**SECURITIES AND EXCHANGE COMMISSION**

Washington, DC 20549

**FORM 10-K**

For Annual andTransition Reports to Section 13 or 15(d) of the

SecuritiesExchange Act of 1934

(Mark one)

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| ý                                                                                                                                                                                                                                                                                                                                                |   | **Annual Report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934.**                      |
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|                                                                                                                                                                                                                                                                                                                                                  |   | **For  the fiscal year ended December 31, 2001**                                                                |
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|                                                                                                                                                                                                                                                                                                                                                  |   | **or**                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                                            |
| o                                                                                                                                                                                                                                                                                                                                                     |   | **Transition report pursuant to Section 13 or  15(d) of the Securities Exchange Act of 1934 (No fee required)** |
|                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                                            |
| **For  the transition period from                          to                           .** |
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| **Commission  file number 0-28362**                                                                                                                                                                                                                                                                                                                   |

** **

**ClearComm,L.P.**

(Exact Name of Registrant as Specified in its Charter)

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| **Delaware**                                                                                                                                                             |   | **66-0514434**      |
| (State or Other  Jurisdiction of                                                                                                                                         |   | (I.R.S. Employer    |
| Incorporation or  Organization)                                                                                                                                          |   | Identification No.) |
| **268 Muñoz Rivera Ave.**                                                                                                                                           |   |                |
| **Suite 2206**                                                                                                                                                           |   |                |
|                                                                                                                                                                     |   |                |
| **Hato  Rey, Puerto Rico**                                                                                                                                               |   | **00918-1913**      |
| (Address of  Principal Executive Offices)                                                                                                                                |   | (Zip Code)          |
|                                                                                                                                                                     |   |                |
|                 Registrant’s  Telephone Number, Including Area Code: **(787)  620-0140** |
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|                 Securities  registered pursuant to Section 12(b) of the Act:                  |
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|                 Name of Each Exchange                                                         |
|                 Title of Each Class on Which  Registered                                      |
|                 Securities  registered pursuant to Section 12(g) of the Act:                  |

 

Units of LimitedPartnership Interest

(Title of class)

 

Indicate by check markwhether the registrant: (1) has filed all reports  required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of  1934 during thepreceding 12 months (or for such shorter period that the  registrant was required to file suchreports), and (2) has been subject to  suchfiling requirements for the past 90 days. Yes  ý    No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  o

The Registrant’soutstanding securities consist of units of limited partnership interests whichhave no readily ascertainable market value since there is no public tradingmarket for these securities on which to base a calculation of aggregate marketvalue.

Documentsincorporated by reference.         None.

 

 

### **TABLEOF CONTENTS**

|           |                                                                                            |   |
|----------------|-------------------------------------------------------------------------------------------------|--------|
| Part I         |                                                                                            |
|           |                                                                                            |   |
| Item 1.        | Business                                                                                        |   |
| Item 2.        | Properties                                                                                      |   |
| Item 3.        | Legal Proceedings                                                                               |   |
| Item 4.        | Submission of Matters to a Vote of Security  Holders                                            |   |
|           |                                                                                            |   |
| Part II        |                                                                                            |
|           |                                                                                            |
| Item 5.        | Market for Registrant’s Common Equity and  Related Stockholder Matters                     |   |
| Item 6.        | Selected Financial Data                                                                         |   |
| Item 7.        | Management’s Discussion and Analysis of Financial  Consideration and Results of Operations |   |
| Item 7A.       | Quantitative And Qualitative Disclosures About  Market Risk                                     |   |
| Item 8.        | Financial Statements and Supplementary Data                                                     |   |
| Item 9.        | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure           |   |
|           |                                                                                            |   |
| Part III       |                                                                                            |
|           |                                                                                            |
| Item 10.       | Directors and Executive Officers of the Registrant                                              |   |
| Item 11.       | Executive Compensation                                                                          |   |
| Item 12.       | Security Ownership of Certain Beneficial Owners  and Management                                 |   |
| Item 13.       | Certain Relationships and Related Transactions                                                  |   |
|           |                                                                                            |   |
| Part IV        |                                                                                            |
|           |                                                                                            |
| Item 14.       | Exhibits, Financial Statement Schedules, and  Reports on Form 8-K                               |   |
|           |                                                                                            |   |
| SIGNATURES     |                                                                                            |
|           |                                                                                            |   |
| EXHIBITS INDEX |                                                                                            |
|           |                                                                                            |   |

 

##### **FORWARD-LOOKINGSTATEMENTS**

This Form 10-K and futurefilings by the Partnership on Form 10-Q and Form 8-K and future oral andwritten statements by the Partnership may include certain forward-looking statements,including (without limitation) statements with respect to anticipated futureoperating and financial performance, growth opportunities and growth rates,acquisition and divestitive opportunities, and other similar forecasts andstatements of expectation. Words such as “expects,” “anticipates,” “intends,”“plans,” “believes,” “seeks,” “estimates,” and “should,” and variations ofthese words and similar expressions, are intended to identify theseforward-looking statements. Forward-looking statements by the Partnership are based on estimates,projections, beliefs and assumptions of management and are not guarantees offuture performance. The Partnership disclaims any obligation to update orrevise any forward-looking statement based on the occurrence of future events,the receipt of new information, or otherwise.

Actual futureperformance, outcomes and results may differ materially from those expressed inforward-looking statements made by the Partnership as a result of a number ofimportant factors.  Examples of thesefactors include, without limitation, failure to develop the Partnership’s PCSlicenses in California due to an inability to obtain satisfactory financing orpartners; rapid technological developments and changes in thetelecommunications industry; ongoing deregulation (and the resulting likelihoodof significantly increased price and product/service competition) in thetelecommunications industry as a result of the Telecommunications Act of 1996and other similar federal and state legislation and the federal and state rulesand regulations enacted pursuant to that legislation; regulatory limitations onthe Partnership’s ability to compete in the telecommunications servicesindustry; and continuing consolidation in the telecommunications servicesindustry.  In addition to these factors,actual future performance, outcomes and results may differ materially becauseof other, more general, factors including, without limitation, general industryand market conditions and growth rates, domestic and international economicconditions, governmental and public policy changes and the continuedavailability of financing in the amounts, at the terms and on the conditionsnecessary to support the Partnership’s future business.

##### **ITEM 1****.  BUSINESS**

###### **General**

ClearComm, L.P., aDelaware limited partnership (the “Partnership”), was formed on January 24,1995 under the name PCS 2000, L.P., to own and operate broadband personalcommunications services (“PCS”) licenses to be acquired in auctions conductedby the Federal Communications Commission (the “FCC”).  The Partnership competed for PCS licenses in frequency Block C,set aside for “designated entities” (“Entrepreneurs”) that met certainfinancial and equity structure requirements and that qualify for certain benefitsunder rules, regulations and policies of the FCC and related statutoryprovisions (“FCC Rules”).

 

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The Partnership, throughits majority-owned subsidiary, NewComm Wireless Services, Inc. (“NewComm”),owns and operates a state-of-the-art PCS network in Puerto Rico (the “PuertoRico Network”).  The Partnershipdirectly or indirectly through NewComm owns two 15 MHz C-Block PCS licensescovering the entire island of Puerto Rico (the “Puerto Rico Licenses”) andfour  15 MHz licenses in California (the“California Licenses,” and together with the Puerto Rico Licenses, the“Licenses”).   Since January 2002, thePartnership has been offering wireless DSL service throughout certain areas inCalifornia under the California Licenses and in compliance with the FCC’sbuild-out requirements.

The Agreement of LimitedPartnership of the Partnership (the “Partnership Agreement”) provides that thePartnership will terminate on December 31, 2005. The Partnership will dissolveon such date (unless terminated earlier or unless the Partnership Agreement isamended to change such date).

###### **The Puerto Rico Network**

The Partnership startedbuilding its Puerto Rico Network during the first quarter of 1999 and thesystem commenced commercial operations on September 24, 1999.  The Partnership was the fifth entrant intothe Puerto Rico wireless telecommunications market.  It currently provides wireless coverage in the areas where 95% ofthe Puerto Rico wireless traffic occurs. The Partnership has established points of sale in all major shoppingdistricts and has over 250 points of sale throughout Puerto Rico.  The Partnership believes that it currentlyhas approximately 15% of the Puerto Rico wireless market.

To build and operate itsPuerto Rico network, the Partnership entered into an agreement, dated February4, 1999 (the “TLD Agreement”) with Telefónica Larga Distancia de Puerto Rico,Inc. (“TLD”).  TLD is a wholly ownedsubsidiary of Telefónica Internacional, S.A. which is a member of theTelefónica, S.A. group (Ticker: TEF) (the “Telefónica Group”), Spain’s largesttraded company and one of the world’s largest telecommunication companies.  Telefónica Móviles (Ticker:  TEM), the wireless communications affiliateof Telefónica, currently has approximately 25 million subscribersworld-wide.  Pursuant to the terms ofthe TLD Agreement, the Partnership transferred the Puerto Rico Licenses andassociated business plans and studies to NewComm.  TLD provided NewComm a loan of approximately $19.96 million andreceived a secured convertible promissory note (the “Note”) which entitles TLDto select a director for one of the five NewComm board of director seats (the“Board”).  The Note is convertible into49.9% of NewComm’s equity.  The Notecannot be converted, however, until the FCC authorizes TLD to hold more than a25% equity interest in NewComm.  NewCommand TLD entered into a management agreement whereby TLD provides day-to-daymanagement services for NewComm, subject to the supervision of NewComm’sBoard.  Pursuant to a certain StockPurchase Agreement dated as of March 12, 2002, by and between the Partnershipand TLD, the Partnership has agreed to sell 0.2% control interest at marketvalue to TLD.  The transfer of thiscontrol interest and validity of the agreement is subject to FCC approval.  This Stock Purchase Agreement, in additionto FCC approval, requires TLD to secure a permanent  Project Finance Facility of approximately $175 million no laterthan July 15, 2002.  Together with theStock Purchase Agreement and as part of the transaction a Shareholders’Agreement and a Sale Agreement were executed between the parties.  The Shareholders’ Agreement provides for a 

 

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great number ofgeneral and specific protections and rights for the Partnership as a minorityshareholder in NewComm.  The SaleAgreement provides for a convenient exit for the Partnership from NewComm.  Under the Joint Venture Agreement thePartnership’s principal means of exiting from NewComm was by exercisingRegistration Rights against TLD.  Due toTelefónica’s re-organization and new market conditions, the possibility ofpublicly registering  an exclusivewireless service company in the Puerto Rico market is very unlikely.  However, under the Sale Agreement, thePartnership can force the sale of NewComm at any time after May 12, 2003.

The new Sale Agreementprovides that after 14 months from March 12, 2002 (i.e. May 12, 2003)either party (ClearComm or TLD) may trigger a shareholder obligation to sellNewComm.  Within 30 days of a notice ofsale, TLD (or ClearComm as the case may be) would have the right to purchaseClearComm’s (or TLD’s) interest.  Thepurchase price to be paid at that time would be based on a valuation performedby an internationally recognized investment banking firm selected by bothparties.  If TLD does not exercise itsright to buy out ClearComm’s interest, TLD is bound together with ClearComm toproceed with the sales process to attempt a sale of NewComm.  TLD and ClearComm are bound to accept thehighest price proposed by an interested buyer, which price must be payable incash or freely tradable securities, or a combination thereof, and which must befor a price not less than the valuation prepared by the investment banker.  At the closing of the sale the ManagementAgreement and the Technology Transfer Agreement held by TLD will terminatewithout compensation, and no premium for controlling interest or discount forholding a minority interest in NewComm will apply.

The Sale Agreement shallcontinue in full force and effect even if the Stock Purchase Agreement withTLD, for whatever reason, does not close.

The Partnership’s PuertoRico Network operates under the image and brand name “MoviStar.”  MoviStar is the PCS brand name of theTelefónica Group in Spain and certain other countries in Latin America.  The Puerto Rico Network is astate-of-the-art CDMA (“Code Division Multiple Access”) network.  Pursuant to a roaming agreement with SprintPCS, MoviStar customers have mainland U.S. coverage.

Lucent Technologies, Inc.(“Lucent”) built the Puerto Rico Network on behalf of NewComm.  The Partnership continues optimizing thenetwork to maintain and offer better quality service to its customers.

###### **The Puerto Rico Market**

The Partnership believesthat the Puerto Rico market provides many unique advantages fortelecommunications companies.  PuertoRico is politically stable, as it has been a territory of the United Statessince 1898 and its economy is fully integrated with that of the United Statesmainland.  It has the Caribbean’s besteducated, most skilled labor force and the most sophisticated manufacturing andtransportation infrastructure.  PuertoRico has a solid base of major manufacturers which includes Hewlett-PackardCompany, Microsoft Corporation, BASF Corporation, Colgate-Palmolive, Johnson& Johnson, and Pfizer Pharmaceutical. Along with its U.S.-linked stability, Puerto Rico offers the advantageof emerging market type growth and a significant cash based economy.  The Partnership believes that current percapita income and 

 

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consumption inPuerto Rico, combined with continued economic growth will supportcontinued  demand for the high qualitytelephone services which the Partnership is offering.

###### **Competition in Puerto Rico**

The continued success ofthe Partnership’s PCS business in Puerto Rico will depend upon its ability tocompete with the two cellular operators and three operating PCS providers,potential competition from two other PCS licensees and potential futurewireless communications providers in the Puerto Rico market.    The Partnership expects that the existingcellular providers will upgrade their networks to provide comparable servicesin competition with the Partnership. The Partnership also faces competition from other existingcommunications technologies such as conventional mobile telephone service,specialized mobile radio (“SMR”) and enhanced specialized mobile radio(“ESMR”).  The Partnership believes thatESMR will have a limited competitive impact against PCS, particularly in theconsumer mass market sector, largely because of technical limitations andlimited bandwidth.  In the future, PCSis expected to compete more directly with traditional landline telephoneservice providers and other technologies including mobile satellitesystems.  In addition, the availabilityof new spectrum and resale of existing spectrum and the entry of newparticipants, may result in increased competition in the Puerto Ricomarket.  At the end of 2001, Puerto Ricohad a wireless market penetration of approximately 33% while the United Statesmainland ended the same year with an approximate market penetration of 45%.  Market research reflects that Puerto Rico shouldattain a market penetration of 47% by the end of 2004.

###### **Markets**

The following table setsforth as of December 31, 2001, with respect to each Market in which thePartnership owns a PCS license, the estimated persons of population (“POPs”).
| **Market Name**        |   | **1997 POPs*** |   | **1990  POPs**** |   |
|------------------------|--------|----------------|--------|------------------|--------|
| San Juan, PR           |   | 2,688,000      |   | 2,170,250        |   |
| Mayaguez-Aguadilla, PR |   | 1,083,000      |   | 1,325,600        |   |
| Modesto, CA            |   | 487,000        |   | 418,980          |   |
| Redding, CA            |   | 284,000        |   | 253,260          |   |
| Merced, CA             |   | 227,000        |   | 192,710          |   |
| Eureka, CA             |   | 157,000        |   | 142,580          |   |
| Total:                 |   | 4,927,000,     |   | 4,503,380        |   |

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**              Basedon the Paul Kagan 1998 PCS Atlas and Databook.*

***           Basedon the 1990 census figures used by the FCC.*

 

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On August 28, 2001, thePartnership entered into a Purchase and Sale Agreement with Leap WirelessInternational (“Leap Wireless”), pursuant to which the Partnership sold theVisalia license to Leap Wireless in exchange for $9,500,000 cash payment. Thissale was approved by the FCC and it closed on June 8, 2001.

###### **Regulation**

Overview

In 1993, Congress adoptedthe Omnibus Budget Reconciliation Act of 1993 (the “Reconciliation Act”) which,among other things, mandated auctions for the award of certain FCC licenses,including PCS licenses.  Pursuant toauthority granted to the FCC by the Reconciliation Act, the FCC awarded PCSlicenses through a process of competitive bidding auctions in which there weremultiple applications for the same license (the “Auctions”).

PCS is a radio-basedtransmission technology which, like cellular technology, uses the samefrequencies repeatedly in a multiple-transmitter cell design.  PCS is a digital technology, capable ofnumerous advanced service features, including caller-ID, voice-prompting,voice-recognition, scrambled (secure) calling, message and image delivery,intelligent call transfer and follow-me calling, single number service (thesame number can be assigned to multiple PCS telephones in different locations)and auto-trace of crank callers. The Partnership has been offering E-mail andinternet access from its handsets since June 2000.  The Partnership began offering wireless banking services inOctober 2000.  The Partnership alsopioneered in the Puerto Rico market short text messaging services from itshandsets in October 2001.  An average ofa million messages a month are being sent among subscribers within the network.

Frequency Blocks

The FCC has divided PCSinto six frequency blocks, designated Blocks A through F, such that there aresix overlapping licenses in each market in each geographic area of thecountry.  Blocks A, B and C are 30 MHzblocks, and Blocks D, E and F are 10 MHz blocks.  The FCC has created new C2 blocks of 15 MHz in certain markets includingPuerto Rico and California.

EntrepreneurClasses and Economic Preferences

Block C and F licenseswere reserved for Entrepreneurs meeting certain limiting criteria set forth inFCC Rules.  Entrepreneurs were granted aset of economic preferences in the Auctions. Under FCC Rules, an Entrepreneur is defined as an entity that, togetherwith its affiliates and persons or entities that hold attributable interests insuch entity and their affiliates, has less than (i) $500 million of assets, and(ii) $125 million of annual gross revenue over the prior two years.  In addition, FCC Rules define three classesof Entrepreneurs, with each class eligible for different economic preferencesin the Blocks C and F Auctions.  ThePartnership’s Entrepreneur qualification is as a “Small Business,” which is anentity that had less than $40 million of aggregate annual gross revenueaveraged over the last three years, at the date of grant of the license.

Small Businesses areentitled to make interest-only payments for the first six years and 

 

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can amortizeinterest and principal over the remaining four years of the license term.  The interest rate applicable to SmallBusinesses is the 10-year treasury note rate at the date of grant of thelicense.  In addition, Small Businesseswere entitled to a bidding credit of 25%. In March 1997, the FCC issued an order suspending indefinitely interestpayments on all Block C licenses; however, interest continued to accrue.  Ultimately, in accordance with the FCCprocedures specified in the FCC’s March 24, 1998 Order on Reconsideration ofthe Second Report and Order (the “Reconsideration Order”), the Partnershipcommenced interest payments during July, 1998.

Build-OutRequirements

All PCS license holdersare required to meet certain requirements imposed by the FCC relating to theprovision of service in each license area. Block C license holders must providecoverage to one-third of the POPs in each license service area within fiveyears of license grant and two-thirds of the POPs in each license service areawithin ten years of license grant. These periods were rescheduled by the FCC to begin on June 8, 1998.  Failure to comply with the build-outrequirements could subject the Partnership to license forfeiture or otherpenalties, and may have a material adverse effect on the financial condition ofthe Partnership.  The Partnership hascomplied with its build out requirements for the Puerto Rico Licenses and theCalifornia Licenses.

###### Employees

The Partnership,including its wholly owned subsidiary NewComm, had approximately 300 employeesat the end of 2001.

##### **ITEM 2****.  PROPERTIES**

The Partnership leasesoffice space in Hato Rey and Guaynabo, Puerto Rico.  In connection with the build-out by NewComm of the Partnership’sPuerto Rico Network, NewComm leases sites where its telephone switchingequipment, relay stations and other equipment are located, as well as sites andkiosks in malls and shopping centers where it sells its services to the public.

