<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
/ / 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 0-28362
PCS 2000, L.P.
(Exact name of registrant as specified in its charter)
Delaware 66-0514434
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
640 Broadway
Sonoma, California 95476
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 978-5200
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 and (2) has been subject to such filing
requirements for the past 90 days. 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: 2,601.5 Units of Limited
Partnership Interest
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PCS 2000, L.P.
STATEMENT OF ASSETS, LIABILITIES
AND PARTNERS' CAPITAL
JUNE 30, 1996
<TABLE>
<CAPTION>
ASSETS
6/30/96 12/31/95
------- --------
<S> <C> <C>
Cash and cash equivalents $1,040,371 $2,727,541
Prepaid expenses 42,000 96,000
Other current assets - deposits 50,000,000 50,000,000
Restricted cash 6,511,250 6,511,250
Equipment, net 12,619
----------- -----------
Total assets $57,606,240 $59,334,791
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Bank overdraft $ $46,173
Accounts payable and accrued liabilities 308,272 130,634
Accounts payable to related parties 644,469 146,562
----------- -----------
Total liabilities 952,741 323,369
----------- -----------
Contingency (Note 3)
Limited partners' capital (2,601.5 units in 1996;
and 2,604.5 units in 1995;
authorized and issued) 65,037,500 65,112,500
General partner's capital 100,000 100,000
Undistributed losses (6,201,078) (6,201,078)
Net loss (2,282,923)
----------- -----------
Total partners' capital 56,653,499 59,011,422
----------- -----------
Total liabilities and partners' capital $57,606,240 $59,334,791
=========== ===========
</TABLE>
The accompanying notes are integral part of this statement
1
<PAGE> 3
PCS 2000, L.P.
STATEMENT OF REVENUES AND EXPENSES
FOR THE PERIOD OF JANUARY 1, 1996 TO JUNE 30. 1996
<TABLE>
<CAPTION>
Six months ended
----------------
6/30/96 6/30/95*
------- -------
Revenues:
<S> <C> <C>
Interest income $44,297 $346,096
-------------- -----------
Expenses:
Consulting and legal services rendered by related parties 1,138,435 66,370
Other legal fees 660,023 232,311
Miscellaneous consulting services 280,539 3,875
Insurance 64,000
Travel 145,686 5,578
Other administrative expenses 38,537 6,017
-------------- -----------
Total expenses 2,327,220 314,151
============== ===========
Net income (loss) ($2,282,923) $31,945
============== ===========
Net income (loss) attributable to general partner (570,731) 7,986
-------------- -----------
Net income (loss) attributable to limited partners (1,712,192) 23,959
-------------- -----------
Net loss per limited partner unit ($568.16) $13.63
-------------- -----------
</TABLE>
The accompanying notes are integral part of this statement
* Represents the period from inception on January 24, 1995 to June 30, 1995.
2
<PAGE> 4
PCS 2000, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30,1996
<TABLE>
<CAPTION>
Six months ended
----------------
6/30/96 6/30/1995*
------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($1,645,933) $31,945
------------- -----------
Adjustments to reconcile the net income (loss) for the
period to net cash used by operating activities:
Depreciation 591
Decrease in prepaid expenses 54,000
Decrease in bank overdraft (46,173)
Increase in accounts payable 177,639 38,330
Increase in accounts payable to related parties 497,907
------------- -----------
Total adjustments 683,964 38,330
------------- -----------
Net cash provided (used) by operating activities (1,578,959) 70,275
Cash flows used in investing activities:
Computers (13,211)
-------------
Net cash used in investing activities (13,211)
-------------
Cash flows from financing activities:
Capital investment by partners (75,000) 44,050,000
Restricted cash (4,395,000)
-----------
Net cash from financing activities (75,000) 39,655,000
--------- -----------
Net increase (decrease) in cash ($1,687,170) $39,725,275
============= ===========
Summary:
Net increase (decrease) in cash (1,687,170) 39,725,275
Cash and cash equivalents at the beginning of the period 2,727,541 0
------------- -----------
Cash and cash equivalents at the end of the period $1,115,371 $39,725,275
============= ===========
</TABLE>
The accompanying notes are integral part of this statement
* Represents the period from inception on January 24, 1995 to June 30, 1995.
3
<PAGE> 5
PCS 2000, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS
FROM JANUARY 1, 1996 TO JUNE 30, 1996
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
(2,601.5 units)
<S> <C> <C> <C>
Beginning (deficit) capital at
January 1, 1996 ($1,450,270) $60,461,692 $59,011,422
Repurchase of limited partner's units ($75,000) ($75,000)
Share of undistributed losses (799,023) (1,483,900) (2,282,923)
-------------- --------------- --------------
Ending (deficit) capital at
30-Jun-96 ($2,249,293) $58,902,792 $56,653,499
============== =============== ==============
</TABLE>
Total outstanding partnership units issued and outstanding as of June 30, 1996
amounted to 2,601.5
4
<PAGE> 6
PCS 2000, L.P.
