<PAGE>
SECURITIES & EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
--------------
Commission File Number: 0-21920
People's Choice TV Corp.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 06-1366643
- ----------------------------------- --------------
(State or other jurisdiction of incorporation (I.R.S. employer
of organization) identification No.)
2 Corporate Drive, Shelton, CT 06484
- ---------------------------------------------- ------------
(Address of principal executive offices) (Zip code)
The Company's telephone number, including area code: (203) 925-7900
--------------
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 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.
X
----- -----
YES NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value: 12,924,817 shares as of May 12, 1997.
<PAGE>
PEOPLE'S CHOICE TV CORP.
------------------------
INDEX
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE(S)
- ---------------------------- -------
<S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1996
and March 31, 1997 2
Consolidated Statements of Operations for the Three
Month Periods Ended March 31, 1996 and 1997 3
Consolidated Statements of Stockholders'
Equity for the Three Month Periods Ended
March 31, 1996 and 1997 4
Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 1996 and 1997 5
Notes to Consolidated Financial Statements 6-7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8-11
PART II OTHER INFORMATION
- -------------------------
Items 1-5. OTHER INFORMATION 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
- ----------
</TABLE>
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 41,305,795 $ 28,640,230
Marketable securities 63,396,191 71,052,665
Subscriber receivables, net of allowance for doubtful accounts
of $379,500 and $344,100 2,935,364 1,974,309
Notes and other receivables 1,146,928 792,060
Prepaid expenses and other assets 3,909,492 3,816,882
Investment in wireless systems and equipment, at cost, net of
accumulated depreciation and amortization of $55,697,972
and $62,908,859 196,042,266 191,921,901
Organization and financing costs net of accumulated
amortization of $2,705,560 and $3,122,080 5,731,263 5,314,743
Excess of purchase price over fair market value of assets acquired
net of accumulated amortization of $905,010 and $1,127,964 11,680,391 11,457,438
------------- ------------
Total assets $ 326,147,690 $314,970,228
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and other payables $ 234,430,828 $ 241,767,473
Accounts payable 1,928,429 1,772,440
Accrued expenses 5,152,177 3,844,781
Subscriber advance payments and deposits 2,662,183 2,161,203
Minority interest in consolidated subsidiaries 1,086,562 1,056,167
------------- -------------
Total liabilities 245,260,179 250,602,064
Commitments and Contingencies
Convertible Pay-In-Kind Preferred Stock,
liquidation preference $100 per share 60,169,770 61,628,314
PCTV Detroit cumulative preferred stock 6,628,365 6,758,185
Stockholders' Equity
Preferred stock, $0.01 par value, 4,383,758 shares authorized,
no shares issued and outstanding --- ---
Common stock, $0.01 par value, 75,000,000 shares
authorized, 12,924,817 shares issued and outstanding
at December 31, 1996 and March 31, 1997 129,248 129,248
Additional paid-in capital 166,447,375 164,859,010
Warrants 3,756,840 3,756,840
Accumulated deficit (156,244,087) (172,763,433)
------------- -------------
Total stockholders' equity/(deficit) 14,089,376 (4,018,335)
------------- -------------
Total liabilities and stockholders' equity $ 326,147,690 $ 314,970,228
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenues $ 8,548,470 $ 8,544,148
------------ ------------
Costs and expenses:
Operating costs and expenses 11,884,979 10,904,643
Depreciation and amortization 8,478,245 8,040,455
------------ ------------
20,363,224 18,945,098
------------ ------------
Operating loss (11,814,754) (10,400,950)
Gain (loss) on sales and writedown of assets (343,381) 167,925
Interest expense:
Non cash (6,420,508) (7,334,268)
Cash (235,360) (355,970)
Interest income and other 1,532,138 1,386,022
Minority interest 27,963 28,395
------------ ------------
Loss before income tax (17,253,902) (16,508,846)
Income tax expense 27,000 10,500
------------ ------------
Net loss (17,280,902) (16,519,346)
Preferred dividends (1,465,193) (1,588,365)
------------ ------------
Loss applicable to common shares $(18,746,095) $(18,107,711)
============ ============
Loss per common share $ (1.43) $ (1.38)
============ ============
Weighted average number of common shares outstanding 13,068,730 13,150,755
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
Par Value Paid-In Accumulated
Shares Amount Capital Warrants Deficit
------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 12,841,203 $ 128,412 $172,415,949 $ 4,331,244 $ (80,356,769)
