<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, 1998
--------------
Commission File Number: 0-21920
People's Choice TV Corp.
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(Exact name of Registrant as specified in its Charter)
Delaware 06-1366643
- ---------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation 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: 12,923,817 shares as of May 13, 1998.
<PAGE>
PEOPLE'S CHOICE TV CORP.
-----------------------
INDEX
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PART I FINANCIAL INFORMATION PAGE(S)
- ---------------------------- -------
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1997
and March 31, 1998 2
Consolidated Statements of Operations for the Three
Month Periods Ended March 31, 1997 and 1998 3
Consolidated Statements of Stockholders'
Deficit for the Three Month Periods Ended
March 31, 1997 and 1998 4
Consolidated Statements of Cash Flows for the Three Month
Periods Ended March 31, 1997 and 1998 5
Notes to Consolidated Financial Statements 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8-10
PART II OTHER INFORMATION
- -------------------------
Items 1-5. OTHER INFORMATION 11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
- ----------
<PAGE>
PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 31,756,014 $ 27,486,909
Marketable securities 48,519,444 47,195,312
Subscriber receivables, net of allowance for doubtful accounts
of $265,000 and $240,000 2,378,429 2,166,309
Notes and other receivables 441,335 727,189
Prepaid expenses and other assets 3,077,795 3,143,226
Investment in wireless systems and equipment, at cost, net of
accumulated depreciation and amortization of $83,906,105
and $62,313,854 177,661,367 172,779,561
Organization and financing costs net of accumulated
amortization of $4,382,312 and $4,802,195 4,304,511 3,884,628
Excess of purchase price over fair market value of assets acquired
net of accumulated amortization of $1,599,915 and $1,757,233 10,985,486 10,828,168
------------ ------------
Total assets $279,124,381 $268,211,302
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Notes and other payables $256,465,030 $264,715,770
Accounts payable 4,476,400 3,607,238
Accrued expenses 4,363,357 4,658,834
Subscriber advance payments and deposits 2,500,002 2,451,684
Minority interest in consolidated subsidiaries 727,959 726,604
------------ -------------
Total liabilities 268,532,748 276,160,130
Commitments and Contingencies
Convertible Pay-In-Kind Preferred Stock,
liquidation preference $100 per share 66,342,313 67,957,003
PCTV Detroit cumulative preferred stock 6,457,872 6,457,872
Stockholders' Deficit:
Preferred stock, $0.01 par value, 4,323,242 shares authorized,
no shares issued and outstanding -- --
Common stock, $0.01 par value, 75,000,000 shares
authorized, 12,923,817 shares issued and
outstanding at December 31, 1997 and March 31, 1998 129,238 129,238
Additional paid-in capital 159,729,720 157,870,204
Warrants 3,756,840 3,756,840
Accumulated deficit (225,824,350) (244,119,985)
------------ ------------
Total stockholders' deficit (62,208,552) (82,363,703)
------------ ------------
Total liabilities and stockholders' deficit $279,124,381 $268,211,302
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
2
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PEOPLE'S CHOICE TV CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1997 1998
---- ----
<S> <C> <C>
Revenues $ 8,544,148 $ 6,998,678
------------ ------------
Costs and expenses:
Operating costs and expenses 10,904,643 10,630,483
Depreciation and amortization 8,040,455 7,372,868
------------ ------------
18,945,098 18,003,351
------------ ------------
Operating loss (10,400,950) (11,004,673)
Gain on sales and writedown of assets 167,925 145,402
Interest expense:
Non cash (7,334,268) (8,126,919)
Cash (355,970) (337,700)
Interest income and other 1,386,022 1,033,900
Minority interest 28,395 1,355
------------- -------------
Loss before income tax (16,508,846) (18,288,635)
Income tax expense 10,500 7,000
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Net loss (16,519,346) (18,295,635)
Preferred dividends (1,588,365) (1,859,516)
------------- -------------
Loss applicable to common shares $(18,107,711) $(20,155,151)
============= =============
Basic and diluted net loss per common share $ (1.38) $ (1.53)
============= =============
Weighted average number of common
shares outstanding 13,150,755 13,144,761
============= =============
</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' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(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, 1996 12,924,817 $ 129,248 $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)
========== ============ ============ ============= ==============
Balance, December 31, 1997 12,923,817 $ 129,238 $159,729,720 $ 3,756,840 $(225,824,350)
Net loss -- -- -- -- (18,295,635)
Dividends on Cumulative
Preferred Stock -- -- (244,826) -- --
Dividends on Convertible
