may seek; prevailing and perceived economic conditions,
both in general and with respect to the Company's industry; and other
factors that could affect the Company's performance, such as competition or
regulatory restrictions. There can be no assurance that the Company will be
able to generate sufficient cash flow and obtain sufficient additional
financing to repay the notes issued under the MLGAF Facility, cover
required interest and principal payments when due on the 1995 Senior Notes
and resolve its long-term capital needs. If the Company is not able to
obtain financing under the MLGAF Facility or otherwise address its short-
and long-term capital needs, the Company would be required to revise its
current business plan and, as a result, to reduce its operating expenses
and capital expenditures; the Company may not be able to continue to launch
new systems or to further develop its Internet product; and the Company's
DirecTV MDU and SFU products may be curtailed.
The Company has been notified by the Nasdaq that it does not meet all
of the financial standards of the listing requirements of the Nasdaq
National Market. In addition, the Company has been notified that it
does not meet all of the criteria for listing on the Nasdaq SmallCap
Market and the Company's request to transfer to that market has also
been denied. A hearing panel authorized by the National Association
of Securities Dealers, Inc. considered the Company's listing on
August 6, 1998, and the Company has not yet received the ruling of
that panel. If the hearing panel rules that the Company's common
stock should be delisted, and the transfer to the Nasdaq SmallCap
Market is denied, it is expected that the Company's common stock will
trade on the OTC Bulletin Board under the existing symbol "WIRL." In
such event, the Company's common shareholders may experience a
substantial reduction in the liquidity of their shares.
In managing its wireless cable assets, the Company may, at its
option, exchange or trade existing wireless cable channel
rights for channel rights in markets that have a greater
strategic value to the Company. The Company continually
evaluates opportunities to acquire, either directly or
indirectly through the acquisition of other entities, wireless
cable channel rights. There is no assurance that the Company
will not pursue such opportunities that may utilize capital
currently expected to be available for its current markets.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information."
This statement is effective for fiscal years beginning after December
15, 1997 and requires disclosures about operating segments and
enterprise-wide disclosures about products and services, geographic
area and major customers. The Company is currently evaluating the
effect of this statement on the presentation of and disclosures
within its consolidated financial statements.
Cautionary Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operations and the notes to the financial
statements contained herein contain "forward-looking statements."
All statements other than statements of historical fact included in
this report, including, without limitation, statements regarding
future liquidity, cash needs and alternatives to address capital
needs, and the Company's expectations regarding positive operating
cash flow, net losses, subscriber and revenue levels, profitability
and SG&A costs, the expected results of the Company's business
strategy, the listing of the Company's common stock and other
plans and objectives of management of the Company for future
operations and activities are forward-looking statements.
Important factors that could cause actual results to
differ materially from the Company's expectations include, without
limitation, business opportunities that may be presented to and
pursued by the Company, changes in laws or regulations, the
substantial indebtedness of the Company, uncertainty created by the
Company's limited operating history, negative cash flow and lack of
profitable operations, the Company's need for additional financing,
the need to manage the change in business strategy, uncertainty of
ability to obtain FCC authorizations, government regulations,
competition, physical limitations of wireless cable transmission, and
other factors, many of which are beyond the control of the Company.
Further information regarding these and other factors that might
cause future results to differ from those projected in the forward-
looking statements are described in more detail under the heading
"Factors That May Affect Future Results of the Company" in the
Company's Form 10-K for the year ended December 31, 1997.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index on page E-1
(b) No reports on Form 8-K were filed during the periods presented.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WIRELESS ONE, INC.
Date: August 10,1998 /s/ Henry M. Burkhalter
Henry M. Burkhalter
President and Chief
Executive Officer
Date: August 10, 1998 /s/ Henry G. Schopfer
Henry G. Schopfer, III
Executive Vice President and
Chief Financial Officer
Date: August 10, 1998 /s/ William D. Gray
William D. Gray
Controller
(Chief Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3.1(i) Amended and Restated Certificate of Incorporation of the
Registrant (1)
3.1(ii) Bylaws of the Registrant (1)
4.1 Indenture between the Registrant and United States Trust
Company of New York, as Trustee, dated October 24, 1995(2)
4.2 Warrant Agreement between Registrant and United States Trust
Company of New York, as Warrant Agent, dated October 24,
1995(2)
4.3 Escrow and Disbursement Agreement between the Registrant and
Bankers Trust Corporation, Escrow Agent, dated October 24,
1995(2)
4.4 Supplemental Indenture between the Registrant and United States
Trust Company of New York, as trustee, dated July 26, 1996(3)
4.5 Indenture between the Registrant and United States Trust
Company of New York as Trustee, dated August 12, 1996(3)
4.6 Warrant Agreement between the Registrant and United States
Trust Company of New York, as Warrant Agent, dated August 12,
1996(4)
11.1 Statement re computation of per share earnings (5)
27.1 Financial Data Schedules(5)
______________________________
1) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (Registration Number 333-05109) as declared
effective by the Commission on August 7, 1996.
2) Incorporated herein by reference from the Registrant's Registration
Statement on Form S-1 (Registration Number 33-94942) as declared
effective by the commission on October 18, 1995.
3) Incorporated herein by reference from the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1995.
4) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1 (Registration Number 333-12449) as declared
effective on October 18, 1996.
5) Filed herewith.
Wireless One, Inc.
Earnings Per Share Computation Information
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net loss (21,328,040) (20,690,654) (40,635,434) (39,594,938)
Weighted average common
shares outstanding 16,910,064 16,946,697 16,910,064 16,946,697
Net loss per common share (1.26) (1.22) (2.40) (2.34)
=========== =========== =========== ===========
</TABLE>
The above earnings per share (EPS) calculations are submitted in accordance
with SFAS No. 128, "Earnings Per Share". An EPS calculation in accordance
with Regulation S-K item 601 (b)(11) is not shown above because it produces
an antidilutive result. The following information is disclosed for purposes
of calculating the antidilutive EPS:
<TABLE>
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 16,910,064 16,946,697 16,910,064 16,946,697
Shares issuable upon exercise
of options and warrants - - - -
---------- ---------- ---------- ----------
Weighted average shares
outstanding 16,910,064 16,946,697 16,910,064 16,946,697
Net loss per common share (1.26) (1.22) (2.40) (2.34)
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,784,771
<SECURITIES> 10,143,166
<RECEIVABLES> 2,660,164
<ALLOWANCES> 676,618
<INVENTORY> 0
<CURRENT-ASSETS> 20,020,006
<PP&E> 137,824,456
<DEPRECIATION> 39,494,423
<TOTAL-ASSETS> 282,862,911
<CURRENT-LIABILITIES> 13,238,715
<BONDS> 326,645,651
<COMMON> 169,101
0
0
<OTHER-SE> 119,772,011
<TOTAL-LIABILITY-AND-EQUITY> 282,862,911
<SALES> 20,505,204
<TOTAL-REVENUES> 20,505,204
<CGS> 0
<TOTAL-COSTS> 43,513,897
<OTHER-EXPENSES> (1,593,817)
<LOSS-PROVISION> 860,812
<INTEREST-EXPENSE> 21,820,558
<INCOME-PRETAX> 43,235,434
<INCOME-TAX> 2,600,000
<INCOME-CONTINUING> (40,635,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,635,434)
<EPS-PRIMARY> (2.40)
<EPS-DILUTED> (2.40)
</TABLE>
