FOOL PLATE SPECIAL

CAI Wireless Revisited

Acolytes of CAI Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CAWS)") else Response.Write("(NASDAQ: CAWS)") end if %> continue to queue up in defense of their company. As it is an honorable and noble endeavor to defend a company in which you are an owner, we will engage today in the equally honorable and noble process known as dialogue and critique. First and foremost, I want to note that a retraction of one inaccurate statement made yesterday appears below, although I want to go through a critique made yesterday by someone on the Fool boards point by point until I get to it.

The most prominent critic of the article that appeared in this space yesterday was George Holt, a market timer, technical analyst and short-term trader who has a web site located at http://www.icnet.uk/axp/photo/holt/ghome.html. Holt's first critique is the assertion that insiders have "dumped seven million shares in November". Let's amend that slightly and say that it was in November that the company filed an S-3 registration to sell some seven million shares on the open market. I have no doubt that a substantial number of these shares have been sold, as intended, given that since mid-March, insiders have registered 182,000 shares and sold 350,000 shares. The vast majority of shares sold have been sold either directly by the Chairman of the Board or foundations that bear the same name as his Cortoman Co. and these transactions were done in the $9 range. It is also interesting to note that there were only two buyers of shares, both directors who purchased a 1,000 shares each -- although one simply repurchased what he had sold two months before. This information is available through Federal Filings, which appears on Dow Jones Retrieval as well as a number of other spots.

Mr. Holt goes on to cheerfully suggest that my assertion vis a vis the Bell Atlantic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> funding was inaccurate. I confess to error here, having missed a press release in the pile from the company I received yesterday. On September 29th BANX, a partnership between Bell Atlantic and NYNEX, paid to CAI Wireless $70 million for 7,000 Senior Preferred Stock and Warrants. This was the second of two rounds of purchases by BANX, which had spent $30 million to buy convertible Term Notes and Warrants. As CAI Wireless currently carries all of $1.2 million in cash, it is safe to assume they will need to either return to BANX or go elsewhere to get working capital, continuing to dilute shareholder's equity.

Ironically, in the midst of partially accurate criticism of our story yesterday, Mr. Holt commits a logical error that many have made with CAI Wireless. Let's emphasize again that the CAI Wireless system requires a landline connection to function, meaning that it is meant to be a home-based service for personal computers. Although Holt rightly suggests that CAI Wireless will be the first to offer *wireless* cable Internet access, should it *complete* development of the product it only announced last week, it is effectively competing directly with a number of cable companies who are working on rolling out cable access to the Web at similar speeds. With 10% of the cable systems in the U.S. geared up for 2-way cable, concentrated in urban areas that have heavy demand for Internet access, CAI Wireless will have plenty of competition. The US Robotics/Zenith product with the telco 'upstream' could also be deployed *now*, meaning that CAI Wireless could actually not even be the first to offer this kind of high-speed access that overcomes the much ballyhooed ISDN.

In the end, I admit inaccuracy on two key previous statements: the BANX Partnership statement and the current float, which is still undetermined but I am more than willing to say uncle there as well. In fact, should BANX convert all of its warrants, CAI Wireless will get another $230 million -- which it will probably need given the fact that it currently has little in the way of *liquid* assets. That said, conversion of the warrants would swell the already-sizable market capitalization of CAI Wireless, which closed last night worth $450 million according to the weighted shares outstanding in the last quarterly report issued yesterday.

Finally, in the 1995 annual report, CAI Wireless reported 122,000 wireless cable subscribers in its 17 markets. Assuming that in the past 12 months they have doubled subscribers to 244,000 (an assumption) and that 10% decide they want to get Internet access service through CAI wireless (a pretty good assumption based on the current breakdown of nonline versus online), it looks to me like CAI Wireless could have about 25,000 wireless Internet access customers if all goes well. Assuming $20 a month, this would be $6 million in annual revenues. With $30 million in revenues last year and $41 million in expenses, even if the added revenues incur absolutely no cost, CAI Wireless would still lose money.

In the final analysis, my position here is pretty simple. CAI Wireless is a company that has negative cash-flow and $1.5 million in liquid assets according to the December 31st, 1995 10-Q. The company has announced development of a wireless Internet access service that it could potentially deliver to 25,000 customers, given the above estimates, at no cost, and still lose money. The company is currently being valued at 15 times sales without even having the benefit of positive cash-flow or earnings before taxes, interest, depreciation and amortization (EBITDA). Given the company's policy of issuing equity and warrants to fund operations, current shareholders will most likely experience significant dilution in the future. The institutions who have gotten involved in CAI Wireless, like BANX, have bought preferred shares that will put them a notch above those who hold the common in any liquidation, limiting their exposure to the common stock through warrants which have not been exercised.

