NUCENTRIX BROADBAND NETWORKS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
---------------------- ----------------------

Commission file number 0-23694

NUCENTRIX BROADBAND NETWORKS, INC.

(Exact name of registrant as specified in its charter)

Delaware 73-1435149
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

4120 International Parkway, Suite 2000, Carrollton, Texas 75007
(Address of principal executive offices) (Zip Code)

(972) 662-4000
(Registrant's telephone number, including area code)

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

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

See accompanying notes to condensed consolidated financial statements.

2

NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

3

NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

4

NUCENTRIX BROADBAND NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2003

(1) Description of Business

Nucentrix Broadband Networks, Inc. ("Nucentrix" or the "Company")
provides broadband wireless Internet and wireless subscription
television, or "wireless cable," services using up to approximately 200
megahertz ("MHz") of radio spectrum licensed by the Federal
Communications Commission in the 2.1 gigahertz ("GHz") and 2.5 GHz
bands, primarily in medium and small markets across Texas, Oklahoma and
the Midwestern United States. The Company owns the basic trading area
authorization, or otherwise licenses or leases spectrum, in 92 markets
covering an estimated 8.2 million total households. On average, the
Company owns or leases approximately 130 MHz of spectrum per market.
This spectrum commonly is referred to as Multichannel Multipoint
Distribution Service, or "MMDS," and Instructional Television Fixed
Service, or "ITFS." The Company currently provides high-speed wireless
Internet access service in two markets, primarily to medium-sized and
small businesses, small offices/home offices and telecommuters.
Nucentrix also provides subscription television services, commonly
referred to as "wireless cable," in 44 markets.

In March 2002, as part of the Company's long-term plan to focus its
use of spectrum for broadband Internet and other advanced wireless
services, the Company announced the signing of agreements with DIRECTV,
Inc. ("DIRECTV"), Pegasus Satellite Television, Inc. and an affiliate
of Time Warner Cable to convert substantially all of the Company's
wireless cable subscribers to programming provided by these entities.
The Company expects to complete the conversion of its wireless cable
business in 2003. Except for a nominal residual royalty payment and
recognition of deferred revenue related to cash received at the time of
conversion, the Company does not expect its existing wireless cable
subscriber base to generate material revenues or cash flows for the
Company beyond 2003. Substantially all revenues reported in the
Company's condensed consolidated financial statements for the three
months ended March 31, 2003 and 2002, are related to the Company's
wireless cable business.

(2) Going Concern and Liquidity

The Company's condensed consolidated financial statements have been
presented on a going concern basis which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business.

The Company has incurred operating losses since its inception. The
growth of the Company's business by using its spectrum to provide
fixed, portable or mobile broadband Internet service using second
generation, or "2G," MMDS technology will require substantial
investment in capital expenditures, and additional capital will be
required to implement the Company's long term strategy of providing
advanced wireless services in medium and small markets.

At April 30, 2003, the Company had approximately $3.2 million of
unrestricted cash and cash equivalents. The Company expects that cash
on hand and cash generated from its operations, with no additional
financing, will be sufficient to fund operations in the normal course
of business through the second quarter of 2003.

The Company currently is seeking to raise $15 million - $20 million for
maintenance of existing strategic spectrum resources, operating
expenses and to fund the deployment of up to two 2G Internet systems.
The Company has retained a financial advisor in connection with this
potential financing. The Company also may seek to raise additional
capital if it consummates any significant acquisitions or strategic
alliances, or determines that market conditions are appropriate for
such financing. Options for raising capital include the sale of debt or
equity securities, borrowings under secured or unsecured loan
arrangements, including vendor equipment

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financing, and sales of assets. There can be no assurance that any
financing will be available on acceptable terms or in a timely manner,
if at all.

The consolidated financial statements do not include any adjustments
that might result from the outcome of any of the uncertainties
discussed above.

(3) Principles of Consolidation

The condensed consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. Significant
intercompany balances and transactions between the entities have been
eliminated in consolidation.

(4) Interim Financial Information

In the opinion of management, the accompanying unaudited condensed
consolidated financial information of the Company contains all
adjustments, consisting only of those of a normal recurring nature,
necessary to present fairly the Company's financial position as of
March 31, 2003, and the results of operations and cash flows for the
three months ended March 31, 2003 and 2002. These results are not
necessarily indicative of the results to be expected for the full
fiscal year. The accompanying financial statements are for interim
periods and should be read in conjunction with the 2002 audited
consolidated financial statements of the Company included in the
Company's Annual Report on Form 10-K for 2002.

(5) Net Loss Per Common Share - Basic and Diluted

The Company has presented basic and diluted loss per share, computed on
the basis of the weighted average number of common shares outstanding
during the period. Outstanding options to purchase 528,200 and 796,100
shares of common stock at March 31, 2003 and 2002, respectively, and
outstanding warrants to purchase 1,099,635 and 825,000 shares of common
stock at March 31, 2003 and 2002, respectively, were not included in
the computation of diluted loss per share because their effects are
antidilutive.