Net Loss --- --- --- --- (17,280,902)
Dividends on Cumulative
Preferred Stock --- --- (133,088) --- ---
Dividends on Convertible
Preferred Stock --- --- (1,332,105) --- ---
---------- ----------- ------------ ------------ -------------
Balance, March 31, 1996 12,841,203 $ 128,412 $170,950,756 $ 4,331,244 $ (97,637,671)
========== ============ ============ ============ =============
Balance, December 31, 1996 12,924,817 $ 128,248 $166,447,375 $ 3,756,840 $(156,244,087)
Net Loss --- --- --- --- (16,519,346)
Dividends on Cumulative
Preferred Stock --- --- (129,821) --- ---
Dividends on Convertible
Preferred Stock --- --- (1,458,544) --- ---
---------- ------------ ------------ ------------ -------------
Balance, March 31, 1997 12,924,817 $ 129,248 $164,859,010 $ 3,756,840 $(172,763,433)
========== ============ ============ ============ =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(17,280,902) $(16,519,346)
Adjusted to reconcile net loss to cash used in operations-
Depreciation and amortization 8,478,245 8,040,455
Minority interest in subsidiaries (27,963) (28,395)
Amortization of original issue discount 6,245,673 7,124,469
Amortization of imputed discount on debt 174,835 209,799
(Gain) loss on sales and writedown of assets 343,381 (167,925)
Provision for losses on subscriber receivables 287,000 121,900
Change in assets and liabilities-
(Increase) decrease in subscriber receivables (227,024) 839,155
Decrease in notes and other receivables 21,987 95,511
(Increase) decrease in prepaid expenses and other assets 3,974 (156,537)
Decrease in accounts payable (1,220,158) (155,989)
Decrease in accrued expenses (1,052,643) (1,113,896)
Decrease in subscriber advance payments and deposits (110,066) (500,980)
Net cash used in operating activities ------------ ------------
(4,363,661) (2,211,779)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (1,354,468) (29,181,473)
Proceeds principally from maturity of marketable securities 10,015,982 21,525,000
Acquisition of Sat-Tel Services, Inc. (3,359,198) --
Acquisition of Tilden and Anahuac frequencies (2,253,687) --
Sale of interest in Preferred Entertainment of Champaign 1,839,889
Acquisition of BTA licenses -- (180,755)
Investment in wireless systems and equipment (5,675,835) (1,797,918)
Proceeds from sales of assets 212,555 820,520
------------ ------------
Net cash used in investing activities (574,762) (8,814,626)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (3,318,189) (1,637,160)
Buyout of minority interest (34,000) (2,000)
------------ ------------
Net cash used in financing activities (3,352,189) (1,639,160)
------------ ------------
Net decrease in cash (8,290,612) (12,665,565)
Cash and cash equivalents, beginning of year 23,243,558 41,305,795
------------ ------------
Cash and cash equivalents, end of period $ 14,952,946 $ 28,640,230
============ ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest, net of amount capitalized $ 226,511 $ 282,871
Cash received for interest $ 1,590,525 $ 1,085,954
</TABLE>
During 1996 in connection with the acquisition of Sat-Tel Services, Inc.,
the Company issued a note payable in the amount of $1,250,000. In addition, the
Company acquired a note receivable in the amount of $175,000 in connection with
the sale of a cable system.
During 1997, the Company acquired frequency rights in exchange for a note
payable in the amount of $1,446,000.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The consolidated balance sheet as of March 31, 1997, the consolidated
statements of operations for the three months ended March 31, 1996 and 1997 and
the consolidated statements of stockholders' equity and cash flows for the
three months ended March 31, 1996 and 1997 have been prepared by People's
Choice TV Corp. (the "Company" or "PCTV") and are unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial position,
results of operations and cash flows at March 31, 1996 and 1997 have been made
and all such adjustments are of a normal recurring nature. The accounting
policies followed during the interim periods reported on are in conformity with
generally accepted accounting principles and are consistent with those applied
for annual periods. Certain prior period amounts have been reclassified to
conform with current period presentation. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements for the year ended December 31, 1996 included in the
Company's filing on Form 10-K. The results of operations for the three month
periods ended March 31, 1996 and 1997 are not necessarily indicative of the
operating results for the full year.
(2) Marketable Securities:
The Company has classified marketable securities and time deposits as cash
equivalents if the original maturity of investments is three months or less at
time of purchase.
