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 SEPTEMBER 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.)
2506 Lakeland Drive, Suite 600
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 November 10, 1998:
16,910,064
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 (unaudited) 2
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1998 and 1997,
and the nine months ended September 30, 1998 and 1997
(unaudited) 3
Condensed Consolidated Statements of Cash
Flows for the nine months ended September 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.
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
Assets September 30, December 31,
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,963,798 $ 15,528,215
Marketable investment securities-restricted 10,280,715 19,258,789
Subscriber receivables, net 1,387,397 2,071,689
Accrued interest and other receivables 672,425 729,237
Prepaid expenses 1,086,378 1,136,303
------------- -------------
Total current assets 24,390,713 38,724,233
Property and equipment, net 90,280,849 110,099,016
License and leased license investment, net 147,598,831 151,386,399
Other assets 16,624,632 17,377,550
------------- -------------
Total assets $ 278,895,025 $ 317,587,198
============= =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 1,293,470 $ 2,913,209
Accrued expenses 5,179,720 5,117,451
Accrued interest 9,817,897 4,942,119
Current maturities of long-term debt 2,315,178 871,408
Senior Secured Notes payable 12,500,000 -
------------- -------------
Total current liabilities 31,106,265 13,844,187
Deferred income taxes 1,300,000 5,200,000
Long-term debt 331,480,643 317,529,032
------------- -------------
363,886,908 336,573,219
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 (204,932,995) (138,927,133)
------------- -------------
Total stockholders' equity (deficit) (84,991,883) (18,986,021)
------------- -------------
$ 278,895,025 $ 317,587,198
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
WIRELESS ONE, INC.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $ 9,243,816 $ 9,128,119 $ 29,749,021 $ 24,533,913
-------------- -------------- ------------- -------------
Operating expenses:
Systems operations 6,214,170 5,752,564 18,439,981 16,610,147
Selling, general, and
administrative 6,602,049 7,581,686 17,940,018 20,290,220
Depreciation and amortization 11,371,460 9,123,868 31,321,578 23,305,099
-------------- -------------- ------------- -------------
24,187,679 22,458,118 67,701,577 60,205,466
-------------- -------------- ------------- -------------
Loss from operations (14,943,863) (13,329,999) (37,952,556) (35,671,553)
-------------- -------------- ------------- -------------
Other income (expense):
Interest expense (11,492,031) (10,429,596) (33,312,588) (31,099,343)
Interest income 129,921 964,752 1,013,010 4,055,683
Equity in losses of affiliate (155,045) 26,534 (423,956) (298,034)
Gain on sale of investment - - 1,000,000 -
Other (209,410) - (229,772) -
-------------- -------------- ------------- -------------
(11,726,565) (9,438,310) (31,953,306) (27,341,694)
-------------- -------------- ------------- -------------
Loss before income taxes (26,670,428) (22,768,309) (69,905,862) (63,013,247)
Income tax benefit 1,300,000 325,000 3,900,000 975,000
-------------- -------------- ------------- -------------
Net loss (25,370,428) (22,443,309) (66,005,862) (62,038,247)
============= ============== ============= =============
Basic and diluted loss per
common share $ (1.50) $ (1.32) $ (3.90) $ (3.66)
============= ============== ============= =============
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.