(6) Stock-Based Compensation

The Company accounts for its stock-based employee compensation plan
using the intrinsic value-based method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation expense
is recorded on the date of grant to the extent the current market price
of the underlying stock exceeds the option exercise price. The Company
recorded compensation expense of $0 and $45,000 in the quarters ended
March 31, 2003 and 2002, respectively. Had the Company determined
compensation based on the fair value at the grant date for its stock
options under Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," as amended by SFAS No.
148, net loss and loss per share would have been increased as indicated
below:

6

(7) Commitments and Contingencies

In July 2002 the Company had approximately 370 spectrum leases under
which monthly or annual payments were required to be paid to spectrum
lessors. At that time, the Company began negotiations with spectrum
lessors to defer up to 80% of the Company's monthly spectrum lease
payments until the Company launched commercial two-way Internet
services in the applicable market. As of March 31, 2003, the Company
had renegotiated approximately 140 spectrum leases. The Company
currently is attempting to renegotiate approximately 100 additional
spectrum leases on similar terms, and is paying 20% of current amounts
due on these leases. In addition, in February 2003 the Company notified
spectrum lessors for approximately 90 non-strategic leases, which had
not been renegotiated to defer lease payments as described above, that
the Company was terminating these leases and permanently suspending all
payments under these leases. Notwithstanding the Company's deferral of
certain lease payments and suspension of others, the Company has (i)
expensed all spectrum lease payments on a straight-line basis in its
consolidated statements of operations and (ii) accrued a corresponding
liability for all deferred and suspended payments on its consolidated
balance sheets. This accrual was $1.3 million through March 31, 2003,
and the Company expects this accrual to increase monthly by
approximately $200,000 until the Company begins to launch commercial
Internet services or resolves claims, if any, under the terminated
leases to which a portion of the accrual relates. The total amount of
payments due through the remaining terms of the 90 leases for which
notice of termination was delivered is approximately $7.8 million. The
Company may be subject to future claims for some amount of payments
under these 90 leases. However, the Company currently is not able to
estimate with certainty the total amounts or potential range of loss
associated with these leases, if any.

The Company was a party to a programming arrangement with World
Satellite Network, Inc. ("WSNet"), under which the Company paid WSNet
to obtain and manage certain of the video programming that the Company
delivers to its wireless cable subscribers, including making payments
for such programming directly to 17 programming providers such as
Disney, ESPN and HBO. In October 2002, WSNet filed for protection under
Chapter 11 of the U.S. Bankruptcy Code and, in February 2003, announced
that it would cease operations at the end of that month. The Company
now pays programmers directly and through another third party for the
monthly programming that the Company continues to deliver to its
remaining wireless cable subscribers. However, for programming
delivered for September 2002, the Company paid WSNet approximately
$550,000. WSNet has not remitted this amount to the various programmers
from whom the Company received programming. In February 2003, WSNet
notified the Company that it intended to reject its agreement with the
Company in its Chapter 11 proceeding. The Company is continuing to
evaluate its rights and potential obligations with respect to WSNet and
the programmers, and ultimately may be liable for payment of some or
all of this amount to one

7

or more programmers. The Company believes it has a claim against WSNet
or its creditors for the $550,000 that the Company paid to WSNet.

While it is not feasible to predict or determine the final outcome of
the above matters or to estimate the amounts or potential ranges of
loss for such matters, if any, and while the Company does not expect an
adverse outcome, an adverse outcome with respect to a significant
number of lessors or programmers in the above matters could have a
material adverse effect on the Company's consolidated financial
condition, results of operations or cash flows.

The Company is a party to other legal and regulatory proceedings, a
majority of which are incidental to its business. In the opinion of
management, and after consideration for amounts recorded in the
accompanying condensed consolidated financial statements, the ultimate
effects of such other matters are not expected to have a material
adverse effect on the consolidated financial condition, results of
operations or cash flows of the Company.

(8) Segment Reporting

Based on the criteria outlined in SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information," Nucentrix is
comprised of two reportable segments: (i) wireless cable and (ii)
broadband wireless. Information regarding operating segments as of and
for the quarters ended March 31, 2003 and 2002, is presented in the
following tables (in thousands):

8

A reconciliation from the segment information to the net loss for the three
months ended March 31, 2003 and 2002, is as follows:

Total assets for the operating segments as of March 31, 2003, and
December 31, 2002, are as follows:

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

(A) Revenues from the wireless cable services segment's agency relationship
with DIRECTV represent approximately $1.4 million and $759,000 of the
Company's consolidated revenue for the three months ended March 31,
2003 and 2002, respectively.

(B) Intersegment revenue (expense) represents a charge from the broadband
wireless services segment to the wireless cable services segment for
the use of shared assets. The "other" category includes corporate
expenses, other income and assets not considered part of the two
reportable operating segments.

(C) The Company measures segment profit or loss, as reviewed by the
Company's "chief operating decision maker" (as defined in SFAS No.
131), as operating loss before depreciation and amortization.

9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

In this Quarterly Report on Form 10-Q, we will refer to Nucentrix
Broadband Networks, Inc., a Delaware corporation, as "the Company," "we," "us"
and "our."

FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements with respect to
our financial condition, results of operations, business strategy and financial
needs. The words "may," "will," "expect," "believe," "plan," "intend,"
"anticipate," "estimate," "continues" and similar expressions, as they relate to
us, as well as discussions of our strategy and pending transactions, are
intended to identify forward-looking statements. These statements reflect our
current view of future events and are based on our assessment of, and are
subject to, a variety of factors, contingencies, risks, assumptions and
uncertainties deemed relevant by management, including:

o our ability to obtain financing necessary to implement our
business strategy,

o the capabilities of second generation technology platforms for
commercial deployment of broadband wireless services over
Multipoint Distribution Service ("MDS"), Multichannel
Multipoint Distribution Service ("MMDS") and Instructional
Fixed Service Television ("ITFS") radio spectrum,

o competitive technologies, products and services,

o regulatory and interference issues, including the ability to
obtain and maintain MDS and MMDS licenses and MDS, MMDS and
ITFS spectrum leases, further rulemakings to address technical
and interference rules for mobile use of the 2500 - 2690
megahertz ("MHz") band (or "2.5 GHz" band), and further
rulemakings to address relocation of licenses in the 2150 -
2162 MHz band (or "2.1 GHz" band),

o business and economic conditions in our existing markets,

o with respect to pending transactions, satisfying our due
diligence efforts and obtaining required third party consents,
including consent of the Federal Communications Commission
("FCC"), and

o those matters discussed specifically under Item 1, "Business -
Risk Factors" and Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in
our Form 10-K for the year ended December 31, 2002, filed with
the Securities and Exchange Commission ("SEC") on March 31,
2003.