Preferred Stock -- -- (1,614,690) -- --
---------- ------------ ------------ ------------- --------------
Balance, March 31, 1998 12,923,817 $ 129,238 $157,870,204 $ 3,756,840 $(244,119,985)
========== ============ ============ ============= ==============
</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 STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(16,519,346) $(18,295,635)
Adjustments to reconcile net loss to net cash used in operations-
Depreciation and amortization 8,040,455 7,372,868
Minority interest in subsidiaries (28,395) (1,355)
Amortization of original issue discount 7,124,469 8,126,919
Amortization of imputed discount on debt 209,799 --
Gain on sales and writedown of assets (167,925) (145,402)
Provision for losses on subscriber receivables 121,900 80,126
Changes in assets and liabilities-
Decrease in subscriber receivables 839,155 131,995
(Increase) decrease in notes and other receivables 95,511 (285,854)
Increase in prepaid expenses and other assets (156,537) (127,429)
Decrease in accounts payable (155,989) (869,162)
Increase (decrease) in accrued expenses (984,075) 295,476
Decrease in subscriber advance payments and deposits (500,980) (48,318)
------------ ------------
Net cash used in operating activities (2,081,958) (3,765,771)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (29,181,473) (16,653,941)
Proceeds principally from maturity of marketable securities 21,525,000 17,978,073
Proceeds from sales of assets 820,520 338,384
Acquisition of BTA/LMDS licenses (180,755) (711,264)
Investment in wireless systems and equipment (1,797,918) (797,710)
------------ ------------
Net cash (used in) provided by investing activities (8,814,626) 153,542
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable (1,637,160) (412,050)
Dividends on Cumulative Preferred Stock (129,821) (244,826)
Buyout of minority interest (2,000) --
------------ ------------
Net cash used in financing activities (1,768,981) (656,876)
------------ ------------
Net decrease in cash (12,665,565) (4,269,105)
Cash and cash equivalents, beginning of year 41,305,795 31,756,014
------------ ------------
Cash and cash equivalents, end of period $ 28,640,230 $ 27,486,909
============ ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amount capitalized $ 282,871 $ 275,991
Cash received for interest $ 1,085,954 $ 934,133
</TABLE>
Supplemental disclosures of noncash investing and financing activities:
During 1997 and 1998, the Company acquired frequency rights in exchange for
a note payable in the amount of $1,446,000 and $536,000, respectively.
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, 1998, the consolidated
statements of operations for the three months ended March 31, 1997 and 1998 and
the consolidated statements of stockholders' deficit and cash flows for the
three months ended March 31, 1997 and 1998 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, 1997 and 1998 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, 1997 included in the
Company's filing on Form 10-K. The results of operations for the three month
periods ended March 31, 1997 and 1998 are not necessarily indicative of the
operating results for the full year.
(2) Basic and Diluted Earnings per Share:
In 1997, the Company adopted Statement of Accounting Standards ("SFAS")
No. 128, "Earnings per Share". There was no effect on earnings per share for the
three month periods ended March 31, 1997 and 1998. The basic and diluted net
loss per common share has been computed based on the weighted average of common
shares outstanding. The 1997 and 1998 shares also include common equivalent
shares issuable upon exercise of certain outstanding stock options and warrants.
(3) Commitments and Contingencies:
There are certain claims against the Company which are incidental to
the ordinary course of business. In the opinion of management, the ultimate
resolution of these claims will not have a material effect on the financial
statements.
(4) Local Multipoint Distribution Service ("LMDS") Auction:
On February 18, 1998, the FCC commenced an auction in the LMDS. LMDS
operates at a higher frequency than MDS and has a shorter transmission range,
requiring the use of multiple cells in order to serve an entire market. Within
each of the 493 Basic Trading Areas ("BTA's") being auctioned there are two
frequency blocks, an "A block" and a substantially smaller "B block" of
spectrum. The Company participated in the auction as a designated entity which
entitles it to be a small business bidder for the Phoenix, Arizona "B block"
license and the Prescott, Arizona "A block" license. To participate in the
auction, the Company deposited $20,250,000 with the FCC. The total payment
required to the FCC for the two licenses is $3,221,400, which amount includes
the Company's small business discount. The FCC has returned to the Company the
deposit less 20% of the amount owed for the two licenses. The remaining amount
owed for the licenses will be paid when the licenses are granted by the FCC.