WIRELESS ONE, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
1998 1997
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (66,005,862) $ (62,038,247)
Adjustments to reconcile net loss to net cash
used in operating activities:
Bad debt expense 1,354,859 1,086,383
Depreciation and amortization 31,321,578 23,305,099
Amortization of debt discount 16,778,448 14,746,814
Accretion of interest income (432,926) (406,845)
Deferred income tax benefit (3,900,000) (975,000)
Equity in losses of affiliate 423,956 298,034
Gain on sale of assets (1,000,000) (5,735)
Changes in assets and liabilities:
Receivables (613,755) (2,050,983)
Prepaid expenses 49,925 (307,038)
Deposits (94,787) (112,796)
Accounts payable and accrued expenses 3,318,308 4,610,090
-------------- --------------
Net cash used in operating activities (18,800,256) (21,850,224)
-------------- --------------
Cash flows used in investing activities:
Purchase of investments and other assets (410,000) (3,240,294)
Capital expenditures (7,334,164) (49,801,966)
Acquisition of license intangibles (384,804) (4,024,945)
Proceeds from sale of assets 2,500,000 68,649
Proceeds from maturities of securities 9,411,000 9,139,000
-------------- --------------
Net cash provided by (used in) investing activities 3,782,032 (47,859,556)
-------------- --------------
Cash flows from financing activities:
Principal payments on long-term debt (278,647) (3,041,733)
Proceeds from issuance of notes 12,500,000 -
Debt issuance costs (1,767,546) -
-------------- --------------
Net cash provided by (used in) financing activities 10,453,807 (3,041,733)
-------------- --------------
Net decrease in cash (4,564,417) (72,751,513)
Cash and cash equivalents at beginning of period 15,528,215 104,448,583
-------------- --------------
Cash and cash equivalents at end of period $ 10,963,798 $ 31,697,070
============== ==============
</TABLE>
<PAGE>
WIRELESS ONE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF ORGANIZATION
Wireless One, Inc. (the Company) 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 September
30, 1998, the Company had 38 wireless cable television systems in
operation ("Operating Systems") and 42 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. At September 30,
1998, the Company had 1,118,021 outstanding options and 689,377
outstanding warrants to purchase 1,118,021 and 1,652,893 shares of
common stock, respectively. Shares issuable upon exercise of the
Company's stock options and warrants are anti-dilutive and have been
excluded from the calculation of diluted loss 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
SEPTEMBER 30, 1998
(f) 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.
(g) 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) 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 (the "1995 Senior Notes" and "1996 Senior
Discount Notes" respectively). Most recently, on September 4, 1998, the
Company obtained a new $20.0 million Senior Secured Discretionary Note
Facility (the "Senior Facility") and issued senior secured notes (the
"Senior Secured Notes") pursuant to the Senior Facility in the amount of
$12.5 million. The Senior Secured Notes (i) mature on April 15, 1999,
(ii) pay 13% per annum interest, (iii) require the Company to pay a
facility fee at the time of maturity of the Senior Secured Notes equal to
5% of the aggregate principal amount of the Senior Secured Notes issued
September 4, 1998, plus up to 10% of the aggregate principal amount of
any additional Senior Secured Notes issued pursuant to the Senior Facility
and (iv) are secured by substantially all of the Company's assets. Upon
the request of the Company, the purchaser of the Senior Secured Notes may,
at its sole discretion and pursuant to terms determined by the purchaser,
purchase up to an additional $7.5 million of the Senior Secured Notes.
Such additional Senior Secured Notes will otherwise be subject to the same
terms and conditions as the Senior Secured Notes, which were issued on
September 4, 1998 and will also mature on April 15, 1999. When the Senior
Secured Notes issued mature on April 15, 1999, the Company will also
begin to make semi-annual interest payments of $9.8 million on its 1995
Senior Notes. In connection with the purchase of the Senior Secured
Notes, the Company also issued to the purchaser of the Senior Secured
Notes seven-year detachable warrants to purchase up to 6% of the
Company's fully-diluted common stock, at $0.72 per share.
The Company intends to issue an additional $7.5 million of Senior Secured
Notes, if the Company were to issue the additional $7.5 million of
Senior Secured Notes, the Company believes it would have cash sufficient
to fund operations and planned capital expenditures through April 15,
1999, the maturity date of the Senior Secured Notes. Whether or not the
Company is able to issue the remaining $7.5 million of Senior Secured
Notes, the Company will need additional financing, and will likely
need to restructure its outstanding indebtedness on or before such date
in order to fund operations and planned capital expenditures and
to address its significant debt service and repayment obligations during
1999. (See "Liquidity and Capital Resources".) BT Alex. Brown Incorporated
has been retained to advise the Company with respect to these matters.