We cannot assure you that any of our expectations will be realized, and
actual results and occurrences may differ materially from our expectations as
stated in this report. We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.

OVERVIEW

General. We provide broadband wireless Internet and wireless
subscription television services using radio spectrum licensed by the FCC in the
2.1 GHz and 2.5 GHz bands, primarily in medium and small markets across Texas,
Oklahoma and the Midwestern United States. We own the basic trading area ("BTA")
authorization, or otherwise license or lease MDS, MMDS and ITFS spectrum, in 92
markets covering an estimated 8.2 million total households. On average, we own
or lease approximately 130 MHz of spectrum per market. We often refer to our
frequencies collectively in this document as "MMDS."

Conversion of Wireless Cable Business. Historically, we have used our
spectrum to provide wireless subscription television services, commonly referred
to as "wireless cable." However, as part of our long-term plan to shift the use
of spectrum from wireless cable to broadband Internet and other advanced
wireless services, we are in the

10

process of converting substantially all of our wireless cable subscribers to
programming provided by DIRECTV, Inc. ("DIRECTV"), Pegasus Satellite Television,
Inc. ("Pegasus") and an affiliate of Time Warner Cable ("Time Warner Cable"). In
exchange for each wireless cable subscriber converted, we receive a conversion
payment and, in the case of subscribers converted to DIRECTV and Pegasus, an
equipment subsidy, installation payment and residual royalty.

As a result of the conversion of our wireless cable subscribers,
revenues and cash generated from our wireless cable business will decline
substantially in 2003 as our wireless cable subscribers convert or otherwise
disconnect their service. Except for a nominal residual royalty payment and
recognition of deferred revenues related to cash received at the time of
conversion, we do not expect our existing wireless cable subscriber base to
generate material revenues or cash flows for the Company after 2003. Although we
intend to continue to reduce expenditures associated with our wireless cable
business, the ongoing costs of maintaining our FCC spectrum licenses and leases,
as well as other corporate overhead, will exceed recurring revenues as we
implement this conversion program. At April 30, 2003, we had converted a total
of approximately 20,200 wireless cable customers to programming provided by
DIRECTV, Pegasus and Time Warner Cable. Since August 2002, as part of our
conversion plan we have terminated wireless cable service in 14 markets, and
consolidated operations by closing field offices in 26 additional markets. We
continue to provide wireless cable services in a total of 44 markets. We expect
to close offices and consolidate operations in additional wireless cable markets
through 2003 as we implement the conversion program and clear our spectrum for
advanced broadband wireless services.

In addition to the conversion of our wireless cable subscribers
discussed above, we have marketed and sold DIRECTV digital broadcast satellite
programming as a commissioned sales agent for DIRECTV since 1998. Under an
agreement with DIRECTV entered into in February 2001, we receive up front and
residual commissions for DIRECTV subscriptions that we sell. We also receive
certain equipment subsidies from DIRECTV-approved equipment providers. If we do
not meet certain subscriber benchmarks during any calendar year of our agreement
with DIRECTV, residual commissions will be reduced for future years. As part of
the downsizing of our wireless cable sales, marketing and technical resources,
we expect the residual commissions to be reduced, and we do not expect to
generate material revenues or cash flows from this DIRECTV resale business
beyond 2003.

At April 30, 2003, we had approximately 8,600 wireless cable customers,
and approximately 18,200 customers (excluding converted subscribers) who
received DIRECTV programming sold by us. We already have received up front
commissions for the DIRECTV subscribers; therefore, we are not eligible for
additional conversion payments under our agreements with DIRECTV and Pegasus for
these subscribers. Our business strategy contemplates a decline in wireless
cable subscribers, DIRECTV subscribers, revenues and cash flows in 2003 and
beyond, as we allocate most of our resources to maintain our spectrum assets and
develop our broadband wireless Internet access and other advanced wireless
services.

Business Strategy. Our long-term business strategy is to provide fixed,
portable and, ultimately, mobile broadband Internet access and other information
services using our high-capacity MMDS radio spectrum in medium and small
markets. Our expected range of services includes high-speed Internet
connectivity that is integrated with wireless Local Area Networks for businesses
and Home Area Networks for residential users, to distribute broadband services
throughout a customer's business and home. We currently provide high-speed
wireless Internet access service to approximately 425 accounts in Austin and
Sherman-Denison, Texas. These accounts primarily are medium-sized and small
businesses, small offices/home offices ("SOHOs") and telecommuters. Our current
service offerings include Internet access from 128 Kbps to 1.54 Mbps, or up to
50 times faster than service provided over standard dial-up telephone lines.
Through two national independent contractors, we also provide value-added
services such as e-mail, Web hosting and design, and domain name service.

We believe we are well positioned to bring advanced wireless services
to our medium and small markets, due to the relatively large amount of licensed
spectrum (approximately 130 MHz per market) that we hold, and the lack of
affordable broadband alternatives in many of our markets. We currently are
focused on validating the most efficient technical platform from which to
deliver our wireless services. Commercial deployment of second generation ("2G")
MMDS technology has increased substantially during the last year. MMDS equipment
providers have announced deployments of 2G systems in both the U.S. and
internationally. We expect 2G technology to allow us to deliver

11

broadband wireless service that (1) does not require a direct line-of-sight from
our base stations to many customers' premises, (2) is suited for portable and
nomadic devices such as lap-top computers and personal digital assistants, or
PDAs, and (3) allows customers to "plug and play," or install and upgrade their
customer premises equipment themselves.