Marketable securities consist of US Government and Federal Agency bonds
and commercial paper which vary in maturity up to 13 months. The Company has
classified these securities as held-to-maturity and they are recorded at
amortized cost.
(3) Earnings per share:
The net loss per share has been computed based on the weighted average of
common shares outstanding. The 1996 and 1997 shares include common equivalent
shares issuable upon exercise of certain outstanding stock options and the Bank
of Montreal warrant.
The Company has determined there will be no effect of applying the
principles of Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
(4) Acquisitions and Dispositions:
In January 1996, the Company acquired rights to wireless frequencies and
certain other assets in the Tilden, Illinois and Anahuac, Texas markets for a
purchase price of approximately $2,300,000. The Company acquired leases for 20
and 16 channels in Tilden and Anahuac, respectively.
In January 1996, Preferred Entertainment of Champaign ("Champaign"), of
which Specchio Development Investment Corp. ("SDIC") had a two thirds
partnership interest, was sold for approximately $2,200,000. The Company's
share of the proceeds, after payment of all outstanding liabilities, was
approximately $2,000,000, resulting in a gain on sale of approximately
$200,000.
On January 26, 1996, the Company acquired Sat-Tel Services Inc. ("Sat-
Tel"), its exclusive installation and technical service company. The purchase
price was $5,000,000, which consisted of $3,750,000 in cash (which included
repayment of two promissory notes in the amount of $410,000 to the
shareholders) and a note payable in the amount of $1,250,000 paid January 26,
1997 with an interest rate of 5.5% per year. Also, at closing, the Company
repaid $1,500,000 of bank debt that was owed by Sat-Tel. As additional
consideration, 27,614 common shares valued at approximately $445,000 were
issued to the former owners in April 1996. The acquisition was accounted for as
a purchase transaction and, accordingly, the purchase price was allocated to
the fair value of assets acquired and liabilities assumed. Approximately
$4,700,000 of the purchase price has been allocated to excess of purchase price
over fair market value of assets acquired. The Company believes the acquisition
will reduce its installation expenses because the Company will no longer be
paying an outside contractor to perform installation services.
6
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
(5) Commitments and Contingencies:
Except as discussed below, the Company is not a party to any litigation
that could have a material adverse effect on its business, results of
operations or financial condition.
Wireless Enterprises, Inc. and Indianapolis Wireless, L. P. have filed a
complaint against the Company in U.S. district court in Connecticut. The
complaint alleges causes of action based on fraud, tortious interference with
contract, negligence, breach of good faith, and unfair trade practices. The
complaint alleges that the Company took certain actions with respect to the
Detroit market that deprived plaintiffs of the opportunity to acquire certain
wireless cable frequencies in that market. The complaint alleges that by taking
such actions the Company breached certain obligations to the plaintiffs. The
complaint seeks money damages and injunctive relief. The Company has retained
counsel and the discovery process is proceeding. Although there can be no
assurance as to the ultimate outcome, the Company believes it has meritorious
defenses in this action and intends to defend vigorously against this action.
The Company believes that the eventual outcome of this action will not have a
material adverse effect on the consolidated financial statements of the
Company.
7
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements contained herein that are not historical facts, including
but not limited to, statements regarding anticipated future capital
requirements, the Company's ability to obtain additional debt, equity, or other
financing, the Company's ability to successfully launch a digital wireless cable
television system and/or a high speed internet access system, and the Company's
ability to generate cash from system operations or sale of assets are based on
current expectations. These statements are forward looking in nature and involve
a number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: the availability of sufficient capital on terms satisfactory to the
Company to allow the Company to continue to develop its business; competitive
factors, such as the introduction of new technologies and competitors into the
subscription television business or internet access business; pricing pressures
which could affect demand for the Company's service; changes in labor, equipment
and capital costs; future acquisitions or strategic joint ventures; general
business and economic conditions; and the other risk factors described in other
parts of this report and in the Company's other reports filed with the
Securities and Exchange Commission. The Company wishes to caution readers not to
place undue reliance on any such forward looking statements, which statements
are made pursuant to the Private Securities Litigation Reform Act of 1995 and,
as such, speak only as of the date made.
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the corresponding discussion
and analysis included in the Company's Report on Form 10-K for the year ended
December 31, 1996.