##### **ITEM 3****.  LEGAL PROCEEDINGS**

Sprint/Centennial

On September 21, 2001,Newcomm Wireless Services, Inc. d/b/a MoviStar (“MoviStar”) filed a *Complaint*and*Motionand Memorandum of Law Requesting Temporary Restraining Order and PreliminaryInjunction* in the Federal District Court for the District of PuertoRico, which alleged serious and unlawful interruptions, interferences andirreparable damages to MoviStar’s operations rising out of Sprint’s refusal tobroadcast a SID for the Puerto Rico market

 

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 that will not interfere with the servicespresently being offered by MoviStar to its subscribers.  During October 15th to 18th,2001, the District Court held an evidentiary hearing related to the injunctiverelief sought.  In its *Opinion andOrder* of**October 29, 2001, the District Courtordered Sprint to “immediately cease and desist from using SID 5142 and/or anyother SID which similarly interferes with plaintiff’s operations in PuertoRico.”

On October 30, 2001,Centennial filed a *Motion of Intervention of Right* in whichit requested leave from the District Court to join the Sprint litigation.  Despite MoviStar’s opposition, the DistrictCourt granted Centennial’s motion on November 5, 2001.  Both Sprint and Centennial are currentlyappealing, in the First Circuit Court of Appeals, the injunctive relief grantedby the District Court of Puerto Rico. On April 6, 2002, the First Circuit Court of Appeals issued an orderreversing the injunction release.  On orabout April 20, 2002, MoviStar plans to file a Petition for a Re-Hearing.

PRAICO

This is a civil actionfor breach of contract and collection of moneys before the Superior Court ofSan Juan on September 17, 2001, wherein the NewComm Wireless Services, Inc.(“NewComm”) is suing the Puerto Rican American Insurance Company (“PRAICO”)demanding the payment of claims made by NewComm under insurance policies issuedby PRAICO.  NewComm attempts to recoverfour million dollars ($4,000,000) against PRAICO to recover from PRAICO underan insurance policy issued by that company to cover theft and damages ofhandsets sold to the public.  The fourmillion dollar claim covers approximately four thousand (4,000) phones reportedas either lost or stolen.  The complainthas been filed but no answer has been filed to date.  The parties are currently in negotiations for a settlement of thesubject claim.  PRAICO has offered thesum of two million dollars ($2,000,000) as settlement.  NewComm has made a counteroffer of threepoint eight million dollars ($3,800,000).

Puerto RicoTelecommunications Regulatory Board

On January 31,2002, NewComm filed a *Petition for Arbitration* before the PuertoRico Telecommunications Regulatory Board (“PRTRB”) whereby NewComm petitionsPRTRB for arbitration of rates, terms and conditions for interconnection andrelated arrangements in conjunction with a revised interconnection agreementbetween NewComm and the Puerto Rico Telephone Company (“PRTC”).

Jaime L. Santiago

On February 22, 2002,MoviStar answered a complaint filed by Jaime Luis Santiago Cajigas allegingdamages based on Law 44 of December 20, 1991, 1 L.P.R.A. § 501 et. seq., whichis Puerto Rico’s Law Against Discrimination Based on Disability. The plaintiffis also alleging damages under the Americans With Disabilities Act (ADA). Thedamages alleged against all defendants amounts to $1,000,000.00. The plaintiffis also claiming equitable 

 

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remedies such asreinstatement to his former employment, with reasonable accommodation, costsand attorneys fees. The next step for the parties is to initiate discovery inthis case.  Once discovery is completed,MoviStar will be in a much better position to assess the case and provide moredetailed information as to the possibilities of prevailing or opting forsettlement.

Complaint

A complaint was filedagainst Movistar on December 7, 2001. It alleges discrimination based onnational origin against the Plaintiff, who was allegedly terminated from hisemployment for being from the Dominican Republic. Additionally, it claimsunjust termination. The Plaintiff requests $100,000 to compensate for hisemotional damages, $6,000 for his alleged unjust dismissal and $10,000 asspecial damages for alleged unpaid compensation.

Movistar filed an answerto the complaint on December 31, 2001. Therein MoviStar denied the allegationsset forth in the complaint and plead as an affirmative defense, inter alia,that the Plaintiff was terminated, not for his national origin, but after itwas discovered that he had lied in his employment application process when hefurnished a resume to the Defendants where he claimed that he had earned aBachelor in Science of Civil Engineering.

On January 23, 2002,MoviStar filed a Motion to Dismiss for the insufficiency of the process and theservice of the process. On February 6, 2002, the court ordered the Plaintiff toshow cause as to why our Motion to Dismiss should not be granted.  The Plaintiff complied with the Court’sorder and on February 19, 2002, filed a Motion in Compliance with the Order toShow Cause. The Court’s decision is still pending. In the meantime, the Courthas scheduled a Status Conference to be held on April 26, 2002.

From time to timethe Partnership is involved in litigation arising from the ordinary course ofbusiness, some of which is ongoing.  TheGeneral Partner does not believe that any litigation involving the Partnershipwill have a material adverse effect on the Partnership’s business or financialcondition

 

**ITEM4****. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.**

None.

**Part II**

**ITEM5****. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**

There is no tradingmarket for the Units, and it is unlikely that a trading market will exist atany time in the future unless the Partnership is restructured.  Any transfer of the Units is severelyrestricted by certain conditions outlined in the Partnership Agreement, andrequires the consent of the General Partner which can be withheld in theGeneral Partner’s sole reasonable discretion.

 

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As of December 31, 2001only the General Partner holds a general partnership interest and 1,604Investors hold an aggregate of 2,907.7 Units of limited partnershipinterest.  There are 3.3 units held astreasury units.

There have been no cashdistributions to the Investors to date. The following summary of certain allocation provisions of thePartnership Agreement is entirely qualified by reference to the PartnershipAgreement, which was filed as an Exhibit to the Partnership’s Form 10-K.  As a general rule, the General Partner shallcause the Partnership to make distributions, if any, of cash flow received fromoperations of the Partnership which the General Partner, in its solediscretion, determines to distribute to Investors (“Cash Flow”).  All distributions will be made 75% to theInvestors and 25% to the General Partner. Distributions to the Investors shall be made in proportion to the numberof Units held by each Investor on the last day of the calendar quarter to whichsuch distribution relates.

The availability of CashFlow for distribution to the Investors is dependent upon the Partnershipearning more than its expenses.  Noassurance can be given that income in any year will be sufficient to generateCash Flow for distribution to the Investors or that there will not be cashdeficits. Further, because operating expenses are subject to increases, andincreases in revenue from Partnership operations may be subject to marketlimitations, income from the Partnership in any year may not be sufficient togenerate Cash Flow.

Net losses fromoperations of the Partnership will be allocated as follows: first, to theInvestors to offset any profits previously allocated to the Investors, andsecond, 75% to the Investors in accordance with the number of Units held byeach Investor and 25% to the General Partner. The gain from a financing, refinancing, sale or other disposition of thePartnership’s assets (or from similar capital transactions) (collectively,“Capital Transactions”) will be allocated 75% to the Investors and 25% to theGeneral Partner.  The loss from aCapital Transaction will be allocated in the same way that net losses from thePartnership’s operations are allocated. Further adjustments to capital accounts may be required and areauthorized by the Partnership Agreement to comply with the provisions of anyfuture Internal Revenue Service regulations.

                The Partnership may realize net proceeds (that is,proceeds available after the payment of certain fees and expenses includingpayments to the General Partner or its affiliates) from a CapitalTransaction.  No assurance can be given,however, as to the availability of a Capital Transaction or the amount of netcash proceeds therefrom.  Any amountsreceived by the Partnership which constitute amounts derived from a CapitalTransaction, will be treated as being received from operations of thePartnership and will be distributed to Investors only if the General Partnerdetermines to do so.

 

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##### **ITEM 6****.  SELECTED FINANCIALDATA**

The following tablesummarizes selected consolidated financial data of the Partnership from theperiod from January 1, 1997 to December 31, 1997, from January 1, 1998 toDecember 31, 1998, from January 1, 1999 to December 31, 1999, from January1, 2000 to December 31, 2000, and from January 1, 2001 to December 31,2001.  This information should be readin conjunction with the Partnership’s consolidated financial statements andrelated notes thereto and management discussion contained herein.

** **

**Statements of Operations Data**

 
|                                                                                                 |   | **December 31, 1997 (1)** |                  | **December  31,**

**1998** |       | **December  31,**

**1999** |       | **December  31,**

**2000** |                  | **December  31, 2001** |       |
|------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|-----------------------|------------------------|------------|
| **Revenues:**                                                                                        |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Service revenues**                                                                                 |   | **$**                     | —                | ** **                  | **$**      | —                      | ** ** | **$**                       | **4,950,769**         | ** **             | **$**      | **79,906,400** | ** ** | **$** | **112,025,407** | ** ** |
| **Handsets  and accessories sales**                                                                  |   |                      | ** **            |                        | ** ** | **2,357,790**               | ** ** | **12,104,805**              | ** **            | **11,710,520**         | ** ** |
|                                                                                                 |   |                      |                  |                        |       |                        |       |                        |                  |                   |       |
|                                                                                                 |   | **—**                | ** **            | —                      | ** ** | **7,308,559**               | ** ** | **92,011,205**              | ** **            | **123,735,927**        | ** ** |
| **Expenses:**                                                                                        |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Operating expenses**                                                                               |   | **13,436,973**            | ** **            | **5,696,439**               | ** ** | **28,072,321**              | ** ** | **133,397,603**             | ** **            | **136,940,300**        | ** ** |
| **Gain on sale of Visalia-Porterville**                                                              |   | **—**                | ** **            | **—**                  | ** ** | **—**                  | ** ** | **(4,814,337**              | **)**                 |                   | ** ** |
| **License**                                                                                          |   |                      |                  |                        |       |                        |       |                        |                  |                   |       |
| **Settlement credit on legal disputes**                                                              |   | **—**                | ** **            | **(2,090,876**              | **)**      | **—**                  | ** ** | **—**                  | ** **            |                   | ** ** |
| **Norfolk bid withdrawal penalty  credit**                                                           |   | **—**                | ** **            | **(2,848,374**              | **)**      | **—**                  | ** ** | **—**                  | ** **            |                   | ** ** |
| **License cost forfeiture after  disaggregation, prepayment and amnesty options offered by the FCC** |   | **—**                |                  | **10,989,972**              |       | **—**                  |       |                        |                  |                   |       |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
|                                                                                                 |   | **13,436,973**            | ** **            | **11,747,161**              | ** ** | **28,072,321**              | ** ** | **133,397,603**             | ** **            | **132,125,963**        | ** ** |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Other income (expense):**                                                                          |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Interest  income**                                                                                 |   | **495,614**               | ** **            | **324,232**                 | ** ** | **832,006**                 | ** ** | **490,309**                 | ** **            | **548,002**            | ** ** |
| **Interest  expense**                                                                                |   | **(2,948**                | **)**                 | **(5,749**                  | **)**      | **(2,263,002**              | **)**      | **(11,141,769**             | **)**                 | **(20,172,216**        | **)**      |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
|                                                                                                 |   | **492,666**               | ** **            | **318,483**                 |       | **(1,430,996**              | **)**      | **(10,651,460**             | **)**                 | **(19,624,214**        | **)**      |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
|                                                                                                 |   |                      |                  |                        |       |                        |       |                        |                  |                   |       |
| **Loss before minority interest**                                                                    |   | **(12,944,307**           | **)**                 | **(11,428,678**             | **)**      | **(22,194,758**             | **)**      | **(52,037,858**             | **)**                 | **(28,014,250**        | **)**      |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Minority interest**                                                                                |   | **—**                | ** **            | **—**                  | ** ** | **—**                  | ** ** | **282,471**                 | ** **            | **1,354,590**          | ** ** |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Net loss**                                                                                         |   | **$**                     | ** (12,944,307** | **)**                       | **$**      | ** (11,428,678**       | **)**      | **$**                       | ** (22,194,758** | **)**                  | **$**      | ** (51,755,387** | **)** | **$** | ** (26,659,660** | **)** |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Net loss attributable to General  Partner**                                                        |   | **$**                     | ** (3,236,077**  | **)**                       | **$**      | ** (2,857,169**        | **)**      | **$**                       | ** (5,548,689**  | **)**                  | **$**      | ** (12,938,847** | **)** | **$** | ** (6,664,915** | **)** |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Net loss attributable to Limited  Partners**                                                       |   | **$**                     | **(9,708,230**        | **)**                       | **$**      | **(8,571,509**              | **)**      | **$**                       | **(16,646,069**       | **)**                  | **$**      | **(38,816,540** | **)** | **$** | **(19,994,745** | **)** |
|                                                                                                 |   |                      | ** **            |                        | ** ** |                        | ** ** |                        | ** **            |                   | ** ** |
| **Net loss per unit attributable to  Limited Partners**                                              |   | **$**                     | **(3,496**            | **)**                       | **$**      | **(3,028**                  | **)**      | **$**                       | **(5,725**            | **)**                  | **$**      | **(13,350** | **)** | **$** | **(6,876** | **)** |

 

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**(1)  The 1997 operating expenses include payment of $6,511,250 toRomulus Telecommunications Corp. for its services in preparation of thePartnership’s FCC application to bid in the FCC C-Block auctions and bidding atthe auctions.**

 

10

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**BalanceSheets Data**

** **

** **
| ** **                                                                                                                                                          |           | **December  31,  1997** |            | **December  31,  1998** |           | **December 31,  1999** |            | **December  31,  2000** |            | **December  31,  2001** |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|-------------------------|-----------------|-------------------------|----------------|------------------------|-----------------|-------------------------|-----------------|-------------------------|------------|
| **ASSETS:**                                                                                                                                                         |           |                    | ** **      |                    | ** **     |                   | ** **      |                    | ** **      |                    | ** ** |
| **Cash and cash equivalents**                                                                                                                                       |           | **$**                   | **9,761,729**   | ** **              | **$**          | 4,246,412              | ** **      | **$**                   | **6,546,305**   | ** **              | **$**      | **9,338,798** | ** ** | **$** | **10,241,902** | ** ** |
| **Accounts receivable, net**                                                                                                                                        |           | **—**              | ** **      | **1,633,024**           | ** **     | **3,244,067**          | ** **      | **20,049,769**          | ** **      | **19,201,986**          | ** ** |
| **Insurance claim receivable**                                                                                                                                      |           | **—**              | ** **      | **—**              | ** **     | **—**             | ** **      | **1,256,285**           | ** **      | **1,496,324**           | ** ** |
| **Inventories**                                                                                                                                                     |           | —                  |            | —                  | ** **     | **9,201,823**          | ** **      | **12,977,164**          | ** **      | **10,305,254**          | ** ** |
| **Other assets**                                                                                                                                                    |           | **213,958**             | ** **      | **143,883**             | ** **     | **1,406,684**          | ** **      | **2,481,650**           | ** **      | **1,559,010**           | ** ** |
| **PCS licenses, net**                                                                                                                                               |           | **270,245,139**         | ** **      | **64,757,512**          | ** **     | **67,543,320**         | ** **      | **64,838,452**          | ** **      | **57,517,974**          | ** ** |
| **Property and equipment, net**                                                                                                                                     |           | —                  |            | —                  | ** **     | **89,200,611**         | ** **      | **97,002,140**          | ** **      | **102,095,953**         | ** ** |
|                                                                                                                                                                |           |                    | ** **      |                    | ** **     |                   | ** **      |                    | ** **      |                    | ** ** |
|                                                                                                                                                                |           | **$**                   | **280,220,826** | ** **              | **$**          | **70,780,831**         | ** **      | **$**                   | **177,142,810** | ** **              | **$**      | **207,944,258** | ** ** | **$** | **202,418,403** | ** ** |
|                                                                                                                                                                |           |                    | ** **      |                    | ** **     |                   | ** **      |                    | ** **      |                    | ** ** |
| **LIABILITIES AND PARTNERS’ CAPITAL  (DEFICIT):**                                                                                                              |           |                    |            |                    |           |                   |            |                    |            |                    |       |
| **Accounts payable and accrued  Liabilities**                                                                                                                       |           | **$**                   | **6,469,357**   |                    | **$**          | **2,317,681**          |            | $                       | **107,245,472** |                    | **$**      | **45,743,223** |   | **$** | **41,642,052** |   |
| **Notes payable — short-term**                                                                                                                                 |           | **—**              | ** **      | **—**              | ** **     | **—**             | ** **      | **121,000,000**         | ** **      | **133,321,837**         | ** ** |
| **Notes payable — long-term**                                                                                                                                  |           | **231,415,989**         | ** **      | **37,550,348**          | ** **     | **59,114,678**         | ** **      | **72,456,233**          | ** **      | **81,723,962**          | ** ** |
| **Minority interest**                                                                                                                                               |           | **—**              | ** **      | **—**              | ** **     | **—**             | ** **      | **9,717,529**           | ** **      | **13,362,939**          | ** ** |
| **Unitholders’ capital (deficit)  2,825.9 Units in 1997, 2,830.7 Units in 1998 and 2,907.7 Units in 1999, 2000  and 2001, and 1 general Partnership interest** |           |                    | ** **      |                    | ** **     |                   | ** **      |                    | ** **      |                    | ** ** |
|                                                                                                                                                                |           | ** **              |            | ** **              |           | ** **             |            | ** **              |            | ** **              |
|                                                                                                                                                                |           | ** **              |            | ** **              |           | ** **             |            | ** **              |            | ** **              |
|                                                                                                                                                                |           | ** **              |            | ** **              |           | ** **             |            | ** **              |            | ** **              |
|                                                                                                                                                                | **42,335,480** | ** **              | **30,912,802**  | ** **              | **10,782,660** | ** **             | **(40,972,727** | **)**                   | **(67,632,387** | **)**                   |
|                                                                                                                                                                |           |                    | ** **      |                    | ** **     |                   | ** **      |                    | ** **      |                    | ** ** |
|                                                                                                                                                                |           | **$**                   | **280,220,826** | ** **              | **$**          | **70,780,831**         | ** **      | **$**                   | **177,142,810** | ** **              | **$**      | **207,944,258** | ** ** | **$** | **202,418,403** | ** ** |
|                                                                                                                                                                |           |                    | ** **      |                    | ** **     |                   | ** **      |                    | ** **      |                    | ** ** |
| **BOOK VALUE PER UNIT**                                                                                                                                             |           | **$**                   | **14,976**      | ** **              | **$**          | **10,921**             | ** **      | **$**                   | **3,708**       | ** **              | **$**      | **(14,091** | **)** | **$** | **(23,260** | **)** |

 

 

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**ITEM 7****.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Introduction**

The Partnership wasformed in January 1995 and is managed by its General Partner, SuperTelCommunications Corp.  The Partnershipwas organized to acquire, own, consult and operate personal communicationservices PCS licenses in the Block C band and to take advantage of the benefitsthat the FCC has set aside for Entrepreneurs. The Partnership owns the Puerto Rico Licenses, which consist of two 15MHz PCS licenses covering Puerto Rico, and the California Licenses, whichconsist of four 15 MHz PCS licenses covering the California cities of Eureka,Redding, Modesto, and Merced.

On August 28, 2000, thePartnership entered into a Purchase and Sale Agreement with Leap WirelessInternational (“Leap Wireless”), pursuant to which the Partnership sold theVisalia-Porterville license to Leap Wireless in exchange for a $9,500,000 cashpayment.  The sale was approved by theFCC and closed on June 8, 2001.

The Partnership commencedcommercial operations of its PCS network in Puerto Rico on September 24, 1999when it began offering wireless services in Puerto Rico to the public.  Prior to that date, its revenues hadconsisted of interest income only. Since the Partnership commenced commercial operations in 1999, thecomparisons presented below may not be indicative of future operations.