We currently are seeking to raise $15 million - $20 million in new
capital. We expect to use this capital for maintenance of existing strategic
spectrum resources, operating expenses and to fund deployment of a 2G MMDS
Internet system in up to two markets. We have retained Houlihan Lokey Howard &
Zukin ("Houlihan Lokey") as our financial advisor in connection with this
potential financing. We also may seek additional capital if we consummate any
significant acquisitions or strategic alliances, or determine that market
conditions are appropriate for such financing. There can be no assurance that
financing will be available on acceptable terms or in a timely manner, if at
all. See "Liquidity and Capital Resources" in this Item 2.

At April 30, 2003, we had approximately $3.2 million of unrestricted
cash and cash equivalents. As set forth in note 2 to the consolidated financial
statements, the consolidated financial statements contained in this report 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. In
conjunction with their 2002 year end audit, our independent accountants issued
an audit opinion with respect to our 2002 consolidated financial statements that
included an explanatory paragraph describing conditions that raise substantial
doubt about our ability to continue as a going concern. The consolidated
financial statements in this report do not include any adjustments that might
result from the outcome of this uncertainty. We expect that cash on hand of $3.2
million at April 30, 2003, and cash generated from our operations, with no
additional financing, will be sufficient to fund operations in the normal course
of business through the second quarter of 2003. See "Liquidity and Capital
Resources" in this Item 2.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003,
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2002

Revenues; Subscribers. Our revenues consist primarily of monthly fees
paid by wireless cable subscribers for basic programming, premium programming,
equipment rental and other miscellaneous fees, and revenue from our agency
relationship with DIRECTV (which include revenues from DIRECTV and others in
2003 from the conversion of our wireless cable subscribers). Revenues also
include fees generated from Internet operations in Austin and Sherman/Denison,
Texas. Unless the context requires otherwise, all references to "subscribers" or
"systems" are to our wireless cable subscribers and systems because revenues and
subscribers from our Internet business were immaterial for the three months
ended March 31, 2003 and 2002.

Subscription revenues from wireless cable subscribers and continuing
monthly service fees from DIRECTV for each DIRECTV customer generated are
recognized as service is provided. If the Company does not meet minimum
subscriber benchmarks each year, the DIRECTV continuing monthly service fee will
be reduced.

Wireless cable and DIRECTV installation revenue, and revenue received
from our agency relationship with DIRECTV (except for continuing monthly service
fees, which are recognized as received), is recognized to the extent of direct
selling costs incurred, and the remainder is deferred and amortized to income
over the expected subscriber relationship period of one year for wireless cable
installation revenue and three years for DIRECTV installation and agency
revenue. A chargeback reserve is recorded for DIRECTV contingencies in the event
that a subscriber terminates, cancels or disconnects his or her DIRECTV
subscription within 12 months.

Our revenues for the first quarter of 2003 were $4.0 million, compared
to $10.6 million for the first quarter of 2002. The average number of wireless
cable subscribers for the three months ended March 31, 2003, was 17,000 compared
to 75,600 for the same period of 2002. In addition, during the three months
ended March 31, 2003, we had 18,000 average subscribers who received only
DIRECTV programming sold by us. We do not include these customers in our
reported wireless cable subscriber base but we do receive certain agency revenue
from DIRECTV related to these accounts, as well as equipment lease payments from
a portion of these customers. We also do not include these customers or their
related revenues in our calculation of recurring average revenue per subscriber.

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The decline in revenues over the periods presented resulted primarily
from fewer total wireless cable subscribers as we closed 14 of our wireless
cable systems in 2002 and 2003, and converted wireless cable subscribers to
programming provided by DIRECTV, Pegasus and Time Warner Cable. Recurring
average revenue per subscriber was $39.05 in the first quarter of 2003, compared
to $38.27 in the same quarter last year. Internet service revenues for the three
months ended March 31, 2003 and 2002, were not material. We expect to convert
the remainder of our wireless cable subscriber base to satellite programming
provided by DIRECTV and Pegasus, and cable programming provided by Time Warner
Cable, in 2003. Except for a nominal residual royalty and recognition of
deferred revenue related to cash received at the time of conversion, we do not
expect our existing wireless cable subscriber base to continue to generate
material revenues or cash flows for the Company beyond 2003. See "Overview -
Conversion of Wireless Cable Business" in this Item 2. We expect to recognize
revenues associated with the conversion of subscribers to DIRECTV and Pegasus to
the extent of direct selling costs incurred, and the remainder to be deferred
and amortized to income over the expected subscriber relationship period of
three years. A chargeback reserve will be recorded for all DIRECTV
contingencies. We do not expect the decline in wireless cable revenues to be
offset materially by an increase in revenues from our Internet business in 2003,
as we plan to deploy no more than two 2G Internet systems before the end of the
first quarter of 2004. See "Overview - Business Strategy" in this Item 2.

System Operations Expenses. System operations expenses include spectrum
lease payments, wireless cable programming costs, labor and overhead relating to
service calls and disconnects, transmitter site and tower rentals, and certain
repairs and maintenance expenditures. Programming costs (with the exception of
minimum payments) and repairs and maintenance are variable expenses based on the
number of subscribers. System operations expenses were $2.5 million, or 62% of
revenues, for the first quarter of 2003, compared to $5.9 million, or 55% of
revenues, for the first quarter of 2002. System operations expense decreased
over the periods presented due to lower programming expense as a result of lower
subscriber counts. System operations expenses as a percent of revenue increased
compared to the prior year due to lower overall revenues and higher costs under
certain spectrum leases that were renegotiated in preparation for providing
broadband wireless services, and due to the fixed portion of technical labor in
certain wireless cable markets which has been reduced to minimum levels with the
decline in subscribers. We expect system operations expenses to continue to
decrease in 2003 from 2002 in connection with the conversion of our wireless
cable subscriber base. See "Overview - Conversion of Wireless Cable Business" in
this Item 2.