(a limited partnership ( the "Partnership"))
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL DATA:
The interim financial data is unaudited; however, in the opinion of management,
the interim data includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results of the interim
periods.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The partnership agreement provides for the payment of a management fee to the
general partner, equal to the reasonable costs of operating the business of the
Partnership, plus 10% of such aggregate amount, which fee will be payable
monthly, on the first day of each month during the year. Expenses to be
reimbursed include, but are not limited to, compensation costs, and expenses
related to officers, directors, and employees in the performance of their
duties. The fee and the related expenses incurred by the General Partner has
been accrued as of this period based on the opinion of counsel. The
Partnership considered in earlier financial statements such fee and expenses to
be contingent as was the original fee that was amended in the Partnership
Agreement. In addition, the general partner will be entitled to 25% of all
distributions made by the partnership.
NOTE 3 - CONTINGENCY
During 1995, the partnership inadvertently submitted an incorrect bid for one
of the licenses being sought. Although the partnership withdrew the submitted
bid immediately, the FCC may impose a very substantial penalty for the
withdrawal of a high bid consisting of the difference between the bid withdrawn
and the eventual highest bid (as of June 30, 1996, the maximum penalty would be
approximately $92,491,000).
The general partner has meet with the FCC officials and has filed a petition
for a waiver of this penalty or, in the alternative, a substantial reduction on
the penalty amount, as these rules were made to deter frivolous and
manipulative bids and not errors. Although no final determination has been
made at the date of the financial statements, the general partner is
optimistic that the FCC will agree either to a waiver or a substantial
reduction of the penalty.
Based on the results of an internal investigation of the bidding error,
Unicom's Board of Directors concluded that it was in the best interest of the
Partnership that the ownership interests of a former director and acting chief
executive officer of Unicom and members of his family in Unicom be divested.
Since Unicom and the former director and his family were unable to come to an
agreement on transferring such interests to Unicom or to a third party, Unicom
determined to sell all its assets, which consisted only of its general
partnership interest, to SuperTel Communications Corporation. On June 18,
1996, Unicom sold its general partnership interest to SuperTel for $100,000 by
means of a promissory note. The stockholders, officers and directors of
SuperTel are essentially the same as those of Unicom. All stockholders of
Unicom received the same amount of shares of SuperTel that they held in Unicom,
except for the shares held by two trusts for the benefit of the respective
families of two former directors of Unicom. The partnership repurchased the
interest in the partnership held by a former director.
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The transfer of the Company's interest is the subject of a lawsuit brought by
the wife of a former director. The general partner is vigorously defending the
interests of the Partnership in this case; it believes it has meritorious
defenses to such suit and that the outcome of such suit will not adversely
affect future operations of the Partnership.
Additionally, two parties have filed petitions with the FMC to deny the award
of any licenses to the Partnership. The Partnership filed an opposition
statement to the two petitions. The Company believes that the petitions should
be summarily dismissed and intends to vigorously defend the Partnership's
interests.
The partnership is also subject to a withdrawal penalty of approximately $1.25
million for its deliberate withdrawal of a bid for the PCS license covering
Omaha, Nebraska. At one point during the Block C auction, the Partnership had
targeted and was bidding for certain midwestern markets. During the course of
the auction, however, the Partnership determined to focus its efforts in Puerto
Rico and certain western markets. Accordingly, the Partnership withdrew its
bid for the Omaha market and is subject to the withdrawal penalty.
Although no assurances can be made, the Company expects that the Partnership
will ultimately prevail in these matters, since if either of the petitions to
deny are granted, the penalty issue is not satisfactorily resolved, the
Partnership may not received some or all of the licenses, and failure to
receive licenses will have a material adverse effect on the financial condition
of the Partnership.
NOTE 4 - SUBSEQUENT EVENTS:
The Partnership is currently in negotiation with other companies for possible
additional financing for the acquisition and eventual operation of PCS
licenses.
6
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
PCS 2000, L.P. (the "Partnership") was formed in January 1995, and is
managed by SuperTel Communications Corp. (the "General Partner"). The
Partnership was organized to acquire, own and operate personal communication
services ("PCS") licenses in frequency Blocks C and F, and to take advantage of
the benefits that the Federal Communication Commission (the "FCC") has set
aside for certain "designated entities."