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 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; the willingness of the
purchser of the initial $12.5 million of Senior Secured Notes to purchase
additional Senior Secured Notes, which, as indicated, is at the discretion
of the purchaser; the availability of sufficient additional financing on
terms acceptable to the Company; 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. (See "Cautionary Statements".)
The Company's condensed consolidated financial statements have been
prepared on a going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. There can be no assurance that the Company will be able to
obtain sufficient financing or that the Company will be able to
successfully restructure its outstanding indebtedness on a timely basis.
At September 30, 1998, the Company has approximately $55.9 million
of license and leased license investment in Future Development Markets,
which are not subject to amortization. Development of these markets
is dependent upon obtaining additional financing to fund the capital
outlay required to build out such markets. Should the Company be unable
to finance the development of these markets, the Company may not be able
to realize the carrying value of the investment in these markets in
the normal course of business, and, in accordance with Statement of
Financial Accounting Standards No. 121, a write down of these assets to
fair value may be necessary. There can be no assurance that the Company
will be able to generate sufficient cash flow or obtain sufficient
additional financing to meet its debt service requirements, fund the
future development of these markets, or continue to operate as a going
concern.
(3) 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
$3,900,000 of deferred income tax benefit for the nine months ended
September 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 of Operations
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, in particular under the heading "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.
<PAGE>
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 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998,
COMPARED TO THE SAME PERIODS ENDED SEPTEMBER 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 multiple
dwelling units (MDU's) subscription video marketing efforts on developing its
new long-term cooperative marketing agreement with DirecTV, Inc. (the "DirecTV
Agreement"). 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's) located in the Company's markets. The Company has
initially offered 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 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 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.
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
business plan.
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, general economic conditions and economic conditions
prevailing in the Company's industry, 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. (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
September 30, 1998 were $9.2 million as compared to $9.1 million for the same
period of 1997. Subscription revenues for the nine months ended September 30,
1998 were $29.7 million versus $24.5 million for the comparable period of
1997, an increase of 21%. The year-to-date increase in revenue over the
comparable prior year period was due principally to the implementation of a
price increase effective January 1998, partially offset by a decline in SFU
video subscribers.
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 September 30, 1998 were $6.2 million as compared to $5.8 million
for the same period of 1997, an increase of $.4 million. Systems Operations
expense for the nine months ended September 30, 1998 were $18.4 million as
compared to $16.6 million for the same period in 1997, an increase of $1.8
million or 11%. However, as a percent of revenues, systems operations
expenses were approximately 67% and 62% of revenues for the three and nine
months ended September 30, 1998 compared to 63% and 68% for the same periods
of 1997.
Selling, General and Administrative - SG&A expenses for the three months
ended September 30, 1998 were $6.6 million compared to $7.6 million for the
same period of 1997, a decrease of $1.0 million. SG&A expenses for the nine
months ended September 30, 1998 were $17.9 million as compared to $20.3
million for the same period of 1997, a decrease of $2.4 million. SG&A
expenses decreased to 71% and 60% of revenues for the three and nine months
ended September 30, 1998 from 83% and for both periods of 1997, respectively.
The reduction of SG&A expense as a percent of revenue reflects the Company's
strategy to focus on MDUs, DirecTV and Internet services, 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.
Depreciation and Amortization Expense - Depreciation and amortization
expense for the quarter ended September 30, 1998 was $11.4 million versus $9.1
million for the same period of 1997, an increase of $2.3 million.
Depreciation and amortization expense for the nine months ended September 30,
1998 was $31.3 million as compared to $23.3 million for the same period of
1997, an increase of $8 million or 34%. 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
contract that provides the commercial use of 20 ITFS channels in each of the
Mississippi markets, (ii) the installation of MDU and SFU DirecTV subscriber
equipment, and (iii) additional markets in Hattiesburg, MS; Freeport, TX;
Baton Rouge, LA and Gadsden, AL.