Selling, General and Administrative (SG&A) Expenses. SG&A expenses
include office and administrative costs of operating our 44 wireless cable
markets and our two Internet markets, as well as sales and marketing and bad
debt expenses related to these operations and corporate costs directly and
indirectly allocated to these operations. In addition, the direct incremental
costs incurred in generating a customer relationship with DIRECTV, comprised of
material, equipment and labor, are recorded as an asset. This asset, referred to
as "subscriber acquisition costs," is amortized as a component of SG&A expense
over the expected subscriber relationship period of three years.

SG&A expenses for the first quarter of 2003 were $4.4 million, or 111%
of revenues, compared to $5.6 million, or 53% of revenues, for the same period
last year. SG&A expenses decreased in 2003 due to lower advertising and field
administrative costs in our wireless cable markets resulting from lower
subscriber count as we converted our wireless cable subscriber base to satellite
and cable programming provided by DIRECTV, Pegasus and Time Warner Cable. In
addition, start-up and general and administrative costs related to our broadband
wireless Internet business have decreased due to a delay in availability of a
next generation technology platform. SG&A expenses as a percent of revenue
increased primarily because of lower overall revenues and the fixed portion of
SG&A expenses related to the conversion of our wireless cable subscribers. We
expect overall SG&A expenses to continue to decline in 2003 from 2002, as
wireless cable television field offices are closed and related administrative
costs are reduced.

Depreciation and Amortization. Depreciation and amortization expenses
include depreciation of systems and equipment and capitalized installation
costs, and amortization of license and leased license investment. Our policy is
to capitalize the direct costs of wireless cable installations. These direct
costs include reception materials and equipment on subscriber premises and
installation labor. These direct costs are capitalized as systems and equipment
and amortized over the estimated useful life of the asset (currently 12 months).
The nonrecoverable portion of the cost of a wireless cable installation becomes
fully depreciated upon disconnection of the subscriber. License and leased
license investment

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includes costs incurred to acquire and/or develop MMDS and ITFS spectrum rights.
These costs are capitalized and amortized on a straight line basis over the
average estimated useful life of the asset (currently 10 years).

Depreciation and amortization expenses for the first quarter of 2003
were $1.6 million, compared to $6.8 million for the first quarter of 2002. The
decrease in depreciation and amortization expenses over the periods presented is
due to (i) impairment charges of $4.8 million and $14.1 million in 2002 and
2001, respectively, to write down systems and equipment and license and leased
license investment to estimated fair value, (ii) the aging of customer equipment
in our wireless cable and DIRECTV businesses, much of which is fully depreciated
and, to a lesser extent, (iii) the sale of used equipment during 2002. We expect
depreciation and amortization to continue to decrease in 2003 from 2002 as
wireless cable assets are fully depreciated, and wireless cable market
operations are closed upon conversion of our wireless cable subscriber base as
discussed above.

Operating Loss. We generated an operating loss of $4.5 million for the
first quarter of 2003, compared to an operating loss of $7.6 million for the
first quarter of 2002. The decrease in operating loss is due to lower system
operations and SG&A expenses resulting from fewer subscribers and lower
depreciation and amortization expenses discussed above. These decreased costs
were partially offset by lower revenues from our wireless cable business
resulting from fewer subscribers. We expect operating losses in 2003 to increase
from 2002 as our revenue from wireless cable subscribers continues to decrease
and we allocate most of our resources to maintain our spectrum assets and
develop our broadband and other wireless services.

EBITDA. "EBITDA," or earnings before interest, taxes, depreciation and
amortization, is widely used by analysts, investors and other interested parties
as a measure of operating results in the Internet, cable television and
telecommunications industries, due to the significant initial capital investment
typically required by companies in these industries. EBITDA is also a widely
accepted financial indicator of a company's ability to incur and service
indebtedness. EBITDA is not a financial measure determined by generally accepted
accounting principles and should not be considered as an alternative to net
income or net loss as a measure of operating results or to cash flows as a
measure of funds available for discretionary or other liquidity purposes. EBITDA
may not be comparably calculated from one company to another. EBITDA was a
negative $2.9 million for the first quarter of 2003, compared to a negative
$857,000 for the same period in 2002. The decrease in EBITDA was attributable
primarily to decreased revenues from our wireless cable business, partially
offset by lower system operations and SG&A expenses discussed above. We expect
negative EBITDA to increase materially in 2003 from 2002, as we complete the
conversion of our wireless cable subscribers and clear our spectrum for our
broadband wireless business. The table below reconciles the differences between
our EBITDA and net loss for the three months ended March 31, 2003 and 2002:

Interest Income. Interest income was $34,000 for the first quarter of
2003, compared to $87,000 for the same period in 2002. The decrease in interest
income was due to higher earnings during the prior year on larger cash balances.

Interest Expense. We incurred interest expense of $241,000 for the
first quarter of 2003 compared to $282,000 for the same period in 2002. Interest
expense decreased in 2003 due to lower principal balances on our BTA debt and
capital leases.

14

Other Income (Expense). Other income was $420,000 in the first quarter
of 2003 compared to $105,000 during the same period in 2002. Other income for
the three months ended March 31, 2003 included $104,000 in recognized deferred
gain related to the sale-leaseback of our communications towers during 1999 and
2000, $142,000 in gain recognized on the conversion of our wireless cable
subscribers to programming provided by Time Warner Cable and $174,000 in
proceeds from the sale of non-strategic MMDS assets. Other income for 2002 was
primarily gain related to the sale and leaseback of our towers.

Net Loss. We have recorded net losses since our inception. During the
first quarter of 2003, we incurred a net loss of $4.3 million ($0.41 per share)
compared to a net loss of $7.7 million ($0.74 per share) for the same period in
2002. We expect our net loss in 2003 to increase from 2002 as our wireless cable
market operations are closed upon conversion of our wireless cable subscriber
base.