The Partnershipestablished its Puerto Rico network by forming a wholly owned subsidiary,NewComm on January 29, 1999.  OnFebruary 4, 1999, the Partnership and NewComm entered into an agreement withTLD, whereby the Partnership contributed its two Puerto Rico Licenses toNewComm and TLD provided NewComm a $19,960,000 loan to develop the Puerto RicoLicenses.  TLD’s loan is pursuant to asecured convertible promissory note (the “Note”) which is convertible into49.9% of NewComm’s equity.  The Notehowever, cannot be converted until the FCC authorizes TLD to hold more than a25% equity interest in NewComm.

The Partnership hasagreed to sell shares in NewComm to TLD in sufficient amount to provide TLDwith an additional 0.2% share interest in NewComm, enabling TLD to have a totalof 50.1% control interest in NewComm. The transaction involves a Stock Purchase Agreement, a ShareholdersAgreement, and a Sale Agreement.  Asummary of the terms of the sale and these agreements is provided below.

 

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**The Stock Purchase Agreement**

The purchase price forthe 0.2% share interest in NewComm shall be determined after all conditions toclosing are obtained.  The principalconditions for this closing are the closing of the long term financing forNewComm and the final approval by the FCC. At such time, ClearComm and TLD will select an internationallyrecognized investment banking firm who will perform a valuation of the sharesto be sold.  The investment banker willhave an agreed upon period of time to prepare the valuation of the shares.  After delivery of the valuation, a closingwill occur.

The investment bankingfirm will use a combination of various methodologies for its valuation, thatinclude:  discounted cash flows, comparabletransactions and trading prices of comparable transactions, and trading pricesof comparable publicly held companies and in the application of suchmethodologies shall use acceptable industry standards. Payment shall be incash.

If a long term financefacility for NewComm of approximately $175 million is not closed by July 15,2002 or if the FCC does not approve the transfer of control to TLD, ClearCommmay terminate the Stock Purchase Agreement.

 

**The Shareholders Agreement**

In consideration of thesale of a controlling interest in NewComm a new Shareholders Agreement shallbecome effective upon the closing of the Stock Purchase Agreement.  The Shareholders Agreement shall incorporateall of the rights and benefits under the current Joint Venture Agreement, whichinclude, rights of first refusal, pre-emptive rights, drag along rights,registration rights, piggy back rights, financial reporting and others.

In addition to the above,ClearComm will have approval rights for a great number of actions that have theintent of protecting the Partnership’s then minority interest in NewComm, someof which are as follows:  anytransaction between NewComm and a shareholder or an affiliate of suchshareholder, other than the Management Agreement and the Technology TransferAgreement; the annual strategic business plan and operating budgets for eachfiscal year and any variations or modifications which individually or in theaggregate exceed ten percent of the operating budget for such annual period;the appointment of the general manager, the director of finance and alldirectors of each division of NewComm, as well as the compensation of each suchperson, consent to which shall not be unreasonably withheld; the engagement ofa new marketing consultant and the employment of marketing strategies,promotions, advertising and product development different from those in effecton the date hereof, consent to which shall not unreasonably be withheld; anymodification to the Certificate of Incorporation or Bylaws of NewComm thatwould have an adverse effect on any rights granted to a shareholder thereunderor under applicable law; and any amendments or modifications to the ManagementAgreement or the Technology Transfer Agreement in effect as of the EffectiveDate.  ClearComm will have the right toappoint three directors and TLD four directors.

 

13

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**The Sale Agreement**

The new Sale Agreementprovides that at any time after 14 months from the signing of the StockPurchase Agreement with TLD, ClearComm (or TLD) may trigger a shareholderobligation to sell NewComm.  Within 30days of a notice of sale, TLD (or ClearComm as the case may be) would have theright to purchase ClearComm’s (or TLD’s) interest.  The purchase price to be paid at that time would be based on avaluation performed by the investment banking firm that prepared the one underthe Stock Purchase Agreement.

If TLD does not exerciseits right to buy out ClearComm’s interest, the shareholders will be  bound to proceed with the sales process toattempt a sale of NewComm.  Allshareholders are bound to cooperate and undertake all that is necessary in thateffort.  Further, the shareholders arebound to accept the highest price proposed by an interested buyer, which pricemust be payable in cash or freely tradable securities, or a combinationthereof, and which must be for a price not less than the valuation prepared bythe investment banker.

Some additional pointsare that at the closing of the sale of NewComm the Management Agreement and theTechnology Transfer Agreement held by TLD will terminate.  Also, no premium for controlling interest ordiscount for holding a minority interest in NewComm will apply.

The Sale Agreement shallcontinue in full force and effect even if the Stock Purchase Agreement withTLD, for whatever reason, does not close.

**Project Finance Facility**

With the signing of theStock Purchase Agreement ABN/AMRO and BBVA (the “Banks”) have proceeded to worktowards providing a $175 million Project Finance Facility for NewComm.  This facility, together with the requiredadditional capital of $25 million shall suffice to fully fund NewComm’sbusiness plan and operations.

**California Licenses**

                Since January 2002the Partnership has been offering wireless DSL service in certain areas withinthe California Licenses in compliance with the FCC build out requirements.

**CriticalAccounting Policies.**

 

The consolidatedfinancial statements are prepared in accordance with accounting principlesgenerally accepted in the United States, which require the Partnership to makeestimates and assumptions.  ThePartnership believes that of its significant accounting policies (see Note 3 tothe consolidated financial statements), the following may involve a higherdegree of judgment and complexity.

 

14

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We rely on the use of estimates and make assumptionsthat impact our financial condition and results.  These estimates and assumptions are based on historical resultsand trends as well as our forecasts as to how these might change in thefuture.  Some of the most criticalaccounting policies that might materially impact our results include:

 

**Valuationof Accounts Receivable, Inventories and Long-lived Assets**

 

*Allowancefor Doubtful Accounts* - Estimates used in determining our provision for doubtful accountsare based on our historical collection experience, current trends, creditpolicy and a percentage of our accounts receivable by aging category.  In determining these percentages, we look athistorical write-offs of our receivables and our history is limited.  We also look at current trends in the creditquality of our customer base as well as changes in the credit policies.  Under NewComm’s credit policy, customers whodo not meet certain credit criteria are required to make a deposit ranging from$70 to $250 that could be credited against future billings, to control creditexposure.  If the estimates areinsufficient for any reason, our operating income, earnings before interesttaxes depreciation and amortization (“EBITDA”) and available cash would bereduced.

 

*InsuranceClaims Receivable*— We currently have written-down a significant insurance claims receivable toestimated realizable value.  ThePartnership filed claims aggregating approximately $4,000,000 with theinsurance company.  There is a disputebetween the Partnership and the insurance company in relation to coverage forcertain losses (refer to Note 5). Accordingly, the Partnership has recorded an insurance claims receivableof approximately $1,496,000 as of December 31, 2001, which mostly representsthe portion of the claims the insurance company has offered to pay.  During 2001, NewComm filed a lawsuit againstthe insurance company demanding payment of these claims.  The realization of the receivable iscontingent on the settlement of the lawsuit. If the estimated write-down for insurance claim receivable isunderstated, operating income, EBITDA and available cash would be reduced.

 

*Write-downof Refurbished and Excess or Obsolete Inventories* - We currently have written-downrefurbished handset inventories to the lower of cost or market value (whichapproximates cost to refurbish or replace the handsets).  We currently have written-down excess orobsolete handset accessories to net realizable value.  As inducement to obtain new customers the Partnership may sellhandsets to customers for a price that is less than cost.  The loss on such sales is recognized at thetime of sale.  We continue to monitorthe depletion of our current inventory levels. If we do not deplete the refurbished handsets or the handsetaccessories, we may have to record an additional write-down for any remainingrefurbished and excess or obsolete inventories due to lower realizable retailprices on those inventories.  If theestimated write-down for refurbished and excess or obsolete inventories isunderstated, operating income, and EBITDA would be reduced.

 

15

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*Long-livedAssets* - Wecontinually evaluate long-lived assets to determine whether current events andcircumstances warrant adjustment to the carrying values or amortizationperiods.  The Partnership measuresimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable.  In performing the review for recoverability, an estimate of thefuture cash flows expected to result from the use of the asset and its eventualdisposition must be made.  If the sum ofthe future cash flows (undiscounted and without interest charges) is less thanthe carrying amount of the asset, an impairment loss is recognized.  The impairment loss, if any, is determinedbased on projected discounted future operating cash flows using a discount ratereflecting the Partnership’s average cost of funds.  No impairment loss was recognized during 2001, 2000 and1999.  If the estimates used to measureimpairment are insufficient for any reason, our operating income and EBITDAwould be reduced.

 

**RevenueRecognition**

 

We recognize post paid PCS service revenue from ourcustomers as they use the service. Prepaid PCS service revenue are recognized based on estimates ofusage.  Additionally, we provide areduction of recorded revenue for billing adjustments and billingcorrections.  We record equipmentrevenue for the sale of handsets and accessories to customers in our retailstores and through our third party dealers. If the estimate used to recognize prepaid PCS service revenue usage varyfrom actual results or if the estimate of certain revenue adjustments areinaccurate our revenues would be adjusted accordingly.

 

**Results of Operations - 2001 Comparedto 2000**

The Partnership’srevenues for the year ended December 31, 2001, which amounted to $123,735,927($92,011,205 in 2000), included $112,025,407 ($79,906,400 in 2000) in servicerevenues and $11,710,520 ($12,104,805 in 2000) in handset and accessories salesgenerated from NewComm’s wireless operations. The increase in service revenues is primarily due to an increase in thewireless customer base during 2001 as compared to 2000.

***Expenses***

Expenses for the yearended December 31, 2001 totaled $136,940,300, as compared to $133,397,603 forthe same period in 2000.  During 2001,the Partnership’s expenses included $32,583,589 ($32,309,660 for 2000) in costsof handset and accessories, $13,884,281 ($10,747,715 for 2000) in salaries andbenefits, $12,307,559 ($5,928,431 for 2000) for legal and professionalservices, $17,631,238 ($20,458,500 for 2000) in depreciation and amortization,$10,585,296 ($17,716,025 for 2000) in provision for doubtful accounts,$42,466,975 ($39,044,977 for 2000) in interconnection, sales, advertising,rent, taxes and other expenses, and $7,481,362 ($7,062,610 for 2000) forservices rendered by related parties. The increase in expenses during 2001, as compared to 2000, is primarilyassociated with an increase in NewComm’s head count and operating expensesneeded to expand NewComm’s operations and market share.  The increase in operating expenses wasoffset by a decrease in the provision for doubtful accounts of $7,130,729during 2001, as compared to 2000, due to better collection efforts and tightercredit policy.  Depreciation andamortization expense decreased during 2001, as compared to 2000, after thehandsets rented to customers were fully depreciated in May 2001.

 

16

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Net loss of $26,659,660for 2001 and $51,775,387 for 2000, reflects the costs of competing in thePuerto Rico market against existing and new cellular and PCS operators in orderto continue to develop and maintain a strong subscriber base.  To compete, a significant subsidy is grantedin the sale of handsets and accessories, on which a negative margin of$20,873,069 was generated during 2001 ($20,204,855 in 2000).  In addition, sales, advertising, andsalaries and benefits expenses amounting to $24,227,397 for 2001 ($20,458,500for 2000) have been required to penetrate the market and serve the establishedsubscriber base.

Interest expense for theyear ended December 31, 2001, totaled $20,172,216, as compared to $11,141,769for the same period in 2000.  Theincrease in interest expense during 2001 is primarily attributable to the FCCNote, the TLD notes, the Note Payable to Lucent, the Note Payable to Alcatel,and the Bridge Loan Facility (refer to Notes 9, 10, 11 and 13 to theaccompanying consolidated financial statements).  In 2001, the Partnership had interest income of $548,002, ascompared to $490,309 in 2000.

The net loss was offsetby the $4,814,337 gain from the sale of the Visalia-Porterville, CaliforniaLicense.

***Liquidity and Capital Resources***

As of December 31, 2001,the Partnership had cash and cash equivalents amounting to $10,241,902, whichare mostly related to proceeds from the sale of the Visalia-Portervillelicense.

As part of the agreementwith TLD, NewComm entered into a contract with Lucent Technologies, Inc.(“Lucent”) that requires Lucent to build a network that uses Code DivisionMultiple Access (“CDMA”) protocol.  Itis expected that the total cost will approximate $125 million.  During 2001, NewComm’s management and Lucentagreed on formally extending the payment of up to $61.0 million of the totalamount of network construction then currently payable under a formal financingagreement.  The financing agreementextended payments for an eight-month period (through June 2001), at an annualrate of 1.5% over 90-day LIBOR. NewComm’s management and Lucent restructured this financing agreement,by means of a Promissory Note issued on September 26, 2001 for the principalsum of $60.5 million plus interest, payable no later than March 15, 2002, atthe rate of 14% annually.  NewCommanticipates that the Promissory Note will be restructured to provide that repaymentwill be due on June 30, 2002 with interest at 8%, but no definitive agreementhas yet been signed.  This lowerinterest had been agreed to with Lucent by means of Letter Agreement datedSeptember 27, 2001, upon the signing of the Stock Purchase Agreement withTLD.  As of December 31, 2001,$60,531,697 is outstanding under this financing agreement (refer to Note 10 tothe accompanying consolidated financial statements).

Alcatel USA InternationalMarketing, Inc. (“Alcatel”) was contracted to build part of the CDMAnetwork.  By December 18, 2001, NewCommhad outstanding invoices, payables, and past due interest totaling$14,361,732.  On December 18, 2001,NewComm and Alcatel entered 

 

17

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into a PromissoryAgreement and Note for said amount at interest rate of 14%, and a maturity dateof March 25, 2002.  This PromissoryAgreement and Note was amended with an extension of payment until November 25,2002.  It was also agreed that withpayment of  $6,000,000 expected to bemade by May 25, 2002 the interest rate will be decreased to 8% annually.

In addition, thePartnership owes the United States federal government approximately $51,339,555(undiscounted) plus accrued interest at 6.5% of $840,718 in connection with theacquisition of its PCS licenses.  As ofDecember 31, 2001, the notes payable to FCC are presented net of a discount ofapproximately $9,706,000 (refer to Note 13 to the accompanying consolidatedfinancial statements).

The Partnership has asecured promissory note payable to TLD, which bears interest at the floatingrate of 90 days LIBOR plus 1.5% and is due in March, 2004.  In addition, in January 2000 the jointventure agreement with TLD was amended to provide NewComm a revolving line ofcredit of approximately $30 million for working capital from TLD.  This loan was paid-off in December 2000 bymeans of a $60 million bridge loan (the “Bridge Loan Facility”) to NewComm fromABN-AMRO and BBVA (the “Banks”).  Theoriginal Bridge Loan Facility bore interest at 1.5% over 90-day LIBOR, which wasoriginally supposed to expire on March 15, 2001, and was then extended untilMarch 17, 2002, with an interest at .75% over 90-day LIBOR.  The Bridge Loan is now guaranteed by TISAand was extended again until May 31, 2002. The Banks expect to replace it with a permanent Project Financeapproximately $175 million (refer to Notes 1 and 11 to the accompanyingfinancial statements).

The Partnership expectsthe total cost to implement NewComm’s business plan to be approximately $200million.  This consists of approximately$125 million in costs associated with building out the Puerto Rico Network, andapproximately $75 million to fund NewComm’s operations until it becomesprofitable.

The Partnership, by meansof Syncom and TLD, each contributed  $15million of additional capital.  Syncomnow has ownership of 4.92% of NewComm and is committed to contribute up to $25million to NewComm in exchange for a 8.2% ownership.  On March 2, 2002, the Partnership sold 4.08% of NewComm to agroup of investors led by Fleet Development Ventures for $13 million.  Prior to June 30, 2002, the Partnership andTLD will contribute approximately $12.5 million each to NewComm in the form ofequity and convertible debt, respectively, to close the Project FinanceFacility.  The Partnership believes ithas obtained sufficient funds, together with TLD, to provide NewComm with thecapital necessary for the Project Finance Facility and to fully fund NewComm’soperations.

As a result of therestructuring of its FCC debt in June 1998, the Partnership has no outstandingdebt on its California Licenses, which consist of 15MHz of bandwidth coveringan approximate population of 1.1 million people in Eureka, Redding, Merced, andModesto all within the state of California. Holders of major C Block licenses surrounding the California Licensesare currently under bankruptcy court proceedings, which adversely affects thePartnership’s ability to enter into joint venture agreements to develop theselicenses.  However, a re-auction of D,E, F and disaggregated C Block licenses concluded on April 16, 1999.  Another re-auction was concluded in January,2001.  However, this re-auction was setaside by the Washington, D.C. Court of Appeals on June 22, 2001.  The FCC has appealed this decision 

 

18

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before the UnitedStates Supreme Court.  Accordingly,there continues to be uncertainty regarding ownership of the licensessurrounding the California Licenses. Notwithstanding the uncertainty, since January 2002 the Partnership hasbeen providing wireless DSL service in compliance with the FCC build outrequirements.

The Partnershipanticipates that earnings and cash distributions derived from its Puerto RicoNetwork once it is fully operational, interim and permanent financing and, ifnecessary, additional capital calls from its Investors or accessing the publiccapital markets, should provide it with the liquidity to meet itsobligations.  The Partnership alsoexpects that once it is able to fully develop its California Licenses, it willhave additional sources of revenues and profits.

###### **Results of Operations - 2000 Compared to 1999**

The Partnership’srevenues for the year ended December 31, 2000, which amounted to $92,011,205,included $79,906,400 in service revenues and $12,104,805 in handset andaccessories sales generated from NewComm’s wireless operations.  The increase in revenues is primarily due tothe fact that the Partnership had only three months of operations in 1999 ascompared to 12 months of operations in 2000.

***Expenses***

Expenses for the yearended December 31, 2000 totaled $133,397,603, as compared to $28,072,321 for the same period in1999.   During 2000, the Partnership’sexpenses included $32,309,660 ($4,430,637 for 1999) in costs of handset andaccessories,  $10,747,715 ($5,128,280for 1999) in salaries and benefits, $5,928,431 ($2,144,349 for 1999) for legaland professional services, $20,458,500 ($2,957,683 for 1999) in depreciationand amortization, $17,716,025 ($625,000 for 1999) in provision for doubtfulaccounts, $39,044,977 ($9,663,546 for 1999) in interconnection, sales,advertising, rent, taxes and other expenses, and $7,062,610 ($2,980,718 for1999) for services rendered by related parties.  The increase in expenses during 2000 is primarily associated witha full year of NewComm’s operations, as compared with only three months during1999.

Net loss of $51,755,387for 2000, reflects the costs of entering the Puerto Rico market and meeting thecompetition of existing cellular and PCS operators in order to develop asubscriber base.  To meet competition, asignificant subsidy is granted in the sale of handsets and accessories, onwhich a negative margin of $20,204,855 was generated during 2000.  In addition, sales, advertising, andsalaries and benefits expenses amounting to $25,842,980 have been required topenetrate the market and serve the established subscriber base.  Depreciation and amortization expenses of$20,458,500 in 2000, include $9,704,436 related to the one-year amortization ofhandsets rented.  New rentals ofhandsets were discontinued after May, 2000.

 

19

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Interest expense for theyear ended December 31, 2000, totaled $11,141,769, as compared to $2,263,002for the same period in 1999.  Theincrease in interest expense during 2000 is primarily attributable to the FCCNote, the TLD notes, the Note Payable to Lucent, and the Bridge Loan Facility(refer to Notes 9, 11 and 13 to the accompanying consolidated financialstatements).  In 2001, the Partnershiphad interest income of $490,309, as compared to $832,006 in 1999.