<PAGE>
Interest Expense - Interest expense for the quarter ended September 30,
1998 was $11.5 million versus $10.4 million for the same period of 1997, an
increase of $1.1 million. Interest expense for the nine months ended
September 30, 1998 was $33.3 million as compared to $31.1 million for the same
period of 1997, an increase of $2.2 million. This increase in interest
expense was due to higher non-cash interest costs associated with the
amortization of the discount associated with the August 1996, Senior Discount
Notes and the issuance of notes under the Senior Facility in September 1998.
These notes are discussed under the heading "Liquidity and Capital Resources".
Interest Income - Interest income for the quarter ended September 30,
1998 was $.1 million versus $1.0 million for the same period of 1997, a
decrease of $.9 million. Interest income for the nine months ended September
30, 1998 was $1.0 million as compared to $4.1 million for the same period of
1997, a decrease of $3.1 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.
LIQUIDITY AND CAPITAL RESOURCES
The wireless cable television and Internet access 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 September 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
interest payment on the 1995 Senior Notes, 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 Company has
used the proceeds of the 1996 unit offering to fund marketing of the Company's
new DirecTV MDU and SFU products, development of the Company's Internet
products, the launch of new systems and expansion of the Company's existing
markets.
On September 4, 1998, the Company obtained a new $20.0 million Senior
Secured Discretionary Note Facility (the "Senior Facility") and issued Senior
Secured Notes pursuant to the Senior Facility in the amount of $12.5 million.
The Senior Secured Notes (i) mature on April 15, 1999, (ii) pay 13% per annum
interest, (iii) require the Company to pay a facility fee at the time of
maturity of the Senior Secured Notes equal to 5% of the aggregate principal
amount of the Senior Secured Notes issued September 4, 1998, plus up to 10% of
the aggregate principal amount of any additional Senior Secured Notes issued
pursuant to the Senior Facility and (iv) are secured by substantially all of
the Company's assets. Upon the request of the Company, the purchaser of the
Senior Secured Notes may at its sole discretion and pursuant to terms
determined by the purchaser, purchase up to an additional $7.5 million of the
Senior Secured Notes. Such additional Senior Secured Notes will otherwise be
subject to the same terms and conditions as the Senior Secured Notes, which
were issued on September 4, 1998 and will also mature on April 15, 1999. In
connection with the purchase of the Senior Secured Notes, the Company also
issued to the purchaser of the Senior Secured Notes seven-year detachable
warrants to purchase up to 6% of the Company's fully-diluted common stock at
$0.72 per share.
For the nine months ended September 30, 1998, cash used in operating
activities was $18.8 million consisting of a net loss of $66 million, less
non-cash depreciation and amortization of $31.3 million, amortization of debt
discount of $16.8 million, a net change in current assets and liabilities of
$2.7 million, and bad debt expense of $1.4 million, plus non-cash deferred
income tax benefit of $3.9 million, gain on sale of assets of $1 million and a
net other of $.1 million. For the nine months ended September 30, 1998, cash
provided by investing activities was $3.8 million, consisting primarily of
proceeds from the maturities of securities of $9.4 million, net proceeds from
the sale of its investment in Telecorp. of $2.5 million, partially offset by
capital expenditures, payments for licenses and the purchase of other assets
and investments of $8.1 million. For the nine months ended September 30,
1998, cash flows provided by financing activities were $10.5 million. This
cash flow consisted of $12.5 million from the issuance of notes pursuant to
the Senior Facility, less $1.8 million for debt issue costs and $.3 million
for the repayment of debt.