LIQUIDITY AND CAPITAL RESOURCES

The broadband wireless business is capital-intensive. Since inception,
we have spent funds to lease or otherwise acquire MMDS channel rights in various
markets and operating systems, to construct video operating systems and two
Internet systems, and to finance initial system operating losses. Our primary
sources of capital have been subscription fees, debt financing, the sale of
common stock and the sale of MMDS spectrum rights that were not essential to our
business strategy. The approval by the FCC of the use of MMDS spectrum for
advanced communications services and the FCC's flexible use authorization will
allow us to use our spectrum to provide fixed, portable and, ultimately, mobile
broadband wireless services such as high-speed Internet access services and
voice over IP.

The growth of our business by using our spectrum to provide fixed,
portable or mobile broadband Internet service will require substantial capital
expenditures. We expect that 2G MMDS technology will provide improved coverage
capabilities by addressing line-of-sight limitations that exist in first
generation equipment, and will allow customers to install and upgrade customer
premises equipment themselves. We believe these improvements will allow us to
reduce subscriber-related costs and operating expenses; however, the development
and launch of broadband wireless MMDS networks will be capital intensive, and
additional capital will be required to implement our long-term strategy of
providing advanced wireless services in medium and small markets.

We estimate that a launch of a 2G broadband wireless system providing
high-speed Internet access in a typical market will involve an initial capital
expenditure of approximately $1.5 million to $1.7 million for network equipment,
depending upon the system design and type and sophistication of the equipment.
In addition, we estimate that the acquisition and installation of each new
Internet subscriber will cost between $400 and $900 depending upon the type of
customer. This includes charges for equipment, labor and direct commissions.
This may be offset partially by installation and other up-front fees. Other
launch costs include the cost of securing adequate space for marketing and
operational facilities, as well as costs related to employees. As a result of
these costs, operating losses are likely to be incurred by an Internet system
during the start-up period.

Cash used in operations was $3.2 million during the first quarter of
2003, compared to $545,000 during the same period in 2002. Cash used in
operations in the current year was primarily from our net loss of $4.2 million,
offset by depreciation and amortization of $1.5 million. Cash used in operations
for the first quarter of 2002 was primarily from our net loss of $7.7 million
and payments of accrued property taxes and other liabilities, offset by
depreciation and amortization of $6.8 million.

Cash provided by investing activities was $420,000 during the first
quarter of 2003, compared to cash used in investing activities of $377,000
during the same period in 2002. The improvement in cash provided by investing
activities is due to $142,000 in cash proceeds from the conversion of our
wireless cable subscribers, $174,000 from the sale of non-strategic MMDS assets
and substantially lower spending for the acquisition and installation of
subscriber premise equipment, as we continued the conversion of our wireless
cable subscribers. Cash used in investing activities in 2002 included higher
expenditures for subscriber premise equipment as well as expenditures for
engineering, legal, site acquisition and other costs related to the acquisition
of MMDS spectrum rights.

15

Cash used in financing activities was $742,000 during the first quarter
of 2003, compared to $535,000 during the same period in 2002. Cash used in
financing activities during both periods was for payments on our BTA debt and
capital lease obligations.

At April 30, 2003, we had approximately $3.2 million of unrestricted
cash and cash equivalents. As set forth in note 2 to the consolidated financial
statements in this report, the consolidated financial statements contained in
this report 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. In conjunction with their 2002 year end audit, our
independent accountants issued an audit opinion with respect to our 2002
consolidated financial statements that included an explanatory paragraph
describing conditions that raise substantial doubt about our ability to continue
as a going concern. The consolidated financial statements contained in this
report do not include any adjustments that might result from the outcome of this
uncertainty. We expect that cash on hand of $3.2 million at April 30, 2003, and
cash generated from our operations, with no additional financing, will be
sufficient to fund operations in the normal course of business through the
second quarter of 2003.

As discussed in "Overview - Business Strategy" in this Item 2, we
currently are seeking to raise $15 million - $20 million for maintenance of
existing strategic spectrum resources, operating expenses and to fund the
deployment of up to two 2G Internet systems. We have retained Houlihan Lokey as
our financial advisor in connection with this potential financing. We also may
seek to raise additional capital if we consummate any significant acquisitions
or strategic alliances, or determine that market conditions are appropriate for
such financing. Options for raising capital include the sale of debt or equity
securities, borrowings under secured or unsecured loan arrangements, including
vendor equipment financing, and sales of assets. There can be no assurance that
financing will be available on acceptable terms or in a timely manner, if at
all.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States, which require the
Company to make estimates and assumptions. The Company's significant accounting
policies and methods used in the preparation of the consolidated financial
statements are discussed in note 1 of the notes to consolidated financial
statements of the Company's Annual Report on Form 10-K for 2002. The Company
believes that of its significant accounting policies, the following may involve
a higher degree of judgment and complexity.

Revenues currently consist primarily of monthly fees paid by wireless
cable subscribers for basic programming, premium programming, equipment rental
and other miscellaneous fees, and revenues from our agency relationship with
DIRECTV (which include revenues from DIRECTV in 2003 from the conversion program
discussed above in "Overview--Conversion of Wireless Cable Business"). Revenues
also include fees generated from Internet operations in Austin and
Sherman-Denison, Texas. Unless the context requires otherwise, all references to
"subscribers" or "systems" are to wireless cable subscribers and systems because
revenues and subscribers from Internet business were immaterial for the three
months ended March 31, 2003 and 2002 (approximately 3% and 1%, respectively, of
consolidated revenues).

Subscription revenues from wireless cable subscribers and continuing
monthly service fees from DIRECTV for each DIRECTV customer generated are
recognized as service is provided. If the Company does not meet minimum
subscriber benchmarks each year, the DIRECTV continuing monthly service fee will
be reduced.

Wireless cable and DIRECTV installation revenue, and revenue received
from our agency relationship with DIRECTV (except for continuing monthly service
fees, which are recognized as received), is recognized to the extent of direct
selling costs incurred, and the remainder is deferred and amortized to income
over the expected subscriber relationship period of one year for wireless cable
installation revenue and three years for DIRECTV installation and agency
revenue. A chargeback reserve is recorded for all DIRECTV contingencies.