Results of Operations
YEAR ENDED DECEMBER 31, 1995
Revenues
The Partnership's sole source of revenue for the year ended December
31, 1995 was the interest earned on the investments made from the capital
contributions made by the predecessor general partner of the Partnership,
Unicom Corporation ("Unicom") and its Limited Partners prior to the deposit by
the Partnership with the FCC of $50 million and payment of other Partnership
expenses. Interest income for the year ended December 31, 1995 was $1,469,099.
Expenses
Expenses for the year ended December 31, 1995 were $7,670,177.
General and administrative expenses for the year ended December 31, 1995 were
$752,323. In addition, the Partnership spent $6,917,854 on consulting
expenses.
Liquidity and Capital Resources
As of December 31, 1995, the Partnership had assets totaling
$59,334,791, consisting of $2,727,541 in cash and cash equivalents, $50 million
on deposit with the FCC, $6,511,250 in restricted cash, $96,000 in prepaid
expenses and current liabilities of $323,369. The Partnership's short term
investment objectives are, first, to assure conservation of principal, and
second, to obtain investment income. As a result, the Partnership invests
primarily in certificates of deposit.
The Partnership's primary source of funding and capital resources has
been the capital contributions by its Limited Partners and Unicom, which totaled
$65,212,500 in cash for the 1995 fiscal year.
During the fiscal year ended December 31, 1995, the primary use of
Partnership's capital has been to deposit $50 million with the FCC in order to
participate in the Block C auction, and payment of fees to Romulus
Telecommunication Inc. ("Romulus") in connection with its services in preparing
the Partnership's FCC applications and bidding at the FCC auctions.
SIX MONTH PERIOD ENDED JUNE 30, 1996 COMPARED WITH THE SAME PERIOD ENDED JUNE
30, 1995
Revenues
The Partnership's sole source of revenue for the six month period
ended June 30, 1996 continued to be interest income. Interest income for this
period was $44,297. During the same period of 1995, the Partnership had
interest earnings of $346,096.
7
<PAGE> 9
Expenses
Expenses for the six month period ended June 30, 1996 totaled
$2,327,220. General and administrative expenses for the same period of 1995
were $314,151 (not including the amounts paid to Romulus). These expenses were
higher than the expenses for the same period ended in 1995 because the
Partnership began its operations late in March 1995. The Partnership
participated in the FCC auction process during late in 1995 and early 1996.
The purpose of the Partnership is to obtain PCS licenses and the expenses are
associated with that activity.
Liquidity and Capital Resources
As of June 30, 1996, the Partnership had assets totaling $57,606,240
primarily consisting of $1,040,371 in cash and cash equivalents, $50 million on
deposit with the FCC, $6,511,250 in restricted cash, $12,614 in other assets
and current liabilities of $952,741. As of June 30, 1995, the Partnership had
assets totaling $44,120,275, consisting of cash and cash equivalents and
current liabilities of $38,330. The Partnership assets increased as the result
of the Private Placement it began in 1995.
The Partnership did not raised any additional capital during the six
month period ended June 30, 1996. Three Partnership units were repurchased in
which a former Director of Unicom had a beneficiary interest, related to the
bidding error which is described below, during the quarter ended June 30, 1996.
The Partnership is continuing seek additional capital for the purposes
of developing the PCS licenses it expects to acquire. The Partnership's
efforts to raise additional capital is dependent on whether the Partnership
acquires any PCS licenses. Although no assurance can be made, the Partnership
expects to raise the additional amounts it needs to develop the PCS licenses it
acquires. The Partnership currently estimates it will need to raise
approximately $264 million to develop the PCS licenses it expect to acquire.
8
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership is a party to three legal proceedings, an FCC
proceeding and two petitions to deny the award of any PCS licenses to
the Partnership, all of which have arisen in connection with an erroneous bid
at the FCC auctions. On January 23, 1996, Romulus entered an erroneous bid on
behalf of the Partnership for the Norfolk, Virginia market. Mr. Easton, in his
capacity as bidding agent and Director of Engineering of Romulus, mistakenly
entered a bid of $180,060,000 when he had meant to bid $18,006,000 (the
"Bidding Error"). At the time, Mr. Easton was also the acting chief executive
officer of Unicom and a member of its Board of Directors. Unicom engaged
special counsel to investigate and report (the "Report") to Unicom the
circumstances surrounding the Bidding Error.
The Partnership withdrew the erroneous bid on January 24, 1996
and requested the FCC to waive or reduce the amount of any withdrawal penalty.
Under FCC Rules, a bidder who withdraws a high bid during the course of an
auction is subject to a penalty equal to the difference between the amount bid
and the amount of the winning bid when the license is auctioned. Since the
high bid for the Norfolk, Virginia market was $87,569,000, the Partnership is
subject to a withdrawal penalty as high as $92,491,000. The FCC, however, has
not yet determined what the Partnership's penalty will be but the Partnership
believes the penalty will be significantly lower than $92,491,000. The
Partnership believes that Romulus and Mr. Easton should be ultimately
responsible for the Bidding Error.