RESULTS OF OPERATIONS:
Strategic Direction
-------------------
During 1997, the Company's strategy is to conserve capital pending the
implementation of digital video compression technology. Pursuant to this
strategy, the Company does not plan to further develop its analog customer
base. The Company expects to implement digital video compression technology in
one of its markets in 1997. The Company believes that the implementation of
digital video compression technology will expand its video product offering
(possibly beyond the number of channels available from the Company's hardwire
cable competitors) and enhance its ability to attract and retain customers and
at such time the Company expects to resume a customer growth strategy. There
can be no assurance that PCTV will be able to attract and retain the customer
base necessary to compete successfully with existing competitors or new
entrants in the market for subscription television services.
Revenues
--------
Revenues decreased $4,000 or less than 1% from the three month period ended
March 31, 1996 to 1997. The decrease in revenues is principally attributable
to the Company's suspension of the growth of its analog customer base,
resulting in a decrease in customer count from 81,300 at March 31, 1996 to
76,600 at March 31, 1997, a decrease of 6%. Customer count was 77,800 at
December 31,1996. Partially offsetting this decrease was an increase in average
revenues per customer.
Operating Costs and Expenses
----------------------------
Operating costs and expenses decreased $1.0 million or 8% from the three
month period ended March 31, 1996 to 1997 primarily due to the Company
suspending the growth of its analog customer base which caused a decrease in
expenses, primarily salaries and related benefits due to personnel
reductions, bad debt expense, rent and occupancy costs and programming costs.
Partially offsetting these decreases was an increase in professional fees due
to costs associated with digital compression and internet testing.
8
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Continued)
Depreciation and Amortization
-----------------------------
Depreciation and amortization expense primarily includes depreciation and
amortization of wireless systems and equipment and amortization of frequency
rights. Depreciation and amortization expense decreased from the three month
period ended March 31, 1996 to 1997 principally due to a decrease in amounts
capitalized due to the Company's suspending the growth of its analog customer
base. Excess direct costs of obtaining customers over installation revenues
are capitalized and amortized over a three year period, or the life of the
customer if shorter. The Company expects that depreciation and amortization
expense will increase when the company resumes a customer growth strategy.
Operating Loss
--------------
Operating loss decreased to $10.4 million from $11.8 million for the three
months ended March 31, 1997 from the comparable period of the prior year
principally due to decreases in operating costs and expenses and depreciation
and amortization. Cash flows from operating activities improved to $(2.2)
million from $(4.4) million primarily due to improvement in earnings before
interest, taxes, depreciation and amortization of $1.0 million. Also, the net
change in assets and liabilities was favorable in 1997 compared to 1996
primarily due to subscriber receivables which decreased $1.1 million in 1997
as compared to 1996.
Gain (Loss) on Sales and Writedown of Assets
--------------------------------------------
Gain (loss) on sales and writedown of assets for the 1997 period includes
a $575,000 gain on sale of a non-strategic frequency, offset by a $407,000
writedown of notes receivable and other assets.
Gain (loss) on sales and writedown of assets for the 1996 period includes
a $518,000 writedown of a note receivable to net realizable value, partially
offset by a $200,000 gain on sale of Champaign.
Interest Expense
----------------
Interest expense was $7.7 million and $6.7 million for the three months
ended March 31, 1997 and 1996, respectively. The increase in interest expense
from 1996 to 1997 was primarily a result of the accretion of the Senior
Discount Notes. Non-cash interest expense totaled $7.3 million and $6.4
million in 1997 and 1996 respectively, of which $7.1 million and $6.2 million
was recorded on the Senior Discount Notes in 1997 and 1996, respectively.
Interest Income and Other
-------------------------
Interest income and other was $1.4 million and $1.5 million for the three
months ended March 31, 1997 and 1996, respectively. Interest income decreased
$.3 million to $1.3 million in 1997 compared to 1996 primarily due to a
reduction in cash available for investment. The Company expects interest
income to continue to decrease as the cash balance available for investment
decreases.
Minority Interest
-----------------
Amounts represent primarily the minority interest in the Company's
Indianapolis system and Albuquerque joint venture.
Net Loss
--------
For the three month periods ended March 31, 1997 and 1996 the Company
incurred net losses of approximately $16.5 million and $17.3 million,
respectively. These net losses are principally attributable to the significant
expenses
9
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Continued)
incurred in connection with the development of the Company's business. The
Company expects to continue to incur net losses while it develops and expands
its wireless cable systems.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash, cash equivalents and marketable securities decreased to $ 99.7
million at March 31, 1997 from $104.7 million at December 31, 1996, a decrease
of $5.0 million. This decrease is primarily attributable to cash used in
operating activities, repayment of notes payable and investment in wireless
systems and equipment, partially offset by proceeds from sales of assets.