The direct costs of wireless cable installations include reception
materials and equipment on subscriber premises and installation labor, which are
amortized over the estimated useful life of the asset (presently 12 months) for
the recoverable portion and estimated average subscription term (presently 12
months) for the nonrecoverable portion of such

16

costs. The nonrecoverable portion of the cost of a subscriber installation
becomes fully depreciated upon disconnection of the subscriber.

Our revenue recognition for wireless cable and DIRECTV installation
revenue, and amortization of the recoverable portion of direct costs of wireless
cable installations, is based on assumptions regarding our expected subscriber
term. The expected subscriber terms of 12 months for wireless cable and three
years for DIRECTV currently used for these purposes is based on historic
subscriber churn rates and the expected remaining terms of our wireless cable
subscribers. If a different subscriber term was used, the revenue amounts
reported could be materially different than amounts reported in this report, and
if the subscriber term changes in future years, the revenue amounts reported in
future years may not be comparable to the years reported in this report.

The direct incremental costs incurred in generating a customer
relationship with DIRECTV, comprised of material, equipment and labor, are
recorded as an asset. This asset, referred to as "subscriber acquisition costs,"
is amortized as a component of SG&A expense over the expected subscriber
relationship period of three years.

Our long-term operating assets, which include headend and base station
equipment, are recorded at cost and amortized on a straight-line basis over the
estimated useful lives. Our licenses and leased license investments, which
include our FCC licenses and spectrum leases, are amortized from the inception
of service in each market. In accordance with SFAS No. 144, we review our
long-lived assets and certain intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of these assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to the future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the net asset exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. In the fourth quarters of 2002 and 2001, we wrote down our
license and leased license investments and systems and equipment by $4.8 million
and $14.1 million, respectively. Effective January 1, 2002, we reduced the
estimated remaining useful life of our systems and equipment for wireless cable
operating systems from 3-10 years to one year and the estimated remaining useful
life of our license and leased license investment from 12.5-15 years to 10
years.

COMMITMENTS AND CONTINGENCIES

In July 2002 we had approximately 370 spectrum leases under which
monthly or annual payments were required to be paid to spectrum lessors. At that
time, we began negotiations with spectrum lessors to defer up to 80% of our
monthly spectrum lease payments until we launched commercial two-way Internet
services in the applicable market. As of March 31, 2003, we had renegotiated
approximately 140 spectrum leases. We currently are attempting to renegotiate
approximately 100 additional spectrum leases on similar terms, and we are paying
20% of current amounts due on these leases. In addition, in February 2003 we
notified spectrum lessors for approximately 90 non-strategic leases, which had
not been renegotiated to defer lease payments as described above, that we were
terminating these leases and permanently suspending all payments under these
leases. Notwithstanding the deferral of certain spectrum lease payments and
suspension of others, we have (i) expensed all spectrum lease payments on a
straight-line basis in our consolidated statements of operations and (ii)
accrued a corresponding liability for all deferred and suspended payments on our
consolidated balance sheets. This accrual was $1.3 million through March 31,
2003, and we expect this accrual to increase monthly by approximately $200,000
until the Company begins to launch commercial Internet services or resolves
claims, if any, under the terminated leases to which a portion of the accrual
relates. The total amount of payments due through the remaining terms of the 90
leases for which notice of termination was delivered is approximately $7.8
million. We may be subject to future claims for some amount of payments under
these 90 leases. However, we currently are not able to estimate with certainty
the total amounts or potential range of loss associated with these leases, if
any.

We currently expect to attempt to renegotiate some or all of our
approximately 90 tower leases on more favorable terms. As part of this process,
we have identified 24 non-strategic towers for which we suspended payment in May
2003. Thirteen of these leases are classified as operating leases, and 11 are
classified as capital leases. Notwithstanding the suspension of payments under
these leases, we expect to continue to expense all operating tower lease
payments on a straight-line basis and accrue a corresponding liability on our
consolidated balance sheet. Total monthly payments due

17

under the 24 leases are approximately $38,000. The total amount of payments due
under the remaining terms of these leases is approximately $2.2 million, of
which approximately $650,000 is included as a capital lease obligation on our
consolidated balance sheet at March 31, 2003. We may be subject to future claims
for some amount of payments under these leases.

We were a party to a programming arrangement with World Satellite
Network, Inc. ("WSNet"), under which we paid WSNet to obtain and manage certain
of the video programming that we deliver to our wireless cable subscribers,
including making payments for such programming directly to 17 programming
providers such as Disney, ESPN and HBO. In October 2002, WSNet filed for
protection under Chapter 11 of the U.S. Bankruptcy Code and, in February 2003,
announced that it would cease operations at the end of that month. We now pay
programmers directly and through another third party for the monthly programming
that we continue to deliver to our remaining wireless cable subscribers.
However, for programming delivered for September 2002, we paid WSNet
approximately $550,000. WSNet has not remitted this amount to the various
programmers from whom we received programming. In February 2003, WSNet notified
us that it intended to reject its agreement with us in its Chapter 11
proceeding. We are continuing to evaluate our rights and potential obligations
with respect to WSNet and the programmers, and we ultimately may be liable for
payment of some or all of this amount to one or more programmers. We believe we
have a claim against WSNet or its creditors for the $550,000 that we paid to
WSNet.

While it is not feasible to predict or determine the final outcome of
the above matters or to estimate the amounts or potential ranges of loss for
such matters, if any, and while we do not expect an adverse outcome, an adverse
outcome with respect to a significant number of lessors or programmers in the
above matters could have a material adverse effect on our consolidated financial
condition, results of operations or cash flows.