For the nine months ended September 30, 1997, cash used in operating
activities was $21.9 million consisting primarily of a net loss of $62.0
million, in addition to an increase in receivables and prepaid expenses of
$2.4 million, an increase in deposits of $0.1 million, partially offset by
depreciation and amortization of $23.3 million, an increase in accounts
payable and accrued expenses of $4.6 million, and net non-cash expenses of
$14.7 million. For the nine months ended September 30, 1997, cash used in
investing activities was $47.9 million, consisting primarily of capital
expenditures and payments for licenses and organization costs of approximately
$49.8 million and $4.0 million, respectively. In addition, the Company
received proceeds from the maturities of securities of $9.1 million and made
investments and purchased other assets at a cost of approximately $3.2
million. 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 nine months ended September 30, 1997, cash
flows used in financing activities consisted of $3.0 million for repayments on
long-term debt.
For the nine months ended September 30, 1998, the Company made capital
expenditures of $7.3 million versus $49.8 million for the same period in
1997, a decrease of $42.5 million. This reduction reflects the Company's
business strategy to de-emphasize growth of its traditional wireless SFU video
business, its shift to development of DirecTV products, both MDU and SFU, 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 and certain of which could be adversely
affected by the Company's failure to obtain additional financing or to
restructure its outstanding indebtedness, as described below. 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.
If the Company were to issue the additional $7.5 million of Senior Secured
Notes, the Company believes it would have cash sufficient to fund operations
and planned capital expenditures through April 15, 1999, the maturity date of
the Senior Secured Notes. The Company intends to issure an additional $7.5
million of Senior Secured Notes, however the purchase of additional Senior
Secured Notes is at the discretion of the purchaser, and, therefore, there
can be no assurance that additional Senior Secured Notes will be issued.
Whether or not the Company is able to issue the remaining $7.5 million
of Senior Secured Notes, the Company will need additional financing, and will
likely need to restructure its outstanding indebtedness on or before such
date in order to fund operations and planned capital expenditures
and to address its significant debt service and repayment obligations during
1999. These include (i) the obligation to repay the Senior Secured Notes,
which mature on April 15, 1999, and (ii) the obligation, commencing on April
15, 1999, to make semi-annual interest payments of $9,750,000 on the 1995
Senior Notes. The Company has retained BT Alex Brown Incorporated to assist
in exploring alternatives to address the Company's short- and long-term
capital needs, including the development of proposals to restructure the
Company's outstanding indebtedness and to raise additional funding.
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 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; availability of sufficient additional financing on
terms acceptable to the Company; the willingness of the purchaser of the
initial $12.5 million of Senior Secured Notes to purchase additional Senior
Secured Notes which, as indicated, is at the discretion of the purchaser;
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 obtain sufficient financing or that
the Company will be able to successfully restructure its outstanding
indebtedness on a timely basis. As an interim measure, the Company could
conserve cash by revising its current business plan to reduce its operating
expenses and capital expenditures, including the delay of launching new
systems or the further development of its Internet product. Any such changes
in the Company's business plan, or the failure by the Company to obtain
additional financing or to restructure its outstanding indebtedness (or any
significant delay in obtaining such financing or effecting such restructuring)
could have a material adverse effect upon the Company and its ability to
continue to operate as a going concern.
On October 21, 1998, a hearing panel authorized by the National
Association of Securities Dealers, Inc. issued a ruling that the Company does
not meet all of the financial standards of the listing requirements of the
Nasdaq National Market and that the Company's common stock would therefore be
delisted from the Nasdaq National Market as of the close of business that day.
The Company's common stock has traded on the OTC Bulletin Board under its
existing symbol "WIRL", effective October 22, 1998.
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". Such statements include, 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, and other
plans and objectives of management of the Company for future operations and
activities and are indicated by words or phrases such as "anticipate,"
"estimate," "plans," "projects," "continuing," "ongoing," "expects,"
"management believes," "the Company believes." "the Company intends," "we
believe," "we intend" and similar words or phrases.