The wireless cable business is a capital intensive business. The
Company's operations require substantial capital investment for (i) the
acquisition or leasing of wireless cable channel rights in certain markets,
(ii) the construction of headend/transmission facilities as well as customer
service, maintenance and installation facilities in several cities, (iii) the
installation of customers, and (iv) the funding of initial start-up losses.
During 1997, the Company's strategy is to continue conservation of capital
pending the implementation of digital video compression technology which is
expected to take place in one of its markets during the second half of 1997.
Pursuant to this strategy, the Company does not plan to add to its analog
customer base. The Company anticipates that the development of its wireless
cable systems with digital technology will involve capital expenditures higher
than those involved in implementing analog technology because of the increased
costs for the more complex converter boxes and other equipment which utilize
the digital technology. The Company estimates that it will spend $20.7 million
in 1997 on capital expenditures, including $1.2 million on the Company's
proposed launch of a high speed internet access service. The Company has spent
$2.0 million of this $20.7 million in the quarter ended March 31, 1997. Also in
1997, the Company will make $10.4 million in expenditures for required debt
payments of which $1.6 million has been spent in the quarter ended March 31,
1997. To fund such 1997 capital expenditures and debt payments, the Company
anticipates using the Company's available cash and marketable securities.
The Company recently received the necessary digital authorizations from
the Federal Communications Commission to allow it to provide a high speed
internet access service in the Detroit market. The Company has received delivery
of the necessary head-end equipment to provide such service and plans to launch
such a system in Detroit in 1997.
The Company's ability to launch a high speed internet access system may be
affected by a number of factors. First, the Company has never launched or
operated such a system and the technology may not perform adequately when placed
into service, Second, the Company does not know whether there will be sufficient
customer interest in this product at a sufficient price to create a successful
business model, Third, competition from ISDN, T-1, ADSL, and other wireless
frequencies and other new technologies and telecommunications services providers
may prevent the Company from successfully launching a high speed internet access
system, and Fourth, because the Company has never launched or operated any
internet access system, there may be other financial, marketing, technological,
customer service, billing, operational or management issues that prevent the
Company from successfully launching and operating such a service. There may be
additional factors, that the Company is unaware of at this time, that may affect
the Company's ability to launch a high speed internet access system in one of
its markets in 1997 or at any time.
The Company has entered into a letter of intent with an affiliate of
General Instrument Corporation ("GIC") pursuant to which the company would
purchase from GIC up to 300,000 digital converter boxes. The Company would be
obligated to purchase 200,000 converter boxes over the three year life of the
contract. The Company can cancel its minimum purchase obligation by paying a
per box cancellation fee. The letter of intent is subject to the negotiation
and execution of a definitive agreement between the parties and there can be no
assurance that such an agreement will be
10
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(Continued)
executed or that it will not contain terms different from those described
above. The Company's anticipated 1997 payments for converter boxes under the
terms described above have been included in the Company's estimates of capital
expenditures for 1997. The Company believes that it will be able to recover its
remaining investment in analog converter boxes through sales of such boxes to
wireless cable system operators who intend to implement digital service at a
later date than the Company.
Consistent with its strategy of transitioning the business of the Company
from analog technology to digital technology, the Company is proposing to sell
certain service contracts and equipment by which the Company provides wireless
cable television service to apartment complexes, condominiums and other
multiple dwelling units. All of the service contracts that are for sale
concern properties that are served through the use of analog technology. These
service contracts cover approximately 162 properties containing 32,000
individual units located in Houston, St. Louis and Phoenix. The Company has
retained a broker to assist it in the sale of these properties and the
marketing process has commenced. The Company cannot determine at this time
whether it will receive any acceptable offers for these service contracts or
successfully close any proposed sale of these service contracts.
The level of capital expenditures incurred for customer installations is
primarily variable and dependent on the customer installation activities of
the Company. Therefore, actual customer installation expenditures may be more
or less than the Company's estimate. Further significant capital expenditures
for customer installations are expected to be incurred by the Company in 1998
and subsequent years. If the Company does not have adequate liquidity to fund
its desired capital expenditure plans, the Company may delay the launch of new
markets and slow down its system expansion activities in its operating markets.
The Company has experienced negative cash flow from operations in each
year since its formation and, the Company expects to continue to experience
negative consolidated cash flow from operations due to operating costs
associated with its system development, expansion and acquisition activities.