(5) Subsequent Events:
The Company recently filed a registration statement with the Securities
and Exchange Commission relating to exchange offers being made by it to holders
of its 13 1/8% Senior Discount Notes due 2004 and Convertible Cumulative
Pay-in-Kind Preferred Stock (the "Preferred Stock"). On terms set forth in the
prospectus that is a part of the registration statement, PCTV has offered to
exchange (i) up to $85,000,000 principal amount at maturity ($58,048,703 initial
accreted value) of its new 13-1/8% Senior Subordinated Discount Notes due 2003
("New Discount Notes"), 4,887,267 shares of PCTV's Common Stock, par value $.01
per share (the "Common Stock") and $42,500,000 cash for all of its outstanding
$332,000,000 principal amount at maturity ($260,188,523 accreted value at June
30, 1998) of its Old Discount Notes (the "Debt Exchange Offer"); and (ii) up to
$15,000,000 principal amount at maturity ($10,243,889 initial accreted value) of
its New Discount Notes and 2,597,054 shares of Common Stock for all of its
outstanding Preferred Stock (the "Preferred Stock Exchange Offer"). After the
consummation of the exchange offers, PCTV would have 20,408,138 shares of Common
Stock outstanding.
Consummation of the exchange offers are subject to a number of
conditions, including, but not limited to, minimum participation levels, receipt
of a new senior secured credit facility, and stockholder approvals. The Company
cannot predict at this time whether the proposed Debt Exchange Offer and
Preferred Stock Exchange Offer will be successfully consummated. The primary
benefit of the successful consummation of the exchange offers would be to
significantly de-leverage the Company's balance sheet thereby enhancing the
Company's financial flexibility in pursuing its strategic business plan.
6
<PAGE>
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 compressed digital
video service and/or develop a high speed internet access service, 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, 1997.
RESULTS OF OPERATIONS:
Strategic Direction
- -------------------
The Company's strategy has been to continue conservation of capital
pending (i) the launch of the Company's high-speed data communications service
marketed under the name SpeedChoice(TM) (described below under "Liquidity and
Capital Resources") and (ii) the implementation of digital video technology. The
Company first began offering the SpeedChoice high-speed data communications
service in the Detroit market in October 1997 and in the Phoenix market in March
1998. With respect to the Company's proposed digital video system, the Company
is currently working to resolve certain technical issues relating to the desired
performance of the system. The Company now expects the launch of a compressed
digital video service to occur in the second half of 1998. When the Company
offers this service in a market, it anticipates that it will offer the service
in conjunction with the offering of the SpeedChoice service. The Company
believes that the implementation of digital video technology will expand its
video product offering, and, in conjunction with the offering of the SpeedChoice
service, will enhance the Company's ability to attract and retain customers.
Both the SpeedChoice service and digital video are new products for the Company
and there can be no assurance that the Company will be able to attract and
retain the customer base necessary to compete successfully with existing
competitors or new entrants in the market for video programming and high-speed
data communications services.
Revenues
- --------
Revenues decreased $1.5 million or 18.1% from the three month period
ended March 31, 1997 to 1998. The decrease is principally attributable to a
lower customer count resulting from the Company's suspension of the growth of
its analog video customer base and lower third party installation revenues. The
decrease in customer count was also affected by the sale of 8,800 multiple
dwelling units in December 1997 which accounted for 3,900 customers. Customer
count decreased from 76,600 at March 31, 1997 to 65,100 at March 31, 1998, or
15%. Customer count was 67,300 at December 31, 1997.
7
<PAGE>
Operating Costs and Expenses
- ----------------------------
Operating costs and expenses decreased $.3 million or 2.5% from the
three month period ended March 31, 1997 to 1998 primarily due to suspending the
growth of the analog video customer base, primarily salaries and related
benefits and programming costs. In addition, there was a decrease in costs
associated with third party installations and professional fees. Partially
offsetting these decreases are costs incurred for the launch of the high-speed
data communications service.
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, 1997 to 1998 principally due to a decrease in amounts
capitalized due to the Company's suspending the growth of its analog video
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 begin to increase as a result of capital expenditures for the
high-speed data communications and digital video technology.
Operating Loss
- --------------
Operating loss increased to $11.0 million from $10.4 million for the
three months ended March 31, 1998 from the comparable period of the prior year
principally due to the aforementioned decrease in revenues, partially offset by
decreases in operating costs and expenses and depreciation and amortization.