Important factors that could cause actual results to differ materially
from the Company's expectations include, without limitation, the willingness
of the Purchaser of the Senior Secured Notes to purchase additional Senior
Secured Notes available under the Senior Facility, the Company's need for
additional financing and the terms and conditions thereof, the substantial
indebtedness of the Company, the Company's negative cash flow and the lack of
profitable operations, the results of the Company's limited operating history,
business opportunities that may be presented to and pursued by the Company,
changes in laws or regulations, uncertainty of the Company's ability to obtain
FCC authorizations, competition, physical limitations of wireless cable
transmission, changes in general business and economic conditions in the
Company's operation regions, issues arising from year 2000 information
technology issues, 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.
YEAR 2000
The Year 2000 computer issue is relevant because many computer systems may
not be able to distinguish the year 2000 from the year 1900. Many experts
fear that this programming problem could render inoperable computer systems
around the globe. The widespread use and dependency on computer technology in
modern commerce makes inherent risks to the Company, and to other companies,
from this issue. These risks are associated with potential disruptions or
failures within the Company's operations and products, within its suppliers
and other key business partners. Because of the indirect effect of third
parties, an assessment and prediction of the impact of the Year 2000 issue on
the Company is difficult.
The Company is currently implementing plans to address the remaining
internal and external Year 2000 issues. Internally these plans encompass all
major computer systems in use by the Company. The Company has already
completed a significant upgrade to Year 2000 compliant software and hardware
in conjunction with its 1996 merger. The Company currently anticipates it
will have assessed and remedied all critical areas of its own operations by
June 30, 1999, and that it will internally certify the readiness of these
critical areas by June 30, 1999. The Company's risk assessment process
associated with critical suppliers, and other key business partners, includes
analyzing responses to questionnaires previously solicited and, if necessary,
performing onsite interviews. The Company's reliance on key business partners
regarding Year 2000 issues is paramount as failures of their information
systems and software could have a material adverse impact on the Company's
financial condition and results of operations. The Company intends to develop
contingency plans based primarily on these assessment results.
<PAGE>
The following table is an estimate of timing for assessment and correction
of Year 2000 issues:
EST. COMPLETION DATE EST. CERTIFICATION DATE
Internal Assessment Completed N/A
Internal Corrections March 31, 1999 June 30, 1999
External Assessment March 31, 1999 June 30, 1999
Costs incurred to date in addressing Year 2000 issues are approximately
$.1 million. Based on current assessment and correction projects the Company
expects to spend approximately $.3 million in both incremental spending and
re-deployed resources to resolve Year 2000 issues. As the Company's
assessment and correction of Year 2000 issues continues these costs may
change. This estimate relates to internal issues and does not include
potential costs from claims resulting from the Company's failure to effect
timely implementation of corrective action on Year 2000 issues. The Company's
estimate is irrespective of the impact on operations that may result from
third party deficiencies.
The Company does not expect any significant disruption to its operations
as a result of Year 2000 issues. The Company is taking actions it believes
are necessary and appropriate to identify and resolve any, and all of these
issues. Because of the complexity of Year 2000 issues, and our reliance on
performance by third parties, the Company is not able to guarantee that all
issues will be assessed, identified or corrected in a timely or successful
manner.
The foregoing statements regarding the Company's Year 2000 plans and
related estimates of costs are forward-looking statements and actual results
will vary. The Company's success in addressing Year 2000 issues could be
impacted by the severity of the problems to be resolved within the Company, by
problems affecting its suppliers and other key business partners, and by the
associated costs.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index on page E-1
(b) Reports on Form 8-K
On July 30, 1998, the Company filed a Current Report on Form 8-K stating
under "Item 5. Other Events" that the Company commenced a solicitation of
consents from holders of its 13% Senior Notes due October 15, 2003 and its 13
1/2% Senior Discount Notes due August 1, 2006 (collectively, the "Previous
Notes") to certain proposed amendments to indentures governing the Previous
Notes (the "Indentures") in order to permit the Company to issue the Notes
pursuant to the Senior Facility.
On August 14, 1998, August 19, 1998 and August 21, 1998, the Company filed
Current Reports on Form 8-K stating under "Item 5. Other Events" that it had
extended its solicitation of consents from holders of the Previous Notes to
5:00 PM, New York City time, August 18, 1998, August 20, 1998 and August 21,
1998, respectively.