Until sufficient cash flow is generated from operations, the Company will have
to utilize its current capital resources and external sources of funding to
satisfy its capital needs. The development of wireless cable systems in the
Company's major markets referred to above in subsequent years, the development
of the Company's other markets, acquisitions of additional channel rights and
wireless cable systems and the Company's general corporate activities will
require the Company to secure significant additional financing in the future
and there can be no assurance that such financing will be available when
required.
The Company currently has negative tangible net assets as calculated
pursuant to Nasdaq National Market System ("NMS") listing criteria. Because of
its negative tangible net assets, the Company is not currently in compliance
with all applicable NMS listing criteria. The Company has requested that Nasdaq
grant the Company a waiver with respect to the net tangible asset requirement so
that the Company can remain listed on the NMS. The staff of Nasdaq has denied
the Company's initial request for such a waiver. In addition, the Company
understands that the staff of Nasdaq has determined that the Company's Common
Stock is not eligible for listing on the Nasdaq SmallCap Market. The Company has
not yet received from Nasdaq a written statement of the reasons for the denial
of the waiver request. Nasdaq procedures allow the Company to appeal this
determination by Nasdaq to a Nasdaq review committee. The Company expects that
it will appeal this Nasdaq determination. During this appeal, the Company's
Common Stock will continue to be listed on the NMS. The Company has no ability
to predict at this time as to whether any such appeal would be successful. If
the Company is unsuccessful in its appeal of this determination, the Company's
Common Stock would be removed from listing on the Nasdaq NMS and would not be
eligible for listing on the Nasdaq SmallCap Market. Removal of the Company's
Common Stock from inclusion in NMS or the ineligibility of the Company's Common
Stock to be listed on the Nasdaq SmallCap Market may make it more difficult to
sell the Common Stock or obtain timely and accurate quotations as to offers to
purchase and sell the Common Stock. In addition, the absence of a listing for
the Common Stock on the Nasdaq NMS or the Nasdaq SmallCap Market could result in
a decline in the trading volume of the Common Stock and could depress the price
of the Common Stock.
11
<PAGE>
PART II OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
The 1996 annual meeting of stockholders of the Company was held on March
20, 1997. The following person, who was the Company's sole nominee for
director, was elected at the meeting for a three year term:
Name Votes For Withheld
-------------------------- ---------- --------
Matthew Oristano 12,482,016 134,596
At the annual meeting the stockholders also voted on a proposal to
authorize an amendment to the Company's 1993 Stock Option Plan to increase the
number of shares issuable thereunder to 900,000 ("Option Proposal"). The
proposal was approved at the annual meeting with votes cast in the following
manner:
Proposal Votes For Votes Against Abstain
------------------ --------- ------------- -------
Option Proposal 12,289,355 208,319 2,400
There were 116,538 broker non-votes with respect to the Option Proposal.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(2) Not Applicable
(4) Not Applicable
(10) Not Applicable
(11) Statement regarding computation of per share earnings is not
required because the relevant computation can be determined
from the material contained in the Financial Statements
included herein.
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(20) Not Applicable
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(27) Financial Data Schedule
(28) Not Applicable
(b) Reports on Form 8-K
None
12
<PAGE>
Pursuant to the requirements to the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized
PEOPLE'S CHOICE TV CORP.
------------------------
(Registrant)
Date: May 15, 1997 By /s/ Charles F. Schwartz
-----------------------------
Name: Charles F. Schwartz
Senior Vice President and
Chief Financial Officer
and Principal Accounting Officer
13
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 28,640,230
<SECURITIES> 71,052,665
<RECEIVABLES> 2,318,409
<ALLOWANCES> 344,100
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 254,830,760
<DEPRECIATION> 62,908,859
<TOTAL-ASSETS> 314,970,228
<CURRENT-LIABILITIES> 0
<BONDS> 241,767,473
68,386,499
0
<COMMON> 129,248
<OTHER-SE> (4,147,583)
<TOTAL-LIABILITY-AND-EQUITY> 314,970,228
<SALES> 0
<TOTAL-REVENUES> 8,544,148
<CGS> 0
<TOTAL-COSTS> 4,731,575
<OTHER-EXPENSES> 6,173,068
<LOSS-PROVISION> 121,900
<INTEREST-EXPENSE> 7,690,238
<INCOME-PRETAX> (16,508,846)
<INCOME-TAX> 10,500
<INCOME-CONTINUING> (16,519,346)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,519,346)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> 0
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