###### ** **

###### **Results of Operations - 1999 Compared to 1998**

The Partnership’srevenues for the year ended December 31, 1999, which amounted to $7,308,559included $4,950,769 in service revenues and $ 2,357,790 in handset andaccessories sales generated from NewComm’s wireless operations, which startedin Puerto Rico in September 1999.

***Expenses***

Expenses for the yearended December 31, 1999 totaled $28,072,321 compared to $11,747,161 for the same period in 1998.Expenses incurred in 1998 included legal fees incurred in Oregon litigation andproceedings before the FCC.  Theincrease in expenses during 1999 is attributable to the costs associated withNewComm’s operations that started in September 1999.  During 1999, the Partnership’s expenses included  $4,430,637 in costs of handset andaccessories,  $5,128,280 for salariesand benefits, $2,957,683 in depreciation and amortization, $625,000 inprovision for doubtful accounts, $9,805,654 in advertising, sales,interconnection, management fee, rent and other expenses, $2,144,349 for legaland professional services and $2,980,718 for consulting and legal servicesassociated with the start-up of NewComm charged by related parties such as TLDand TISA.

In 1998, the Partnershiphad interest earnings of $324,232 compared to $832,006 in 1999.  The increase in interest income during 1999is attributable to NewComm’s investment of the funds loaned by TLD.  Interest expense increased in 1999 to$2,263,002, as compared to $5,749 in 1998, mostly due to the TLD and FCC notes.

** **

**ITEM 7A****.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

The Partnership’sexposure to market risk through derivative financial instruments and otherfinancial instruments is not material because the Partnership does not usederivative financial instruments and does not have foreign currency exchangerisks.  The Partnership invests cashbalances in excess of operating requirements in short-term money marketfunds.  As of December 31, 2001, thePartnership had cash equivalents and short-term investments of approximately$9,720,000 consisting of cash and highly liquid, short-term investments inmoney market funds.

 

20

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The Partnership’s cashand cash equivalents will increase or decrease by an immaterial amount ifmarket interest rates increase or decrease, and therefore, its exposure tointerest rate changes has been immaterial. The Partnership’s loans payable to the FCC have a fixed interest rate of6.5% and therefore are not exposed to interest rate risks.  The TLD Note relating to indebtedness ofNewComm bears interest at the floating rate of the 90-day LIBOR plus 1.5% andis due in March 2004.  NewCommanticipates that the Promissory Note originally issued to Lucent Technologies,Inc. on September 26, 2001 in connection with its build out of the Puerto RicoNetwork will be restructured to provide that repayment will be due on June 30,2002 and bear interest at 8%, but no definitive agreement has yet beensigned.  This lower interest had beenagreed to with Lucent by means of a Letter Agreement dated September 27, 2001,upon the signing of the Stock Purchase Agreement with TLD.  The Bridge Loan bears an interest rate of0.75% over 90-day LIBOR and is now guaranteed by TISA.  As part of this arrangement ClearComm agreedto pay an annual fee of 2.5% over half of this guarantee (or $30 million), orprovide an equivalent cash collateral to the Banks during the first 90days.  If the Partnership did notcollaterize its share after the foregoing 90-day period, the fee would increaseto 4.5%.  On November 26, 2001, thePartnership was prepared to provide a cash collateral amount of $28 million,and the non-collaterized amount was reduced to $2 million.  This guarantee period ends with the closingof the Project Finance Facility, which is expected to be in place by June 30,2002.  The Bridge Loan Facility was extendedagain to May 31, 2002.

 

 

21

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##### **ITEM 8****.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 
| Financial Statements                                                                                               | **Page** |
|--------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                               |     |
| ClearComm, L.P.                                                                                                    |     |
|                                                                                                               |     |
| Report of Independent  Public Accountants — December 31, 2001 and 2000                                        | 23       |
|                                                                                                               |     |
| Report of Independent  Public Accountants — December 31, 1999                                                 | 24       |
|                                                                                                               |     |
| Consolidated Statements  of Assets, Liabilities and Partners’ Capital (Deficit) - December 31, 2001  and 2000 | 25       |
|                                                                                                               |     |
| Consolidated Statements  of Revenues and Expenses - December 31, 2001, 2000 and 1999                               | 26       |
|                                                                                                               |     |
| Consolidated Statements  of Changes in Partners’ Capital (Deficit) - December 31, 2001, 2000 and 1999         | 27       |
|                                                                                                               |     |
| Consolidated Statements  of Cash Flows - December 31, 2001, 2000 and 1999                                          | 28       |
|                                                                                                               |     |
| Notes to Consolidated  Financial Statements                                                                        | 29       |
|                                                                                                               |     |
| SuperTel Communications Corp.                                                                                      |     |
|                                                                                                               |     |
| Report of Independent  Public Accountants                                                                          | 48       |
|                                                                                                               |     |
| Balance Sheets -  December 31, 2001 and 2000                                                                       | 49       |
|                                                                                                               |     |
| Statements of Revenues  and Expenses and Deficit for the years ended December 31, 2001 and 2000                    | 50       |
|                                                                                                               |     |
| Statements of Cash  Flows for the years ended December 31, 2001 and 2000                                           | 51       |
|                                                                                                               |     |
| Notes to Financial  Statements                                                                                     | 52       |

 

 

All financialschedules have been omitted because they are not applicable or because theinformation required is included in the financial statements or notes thereto.

 

22

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###### **Report of Independent Public Accountants**

 

To ClearComm,L.P.:

We have audited theaccompanying consolidated statements of assets, liabilities and partners’capital (deficit) of ClearComm, L.P. (a Delaware limited partnership) andsubsidiary as of December 31, 2001 and 2000, and the related consolidatedstatements of revenues and expenses, changes in partners’ capital (deficit) andcash flows for the years then ended. These financial statements are the responsibility of the Partnership’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

We conducted our auditsin accordance with auditing standards generally accepted in the UnitedStates.  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of ClearComm, L.P. and subsidiary as ofDecember 31, 2001 and 2000, and the results of their operations and their cashflows for the years then ended in conformity with accounting principlesgenerally accepted in the United States.

The accompanyingconsolidated financial statements have been prepared assuming that thePartnership will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, thePartnership has suffered recurring operating losses, has a working capital andpartners’ capital deficit, and has not yet obtained the permanent financingrequired to pay for the cost of its network and its working capital needs.  These matters raise substantial doubt aboutits ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note2.  The consolidated financial statementsdo not include any adjustments that might result from the outcome of this uncertainty.

 

 

ARTHUR ANDERSENLLP

 

San Juan, Puerto Rico,

April 16, 2002.

 

Revenue Stamp Number

has been affixed to the original

copy of this report.

 

23

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**Report of Independent Accountants**

 

 

To the Partners of ClearComm, L.P.

 

 

In our opinion, theconsolidated statements of assets, liabilities and partners’ capital (deficit)and the related consolidated statements of revenues and expenses, of changes inpartners’ capital (deficit) accounts and of cash flows present fairly, in allmaterial respects, the financial position of ClearComm, L.P. and itssubsidiaries (the Partnership) at December 31, 1999 and the results of theiroperations and their cash flows for the year then ended conformity withaccounting principles generally accepted in the United States of America.  These financial statements are theresponsibility of the Partnership’s management; our responsibility is toexpress an opinion on these financial statements based on our audit.  We conducted our audit of these statementsin accordance with auditing standards generally accepted in the United Statesof America, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An auditincludes, examining on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation.  Webelieve that our audit provides a reasonable basis for our opinion.

 

                The accompanying financial statements have beenprepared assuming that the Partnership will continue as a going concern.  As discussed in Note 2 to the consolidatedfinancial statements, the Partnership has not yet obtained the permanentfinancing required for paying the cost of its network which raises substantialdoubt about its ability to continue as a going concern.  The Partnership has received proposals frombanks to provide short term and long term financing.  Such financing is subject to certain conditions, among others,additional contributions by its partners in the amount of $50 million.  Management’s plans in regard to this matterare further described in Note 2 to the consolidated financial statements.  The consolidated financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

 

 

 

PRICEWATERHOUSECOOPERSLLP

 

SanJuan, Puerto Rico

March29, 2000

 

Stamp1791152 of the P.R. Society of

CertifiedPublic Accountants has been

affixed to the file copy of this report

 

24

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**ClearComm, L.P.**

**ConsolidatedStatements of Assets, Liabilities and Partners’ Capital (Deficit)**

**December31, 2001 and 2000**

** **
|                                                                                                          |   | **2001**    |        | **2000**    |   |
|---------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|-------------|--------|
| **Assets**                                                                                                    |   |        |        |        |   |
|                                                                                                          |   |        |        |        |   |
| Current  Assets:                                                                                              |   |        |        |        |   |
| Cash  and cash equivalents                                                                                    |   | $           | 10,241,902  |        | $      | 9,338,798 |   |
| Accounts  receivable, net of allowance for doubtful of accounts of $18,404,570 and  $18,341,025, respectively |   | 19,099,986  |        | 20,049,769  |   |
| Insurance  claims receivable                                                                                  |   | 1,496,324   |        | 1,256,285   |   |
| Inventories                                                                                                   |   | 10,305,254  |        | 12,977,164  |   |
| Prepaid  expenses                                                                                             |   | 652,279     |        | 751,603     |   |
| Total  current assets                                                                                         |   | 41,795,745  |        | 44,373,619  |   |
| Accounts  receivable due from officer                                                                         |   | 102,000     |        | —      |   |
| Deferred  Financing Costs                                                                                     |   | 906,731     |        | 1,730,047   |   |
| PCS  Licenses, net                                                                                            |   | 57,517,974  |        | 64,838,452  |   |
| Property  and Equipment, net                                                                                  |   | 102,095,953 |        | 97,002,140  |   |
|                                                                                                          |   | $           | 202,418,403 |        | $      | 207,944,258 |   |
|                                                                                                          |   |        |        |        |   |
| **Liabilities  and Partners’ Capital (Deficit)**                                                         |   |        |        |        |   |
|                                                                                                          |   |        |        |        |   |
| Current  Liabilities:                                                                                         |   |        |        |        |   |
|                                                                                                          |   |        |        |        |   |
| Note  payable to Lucent Technologies                                                                          |   | $           | 60,531,697  |        | $      | 61,000,000 |   |
| Note  payable to Alcatel                                                                                      |   | 12,790,140  |        | —      |   |
| Bridge  Loan Facility                                                                                         |   | 60,000,000  |        | 60,000,000  |   |
| Accounts  payable and accrued liabilities                                                                     |   | 27,868,715  |        | 40,314,401  |   |
| Accounts  payable to related parties                                                                          |   | 8,705,353   |        | 2,041,767   |   |
| Accrued  interest                                                                                             |   | 3,517,319   |        | 1,566,872   |   |
| Deferred  income                                                                                              |   | 1,550,665   |        | 1,820,183   |   |
| Total  current liabilities                                                                                    |   | 174,963,889 |        | 166,743,223 |   |
|                                                                                                          |   |        |        |        |   |
| Long-Term  Notes Payable                                                                                      |   | 81,723,962  |        | 72,456,233  |   |
|                                                                                                          |   |        |        |        |   |
| Minority  Interest                                                                                            |   | 13,362,939  |        | 9,717,529   |   |
|                                                                                                          |   |        |        |        |   |
| Commitments  and Contingencies (Notes 2, 15, 17, and 18)                                                      |   |        |        |        |   |
|                                                                                                          |   |        |        |        |   |
| Partners’  Capital (Deficit):                                                                            |   |        |        |        |   |
| Limited  partners’ capital (2,907.7 units issued and outstanding)                                        |   | 73,039,616  |        | 73,039,616  |   |
| General  partners’ capital                                                                               |   | 100,000     |        | 100,000     |   |
| Undistributed  losses—                                                                                   |   |        |        |        |   |
| Accumulated  during development stage                                                                         |   | (48,704,525 | )           | (48,704,525 | )      |
| Operations                                                                                                    |   | (92,067,478 | )           | (65,407,818 | )      |
| Total  partners’ capital (deficit)                                                                       |   | (67,632,387 | )           | (40,972,727 | )      |
|                                                                                                          |   | $           | 202,418,403 |        | $      | 207,944,258 |   |

The accompanying notes are an integral part of these consolidatedstatements.

 

25

 

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**ClearComm, L.P.**

**ConsolidatedStatements of Revenues and Expenses**

**December31, 2001, 2000 and 1999**

 
|                                                       |   | **2001**    |        | **2000**    |   | **1999**    |   |
|------------------------------------------------------------|--------|-------------|-------------|-------------|--------|-------------|--------|
| **Revenues:**                                              |   |        |        |        |   |        |   |
| Service  revenues                                          |   | $           | 112,025,407 |        | $      | 79,906,400  |   | $ | 4,950,769 |   |
| Handset  and accessories sales                             |   | 11,710,520  |        | 12,104,805  |   | 2,357,790   |   |
|                                                       |   | 123,735,927 |        | 92,011,205  |   | 7,308,559   |   |
| **Operating  Cost and Expenses:**                          |   |        |        |        |   |        |   |
| Cost  of handsets and accessories                          |   | 32,583,589  |        | 32,309,660  |   | 4,430,637   |   |
| Interconnection  expense                                   |   | 3,478,164   |        | 3,612,688   |   | 444,285     |   |
| Sales  and dealers commissions                             |   | 8,079,290   |        | 6,624,149   |   | 1,646,827   |   |
| Salaries  and benefits                                     |   | 13,884,281  |        | 10,747,715  |   | 5,128,280   |   |
| Advertising  expense                                       |   | 10,343,116  |        | 8,471,116   |   | 3,809,056   |   |
| Legal  and professional services                           |   | 12,307,559  |        | 5,928,431   |   | 2,144,349   |   |
| Depreciation  and amortization                             |   | 17,631,238  |        | 20,458,500  |   | 2,957,683   |   |
| Provision  for doubtful accounts                           |   | 10,585,296  |        | 17,716,025  |   | 625,000     |   |
| Rent  expense                                              |   | 7,976,654   |        | 7,415,356   |   | 1,824,026   |   |
| Taxes,  other than income                                  |   | 3,089,172   |        | 6,295,122   |   | 199,491     |   |
| Other  expenses                                            |   | 9,361,652   |        | 6,626,546   |   | 1,739,861   |   |
| Management  fee to General Partner                         |   | 138,927     |        | 129,685     |   | 142,108     |   |
| Services  rendered by related parties                      |   | 7,481,362   |        | 7,062,610   |   | 2,980,718   |   |
|                                                       |   | 136,940,300 |        | 133,397,603 |   | 28,072,321  |   |
|                                                       |   |        |        |        |   |        |   |
| Gain  on sale of Visalia-Porterville license               |   | (4,814,337  | )           | —      |   | —      |   |
|                                                       |   |        |        |        |   |        |   |
| **Loss from  Operations**                                  |   | (8,390,036  | )           | (41,386,398 | )      | (20,763,762 | )      |
|                                                       |   |        |        |        |   |        |   |
| **Other  Income (Expense):**                               |   |        |        |        |   |        |   |
| Interest  income                                           |   | 548,002     |        | 490,309     |   | 832,006     |   |
| Interest  expense                                          |   | (20,172,216 | )           | (11,141,769 | )      | (2,263,002  | )      |
|                                                       |   |        |        |        |   |        |   |
|                                                       |   | (19,624,214 | )           | (10,651,460 | )      | (1,430,996  | )      |
|                                                       |   |        |        |        |   |        |   |
| **Loss  before Minority Interest**                         |   | (28,014,250 | )           | (52,037,858 | )      | (22,194,758 | )      |
|                                                       |   |        |        |        |   |        |   |
| **Minority  Interest**                                     |   | 1,354,590   |        | 282,471     |   | —      |   |
|                                                       |   |        |        |        |   |        |   |
| **Net  Loss**                                              |   | $           | (26,659,660 | )           | $      | (51,755,387 | )      | $ | (22,194,758 | ) |
| **Net  Loss Attributable to General Partner**              |   | $           | (6,664,915  | )           | $      | (12,938,847 | )      | $ | (5,548,689 | ) |
| **Net  Loss Attributable to Limited Partners**             |   | $           | (19,994,745 | )           | $      | (38,816,540 | )      | $ | (16,646,069 | ) |
|                                                       |   |        |        |        |   |        |   |
| **Net  Loss Per Unit Attributable to Limited****Partners** |   | $           | (6,876      | )           | $      | (13,350     | )      | $ | (5,725 | ) |

 

 

The accompanying notes are an integral part of these consolidatedstatements.

 

26

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**ClearComm, L.P.**

**ConsolidatedStatements of Changes in Partners’ Capital (Deficit)**

**December31, 2001, 2000 and 1999**

 

 

 
|                                        |   | **Limited  Partners** |   | **General  Partner** |        |        |   |
|---------------------------------------------|--------|-----------------------|--------|----------------------|-------------|-------------|--------|
|                                        |   | **Units**             |   | **Amount**           |        | **Total**   |   |
| **Balance (deficit) at December 31,  1998** |   | 2,830.7               |   | $                    | 40,853,352  |        | $      | (9,940,550 | ) | $ | 30,912,802 |   |
|                                        |   |                  |   |                 |        |        |   |   |   |
| Capital invested  in 1999                   |   | 77.0                  |   | 2,064,616            |        | —      |   | 2,064,616 |   |
| Net loss                                    |   | —                |   | (16,646,069          | )           | (5,548,689  | )      | (22,194,758 | ) |
|                                        |   |                  |   |                 |        |        |   |   |   |
| **Balance (deficit) at December 31,  1999** |   | 2,907.7               |   | 26,271,899           |        | (15,489,239 | )      | 10,782,660 |   |
|                                        |   |                  |   |                 |        |        |   |   |   |
| Net loss                                    |   | —                |   | (38,816,540          | )           | (12,938,847 | )      | (51,755,387 | ) |
|                                        |   |                  |   |                 |        |        |   |   |   |
| **Balance (deficit) at December 31,  2000** |   | 2,907.7               |   | (12,544,641          | )           | (28,428,086 | )      | (40,972,727 | ) |
|                                        |   |                  |   |                 |        |        |   |   |   |
| Net loss                                    |   | —                |   | (19,994,745          | )           | (6,664,915  | )      | (26,659,660 | ) |
|                                        |   |                  |   |                 |        |        |   |   |   |
| **Balance (deficit) at December 31,  2001** |   | 2,907.7               |   | $                    | (32,539,386 | )           | $      | (35,093,001 | ) | $ | (67,632,387 | ) |

 

 

The accompanyingnotes are an integral part of these consolidated statements.