Based upon the Report and after repeated discussions and
consultations with the FCC, Unicom's board of directors concluded that it was
in the best interest of the Partnership and its limited partners that the
beneficial interests of Mr. Easton and any members of his family in Unicom be
divested. Mr. Easton's wife, Susan D. Easton, is the beneficiary of the SDE
Trust which owned a portion of the shares of Unicom. Since Unicom and the SDE
Trust were unable to come to an agreement on transferring such shares to Unicom
or to a third party, Unicom determined to sell all its assets, which consisted
only of its general partnership interest in the Partnership, to the General
Partner.
On June 6, 1996, the Partnership filed suit in San Juan
Superior Court for the Commonwealth of Puerto Rico and attached the Romulus
account which holds approximately $6.5 million which would be payable to
Romulus under its agreement with the Partnership. That agreement provided that
Romulus would be entitled to 20% of the amount of capital that the Partnership
raised in the sale of its limited partnership units, but that one-half of such
amount would be held in a separate account and would be paid only if the
Partnership successfully acquired at least one PCS license. The $6.5 million
that the Partnership has attached are the funds held in the separate account.
The Partnership took steps to attach the funds to ensure that Romulus funds
were available to pay any fines that the FCC determines may be payable by the
Partnership in connection with the Bidding Error. On July 26, 1996, Romulus
and Mr. Easton
9
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each filed a demand for arbitration with the American Arbitration Association
at its Miami, Florida office seeking to arbitrate all matters relating to the
Bidding Error, including the attachment of the Romulus account. The General
Partner is presently determining its response to these demands for arbitration.
Mr. Easton has filed a suit in Superior Court for the State of
California, County of San Mateo, on June 18, 1996, seeking declaratory judgment
that he is not responsible or liable for the Bidding Error. As noted above,
the General Partner maintains that Romulus must reimburse it for any fines
which may be assessed against the Partnership in connection with the Bidding
Error.
Susan D. Easton, beneficiary of the SDE Trust and wife of Mr.
Easton, has filed suit in Superior Court for the State of California, County of
San Mateo, on May 28, 1996 seeking declaratory judgment with respect to the
transfer of the general partnership interest to the General Partner. The
General Partner believes that it has meritorious defenses to this action.
On July 1, 1996, two parties filed petitions with the FCC to
deny the award of any PCS licenses to the Partnership. Susan D. Easton has
filed a petition maintaining that the Partnership should not receive any PCS
licenses because the SDE Trust's interest in the Partnership was extinguished
when the general partnership interest was transferred from Unicom to the
General Partner. In addition, a limited partner of the Partnership,
WillowRun, L.P., has filed a petition stating that the Partnership should not
receive any Licenses on grounds that the General Partner does not hold a 25%
equity interest in the Partnership, and that the General Partner was not
truthful with the FCC or in its disclosures to the Investors. In the
alternative, WillowRun, L.P. requested that the FCC release records that it
collected in connection with its investigation of the Bidding Error, that the
Partnership's limited partners be fully informed of developments and that the
comment period for opposition to the award of any PCS licenses to the
Partnership be extended following release of such information. The Partnership
filed an opposition statement to the two petitions on July 16, 1996 and
WillowRun, L.P. filed a reply on July 26, 1996. On August 12, 1996, the SDE
Trust filed a new petition to deny and the General Partner intends to file a
timely opposition statement. The General Partner believes that the petitions
should be summarily dismissed and intends to defend vigorously the
Partnership's interests.
The General Partner believes that loss of any of these
lawsuits or failure to be granted some or all of the PCS licenses will have a
materially adverse effect on the financial condition and affairs of the
Partnership. Although no assurances can be made, the General Partner
expects that the Partnership will ultimately prevail in all of these matters.
10
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ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.0 Financial Data Schedule
(b) The Partnership has not filed any reports on Form 8-K
during the quarter for which this report is being filed.
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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.
PCS 2000, L.P.
By: SuperTel Communications Corp.
By: /s/ Javier O. Lamoso
--------------------
Name: Javier O. Lamoso
Title: President
August 13, 1996
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<PAGE> 14
EXHIBIT INDEX
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,040
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 57,593
<PP&E> 13
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,606
<CURRENT-LIABILITIES> 953
<BONDS> 0
0
0
<COMMON> 65,137
<OTHER-SE> (8,484)
<TOTAL-LIABILITY-AND-EQUITY> 57,606
<SALES> 0
<TOTAL-REVENUES> 17
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,607)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,607)
<EPS-PRIMARY> (1,137)
<EPS-DILUTED> (1,137)
</TABLE>