Cash flows from operating activities decreased to $(3.8) million from $(2.1)
million primarily due to a decline in earnings before interest, taxes,
depreciation and amortization of $1.3 million and interest income, net of cash
interest expense of $.3 million.
Gain on Sales and Writedown of Assets
- -------------------------------------
Gain on sales and writedown of assets for the 1998 period includes a
$175,000 gain on sale of a non-strategic frequency, offset by a $30,000
writedown of other assets to net realizable value.
Gain 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.
Interest Expense
- ----------------
Interest expense was $8.5 million for the three months ended March 31,
1998 compared to $7.7 million in the corresponding 1997 period. The increase in
interest expense from 1997 to 1998 was a result of the accretion of the Senior
Discount Notes. Non-cash interest expense totaled $8.1 million for the three
month period ended March 31, 1998 compared to $7.3 million in the corresponding
1997 period.
Interest Income and Other
- -------------------------
Interest income and other was $1.0 million for the three months ended
March 31, 1998 compared to $1.4 million in the corresponding 1997 periods.
Interest income decreased $.4 million from the three months ended March 31, 1997
to 1998 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.
Net Loss
- --------
For the three month period ended March 31, 1998, the Company incurred
net losses of approximately $18.3 million compared to $16.5 million for the
comparable 1997 periods. These net losses are principally attributable to the
significant expenses 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 communications systems.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash, cash equivalents and marketable securities decreased to $74.7
million at March 31, 1998 from $80.3 million at December 31, 1997, a decrease of
$5.6 million. This decrease is primarily attributable to cash used in operating
activities, investment in wireless systems and equipment, repayment of notes
payable and payment of preferred stock dividends, partially offset by proceeds
from sales of assets.
The wireless communications business is a capital intensive business.
The Company's operations require substantial capital investment for (i) the
acquisition or leasing of wireless frequency 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.
The Company launched a high-speed data communications service in the
Detroit market in October 1997 and in the Phoenix market in March 1998. The
service is being marketed under the name SpeedChoice(TM). At this time, the
SpeedChoice service does not have a material number of customers. The Company's
ability to further develop the SpeedChoice service may be affected by a number
of factors: first, the Company has never operated such a service and the
technology may not perform adequately when material levels of customers are
receiving the 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 cable modem, T-1, ADSL, other
wireless frequencies and other new technologies and telecommunications services
providers may prevent the Company from successfully developing further the
SpeedChoice service; and fourth, because the Company has never previously
operated any data communications system, there may be other financial,
marketing, technological, customer service, billing, operational or management
issues that prevent the Company from successfully developing further the
SpeedChoice service.
With respect to the Company's proposed digital video system, the
Company is currently working to resolve certain technical issues relating to the
desired performance of the system. The Company now expects the launch of a
digital video service to occur in the second half of 1998. When the Company
offers this service, it anticipates that it will offer the service in
conjunction with the offering of the SpeedChoice service in the same market. As
disclosed previously, based on its expected transition to a digital video
service, the Company does not plan to add to its analog customer base.
The Company anticipates that the development of its wireless
communications systems with high-speed data communications service and digital
technology will involve capital expenditures higher than those involved in
implementing analog technology because of the costs associated with the addition
of a new product line, high-speed data communications, and increased costs for
the more complex converter boxes and other equipment which utilize the digital
technology. The Company estimates that it will spend $18.5 million in 1998 on
capital expenditures. The Company has spent $1.5 million of this $18.5 million
in the three months ended March 31, 1998. Also in 1998, the Company will make
$4.1 million in expenditures for required debt payments of which $.4 million has
been spent in the three months ended March 31, 1998. To fund such 1998 capital
expenditures and debt payments, the Company anticipates using the Company's
available cash and marketable securities.
The Company has entered into an agreement with General Instruments
Corporation (GIC") pursuant to which the Company is obligated to purchase 50,000
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
Company's anticipated 1998 payments for converter boxes under the terms
described above have been included in the Company's estimates of capital
expenditures for 1998. 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 in its Chicago, Houston, and Phoenix markets. 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 250
properties containing 51,000 individual units located in Houston, Phoenix and
Chicago, which represents approximately 17,000 analog video customers. The
Company has entered into a letter of intent to sell the Chicago and Phoenix
service contracts and is in
9
<PAGE>
discussions to sell its Houston service contracts. It is uncertain whether a
definitive agreement will be executed or whether any such transaction will be
completed.