All in all, this is not a Foolish company and represents a very risky venture capital investment in our eyes -- something which Smith Barney apparently agrees with, as their current rating on the stock is "venture". As to any agenda behind this position, there is none. No one at Fool HQ has any position in the stock and no one in Fool HQ is worried at all about the message boards. We, however, share a common concern about individual investors who have bought shares in a company that they do not understand that has become the focus of day-traders in the past few days. In the end, accusations that we were simply trying to move the stock are ironically funny, considering it recovered from morning lows after we put out our story yesterday and is down all of $31/64 to $11 33/64 today. We hope to return to our regular *short* programming tomorrow.

UPS

FURON CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCY)") else Response.Write("(NYSE: FCY)") end if %> surpassed analyst expectations by 20% today, reporting first quarter net of $0.50 EPS and rising $1 7/8 to $24 for its troubles.

Some of last week's story stocks are showing a rebound today, with Internet-radio player NAVARRE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NAVR)") else Response.Write("(NASDAQ: NAVR)") end if %> leading the pack, up $2 1/2 to $20 1/2.

Rodman & Renshaw raised its estimates last evening on ANCHOR GAMING'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SLOT)") else Response.Write("(NASDAQ: SLOT)") end if %> fourth quarter to $0.56 EPS the day after Gerard Klauer upped its price target to $66, boosting the shares $4 5/8 to $60 1/8.

GENERAL NUTRITION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GNCI)") else Response.Write("(NASDAQ: GNCI)") end if %> rebounded $3/4 to $14 3/4 after Bear Stearns raised its rating on the recently-squashed health product retailer to "buy" from "attractive".

STRATUS COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRA)") else Response.Write("(NYSE: SRA)") end if %> popped up $2 1/2 to $30 7/8 after Morgan Stanley raised its estimates for the maker of fault-tolerant computers to $2.90 EPS from $2.70 EPS for this year, boosting its price target to $36 per share.

XILINX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XLNX)") else Response.Write("(NASDAQ: XLNX)") end if %> benefited $2 to $31 7/8 from a Donaldson, Lufkin & Jenrette upgrade to "outperform" from "market perform", based on valuation.

CIRCUS CIRCUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> smashed quarterly estimates by four cents a share after backing out a charge for moving the Nile river at its Luxor establishment. The stock bounced up $2 3/8 to $40 3/4 as Morgan Stanley and Smith Barney both hiked their ratings on the stock.

DOWNS

What Morgan Stanley giveth with one hand, it taketh with the other. DATA GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DGN)") else Response.Write("(NYSE: DGN)") end if %> slumped $1 1/4 to $13 3/8 after Morgan cut its rating to "neutral" on the stock, even as it lifted up shares of Stratus.

INSITUFORM TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INSUA)") else Response.Write("(NASDAQ: INSUA)") end if %> reported today that it was no longer comfortable with estimates of $0.55 EPS to $0.65 EPS for the quarter, knocking $3 off of the pipe-repairing concern's stock to $9 5/8.

BORLAND INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BORL)") else Response.Write("(NASDAQ: BORL)") end if %> forecast a loss for its next quarter based on slower-than-anticipated sales of its Delphi product, falling $3 3/4 to $13 3/8 as Dean Witter slashed its rating on the shares.

Semiconductor equipment automation concern ASYST TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASYT)") else Response.Write("(NASDAQ: ASYT)") end if %> got whacked for $4 to $24 1/2 after it forecast a shocking $0.50 EPS loss for its fiscal fourth quarter, compared to estimates of a $0.60 EPS profit. The write-off of some accounts receivable from some difficult customers is the apparent cause.

OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %> continues to show the volatility inherent in a stock that has a float of only 1.5 million shares, down $7 3/8 to $63 5/8 today on empirically tiny volume.

Optical Cable's counterpart, SPECTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPTR)") else Response.Write("(NASDAQ: SPTR)") end if %>, slumped $2 1/2 to $19 1/4 on its own, quite possibly in sympathy with Optical. Spectran had been linked to the company during the latter part of its torrid rise last week because they are in the same business.

Hambrecht & Quist broke out the scissors on SPECTRIAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPCT)") else Response.Write("(NASDAQ: SPCT)") end if %>, not to be confused with the above-mentioned Spectran, cutting estimates for the first quarter to break-even from $0.12 EPS, and drop-kicking the stock $2 1/2 to $18 1/2.

SPECIAL DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SDII)") else Response.Write("(NASDAQ: SDII)") end if %> dropped $3 7/8 to $19 7/8 after missing second quarter estimates by 10% today.

Troubled EGGHEAD SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EGGS)") else Response.Write("(NASDAQ: EGGS)") end if %> posted a widening loss from operations today, losing $3/4 to $10 3/8 as it promoted one of its directors to the apparently vacant chairman position.

Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena), another Fool