CONTRACTUAL OBLIGATIONS

Our contractual obligations include long-term debt (primarily related
to BTA installment notes), capital lease obligations (primarily related to tower
leases), operating leases (primarily related to spectrum leases) and other
long-term obligations (settlement payments), as summarized in the table in Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Contractual Obligations," in our Annual Report on Form 10-K for
2002 (the "2002 Table").

The 2002 Table reflects amounts payable under the spectrum leases that
have been renegotiated as discussed above under "Commitments and Contingencies"
in this Item 2. The 2002 Table also reflects all amounts due under leases on
which we are paying 20% of current amounts due, and leases for which we have
given notice of termination. The total amount of payments due through the
remaining terms of the 90 leases for which we delivered notice of termination in
February 2003 is approximately $7.8 million, which amount is included in the
line item "Operating lease obligations" in the 2002 Table.

The 2002 Table also reflects amounts payable under the tower leases on
which we have suspended payment as discussed above under "Commitments and
Contingencies" in this Item 2. The total amount of payments due through the
remaining terms of the 24 tower leases is approximately $2.2 million, of which
$1.1 million is included in the line item "Operating lease obligations" and of
which $1.1 million is included in the line item "Capital lease obligations" in
the 2002 Table.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are not exposed to market risk from changes in marketable
securities.

We are not exposed to material future earnings or cash flow
fluctuations from changes in interest rates on long-term debt since 100% of our
long-term debt is at a fixed rate as of March 31, 2003. The fair value of our
long-term debt at March 31, 2003, is estimated to be $8.4 million based on the
overall rate of the long-term debt of 9.5% and an overall maturity of five years
compared to terms and rates currently available in long-term financing markets.
To date, we have

18

not entered into any derivative financial instruments to manage interest rate
risk and are not currently evaluating the future use of any such financial
instruments.

We do not currently have any exposure to foreign currency transaction
gains or losses. All of our business transactions are in U.S. dollars.

ITEM 4. CONTROLS AND PROCEDURES.

Within 90 days prior to the filing date of this report, we carried out
an evaluation, under the supervision and with the participation of our principal
executive officer/principal financial officer and other senior management, of
the effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, our principal executive officer/principal
financial officer concluded that our disclosure controls and procedures are
effective in ensuring that material information is timely communicated to
appropriate management personnel, including the principal executive
officer/principal financial officer, to enable such personnel to evaluate
information and determine the information required to be included in our
periodic SEC reports. It should be noted that the design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote. In addition, we reviewed our internal controls, and there have been
no significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are a party, from time to time, to routine litigation incident to
our business. We do not believe that any pending litigation matter will have a
material adverse effect on our financial condition, results of operations or
cash flows.

ITEM 5. OTHER INFORMATION.

FCC PROCEEDINGS ON 2.5 GHz BAND

In September 2001 the FCC allocated the 2.5 GHz band for flexible use,
making this band available for advanced fixed, portable and mobile services,
including mobile third generation, or "3G" wireless systems. In October 2002, a
coalition of MMDS and ITFS operators and licensees submitted a proposal to the
FCC to replace the existing regulations for MMDS and ITFS spectrum with new
regulations, including a nationwide bandplan and geographic service areas that
would accommodate deployment of advanced broadband wireless services. In April
2003, the FCC released a Notice of Proposed Rulemaking ("NPRM") and Memorandum
Opinion and Order ("Order") on the 2.5 GHz band. Among other things, the NPRM:

o seeks comment on whether and how to reconfigure the 2.5 GHz
band,

o seeks comment on the best means of ensuring the efficient use
of unassigned ITFS spectrum,

o proposes to convert site-by-site licenses of MDS and ITFS
licensees to geographic service areas,

o seeks comment on how best to promote increased access to and
efficient use of ITFS spectrum,

o proposes technical rules to increase flexibility of licensees
in the 2.5 GHz band,

o proposes technical and service rules for mobile operations in
the 2.5 GHz band, and

o proposes to simplify and streamline the licensing for services
in the 2.5 GHz band.

19

In addition, the Order suspends current construction deadlines for MMDS
and ITFS licenses until completion of the rulemaking proceeding. The Order also
temporarily suspends, until completion of the rulemaking proceeding, acceptance
of certain applications for MMDS and ITFS authorizations.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS

3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 (the "March 1999 Form 10-Q")).

3.2 Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the March 1999 Form 10-Q).

99.1* Certification pursuant to 18 U.S.C. Section 1350 (Chief
Executive Officer and Acting Chief Financial Officer).

- --------------------------------
*Filed herewith

(b) REPORTS ON FORM 8-K

(1) On March 25, 2003, the Company filed a Current Report on Form
8-K regarding the announcement of its financial results for
2002.

(2) On March 13, 2003, the Company filed a Current Report on Form
8-K regarding a change in the date by which stockholder
proposals for the Company's 2003 annual meeting must be
delivered to the Company.

(3) On March 7, 2003, the Company filed a Current Report on Form
8-K regarding a change in the Company's certifying accountant,
from King Griffin & Adamson P.C. ("KGA"), to KGA's successor
entity, KBA Group LLP.

20

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.

Dated: May 14, 2003 NUCENTRIX BROADBAND NETWORKS, INC.

By: /s/ Carroll D. McHenry
------------------------------------
Carroll D. McHenry
Chairman of the Board, President and Chief
Executive Officer, Acting Chief Financial Officer
(Principal Executive Officer and Principal
Financial Officer)

21

CERTIFICATIONS

I, Carroll D. McHenry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Nucentrix Broadband
Networks, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to me
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based
on my evaluation as of the Evaluation Date;

5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 14, 2003

/s/ Carroll D. McHenry
------------------------------------------------
Carroll D. McHenry
Chairman of the Board, President and Chief
Executive Officer, Acting Chief Financial Officer
(Principal Executive Officer and Principal
Financial Officer)

22

Index to Exhibits

- --------------------------------
*Filed herewith

23