 

27

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**ClearComm, L.P.**

**ConsolidatedStatements of Cash Flows**

**December31, 2001 and 2000**

 

 
|                                                                                                            |   | **2001**   |        | **2000**    |   | **1999**    |   |
|-----------------------------------------------------------------------------------------------------------------|--------|------------|-------------|-------------|--------|-------------|--------|
| **Cash  Flows from Operating Activities:**                                                                      |   |       |        |        |   |        |   |
| Net  loss                                                                                                       |   | $          | (26,659,660 | )           | $      | (51,755,387 | )      | $ | (22,194,758 | ) |
| Adjustments to  reconcile net loss for the period to net cash provided by (used in) operating  activities— |   |       |        |        |   |        |   |
| Depreciation  and amortization                                                                                  |   | 17,631,238 |        | 20,458,500  |   | 2,957,683   |   |
| Provision  for doubtful accounts                                                                                |   | 10,585,296 |        | 17,716,025  |   | 625,000     |   |
| Minority  interest                                                                                              |   | (1,354,590 | )           | (282,471    | )      | —      |   |
| Gain  from sale of Visalia-Porterville license                                                                  |   | (4,814,337 | )           | —      |   | —      |   |
| Proceeds  from sale of Visalia-Porterville license                                                              |   | 9,500,000  |        | —      |   | —      |   |
| Increase  in accounts receivable                                                                                |   | (9,635,513 | )           | (33,540,727 | )      | (2,236,043  | )      |
| Increase  in accounts receivable due from officer                                                               |   | (102,000   | )           | —      |   | —      |   |
| Increase  in insurance claims receivable                                                                        |   | (240,039   | )           | (1,256,285  | )      | —      |   |
| Decrease  (increase) in inventories                                                                             |   | 2,671,910  |        | (3,775,341  | )      | (9,201,823  | )      |
| Decrease  (increase) in prepaid expenses                                                                        |   | 922,640    |        | (325,919    | )      | (300,296    | )      |
| Increase  (decrease) in accounts payable and accrued liabilities                                                |   | 344,453    |        | (9,801,255  | )      | 13,702,490  |   |
| Increase  (decrease) in accounts payable to related parties                                                     |   | 6,663,586  |        | (773,535    | )      | 2,402,762   |   |
| Increase  in accrued interest                                                                                   |   | 4,175,492  |        | 2,120,604   |   | 1,038,732   |   |
| (Decrease)  increase in deferred income                                                                         |   | (269,518   | )           | 1,377,030   |   | 443,153     |   |
|                                                                                                            |   |       |        |        |   |        |   |
| Total  adjustments                                                                                              |   | 36,078,618 |        | (8,083,374  | )      | 9,431,658   |   |
|                                                                                                            |   |       |        |        |   |        |   |
| Net  cash provided by (used in) operating activities                                                            |   | 9,418,958  |        | (59,838,761 | )      | (12,763,100 | )      |
|                                                                                                            |   |       |        |        |   |        |   |
| **Cash  Flows from Investing Activities:**                                                                      |   |       |        |        |   |        |   |
| Acquisition  of property and equipment                                                                          |   | (8,207,046 | )           | (15,500,122 | )      | (3,486,128  | )      |
| Increase  in license cost                                                                                       |   | —     |        | —      |   | (2,494,495  | )      |
|                                                                                                            |   |       |        |        |   |        |   |
| Net  cash used in investing activities                                                                          |   | (8,207,046 | )           | (15,500,122 | )      | (5,980,623  | )      |
|                                                                                                            |   |       |        |        |   |        |   |
| **Cash  Flows from Financing Activities:**                                                                      |   |       |        |        |   |        |   |
| Capital  investment by partners                                                                                 |   | —     |        | —      |   | 1,083,616   |   |
| Capital  contribution from minority interest                                                                    |   | 5,000,000  |        | 10,000,000  |   | —      |   |
| Proceeds  from issuance of Bridge Loan Facility                                                                 |   | —     |        | 60,000,000  |   | —      |   |
| Proceeds  from issuance of notes payable to TLD                                                                 |   | 4,990,000  |        | 39,980,000  |   | 19,960,000  |   |
| Payment of note  payable to Lucent                                                                              |   | (8,298,808 | )           | —      |   | —      |   |
| Payment of note  payable to Alcatel                                                                             |   | (2,000,000 | )           | —      |   | —      |   |
| Payment of notes  payable to TLD                                                                                |   | —     |        | (30,000,000 | )      | —      |   |
| Financing costs  paid                                                                                           |   | —     |        | (1,848,624  | )      | —      |   |
|                                                                                                            |   |       |        |        |   |        |   |
| Net  cash (used in) provided by financing activities                                                            |   | (308,808   | )           | 78,131,376  |   | 21,043,616  |   |
|                                                                                                            |   |       |        |        |   |        |   |
| **Net  Increase in Cash and Cash Equivalents**                                                                  |   | 903,104    |        | 2,792,493   |   | 2,299,893   |   |
|                                                                                                            |   |       |        |        |   |        |   |
| **Cash  and Cash Equivalents**, beginning of period                                                             |   | 9,338,798  |        | 6,546,305   |   | 4,246,412   |   |
|                                                                                                            |   |       |        |        |   |        |   |
| **Cash  and Cash Equivalents**, end of period                                                                   |   | $          | 10,241,902  |        | $      | 9,338,798   |   | $ | 6,546,305 |   |

 

 

The accompanyingnotes are an integral part of these consolidated statements.

 

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**ClearComm,L.P.**

 

**Notes toConsolidated Financial Statements**

**December31, 2001, 2000 and 1999**

 

** **

**1.****                  ****Reporting Entity:**

 

ClearComm, L.P. (the“Partnership”) is a limited partnership organized on January 24, 1995 under thelaws of the State of Delaware.  ThePartnership was formed to file applications with the Federal Communications Commission(“FCC”) under personal communications service (“PCS”) frequency Block C,originally restricted to minorities, small businesses and designated entities,to become a provider of broadband PCS. The Partnership will terminate on December 31, 2005, or earlier upon theoccurrence of certain specified events as detailed in the PartnershipAgreement.

SuperTel CommunicationsCorp. (“SuperTel”), a Puerto Rico corporation, is the General Partner.  Its total share of the income and losses ofthe Partnership is 25% in accordance with the Partnership Agreement.  Approximately 1,600 limited partners alsoinvested in the Partnership through a private placement.

On January 22, 1997, thePartnership was granted the PCS Block C licenses for Puerto Rico and certaincities in California.

On February 4, 1999, thePartnership entered into a joint venture agreement (“the Joint VentureAgreement”) with Telefónica Larga Distancia De Puerto Rico, Inc. (“TLD”) tojointly develop and operate certain PCS licenses in Puerto Rico.  Among the most important provisions of theJoint Venture Agreement are the following:

•                                                            The Partnership transferred all of itsPuerto Rico PCS licenses including its related debt with the FCC to NewCommWireless Services, Inc. (“NewComm”), a newly organized Puerto Rico corporation,in exchange for all of NewComm’s issued and outstanding common stock.

•                                                            TLD loaned approximately $20 million toNewComm by means of a secured convertible promissory note payable (the“Promissory Note”).  The Promissory Noteis secured by a security agreement pursuant to which a security interest isimposed upon NewComm’s assets, a Partnership guarantee and a pledge agreement,as defined.

•                                                            Once certain regulatory and otherrequirements are met, the Promissory Note will be converted to NewComm’s commonstock representing approximately 49.9% of NewComm’s equity at the time of theexchange.  On March 12, 2002, thePartnership agreed to sell 0.2% of its shares in NewComm to bring TLD’sownership to 50.1% subject to a third party valuation of NewComm’s stock andapproval by the FCC.

 

•                                                            NewComm and TLD entered into certainmanagement and technology transfer agreements.

 

In September 1999, NewComm commenced providing PCS services in PuertoRico.

                On August 28, 2000, the Partnership entered into aPurchase and Sale Agreement

 

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 with Leap Wireless International (“LeapWireless”), pursuant to which the Partnership sold the Visalia, Californialicense to Leap Wireless in exchange for a $9,500,000 cash payment.  The transaction closed on June 8, 2001.

NewComm received anaggregate equity investment of $15,000,000 ($5 million in 2001 and $10 millionin 2000) from Syndicated Communications Venture Partners IV, L.P. (Syncom), athird party, in exchange for a 4.92% ownership in NewComm.  Syncon is committed to contribute up to $25million to NewComm in exchange for a 8.2% ownership.

The accompanyingconsolidated financial statements include the accounts of the Partnership andits majority-owned subsidiary, NewComm. All significant intercompany accounts and transactions have beeneliminated in consolidation.

2.                    **Financing Requirements**:

 

The accompanyingconsolidated financial statements have been prepared on a going concern basis,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. The Partnership commenced operations in September 1999 and has incurredoperating losses ($13.2 million in 2001, $41.4 million in 2000 and $20.8million in 1999).  It also has workingcapital and partners’ deficit of $133.2 million and $67.6 million,respectively, as of December 31, 2001. The Partnership is likely to continue incurring losses until such timeas its subscriber base generates revenue in excess of the Partnership’sexpenses.  Development of a significantsubscriber base is likely to take time, during which the Partnership mustfinance its operations by means other than its revenues.

As part of the agreementwith TLD, NewComm entered into a contract with Lucent Technologies, Inc.(“Lucent”) that requires Lucent to build a network that uses Code DivisionMultiple Access (“CDMA”) protocol. NewComm has incurred approximate $125 million in the construction of thenetwork.  During 2000, NewComm’smanagement and Lucent agreed on formally extending the payment of up to $61million of the total amount of network construction payable, at the time, undera formal financing agreement.  Thefinancing agreement was restructured as a Promissory Note on September 26, 2001,with a principal sum of approximately $60.5 million plus interest, due March15, 2002.  The interest rate on thePromissory Note is 14%, which increases to 16% if the Note was not satisfied byMarch 15, 2002.  NewComm anticipatesthat the Promissory Note will be restructured to provide that repayment will bedue on June 30, 2002 and bear interest at a rate of 8%, but no definitiveagreement has yet been signed.  As ofDecember 31, 2001 and 2000, $60.5 million and $61.0 million, respectively, areoutstanding under this financing agreement (refer to Note 9).

Alcatel USA InternationalMarketing, Inc. (“Alcatel”) was contracted to build part of the CDMAnetwork.  By December 18, 2001, NewCommowed Alcatel for outstanding invoices, payables, and past due interest totaling$14,361,732.  On December 18, 2001,NewComm and Alcatel entered into a Promissory Agreement and Note for saidamount at interest rate of 14%, and a maturity date of March 25, 2002. ThisPromissory Agreement and Note was amended with an extension of payment untilNovember 25, 2002.  It was also agreedthat with a payment of $6,000,000 expected to be made by May 25, 2002 theinterest rate will be decreased to 8% annually.

 

30

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During November 2000,NewComm entered into a $60 million bridge loan agreement (the Bridge LoanFacility) with ABN-AMRO and BBVA with interest at 1.5% over 90-day LIBOR, whichexpired on March 15, 2001, and was extended until June 22, 2001, with interestat 2.50% over 90-day LIBOR.  The BridgeLoan Facility was then extended until March 17, 2002, with interest at .75%over 90-day LIBOR.  The Bridge LoanFacility is now guaranteed by TISA, and its maturity date has been extended toMay 31, 2002.  As part of thisarrangement ClearComm agreed to pay an annual fee of 2.5% for one half of thisguarantee (or $30 million), or provide an equivalent cash collateral to theBanks during the first 90 days.  If thePartnership did not collaterize its share after the foregoing 90-day period, thefee would increase to 4.5%.  On November26, 2001, the Partnership was prepared to provide a cash collateral amount of$28 million, and the non-collaterized amount was reduced to $2 million.  Thus, the fee for the guarantee for the yearended December 31, 2001 amounted to approximately $453,000.  The guarantee period ends with the closingof the permanent financing (Project Finance Facility) which is expected to bein place by June 30, 2002.  The ProjectFinance Facility will require that the Partnership, by means of Syncom andFleet, and TLD, to contribute approximately $55 million total (or $27.5 millioneach) to NewComm in equity and convertible debt, respectively.  As part of this commitment, during the firstsix months of 2001, Syncom and TLD each contributed an additional $5 million toNewComm in the form of equity and convertible debt, respectively, for a totalof $15 million each. (refer to Note 11).

Each of the Partnership’sC-Block licenses is subject to an FCC requirement that the Partnership constructnetwork facilities that offer coverage to at least one-third of the populationin the market covered by such license within five years following the grant ofthe applicable license and to at least two-thirds of the population within tenyears following the grant.  Although thePartnership’s build-out plan calls for it to exceed these minimum requirements,failure to comply with these requirements could result in the revocation of therelated licenses or the imposition of fines on the Partnership by the FCC.  The Partnership has complied with the buildout requirements in Puerto Rico and for the California Licenses.

Management believes thatthe Partnership has complied with all the requirements for obtaining thepermanent financing arrangements discussed above and believes that cash andcash equivalents on hand, anticipated growth in revenues, vendor financing andthe permanent financing will be adequate to fund its operations, at a minimum,through the end of 2002.  However, inthe absence of improved operating results and cash flows, and the closing ofits contemplated Project Finance Facility, the Partnership may face liquidityproblems to fund its operations and meet its obligations.  As a result of these matters, substantialdoubt exists about the Partnership’s ability to continue as a goingconcern.  The accompanying consolidatedfinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

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**3.****                  ****Summary of Significant Accounting Policies:**

 

The followingsummarizes the most significant accounting policies followed in the preparationof the accompanying consolidated financial statements:

#### **Use of Estimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting periods.  Actual results coulddiffer from those estimates. Significant estimates include the allowance for doubtful accounts,  insurance claims receivable, the valuationof inventories, and the fair value of long-lived assets.  A significant assumption that impacts thecarrying value of assets and liabilities is that the Partnership will continueas a going concern (refer to Note 2).

#### **Basis of Accounting and Fiscal Year**

The Partnership’s recordsare maintained on the accrual basis of accounting for financial reporting andtax purposes.  The fiscal year of thePartnership ends on December 31.

#### **Cash Equivalents**

The Partnership considersall highly liquid investment instruments purchased with an original maturity ofthree months or less to be cash equivalents. Cash equivalents at December 31, 2001 and 2000, consist of money marketfunds of approximately $9,720,000 and $5,055,000, respectively.

###### **Allowance for Doubtful Accounts**

The allowance fordoubtful accounts provides for estimated losses on accounts receivable.  The allowance is established based upon areview of the aggregate accounts, loss experience, economic condition and otherpertinent factors.  Account losses are chargedand recoveries are credited to the allowance for doubtful accounts.

#### **Inventories**

The Partnership maintainsinventories for resale of wireless handsets and accessories tosubscribers.  Inventories are recordedat the lower of average cost (which approximates first-in, first-out) or market(which approximates replacement cost from suppliers).  As inducement to obtain new customers the Partnership may sellhandsets to customers for a price that is less than cost.  The loss on such sales is recognized at thetime of sale.  Handsets for rental aretransferred to property and equipment at book value at the time these arerented.

 

32

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#### **Deferred Financing Costs**

Financing costs incurredin connection with the Bridge Loan Facility have been deferred to be amortizedthroughout the term of the short-term financing or, for amounts agreed with thefinancial institutions to be credited to permanent financing costs, throughoutthe term of the permanent financing.

#### **PCS Licenses**

PCS licenses are recordedat cost.  The Puerto Rico PCS licensesare being amortized over their estimated life of twenty years.  The California PCS licenses (the “CaliforniaLicenses”), which are in use effective January 2002, will be amortized over theirestimated life of twenty years.  ThePartnership capitalized the interest related to the debt pertaining to thePuerto Rico PCS licenses during the development stage, which amounted to$12,174,000.  However, suchcapitalization was discontinued in September 1999 when NewComm startedcommercial operations.  The licensesexpire in January 2007 unless renewed. However, FCC rules provide for renewal expectancy provisions.  The Partnership expects to exercise therenewal provisions.

On August 28, 2001, thePartnership entered into a Purchase and Sale Agreement with Leap WirelessInternational (“Leap Wireless”), pursuant to which the Partnership sold theVisalia-Porterville license to Leap Wireless in exchange for $9,500,000 cashpayment, resulting in a gain of $4,814,337. This sale was approved by the FCC and closed on June 8, 2001.

#### **Property and Equipment**

Property and equipmentare recorded at cost.  Majorreplacements and improvements are capitalized while general repairs andmaintenance are charged to expense as incurred.

Depreciation is computedusing the straight-line method over the estimated useful life of the assetcommencing from the time it is placed into service or the term of the lease, ifshorter, for leasehold improvements. Upon retirement or sale, the cost of the asset disposed of and therelated accumulated depreciation are removed from the accounts and anyresulting gain or loss is credited or charged to income.

#### **Accounting for Impairment of Long-lived Assets**

The Partnershipcontinually evaluates its long-lived assets to determine whether current eventsand circumstances warrant adjustment to the carrying values or amortizationperiods.  The Partnership measuresimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable.  In performing the review for recoverability, an estimate of thefuture cash flows expected to result from the use of the asset and its eventualdisposition must be made.  If the sum ofthe future cash flows (undiscounted and without interest charges) is less thanthe carrying amount of the asset, an impairment loss is recognized.  The impairment loss, if any, is determinedbased on projected discounted future operating cash flows using a discount ratereflecting the Partnership’s average cost of funds.  No impairment loss was recognized during 2001, 2000 and 1999.

 

33

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#### **Revenue Recognition**

The Partnership earnsrevenues by providing postpaid and prepaid PCS service to local subscribers, aswell as from sales of PCS equipment and accessories to subscribers.  Sale of handsets and accessories arerecognized upon shipment or point-of-sale. Up to May 2001, revenues were also earned from rental of handsets andwere billed and recognized on a monthly basis.

Postpaid PCS servicerevenues consist of base monthly service fees, airtime revenue andlong-distance toll revenues.  Generally,the base monthly service fees are billed one month in advance, but recognizedwhen earned, while airtime and toll revenues are recognized when the service isprovided.

Prepaid PCS servicerevenues are collected in advance, but recognized as service is provided.

#### **Advertising Costs**

The Partnership expensesproduction costs of print, radio and television advertisements and otheradvertising costs as such costs are incurred.

#### **Income Taxes**

In accounting for incometaxes the Partnership uses the asset and liability approach that requires therecognition of deferred tax liabilities and assets for the expected future taxconsequences of temporary differences between the carrying amounts and the taxbases of assets and liabilities.  Avaluation allowance is recognized for any deferred tax asset for which, basedon management’ s evaluation, it is more likely than not (a likelihood of morethan 50%) that some portion or all the deferred tax asset will not be realized.

#### **Net Loss Per Limited Partnership Unit**

Net loss per limitedpartnership unit is computed by dividing net loss for the period by theweighted-average number of limited partnership units outstanding during theperiod which were 2,907.7 in 2001 and 2000 and 2,830.7 in 1999.

#### **Fair Value of Financial Instruments**

The carrying amounts ofthe Partnership’s financial instruments, excluding notes payable and the bridgeloan facility, (cash and cash equivalents, accounts receivable, accountspayable and accrued liabilities) are considered reasonable estimates of fairvalue due to the short period to maturity.

Management believes,based on current interest rates, that the fair value of its notes payable andbridge loan facility approximates the carrying amount.

 

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#### **Other Accounting Pronouncements**

In June 2001, theFinancial Accounting Standards Board issued SFAS No. 141, “BusinessCombinations” (effective July 1, 2001) and SFAS No. 142, “Goodwill and OtherIntangible Assets” (effective for the Partnership on January 1, 2002).  SFAS No. 141 prohibits pooling-of-interestsaccounting for acquisitions.  SFAS No.142 specifies that goodwill and some intangible assets will no longer beamortized but instead will be subject to periodic impairment testing. ThePartnership applied SFAS No. 142 on January 1, 2002.  Since the Partnership does not have any goodwill, the implementationof SFAS No. 142 did not have a material impact on the Partnership’sconsolidated results of operations or financial position.

SFAS No. 143,“Accounting for Asset Retirement Obligations,” was issued June 2001.  SFAS No. 143 addresses accounting and reportingfor legal obligations associated with the retirement of tangible long-livedassets and the associated asset retirement costs.  This statement is effective for fiscal years beginning after June15, 2002.  It is the opinion ofmanagement that the implementation of SFAS No. 143 is not expected to have amaterial impact on the Partnership’s consolidated results of operations orfinancial position.

SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,” was issuedAugust 2001.  SFAS No. 144 addressesaccounting and reporting for the impairment or disposal of long-lived assets byrequiring that one accounting model be used for assets to be disposed of bysale, whether previously held and used or newly acquired, and by broadening thepresentation of discontinued operations to included more disposaltransactions.  This statement iseffective for fiscal years beginning after December 15, 2001.  It is the opinion of management that theimplementation of SFAS No. 144 is not expected to have a material impact on thePartnership’s results of operations or financial position.

**4.****                  ****Allowance for Doubtful Accounts:**

 

The activity for the allowance for doubtful accountsat December 31, follows:

 
|                                  |   | **2001**    |       | **2000**   |   | **1999**   |   |
|---------------------------------------|--------|-------------|------------|------------|--------|------------|--------|
| Balance  at beginning of year         |   | $           | 18,341,025 |       | $      | 625,000    |   | $ | — |   |
| Provision for  doubtful accounts      |   | 10,585,296  |       | 17,716,025 |   | 625,000    |   |
| Accounts  receivable written-off, net |   | (10,521,751 | )          | —     |   | —     |   |
|                                  |   |        |       |       |   |       |   |
| Balance at end  of year               |   | $           | 18,404,570 |       | $      | 18,341,025 |   | $ | 625,000 |   |

 

 

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**5.****                  ****Insurance Claims Receivable:**

 

The Partnershipprovides its customers with optional insurance coverage for damage, theft orloss of handset equipment sold. Insurance coverage to the Partnership is provided by a third partyinsurance company.  During 2000, thePartnership filed claims aggregating approximately $4,000,000 with theinsurance company.  There is a disputebetween the Partnership and the insurance company in relation to coverage forcertain losses.  Accordingly, thePartnership has recorded an insurance claim receivable of approximately$1,496,000 as of December 31, 2001, which mostly represents the portion of theclaims the insurance company has offered to pay.  During 2001, NewComm filed a lawsuit against the insurancecompany demanding payment of these claims. (Refer to Note 17)

 

**6.****                  ****Inventories:**

 

Inventories at December31, consist of:
|                   |   | **2001**  |       | **2000** |   |
|------------------------|--------|-----------|------------|----------|--------|
| Handsets               |   | $         | 9,172,681  |     | $      | 12,418,439 |   |
| Accessories and  other |   | 1,132,573 |       | 558,725  |   |
|                   |   |      |       |     |   |
|                   |   | $         | 10,305,254 |     | $      | 12,977,164 |   |

 

**7.****                  ****PCS Licenses:**

 

At December 31, PCSlicenses consist of:
|                                        |   | **2001**   |       | **2000**   |   |
|---------------------------------------------|--------|------------|------------|------------|--------|
|                                        |   |       |       |       |   |
| PCS  licenses in use                        |   | $          | 52,696,294 |       | $      | 52,696,294 |   |
| Accumulated  amortization                   |   | (5,945,846 | )          | (3,311,031 | )      |
|                                        |   | 46,750,448 |       | 49,385,263 |   |
| PCS licenses in  use effective January 2002 |   | 10,767,525 |       | 15,453,189 |   |
|                                        |   | $          | 57,517,973 |       | $      | 64,838,452 |   |

 

On August 28, 2001, the Partnership entered into aPurchase and Sale Agreement with Leap Wireless International (“Leap Wireless”),pursuant to which the Partnership sold the Visalia-Porterville license to LeapWireless in exchange for $9,500,000 cash payment, resulting in a gain of$4,814,337.  This sale was approved bythe FCC and closed on June 8, 2001.

 

36

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**8.****                  ****Property and Equipment:**

 

At December 31, property andequipment consist of

 
|                                       |   | **Estimated Life  (years)** |   | **2001**    |        | **2000**    |    |
|--------------------------------------------|--------|-----------------------------|--------|-------------|-------------|-------------|---------|
| Network  infrastructure equipment          |   | 10                          |   | $           | 106,982,181 |        | $       | 88,929,914 |   |
| Leasehold  improvements                    |   | 5-10                        |   | 4,373,540   |        | 3,706,389   |    |
| Handsets  rented to customers              |   | 1                           |   | —      |        | 7,941,943   |    |
| Computer  and office equipment             |   | 5                           |   | 6,934,298   |        | 5,460,523   |    |
| Vehicles                                   |   | 5                           |   | 706,639     |        | 664,853     |    |
|                                       |   |                        |   | 118,996,658 |        | 106,703,622 |    |
|                                       |   |                        |   |        |        |        |    |
|                                       |   |                        |   |        |        |        |    |
| Accumulated  depreciation and amortization |   |                        |   | (21,932,257 | )           | (15,173,002 | )  |
|                                       |   |                        |   |        |        |        |    |
|                                       |   |                        |   | 97,064,401  |        | 91,530,620  |    |
|                                       |   |                        |   |        |        |        |    |
| Network under  construction                |   |                        |   | 5,031,552   |        | 5,471,520   |    |
|                                       |   |                        |   |        |        |        |    |
|                                       |   |                        |   | $           | 102,095,953 |        | $       | 97,002,140 |   |

 

Effective May 2000, NewComm discontinued the practiceof renting handsets to customers.  ByMay 2001, these handsets were fully depreciated and were written-off books.

 

**9.****                  ****Note Payable to Lucent Technologies:**

 

During 2000, NewComm’smanagement and Lucent agreed on formally extending the payment of up to $61.0million of the total amount due under the network construction payable, at thetime, under a formal financing agreement. The financing agreement was restructured as a Promissory Note onSeptember 26, 2001, with a principal sum of $60.5 million plus interest, dueMarch 15, 2002.  The interest rate onthe Promissory Note is 14%, which increases to 16% if the Note is not satisfiedby March 15, 2002.  NewComm anticipatesthat the Promissory Note will be restructured to provide that repayment will bedue June 30, 2002 and bear interest at 8%, but no definitive agreement has yetbeen signed.  This lower interest hadbeen agreed to with Lucent by means of Letter Agreement dated September 27,2001, upon the signing of the Stock Purchase Agreement with TLD.  As of December 31, 2001, $60,531,697 isoutstanding under this financing agreement.

 

**10.****           ****Note Payable to Alcatel and Promissory Agreement:**

 

On December 18, 2001,NewComm had outstanding invoices, payables, and past due interest to Alcateltotaling $14,361,732.  On that day,NewComm and Alcatel entered into a Promissory Agreement and Note for saidamount at an interest rate of 14%, and a maturity date of March 25, 2002.  This Promissory Agreement and Note wasamended with an extension of payment until November 25, 2002.  It was also agreed that upon a $6,000,000payment expected to be made by May 25, 2002, the interest rate will bedecreased to 8% annually.  The remainingbalance is due on November 25, 2002.

 

37

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** **

** **

**11.****           ****Bridge Loan Facility:**

 

During November 2000,NewComm entered into a $60 million bridge loan agreement (the Bridge LoanFacility) with ABN-AMRO and BBVA (the “Bank”) with interest at 1.5% over 90-dayLIBOR, which expired on March 15, 2001, and was extended until June 22, 2001,with interest at 2.50% over 90-day LIBOR. The Bridge Loan Facility was then extended until March 17, 2002, withinterest at .75% over 90-day LIBOR.  TheBridge Loan Facility is now guaranteed by Telefónica Internacional, S.A.(“TISA”), and its maturity date has been extended to May 31, 2002.   As part of this arrangement ClearCommagreed to pay an annual fee of 2.5% for one half of this guarantee ($30million), or provide an equivalent cash collateral to the Banks during thefirst 90 days.  If the Partnership didnot collaterize its share after the foregoing 90-day period, the fee wouldincrease to 4.5%.  On November 26, 2001,the Partnership was prepared to provide cash collateral amounting to $28million, and the non-collaterized amount was reduced to $2 million.  Thus, the fee for the guarantee for the yearended December 31, 2001 amounted to approximately $453,000.  The guarantee period ends with the closingof the Project Finance Facility, which is expected to be in place by June 30,2002.  The Project Finance Facility willrequire the Partnership, by means of Syncom and Fleet Development Ventures, LLC(“Fleet”) and TLD, to contribute approximately $55 million total (or $27.5million each) to NewComm in the form of equity and convertible debt,respectively.  As part of thiscommitment, Syncom and TLD have each contributed $15 million in the form ofequity and convertible debt.  On March2, 2002, the Partnership sold 4.08% of NewComm to a group of investors led byFleet for $13 million.  Prior to June30, 2002, the Partnership and TLD will contribute approximately $12.5 millioneach to NewComm in the form of equity and convertible debt, respectively, toclose the Project Finance Facility.

 

**12.****           ****Accounts Payable and Accrued Liabilities:**

 

At December 31, accounts payable and accruedliabilities consist of:
|                                            |   | **2001**   |       | **2000**   |   |
|-------------------------------------------------|--------|------------|------------|------------|--------|
| Accounts  payable-trade                         |   | $          | 15,457,177 |       | $      | 19,766,575 |   |
| Accounts  payable-network construction costs    |   | 1,881,734  |       | 10,055,040 |   |
| Other accounts  payable and accrued liabilities |   | 10,529,804 |       | 10,492,786 |   |
|                                            |   | $          | 27,868,715 |       | $      | 40,314,401 |   |

 

**13.  Long-TermNotes Payable:**

 

Long-term notes payable consist of:
|                                     |   | **2001**   |       | **2000**   |   |
|------------------------------------------|--------|------------|------------|------------|--------|
| FCC  Notes                               |   | $          | 41,633,640 |       | $      | 39,580,955 |   |
| TLD  notes                               |   | 34,930,000 |       | 29,940,000 |   |
| Accrued interest  on TLD Promissory Note |   | 5,160,322  |       | 2,935,278  |   |
|                                     |   | $          | 81,723,962 |       | $      | 72,456,233 |   |

 

 

38

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###### **FCCNotes**

On January 22, 1997, thePartnership was granted fifteen PCS Block C licenses by the FederalCommunications Commission (“FCC”) for an aggregate $344,293,125.  A down payment, or 10% of the bid amount,was deducted by the FCC from the deposit held.

The remaining balance of$309,863,813 consisted of 10-year notes due to the FCC bearing interest at 6.5%and guaranteed by the licenses obtained. In accordance with industry practice, the Partnership recorded thelicenses and the related debt at a net present value of $210,143,476.  Based on the Partnership’s estimates ofborrowing costs for debt similar to that issued by the FCC, the Partnership useda 13% discount rate.  At December 31,1997, the notes payable to the FCC were presented net of a discount ofapproximately $93,007,000.

The original payment termprovided for paying interest only for the first six years starting in April1997 and both interest and principal for the remaining four years starting inApril 2003.  Although in March 1997 theFCC suspended the deadline for commencing the payments, the Partnership accruedthe interest on the notes.

In September 1997, theFCC ended the interest payment suspension and established March 31, 1998, asthe deadline to resume payments.  TheFCC also adopted certain options designed to assist Block C licensees inobtaining financing and building their systems.  On March 24, 1998, the FCC issued a new order (the “March FCCOrder”) establishing new options and June 8, 1998 and July 31, 1998, as thedates for making an election on the options and the deadline to resumepayments, respectively.

On June 8, 1998, thePartnership elected the following options:

1.               Returned eight licenses the Partnershipheld in the western states of the United States with an undiscounted cost ofapproximately $199,299,000 and the FCC forgave the undiscounted debt related tothese licenses amounting to approximately $179,369,000.  A credit of approximately $17,000,000 resultingfrom this election was used by the Partnership to prepay the debt of otherlicenses the Partnership held in the western states of the United States.

2.               Disaggregated and prepaid the remainingfive licenses the Partnership held in the western states of the UnitedStates.  As a result, the Partnershipreturned 15 MHz in licenses with an undiscounted cost of approximately$15,453,000 and the FCC forgave fifty percent of the related undiscounted debtor $13,908,000.  The outstandingundiscounted debt on the 15 MHz licenses retained of approximately $13,908,000was prepaid with the credit received on the licenses returned in (1) above.

3.               Disaggregated the Puerto Rico PCSlicenses.  As a result, the Partnershipreturned 15 MHz in licenses with an undiscounted cost of approximately$57,044,000 and the FCC forgave fifty percent of the related undiscounted debtor approximately $51,340,000.  A creditof approximately $2,282,000 resulting from this election was applied by the FCCto the interest accrued.

 

39

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As a result of theelections made by the Partnership, the FCC forfeited approximately $10,990,000,which was charged to operations in 1998.

The remaining notespayable to the FCC are payable as follows:

•                  Quarterly interest payments of $834,268 through April 2003.

 

•                  Quarterly principal and interest payments of $3,669,768 from April 2003through January 2007.

 

#### **TLD Notes**

The secured promissorynote (“Promissory Note”) payable to TLD bears interest at the floating rate ofthe 90-day LIBOR plus 1-1/2% and is due in March 2004.  The principal amount of the Promissory Noteis convertible into NewComm’s shares of common stock, as follows: (i) shares ofNewComm’s Class A Common Stock in an amount equal to thirty-three and one thirdpercent (33-1/3%) of NewComm’s issued and outstanding Class A Common Stock heldby the Partnership, and (ii) shares of NewComm’s Class B Common Stock in anamount equal to forty-nine point seven percent (49.7%) of all issued andoutstanding shares of Class A Common Stock of NewComm (including the Class ACommon Stock issued to TLD upon conversion of the Promissory Note).  Upon the issuance of the FCC approval, TLDshall surrender the Promissory Note to NewComm, duly endorsed for cancellation,and NewComm shall issue (i) the certificates evidencing the number of shares ofClass A Common Stock and Class B Common Stock into which the Promissory Note isconvertible, as set forth herein, and (ii) a promissory note in a principalamount equal to the accrued interest on the Promissory Note as of such date(the Interest Note).  The Interest Notewill be non-interest bearing and the principal amount may be converted intoadditional shares of NewComm’s stock. Because of restrictions on the PCS licenses, the Promissory Note cannotbe converted until the FCC authorizes TLD to hold more than a 25% equityinterest in NewComm.

On January 31, 2000, theJoint Venture Agreement was amended. TLD provided NewComm a revolving line of credit of approximately $30,000,000for working capital.  The amountsadvanced under this line of credit bore interest at 3% over the LIBOR rate andare secured under the same terms of the Promissory Note of approximately $20million.  During 2000, TLD advancedNewComm additional amounts bringing the total advances to $30,000,000.  The total balance outstanding, includingprincipal and interest, amounting to $30,191,878, was repaid by NewComm onDecember 1, 2000, with the proceeds from the Bridge Loan Facility.

During November 2000, December2000 and May 2001 TLD loaned and NewComm issued three convertible promissorynotes for the principal amounts of $4,990,000 each.  The principal amounts of the promissory notes are eachconvertible into 29.34 shares of NewComm’s Class A Common Stock at any timeprior to their respective maturity dates November 2, 2005, December 15, 2005and May 1, 2006.

 

40

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On March 12, 2002, thePartnership agreed to sell 0.2% of its shares in NewComm to TLD subject to theapproval by the FCC and to a third party valuation of NewComm’s stock.  If the FCC approves, TLD would own 50.1% ofNewComm.

At December 31, 2001,future principal installments due on the FCC and TLD notes payable are asfollows:

| **Year**                               |   | **Amount** |       |
|----------------------------------------|--------|------------|------------|
|                                   |   |       |       |
| 2002                                   |   | $          | —     |   |
| 2003                                   |   | 8,645,478  |       |
| 2004                                   |   | 35,847,602 |       |
| 2005                                   |   | 22,140,373 |       |
| 2006                                   |   | 16,684,709 |       |
| Thereafter                             |   | 8,111,715  |       |
|                                   |   | 91,429,877 |       |
| Less—  Discount on FCC notes |   | (9,705,915 | )          |
|                                   |   | $          | 81,723,962 |   |

 

**14.****           ****Partners’ Capital:**

 

At December 31, 2001 and2000, the limited partners’ capital consisted of 2,907.7 units (consisting of2,607.5 units and 1,501 one-fifth units) distributed among approximately 1,600limited partners.

The Partnership Agreementprovides that the Partnership may sell additional limited partnership interestsafter the initial offering to raise additional equity.  Cash flow received from normal operations ofthe Partnership which the General Partner, in its sole discretion, determinesto distribute to the investors of the Partnership, will be distributed 75% tothe limited partners and 25% to the General Partner.  The operating losses of the Partnership for federal income taxpurposes will be allocated first to the partners as necessary to offset anyprofits previously allocated to them until each partner has cumulative lossesequal to cumulative profits previously allocated to each partner, and second,75% to the limited partners in accordance with the number of units held by eachlimited partner and 25% to the General Partner; provided, however, that anylosses that would have the effect of causing or increasing a partner’s capitalaccount deficit will be allocated first, pro rata to the other partners inaccordance with their respective share of partnership distributions, andsecond, when such allocations can be made without increasing a partner’scapital account deficit, to the General Partner.

**15.****           ****Related Party Transactions:**

 

The Partnership hasincurred legal and consulting expenses paid to limited partners and members ofthe Board of Directors and shareholders of the General Partner amounting toapproximately $360,000, $456,000 and $1,720,000 in 2001, 2000 and 1999,respectively.

 

41

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The PartnershipAgreement, as amended, provides for payment of a management fee to its GeneralPartner, equal to the reasonable costs of operating the business of thePartnership, plus 10% of such aggregate amount, which fee shall be payablemonthly, on the first day of each month during the year.  Expenses reimbursed include, but are notlimited to, compensation costs and expenses related to the officers, directors,and employees in the performance of their duties. In connection with thisagreement, the General Partner billed approximately $139,000, $130,000 and $142,000in 2001, 2000 and 1999, respectively, for these services.

NewComm entered into amanagement agreement with TLD whereby TLD has agreed to combine its experience,know-how, synergies and resources in the development, preparation andimplementation of NewComm business policies and organization in all major areasof operations.  As part of thismanagement agreement, TLD agrees to advise NewComm in establishing anddeveloping NewComm’s strategic business policies, technical consultation inconnection with the design and development of networks, equipment selection,quality controls, billing platforms, customer service and in new services andproducts.  NewComm is responsible forall salaries, wages, benefits, expenses and any other compensation of the officers,employees or agents selected by TLD in connection with its managementservices.  This management agreementrequires NewComm to pay an annual fee (payable quarterly in arrears) based onthe higher of 9% of NewComm’s earnings before interest, taxes, depreciation andamortization (“EBITDA”) or $750,000. The initial term of this management agreement is five years beginning inFebruary 4, 1999, and is automatically renewable.

Also, NewComm enteredinto a services agreement with TLD, whereby TLD will provide support to NewCommin the areas of legal consultation, public relations, management informationsystems and general services.  Theservices agreement is on a year-to-year basis and requires monthly payments toTLD in the amount of approximately $116,000.

In addition, NewCommentered into a technology transfer agreement with Telefónica Internacional,S.A. (“TISA”), an affiliate of TLD, whereby TISA granted NewComm the right touse, during the term of this agreement, all patents, trademarks, processes, planningresources, models, designs and, in general, all other intellectual propertybelonging to TISA (collectively, the Technology), which is deemed necessary forthe efficient operation and development of the business of NewComm.  NewComm shall pay TISA all costs incurred,directly, or indirectly by virtue of granting NewComm the right to utilize theTechnology.  In consideration for theright to use the Technology, NewComm shall pay an annual fee (payable quarterlyin arrears) equal to one percent (1%) of NewComm’s gross revenue as of the endof the previous year. NewComm shall be responsible for all taxes, withholdingsor similar deductions due on the fee. The initial term of this agreement is five years and is automaticallyrenewable.