On August 25, 1998, the Company filed a Current Report on Form 8-K stating
under "Item 5. Other Events" that the solicitation of consents from holders of
the Previous Notes was successfully completed on August 24, 1998 and that the
Company had executed supplemental indentures amending the Indentures.
On September 14, 1998, the Company filed a Current Report on Form 8-K
stating under "Item 5. Other Events" that the Company had obtained the Senior
Facility and issued the Senior Secured Notes pursuant thereto on September 4,
1998, and setting forth the terms of the Senior Secured Notes.
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: November 16, 1998 /s/ Henry M. Burkhalter
____________________________________
Henry M. Burkhalter
President and Chief Executive Officer
Date: November 16, 1998 /s/ Henry G. Schopfer, III
___________________________________
Henry G. Schopfer, III
Executive Vice President and
Chief Financial Officer
Date: November 16, 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)
4.7 Second Supplemental Indenture between the Registrant and United
States Trust Company of New York, as trustee, dated August 24,
1998, pertaining to the Registrant's 13% Senior Notes due October
15, 2003(5)
4.8 First Supplemental Indenture between the Registrant and the United
States Trust Company of New York, as trustee, dated August 24,
1998, pertaining to the Registrant's 13 1/2% Senior Discount Notes
due August 1, 2006(5)
10.1 Discretionary Note Purchase Agreement between the Company and the
Purchasers listed in Schedule I thereto, dated as of September 4,
1998 (see table of contents for list of omitted exhibits and
schedules)(6)
10.2 Form of 13.00% Senior Secured Discretionary Note(6)
10.3 Warrant Agreement between the Company and First Chicago Trust
Company of New York, as warrant agent, dated as of September 4,
1998(6)
10.4 Form of Warrant Certificate(6)
10.5 Paying Agency Agreement between the Company, Merrill Lynch Global
Allocation Fund and PriceWaterhouseCoopers LLP, as paying agent
and collateral agent, dated as of September 4, 1998(6)
11.1 Statement re computation of per share earnings (7)
27.1 Financial Data Schedules(7)
**FOOTNOTES**
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) Incorporated herein by reference to the Registrant's Form 8-K dated
August 25, 1998.
6) Incorporated herein by reference to the Registrant's Form 8-K dated
September 4, 1998.
7) Filed herewith.
Exhibit 11
Wireless One, Inc.
Earnings Per Share Computation Information
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net loss (25,370,428) (22,443,309) (66,005,862) (62,038,247)
Weighted average common
shares outstanding 16,910,064 16,946,697 16,910,064 16,946,697
Net loss per common share (1.50) (1.32) (3.90) (3.66)
============= ============= ============= =============
</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 6011 (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
(1.50) (1.32) (3.90) (3.66)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,963,798
<SECURITIES> 10,280,715
<RECEIVABLES> 2,569,944
<ALLOWANCES> 1,182,547
<INVENTORY> 0
<CURRENT-ASSETS> 24,390,713
<PP&E> 137,151,204
<DEPRECIATION> 46,870,355
<TOTAL-ASSETS> 278,895,025
<CURRENT-LIABILITIES> 31,106,265
<BONDS> 331,480,643
<COMMON> 169,101
0
0
<OTHER-SE> 119,772,011
<TOTAL-LIABILITY-AND-EQUITY> 278,895,025
<SALES> 29,749,021
<TOTAL-REVENUES> 29,749,021
<CGS> 0
<TOTAL-COSTS> 67,701,577
<OTHER-EXPENSES> (1,359,282)
<LOSS-PROVISION> 1,354,859
<INTEREST-EXPENSE> 33,312,588
<INCOME-PRETAX> (69,905,862)
<INCOME-TAX> 3,900,000
<INCOME-CONTINUING> (66,005,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66,005,862)
<EPS-PRIMARY> (3.90)
<EPS-DILUTED> (3.90)
</TABLE>