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
internet and digital 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 communications systems in
the Company's major markets referred to above in subsequent years, the
development of the Company's other markets, acquisitions of additional wireless
frequency rights and wireless communications 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 recently filed a registration statement with the Securities
and Exchange Commission relating to exchange offers being made by it to holders
of its 13 1/8% Senior Discount Notes due 2004 and Convertible Cumulative
Pay-in-Kind Preferred Stock (the "Preferred Stock"). On terms set forth in the
prospectus that is a part of the registration statement, PCTV has offered to
exchange (i) up to $85,000,000 principal amount at maturity ($58,048,703 initial
accreted value) of its new 13-1/8% Senior Subordinated Discount Notes due 2003
("New Discount Notes"), 4,887,267 shares of PCTV's Common Stock, par value $.01
per share (the "Common Stock") and $42,500,000 cash for all of its outstanding
$332,000,000 principal amount at maturity ($260,188,523 accreted value at June
30, 1998) of its Old Discount Notes (the "Debt Exchange Offer"); and (ii) up to
$15,000,000 principal amount at maturity ($10,243,889 initial accreted value) of
its New Discount Notes and 2,597,054 shares of Common Stock for all of its
outstanding Preferred Stock (the "Preferred Stock Exchange Offer"). After the
consummation of the exchange offers, PCTV would have 20,408,138 shares of Common
Stock outstanding.
Consummation of the exchange offers are subject to a number of
conditions, including, but not limited to, minimum participation levels, receipt
of a new senior secured credit facility, and stockholder approvals. The Company
cannot predict at this time whether the proposed Debt Exchange Offer and
Preferred Stock Exchange Offer will be successfully consummated. The primary
benefit of the successful consummation of the exchange offers would be to
significantly de-leverage the Company's balance sheet thereby enhancing the
Company's financial flexibility in pursuing its strategic business plan.
On March 2, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") advised the
Company that its Common Stock was scheduled to be delisted from the Nasdaq
SmallCap Market as a result of the Company's failure to satisfy a certain market
capitalization maintenance standard. This maintenance standard requires that the
aggregate market value of the Company's Common Stock must equal or exceed $35
million. Currently, the Company does not satisfy this maintenance standard. In
addition, the Company does not currently satisfy the two independent director
requirement of the Nasdaq SmallCap Market. In accordance with Nasdaq rules, the
Company requested a temporary exception to this maintenance standard so that its
Common Stock could continue to be listed on the Nasdaq SmallCap Market. The
Company requested a temporary exception that would continue for a period of
ninety days. Pursuant to a letter from Nasdaq dated May 4, 1998, the Company's
request for such a temporary exception was denied. In accordance with Nasdaq
rules, the Company has requested a review of this denial by a new hearings
panel. The grant of any such temporary exception to this maintenance standard by
the new hearings panel would be in the sole discretion of Nasdaq and the Company
is unable to speculate as to whether any such exception is likely to be granted
by such new hearings panel. If Nasdaq refuses to grant an exception, the
Company's Common Stock will be delisted from the Nasdaq SmallCap Market. After
such a delisting, it may become difficult to make purchases and sales of the
Company's Common Stock or obtain timely and accurate quotations with respect to
trading of the Company's Common Stock.
10
<PAGE>
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(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.
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
11
<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 13, 1998 By /s/ Charles F. Schwartz
--------------------------
Name: Charles F. Schwartz
Senior Vice President and
Chief Financial Officer
and Principal Accounting Officer
12
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 27,486,909
<SECURITIES> 47,195,312
<RECEIVABLES> 2,406,309
<ALLOWANCES> 240,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 235,093,415
<DEPRECIATION> 62,313,854
<TOTAL-ASSETS> 268,211,302
<CURRENT-LIABILITIES> 0
<BONDS> 264,715,770
74,414,875
0
<COMMON> 129,238
<OTHER-SE> (82,492,941)
<TOTAL-LIABILITY-AND-EQUITY> 268,211,302
<SALES> 0
<TOTAL-REVENUES> 6,998,678
<CGS> 0
<TOTAL-COSTS> 4,685,230
<OTHER-EXPENSES> 5,945,253
<LOSS-PROVISION> 80,126
<INTEREST-EXPENSE> 8,464,619
<INCOME-PRETAX> (18,288,635)
<INCOME-TAX> 7,000
<INCOME-CONTINUING> (18,295,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,295,635)
<EPS-PRIMARY> (1.53)
<EPS-DILUTED> 0.00
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