Atento de Puerto Rico,Inc., an affiliate of TLD, provides NewComm call center services, includingcustomer service and others.  Servicesare charged based on arranged rates.

Total amounts charged byTLD and its affiliates during the years ended December 31, 2001, 2000 and 1999,for the above agreements and other charges amounted to approximately$7,152,000, $6,607,000 and $2,410,000, respectively.

 

42

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**16.****           ****Income Tax:**

 

The Partnership, as alimited partnership, is not subject to federal income tax and the tax effect ofits activities flows-through to the partners. The Partnership and NewComm, are treated as regular corporations and aresubject to Puerto Rico income tax.

Taxable income to theGeneral and Limited Partners differs from that reported in the statements ofrevenues and expenses mainly due to different treatment of operational expensesincurred since inception for tax and book purposes and due to NewComm’slosses.  The Partnership’s operatingexpenses were deferred for tax purposes. 

The taxable loss for thepartners is determined as follows:
|                                                                  |   | **2001**   |        | **2000**   |   | **1999**    |   |
|-----------------------------------------------------------------------|--------|------------|-------------|------------|--------|-------------|--------|
| Net  loss per books                                                   |   | $          | (26,659,660 | )          | $      | (51,755,387 | )      | $ | (22,194,758 | ) |
| Add:                                                                  |   |       |        |       |   |        |   |
| Difference  between tax and book basis of Visalia-Porterville license |   | (5,318,046 | )           | —     |   | —      |   |
| NewComm’s  losses                                                |   | 30,875,816 |        | 51,272,979 |   | 20,914,122  |   |
| Taxable  loss                                                         |   | $          | (1,101,890  | )          | $      | (482,408    | )      | $ | (1,280,636 | ) |

 

At December 31, 2001,NewComm has an operating loss carryforward amounting to approximately $94.8million.  This loss is available tooffset future Puerto Rico taxable income and expires at various date through2008.  Due to the uncertaintysurrounding the realization of the related deferred tax asset, the Partnershiphas provided a full valuation allowance against its otherwise recognizabledeferred tax asset.

**17.****           ****Contingencies:**

 

Sprint/Centennial

 

On September 21, 2001,Newcomm Wireless Services, Inc. d/b/a MoviStar (“MoviStar”) filed a *Complaint*and*Motionand Memorandum of Law Requesting Temporary Restraining Order and PreliminaryInjunction* in the Federal District Court for the District of PuertoRico, which alleged serious and unlawful interruptions, interferences andirreparable damages to MoviStar’s operations rising out of Sprint’s refusal tobroadcast a SID for the Puerto Rico market that will not interfere with theservices presently being offered by MoviStar to its subscribers.  During October 15th to 18th,2001, the District Court held an evidentiary hearing related to the injunctiverelief sought.  In its *Opinion andOrder* of**October 29, 2001, the District Courtordered Sprint to “immediately cease and desist from using SID 5142 and/or anyother SID which similarly interferes with plaintiff’s operations in PuertoRico.”

 

43

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On October 30, 2001,Centennial filed a *Motion of Intervention of Right* in whichit requested leave from the District Court to join the Sprint litigation.  Despite MoviStar’s opposition, the DistrictCourt granted Centennial’s motion on November 5, 2001.  Both Sprint and Centennial are currentlyappealing, in the First Circuit Court of Appeals, the injunctive relief grantedby the District Court of Puerto Rico. On April 6, 2002, the First Circuit Court of Appeals issued an orderreversing the injunction release.  On orabout April 20, 2002, MoviStar plans to file a Petition for a Re-Hearing.

PRAICO

This is a civilaction for breach of contract and collection of moneys before the SuperiorCourt of San Juan on September 17, 2001, wherein the NewComm is suing thePuerto Rican American Insurance Company (“PRAICO”) demanding the payment ofclaims made by NewComm under insurance policies issued by PRAICO.  NewComm attempts to recover four milliondollars ($4,000,000) against PRAICO to recover from PRAICO under an insurancepolicy issued by that company to cover theft and damages of handsets sold tothe public.  The four million dollarclaim covers approximately four thousand (4,000) phones reported as either lostor stolen.  The complaint has been filedbut no answer has been filed to date. The parties are currently in negotiations for a settlement of thesubject claim.  PRAICO has offered thesum of two million dollars ($2,000,000) as settlement.  NewComm has made a counteroffer of threepoint eight million dollars ($3,800,000).

Puerto RicoTelecommunications Regulatory Board

On January 31, 2002,NewComm Wireless Services, Inc. (“NewComm”) filed a *Petition for Arbitration*before the Puerto Rico Telecommunications Regulatory Board (“PRTRB”) wherebyNewComm petitions PRTRB for arbitration of rates, terms and conditions forinterconnection and related arrangements in conjunction with a revisedinterconnection agreement between NewComm and the Puerto Rico Telephone Company(“PRTC”).

Jaime L. Santiago

On February 22, 2002,MoviStar answered a complaint filed by Jaime Luis Santiago Cajigas allegingdamages based on Law 44 of December 20, 1991, 1 L.P.R.A. § 501 et. seq., whichis Puerto Rico’s Law Against Discrimination Based on Disability.  The plaintiff is also alleging damages underthe Americans With Disabilities Act (ADA). The damages alleged against all defendants amounts to $1,000,000.  The plaintiff is also claiming equitable remediessuch as reinstatement to his former employment, with reasonable accommodation,costs and attorneys fees.  The next stepfor the parties is to initiate discovery in this case.  Once discovery is completed, MoviStar willbe in a much better position to assess the case and provide more detailedinformation as to the possibilities of prevailing or opting for settlement.

 

44

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Complaint

A complaint was filedagainst Movistar on December 7, 2001. It alleges discrimination based onnational origin against the Plaintiff, who was allegedly terminated from hisemployment for being from the Dominican Republic. Additionally, it claimsunjust termination. The Plaintiff requests $100,000 to compensate for hisemotional damages, $6,000 for his alleged unjust dismissal and $10,000 asspecial damages for alleged unpaid compensation.

Movistar filed answer tothe complaint on December 31, 2001. Therein they denied the allegations setforth in the complaint and plead as an affirmative defense, inter alia, thatthe Plaintiff was terminated, not for his national origin, but after it wasdiscovered that he had lied in his employment application process when hefurnished a resume to the Defendants where he claimed that he had earned aBachelor in Science of Civil Engineering.

On January 23, 2002,MoviStar filed a Motion to Dismiss for the insufficiency of the process and theservice of the process. On February 6, 2002, the court ordered the Plaintiff toshow cause as to why the Motion to Dismiss should not be granted. The Plaintiffcomplied with the Court’s order and on February 19, 2002, filed a Motion inCompliance with the Order to Show Cause. The Court’s decision is still pending.In the meantime, the Court has scheduled a Status Conference to be held onApril 26, 2002.

From time to timethe Partnership is involved in litigation arising in the ordinary course ofbusiness, some of which is ongoing.  TheGeneral Partner does not believe that any litigation involving the Partnershipwill have a material adverse effect on the Partnership’s business or financialcondition.

 

**18.****           ****Commitments:**

 

The Partnership throughNewComm is committed under various operating lease agreements for its officespace and retail outlets, as well as various sites for communication equipmentand towers under different terms and conditions.  Minimum future annual rental commitments at December 31, 2001,are as follows:

| **Year**   |   | **Amount** |             |
|------------|--------|------------|------------------|
|       |   |       |             |
| 2002       |   | $          |  5,730,000  |   |
| 2003       |   | 5,450,000  |             |
| 2004       |   | 3,900,000  |             |
| 2005       |   | 1,300,000  |             |
| 2006       |   | 162,000    |             |
| Thereafter |   | —     |             |
|       |   | $          |  16,542,000 |   |

 

 

Rent expense for theyears ended December 31, 2001, 2000 and 1999, was approximately $7,956,000,$7,415,000 and $1,825,000, respectively.

 

45

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All PCS license holdersare required to meet certain requirements imposed by the FCC relating to theprovision of service in each license area. Block C license holders must providecoverage to one-third of the POPs in each license service area within fiveyears of license grant and two-thirds of the POPs in each license service areawithin ten years of license grant. These periods were rescheduled by the FCC to begin on June 8, 1998.  Failure to comply with the build-outrequirements could subject the Partnership to license forfeiture or otherpenalties, and may have a material adverse effect on the financial condition ofthe Partnership.  The Partnership hascomplied with its build out requirements for the Puerto Rico Licenses, and theCalifornia Licenses.

 

**19.****           ****Supplementary Cash Flows Information:**

 

Interest paidduring the years ended December 31, 2001 and 2000 and 1999, were approximately$12,279,000, $5,526,000 and $3,700,000, respectively.

Non-cash investingand financing activities include the following:

•                                                            Network construction costs, not yet paid,financed through note payable to Lucent and Alcatel of approximately$73,322,000, $71,055,000 and $88,04,7000 in 2001, 2000 and 1999, respectively.

•                                                            Limited partners’ capital contributionnot yet collected of $981,000 in 1999.

 

**20.****           ****Quarterly Financial Information (Unaudited):**

 

Certain unaudited quarterly financial information forthe years ended December 31, 2001, 2000 and 1999, follows:

 
|                                       |   | **2001**    |       |
|--------------------------------------------|--------|-------------|------------|
|                                       |   | **March**   |       | **June** |   | **September** |   | **December** |   |
|                                       |   |        |       |   |   |   |   |   |   |
| Revenues                                   |   | $           | 28,012,266 |   | $ | 33,519,358 |   | $ | 30,844,992 |   | $ | 31,359,311 |   |
|                                       |   |        |       |   |   |   |   |   |   |
| Operating (loss)  income                   |   | (8,449,654  | )          | 3,840,649 |   | (56,794 | ) | (3,724,237 | ) |
|                                       |   |        |       |   |   |   |   |   |   |
| Net loss                                   |   | (12,516,558 | )          | (436,548 | ) | (3,954,433 | ) | (9,752,121 | ) |
|                                       |   |        |       |   |   |   |   |   |   |
| Net loss  attributable to General Partner  |   | (3,129,139  | )          | (109,137 | ) | (988,608 | ) | (2,438,030 | ) |
|                                       |   |        |       |   |   |   |   |   |   |
| Net loss  attributable to Limited Partners |   | (9,387,419  | )          | (327,411 | ) | (2,965,825 | ) | (7,314,091 | ) |
|                                       |   |        |       |   |   |   |   |   |   |
|                                            |        |             |            |  |  |  |  |  |  |  |  |  |  |

 

 

46

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|                                       |   | **2000**   |       |
|--------------------------------------------|--------|------------|------------|
|                                       |   | **March**  |       | **June** |   | **September** |   | **December** |   |
|                                       |   |       |       |   |   |   |   |   |   |
| Revenues                                   |   | $          | 12,932,126 |   | $ | 22,013,267 |   | $ | 24,379,828 |   | $ | 32,685,984 |   |
|                                       |   |       |       |   |   |   |   |   |   |
| Operating loss                             |   | (6,558,808 | )          | (5,385,201 | ) | (12,287,018 | ) | (17,155,371 | ) |
|                                       |   |       |       |   |   |   |   |   |   |
| Net loss                                   |   | (8,113,277 | )          | (7,398,716 | ) | (15,100,686 | ) | (21,142,708 | ) |
|                                       |   |       |       |   |   |   |   |   |   |
| Net loss  attributable to General Partner  |   | (2,028,319 | )          | (1,849,679 | ) | (3,775,172 | ) | (5,285,677 | ) |
|                                       |   |       |       |   |   |   |   |   |   |
| Net loss  attributable to Limited Partners |   | (6,084,958 | )          | (5,549,037 | ) | (11,325,514 | ) | (15,857,031 | ) |
|                                       |   |       |       |   |   |   |   |   |   |
|                                            |        |            |            |  |  |  |  |  |  |  |  |  |  |

 

During the third and fourth quarters of 2000, the Partnership recordedincreases to the provision for doubtful accounts of approximately $6,000,000and $8,200,000, respectively.  Inaddition, during the fourth quarter of 2000, the Partnership recorded inventoryadjustments related to valuation and existence of approximately$4,900,000.  The Partnership cannotdetermine what the effect of these expense items on previous quarters of 2000may have been, if any.

 

 
|                                       |   | **1999**  |   |
|--------------------------------------------|--------|-----------|--------|
|                                       |   | **March** |   | **June** |   | **September** |   | **December** |   |
|                                       |   |      |   |   |   |   |   |   |   |
| Revenues                                   |   | $         | — |   | $ | — |   | $ | 387,171 |   | $ | 6,921,388 |   |
|                                       |   |      |   |   |   |   |   |   |   |
| Operating loss                             |   | (758,515  | )      | (2,208,697 | ) | (6,264,887 | ) | (11,531,663 | ) |
|                                       |   |      |   |   |   |   |   |   |   |
| Net loss                                   |   | (630,936  | )      | (1,934,540 | ) | (5,977,051 | ) | (13,652,231 | ) |
|                                       |   |      |   |   |   |   |   |   |   |
| Net loss  attributable to General Partner  |   | (157,734  | )      | (483,635 | ) | (1,494,263 | ) | (3,413,057 | ) |
|                                       |   |      |   |   |   |   |   |   |   |
| Net loss  attributable to Limited Partners |   | (473,202  | )      | (1,450,905 | ) | (4,482,788 | ) | (10,239,174 | ) |
|                                            |        |           |        |  |  |  |  |  |  |  |  |  |  |

 

 

47

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#####  

##### **Report of Independent Public Accountants**

 

 

# To the Board of Directorsof

SuperTelCommunications Corp.:

We have audited theaccompanying balance sheets of SuperTel Communications Corp. as of December 31,2001 and 2000, and the related statements of revenues and expenses and deficit,and cash flows for the years then ended. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

We conducted our auditsin accordance with auditing standards generally accepted in the UnitedStates.  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of SuperTel Communications Corp. as ofDecember 31, 2001 and 2000, and the results of its operations and its cashflows for the years then ended in conformity with accounting principlesgenerally accepted in the United States.

 

 

 

ARTHUR ANDERSENLLP

 

San Juan, Puerto Rico,

April 16, 2002.

 

 

 

Revenue Stamp Number 

has been affixed to the original

copy of this report.

 

 

48

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**SuperTelCommunications Corp.**

 

**BalanceSheets—December 31, 2001 and 2000**

 
|                                                                           |   | **2001** |       | **2000** |       |
|--------------------------------------------------------------------------------|--------|----------|------------|----------|------------|
| **Assets:**                                                                    |   |     | ** ** |     | ** ** |
| Cash                                                                           |   | $        | 3,707      |     | $          | 32,016 |   |
| Accounts receivable from affiliated company                                    |   | 137,538  |       | 88,612   |       |
| Prepaid income tax                                                             |   | 2,760    |       | 2,760    |       |
|                                                                           |   |     |       |     |       |
| Total assets                                                                   |   | $        | 144,005    |     | $          | 123,388 |   |
|                                                                           |   |     |       |     |       |
| **Liabilities:**                                                               |   |     |       |     |       |
| Accounts payable                                                               |   | $        | 37,731     |     | $          | 29,744 |   |
|                                                                           |   |     |       |     |       |
| **Contingencies** (Note 7)                                                     |   |     |       |     |       |
|                                                                           |   |     |       |     |       |
| **Stockholders’  Equity:**                                                |   |     |       |     |       |
| Preferred stock (Note 6)                                                       |   | —   |       | —   |       |
| Common stock, no par value, 100,000 shares authorized, issued and  outstanding |   | 1,000    |       | 1,000    |       |
| Paid-in capital                                                                |   | 148,746  |       | 148,746  |       |
| Deficit                                                                        |   | (43,472  | )          | (56,102  | )          |
|                                                                           |   |     |       |     |       |
| Total stockholders’ equity                                                |   | 106,274  |       | 93,644   |       |
|                                                                           |   |     |       |     |       |
|                                                                           |   | $        | 144,005    |     | $          | 123,388 |   |

 

 

The accompanying notes are an integral part of these balance sheets.

 

 

49

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**SuperTelCommunications Corp.**

 

**Statementsof Revenues and Expenses and Deficit**

**For theYears Ended December 31, 2001 and 2000**

 
|                                      |   | **2001** |       | **2000** |       |
|-------------------------------------------|--------|----------|------------|----------|------------|
| **Revenues:**                             |   |     | ** ** |     | ** ** |
| Management fees                           |   | $        | 138,927    |     | $          | 129,685 |   |
|                                      |   |     |       |     |       |
| **Expenses:**                             |   |     |       |     |       |
| Directors’ fees                      |   | 117,194  |       | 117,500  |       |
| Other general and administrative expenses |   | 9,103    |       | 395      |       |
|                                      |   |     |       |     |       |
| Total expenses                            |   | 126,297  |       | 117,895  |       |
|                                      |   |     |       |     |       |
| **Income**                                |   | 12,630   |       | 11,790   |       |
|                                      |   |     |       |     |       |
| **Deficit**, beginning of  year           |   | (56,102  | )          | (67,892  | )          |
|                                      |   |     |       |     |       |
| **Deficit**, end of year                  |   | $        | (43,472    | )        | $          | (56,102 | ) |

 

 

The accompanying notes are an integral part of these statements.

 

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**SuperTelCommunications Corp.**

 

**Statementsof Cash Flows**

**For theYears Ended December 31, 2001 and 2000**

 

 

 
|                                                                                          |   | **2001** |       | **2000** |       |
|-----------------------------------------------------------------------------------------------|--------|----------|------------|----------|------------|
| **Cash Flows  from Operating Activities:**                                                    |   |     | ** ** |     | ** ** |
| Income                                                                                        |   | $12,630  |       | $11,790  |       |
| Adjustments to reconcile income to net cash (used in) provided by  operating activities— |   |     |       |     |       |
| (Increase) decrease in accounts receivable from affiliated company                            |   | (48,926  | )          | 18,293   |       |
| Increase in accounts payable                                                                  |   | 7,987    |       | —   |       |
| Total adjustments                                                                             |   | (40,939  | )          | 18,293   |       |
|                                                                                          |   |     |       |     |       |
| Net cash (used in) provided by operating activities and net (decrease)  increase in cash      |   | (28,309  | )          | 30,083   |       |
|                                                                                          |   |     |       |     |       |
| **Cash**, beginning of  year                                                                  |   | 32,016   |       | 1,933    |       |
|                                                                                          |   |     |       |     |       |
| **Cash**, end of year                                                                         |   | $3,707   |       | $32,016  |       |

 

 

The accompanying notes are an integral part of these statements.

 

 

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**SuperTelCommunications Corp.**

 

**Notes toFinancial Statements**

**December31, 2001 and 2000**

 

 

**1.****             ****Reporting Entity:**

 

SuperTel CommunicationsCorp. (the “Company” ) was organized on June 7, 1996 under the laws of theCommonwealth of Puerto Rico.  TheCompany was created to serve as general partner (the “General Partner”) ofClearComm, L.P. (the “Partnership”).

Most of the Company’stransactions are related to the administration of the Partnership, a limitedpartnership organized on January 24, 1995 under the laws of the State ofDelaware, for which the Company has served as General Partner since June 18,1996.  On January 22, 1997, thePartnership was granted the PCS Block C licenses for Puerto Rico and certainwestern states of the United States.  OnFebruary 4, 1999, the Partnership entered into an agreement with TelefónicaLarga Distancia de Puerto Rico, Inc. (“TLD”). Some relevant provisions of this agreement are the following:

**•**                                                            The Partnership transferred all of itsPuerto Rico licenses including its related debt with the FCC (the Partnership’scontribution) to NewComm Wireless Services, Inc. (“NewComm”), a newly organizedPuerto Rico corporation owned by the Partnership, in exchange for all of NewComm’sissued and outstanding common stock.

•                                                            TLD lent approximately $20 million toNewComm by means of a secured convertible promissory note payable (thePromissory Note).  The Promissory Noteis secured by a security agreement pursuant to which a security interest isimposed upon NewComm’s assets, a Partnership’s guarantee and a pledgeagreement, as defined.

•                                                            Once certain regulatory and otherrequirements are met, the Promissory Note will be converted to NewComm’s commonstock representing approximately 49.9% of NewComm’s equity at the time of theexchange.

 

•                                                            On March 12, 2002, the Partnership agreedto sell 0.2% of its share in NewComm to bring TLD’s ownership to 50.1% subjectto a third party valuation of NewComm’s stock and approval by the FCC.

•                                                            NewComm and TLD entered into certainmanagement and technology transfer agreements.

 

In September 1999, NewComm commenced providing PCS services in PuertoRico.

The Company is entitled to 25% of all distributions made by thePartnership.

 

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Reference should be made to the Partnership agreement for completedescription of its’ provisions.

###### **2.****             ****Summary of Significant Accounting Policies:**

The following summarizes the most significant accounting policiesfollowed in the preparation of the accompanying financial statements:

 

###### **Use of Estimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

#### **Basis of Accounting**

The accounting andreporting policies of the Company conform to accounting principles generallyaccepted in the United States.

#### **Cash Equivalents**

The Company considers allhighly liquid investment instruments purchased with an original maturity ofthree months or less to be cash equivalents. The Company had no cash equivalents as of December 31, 2001 and 2000.

#### **Income Taxes**

                In accounting for income taxes,the Company uses the asset and liability approach that requires the recognitionof deferred tax liabilities and assets for the expected future tax consequencesof temporary differences between the carrying amounts and the tax bases ofassets and liabilities.  A valuationallowance is recognized for any deferred tax asset for which, based onmanagement’s evaluation, it is more likely than not (a likelihood of more than50%) that some portion of all the deferred tax asset will not be realized.

**3.****             ****Investment in Partnership:**

 

Originally,the Company acquired its investment in the Partnership for $100,000.  Such investment was carried following theequity method and was written-down to zero in 1996.  As of December 31, 2001 and 2000, the Company’s share of theundistributed losses of the Partnership amounted to approximately $35,093,000and $28,428,000, respectively.  TheCompany would have to first recover its share of the Partnership undistributedlosses before it could pick-up its share of the Partnership’s gains.

 

 

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**4.****             ****Related Party Transactions:**

 

The partnership agreementwith ClearComm, L. P., as amended, provides for payment of a management fee toits General Partner, equal to the reasonable costs of operating the business ofthe Partnership, plus 10% of such aggregate amount, which fee shall be payablemonthly, on the first day of each month during the year.  Expenses reimbursed include, but are notlimited to, compensation costs, and expenses related to officers, directors, andemployees in the performance of their duties. During 2001 and 2000, fees billed amounted to approximately $139,000 and$130,000, respectively.

All other related partytransactions are advances from/to affiliated companies made in the ordinarycourse of business.

 

**5.****             ****Income Tax:**

 

Under the provisions ofthe Puerto Rico Tax law, the realized loss on the investment in the Partnershipis not deductible until it is finally determined that the investment isworthless for tax purposes.  No deferredtax asset has been recognized for this loss due to uncertainty as to itsrealization within the carryforward period.

 

**6.****             ****Preferred Stock:**

 

The Company is authorizedto issue 1,000 shares of restricted non-voting preferred stock without parvalue.  The preferred shares are dividedinto classes, from A to J with 100 shares each class and upon their issuancethe Company has the option to redeem them at their issuance price plus accrueddividends.   At December 31, 2001, noneof the preferred shares had been issued.

 

**7.****             ****Contingencies:**

 

From time to time theCompany or the Partnership is involved in litigation arising in the ordinarycourse of business, some of which is ongoing. The General Partner does not believe that any litigation involving theCompany or the Partnership will have a material adverse effect on the Company’sor the Partnership’s business or financial condition.

 

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**ITEM 9****.  CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

 

##### **ITEM 10****.  DIRECTORS ANDEXECUTIVE OFFICERS**

SuperTel CommunicationsCorp. was incorporated in Puerto Rico in June 1996 for the purpose of acting asthe general partner of the Partnership (the “General Partner”).  SuperTel was structured to ensure that thePartnership would receive the maximum benefits eligible to Entrepreneurs.  The Partnership has no employees and ismanaged and controlled by the Board of Directors and executive officers of theGeneral Partner.

*Fred H. Martinez, Director and Chairman of the Board*, age 57, has been chairman of the boardof trustees of the University of Puerto Rico from 1993 to 1999.  Mr. Martinez is co-managing partner ofPuerto Rico’s third largest law firm. During 1977 to 1979, Mr. Martinez was director of the Puerto Rico IncomeTax Bureau, member of the Governor’s Economic Advisory Council, chairman,Committee on Section 936, Government of Puerto Rico, assistant secretary of thetreasury, Internal Revenue, PR Treasury Department (1978- 1979), president, TaxCommittee, PR Chamber of Commerce (1978-1979). In 1993 he was chairman of the board of the Solid Wastes ManagementAuthority, Government of PR.  Mr.Martinez has extensive experience in contract negotiations, corporate and taxlaw, and in directing major institutions. He holds a B.S. in Economics from Villanova University (1967), an LL.B.(law) from the University of Puerto Rico (1971), and an LL.M (taxation) fromGeorgetown University (1972).

*Javier O. Lamoso, President,*age 37, has had extensive experience in thetelecommunications industry and has been responsible for developing,negotiating and overseeing numerous strategic operational, economic andpolitical aspects of the cellular telephone industry, including cell-siteacquisition, environmental impacts, leasing contractual arrangements and inter-companyrelations with other operating telecommunications organizations, includinginterexchange carriers and local telephone companies.  Until 1994, Mr. Lamoso acted as counsel to the Puerto Rico CableOperators Association in various matters which include the negotiation of ratesand levies and the drafting of new legislation.  From 1986 to 1987 Mr. Lamoso held a non-legal position in thecorporate finance department of Simpson, Thacher & Bartlett, and was involvedwith the 1987 successful external debt restructuring of Chile.  He holds a B.A. in Political Science/Economics from Fordham University (1986), and a J.D. in law from the Universityof Puerto Rico (1990).

 

 

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*Gary H. Arizala, Director*, age 63, is an entrepreneur and successfulbusinessman.  Mr. Arizala has experiencein the cellular telephone industry serving as chairman of United CellularAssociates from 1988 to the present and of Aikane Cellular from 1991 to thepresent.  In these capacities hedirected the executive committee activities to oversee the development of theME-3 RSA cellular telephone system which was successfully acquired by Telephone& Data Systems in early 1994.  In1972 Mr. Arizala founded Alphabetland Preschool and Kindergarten, which he ownsand operates.  Alphabetland provideshigh-quality child care and preschool education services to 350 to 400 familiesannually through four child care centers located on Oahu, Hawaii, and employsapproximately 60 people.  From 1963 to 1971,Mr. Arizala was an assistant civil engineer with the State of Californiaresponsible for utilities relocation for the State Water Project.  His duties included negotiating plans andagreements with Southern California Edison, Southern California Gas, the UnitedState Forest Service among other major private and public agencies.  He is on the Guardian Advisory Council ofthe National Federation of Independent Businesses Hawaii Chapter, and an activemember of the Chamber of Commerce and Small Business Hawaii organizations.  Mr. Arizala holds a B.S. in CivilEngineering from the University of Hawaii (1963).

*Margaret W. Minnich, Director*, age 47, has held management and supervisorypositions in finance and accounting over a 20-year period in the non-profit,manufacturing and public accounting field. In the past, she has been a member of the board of severalprivately-held companies and a private foundation.  From 1992 to the present, she has worked for The CaliforniaWellness Foundation and since December 1997 is serving as Treasurer and ChiefFinancial Officer, and is responsible for all financial reporting, accounting,budgeting and tax functions including investment performance and assetallocation review of a $900 million investment portfolio, and managing cashflow for an annual budget exceeding $45 million.  From 1984 through 1990, Ms. Minnich held several key positionswith MICOM Communications Corporation, including manager of financial planningwhere she directed all accounting and financial functions.  From 1981 to 1984, Ms. Minnich was a senioraccountant with Ernst & Young, Los Angeles, specializing in electronics,aerospace and heavy industry fields. Ms. Minnich is a member of the California Society of Certified PublicAccountants and Southern California Association for Philanthropy.  She holds a B.A. in Philosophy from theUniversity of Southern California (1978) and an MBA in accounting from USC(1981).

*Lawrence Odell, Director and Secretary*, age 53, is the co-managing partner ofPuerto Rico’s third largest law firm with substantial expertise in the fieldsof corporate finance, administrative law, securities and banking.  He is a member of the Trial LawyersAssociation of America, served as a member of the Inter-American Law Reviewfrom 1973 to 1974, and has written for that publication in the past.  He holds a B.A. (1971) and a J.D. (1974)from the Inter-American University of Puerto Rico, and an LL.M. in labor lawfrom New York University (1975).  Mr.Odell has served in the capacity of secretary for several major corporations,including Buenos Aires Embotelladora, S.A. (BAESA).

 

 

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*James T. Perry, Director*, age 69, is a successful entrepreneur and businessmanwith substantial experience in the real estate and retail foods industries.Since 1993, Mr. Perry has purchased and sold a two-way radio license, and hasbeen involved in several wireless communication partnerships.  From 1987 to 1993, he has been generalpartner of Telenode Rincon, the original owner and developer of the RSAcellular telephone system for PR-1, which was successfully acquired by CellularCommunications, Inc., as well as managing other cellular telephone andtelecommunications holdings.  From 1959to 1975, Mr. Perry was the president and/or owner of several successfullicensed real estate firms including United Realty Group, Milwaukee, thelargest black-owned real estate firm in Wisconsin, and Perry and SherardRealty, Milwaukee, which specialized in rehabilitating and selling between 75to 100 properties per year utilizing a staff of approximately 30 people.  From 1975 to 1992, Mr. Perry owned andoperated a McDonald’s franchise in Saint Louis, Missouri, and was responsiblefor all operations of this successful business. Mr. Perry served in the U.S.Army in Korea, and has taken extensive courses in the fields of generalbusiness and real estate.  From 1988 to1992 he was vice president of the Ronald McDonald Children’s Charities, and from1980 to 1984 he served as a member of the McDonald’s AdvertisingCommittee.  His memberships include theboard of directors of the Skinker DeBaliviere Business Association, HamiltonCommunity Schools, Saint Louis, and the admissions committee of the MilwaukeeBoard of Realtors.  He is a past presidentof the Urban Brokers Association, and a director of the Multiple ListingService.

###### Section 16(a) Beneficial Ownership ReportingCompliance

Based solely upon reviewof Forms 3, 4 and 5 and any amendments thereto furnished to the Registrantpursuant to Rule 16a-3(e) of the Rules of the Securities and ExchangeCommission, the Registrant is not aware of any failure of any officer ordirector of the General Partner or beneficial owner of more than ten percent ofthe Units to timely file with the Securities and Exchange Commission any Form3, 4 or 5 relating to the Registrant for 2001.

#####  

##### **ITEM 11****.  EXECUTIVECOMPENSATION**

The Partnership ismanaged by the General Partner’s Board of Directors and executive officers ofthe General Partner.  The Partnershipreimburses the General Partner for all reasonable expenses incurred by it inconnection with managing the Partnership, including salaries and expenses ofthe General Partner’s employees who manage the Partnership.

The following SummaryCompensation Table sets forth certain information concerning the cash andnon-cash compensation earned by or awarded to the chief executive officer ofthe Partnership’s General Partner. Other than the chief executive officer, no executive officer of theGeneral Partner received compensation of $100,000 or more in 2001.

 

 

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**SUMMARY COMPENSATION TABLE**
|                              |   | **Annual  Compensation** |   | **Long-Term  Compensation Awards** |   |         |   |
|-----------------------------------|--------|--------------------------|--------|------------------------------------|--------|--------------|--------|
| **Name & Principal Position** |   | **Fiscal Year**          |   | **Salary($)**                      |   | **Bonus($)** |   | **Other Annual Compensation ($)** |   | **Securities Underlying Options/SAR’s** |   | **All Other Compensations ($)** |   |
| Javier Lamoso,  President         |   | 2001                     |   | $                                  | 75,200 |         | $      | 0 |   | $ | 122,500 | (1) | 0 |   | $ | 0 |   |
| and Director                      |   | 2000                     |   | $                                  | 75,200 |         | $      | 0 |   | $ | 72,500 | (1) | 0 |   | $ | 0 |   |
|                              |   | 1999                     |   | $                                  | 75,000 |         | $      | 0 |   | $ | 18,750 | (1) | 0 |   | $ | 155,000 | (2) |

 

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(1)          Consists of director’s fees for ClearCommand NewComm.

(2)          Consists of $155,000 paid in 1999 inconnection with the termination of his employment agreement.

 

On August 30, 2001, thePartnership loaned $100,000 to Javier Lamoso. Mr. Lamoso signed a promissory note whereby he promised to pay the$100,000 plus six percent (6%) annual interest rate, on the earlier of August30, 2005 or on the date of termination of his employment with the Partnership.

Effective thesecond quarter of 1999, the director fees were reduced by half so thatdirectors receive an annual fee of $12,500 each, other than the Chairman of theBoard, Mr. Martinez, who receives an annual fee of $50,000 and Mr. Odell, whoreceives an annual fee of $17,500. Directors are reimbursed for their reasonable expenses in attendingboard meetings.

 

**ITEM12****. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

Exclusive management andcontrol of the Partnership’s business is vested in the General Partner.  The Partnership has no employees and ismanaged and controlled by the Board of Directors and executive officers of theGeneral Partner.  The General Partnerowns 100% of the Partnership’s general partnership interest.  The shares of General Partner are held by certainindividuals and Puerto Rico trusts.

The following table setsforth, as of December 31, 2001, information with respect to beneficialownership of the Partnership’s Units by: (i) all persons known to the GeneralPartner to be the beneficial owner of 5.0% or more thereof; (ii) each Directorof the General Partner; (iii) each of the executive officers of the GeneralPartner; and (iv) all executive officers and Directors as a group of theGeneral Partner.  All persons listedhave sole voting and investment power with respect to their Units unlessotherwise indicated.

 

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| **Name of Beneficial Owner**                                                         |   | **Units Beneficially Owned** |   | **Percentage Ownership** |   |
|--------------------------------------------------------------------------------------|--------|------------------------------|--------|--------------------------|--------|
| Fred H. Martinez(1)                                                                  |   | 4.4                          |   | *                        |   |
| Javier O. Lamoso(2)                                                                  |   | 1                            |   | *                        |   |
| Gary H. Arizala(3)                                                                   |   | 3.4                          |   | *                        |   |
| Margaret W. Minnich(4)                                                               |   | 1                            |   | *                        |   |
| James T. Perry(5)                                                                    |   | 3.4                          |   | *                        |   |
| Lawrence Odell(6)                                                                    |   | 4.4                          |   | *                        |   |
| All executive officers and directors of the General Partner as a  group  (6 persons) |   | 15.2                         |   | *                        |   |

 

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**•**                                                            * Less than 1.0%.

(1)          Mr. Martínez is Chairman of the Board ofDirectors of the General Partner. Mr. Martínez and Mr. Odell are Trustees ofMartinez Odell & Calabria Pension Fund, which owns 2.4 Units reflected inthe table.

(2)          Mr. Lamoso is President and acting ChiefExecutive Officer of the General Partner and a member of the Board ofDirectors.

(3)          Mr. Arizala is a Director.

(4)          Ms. Minnich is a Director.

(5)          Mr. Perry is a Director.

(6)   Mr. Odell is a Director and Secretary of theGeneral Partner.  Mr. Martínez and Mr.Odell are trustees of Martínez Odell & Calabria Pension Fund, which owns2.4 Units reflected in the table.

 

 

##### **ITEM 13****.  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

###### **General Partnership Interest**

SuperTel contributed$100,000, which entitled it to receive 100% of the Partnership’s generalpartner interest.  The general partnerinterest entitles the General Partner to 25% of the equity of thePartnership.  See “Item 5.”

###### **Management Fee**

The Partnership Agreementprovides that the General Partner is entitled to a management fee for allreasonable operating expenses, plus 10% of such expenses.  The total management fee for 2001 wasapproximately $139,000.  The managementfee is paid on a monthly basis.

###### **Other Relationships and Transactions**

Mr. Martínez and Mr.Odell are partners of Martínez, Odell & Calabria, a law firm, whichprovides legal services to the General Partner and the Partnership.

 

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**ITEM14****. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

(a)  The followingdocuments are filed as part of this report:

(1) FinancialStatements (See Item 8 hereof)

ClearComm, L.P.

Report of Independent Public Accountants — December31, 2001 and 2000

Report of Independent Public Accountants — December31, 1999

Consolidated Statementsof Assets, Liabilities and Partners’ Capital (Deficit) - December 31, 2001 and2000

Consolidated Statementsof Revenues and Expenses - December 31, 2001, 2000 and 1999

Consolidated Statementsof Changes in Partners’ Capital (Deficit) - December 31, 2001, 1999 and 1998

Consolidated Statementsof Cash Flows - December 31, 2001, 2000 and 1999

Notes to ConsolidatedFinancial Statements

SuperTelCommunications Corp.

Report of IndependentPublic Accountants

Balance Sheets - December31, 2001 and 2000

Statements of Revenuesand Expenses and Deficit for the years ended December 31, 2001 and 2000

Statements of Cash Flowsfor the years ended December 31, 2001 and 2000

Notes to FinancialStatements

(2) FinancialStatement Schedules - None

(3) Exhibits- None

(b)  Reports onForm 8-K

No reports on Form8-K were filed during the last quarter of fiscal 2001.

 

 

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**SIGNATURES**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

ClearComm,L.P.

 
| By:    SuperTel Communications Corp. General  Partner |
|----------------------------------------------------------------------|
| By: /s/ Javier Lamoso                                                |   |   |
|                                                                 |   | Name:  Javier Lamoso |
|                                                                 |   | Title: President |
|                                                                 |   |   |

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.
| **Signature**             |   | **Capacity in Which Signed**        |   | **Date**     |
|---------------------------|--------|-------------------------------------|--------|--------------|
|                      |   |                                |   |         |
| /s/ Fred H. Martínez |   | Director and Chairman  of the Board |   | April , 2002 |
| Fred H. Martínez     |   |                                |   |         |
|                      |   |                                |   |         |
| /s/ Javier O. Lamoso      |   | Director and President              |   | April , 2002 |
| Javier O. Lamoso          |   |                                |   |         |
|                      |   |                                |   |         |
| /s/ Gary H. Arizala       |   | Director                            |   | April , 2002 |
| Gary H. Arizala           |   |                                |   |         |
|                      |   |                                |   |         |
| /s/ Margaret W. Minnich   |   | Director                            |   | April , 2002 |
| Margaret W. Minnich       |   |                                |   |         |
|                      |   |                                |   |         |
| /s/ Lawrence Odell        |   | Director                            |   | April , 2002 |
|  Lawrence Odell      |   |                                |   |         |
|                      |   |                                |   |         |
| /s/ James T. Perry        |   | Director                            |   | April , 2002 |
| James T. Perry            |   |                                |   |         |

 

 

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