**Securitiesand Exchange Commission**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **(Mark One)**                                                                                                                                                            |                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                                | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|                                                                                                                                                                      |
| **For the quarterly period ended  March 31, 2004**                                                                                                                   |
|                                                                                                                                                                      |
| **o**                                                                                                                                                                     | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                      |
| **For the transition period  from           to           ** |
|                                                                                                                                                                      |
| **Commission file number 0-28362**                                                                                                                                        |

 

**ClearComm,L.P.**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                                                                 |   | **66-0514434**                        |
|------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)             |   | (I.R.S. Employer  Identification No.) |
|                                                                         |   |                                  |
| **268  Muñoz Rivera Ave. Suite 2206  San Juan, Puerto Rico**            |   | **00918-1929**                        |
| (Address of  principal executive offices)                                    |   | (Zip Code)                            |
|                                                                         |   |                                  |
| Registrant’s  telephone number, including area code: **(787) 620-0140** |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes   o    No   ý

 

 

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ClearComm, L.P.

INDEX

 
| PART I         | FINANCIAL INFORMATION                                                                                                                                  |   |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                                                   |   |
| Item 1.        | Financial Statements                                                                                                                                   |   |
|           |                                                                                                                                                   |   |
|           | Consolidated  Statements of Assets, Liabilities and Partners’ Deficit as of March 31,  2004 (unaudited) and December 31, 2003 (audited) |   |
|           |                                                                                                                                                   |   |
|           | Consolidated  Statements of Revenues and Expenses for the three-month period ended  March 31, 2004 and 2003 (unaudited).                          |   |
|           |                                                                                                                                                   |   |
|           | Consolidated  Statements of Changes in Partners’ Deficit for the three-month period ended  March 31, 2004 (unaudited)                        |   |
|           |                                                                                                                                                   |   |
|           | Consolidated  Statements of Cash Flows for the three-month period ended March 31, 2004  and 2003 (unaudited)                                      |   |
|           |                                                                                                                                                   |   |
|           | Notes to Interim  Consolidated Financial Statements as of March 31, 2004 (unaudited)                                                              |   |
|           |                                                                                                                                                   |   |
| Item 2.        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                            |   |
|           |                                                                                                                                                   |   |
| Item 3.        | Quantitative  and Qualitative Disclosure About Market Risk.                                                                                            |   |
|           |                                                                                                                                                   |   |
| Item 4.        | Controls and Procedures                                                                                                                                |   |
|           |                                                                                                                                                   |   |
| PART II        | OTHER INFORMATION                                                                                                                                      |   |
|           |                                                                                                                                                   |   |
| Item 1.        | Legal Proceedings                                                                                                                                      |   |
|           |                                                                                                                                                   |   |
| Item 6.        | Exhibits and Reports  on Form 8-K                                                                                                                      |   |
|           |                                                                                                                                                   |   |
| Signatures.    |                                                                                                                                                   |
|           |                                                                                                                                                   |   |
| Exhibit Index. |                                                                                                                                                   |

 

2

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PART I  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

 

ClearComm, L.P.

CONSOLIDATED STATEMENTSOF ASSETS, LIABILITIESAND PARTNERS’ DEFICIT

 
|                                                                                      |   | **March 31,  2004** |            | **December 31,  2003** |            |
|-------------------------------------------------------------------------------------------|--------|--------------------------|-----------------|-----------------------------|-----------------|
|                                                                                      |   | **(Unaudited)**          |            | **(Audited)**               |            |
| **ASSETS:**                                                                               |   |                     | ** **      |                        | ** **      |
| **Cash and cash equivalents**                                                             |   | **$**                    | **926,871**     | ** **                  | **$**           | **1,007,353** | ** ** |
| **Cash in escrow account**                                                                |   | **1,500,000**            | ** **      | **1,500,000**               | ** **      |
| **Accounts receivable, net**                                                              |   | **11,882,826**           | ** **      | **12,297,162**              | ** **      |
| **Accounts receivable, other**                                                            |   | **8,694,011**            | ** **      | **7,457,028**               | ** **      |
| **Interest receivable**                                                                   |   | **15,500**               | ** **      | **14,000**                  | ** **      |
| **Inventories, net**                                                                      |   | **3,883,876**            | ** **      | **3,908,736**               | ** **      |
| **Prepaid expenses**                                                                      |   | **1,310,784**            | ** **      | **672,406**                 | ** **      |
| **Investment in securities**                                                              |   | **4,484,339**            | ** **      | **7,338,288**               | ** **      |
| **Investment in subsidiary**                                                              |   | **519,078**              | ** **      | **397,980**                 | ** **      |
| **PCS licenses, net**                                                                     |   | **57,517,974**           | ** **      | **57,517,974**              | ** **      |
| **Deferred financing costs**                                                              |   | **719,311**              | ** **      | **774,363**                 | ** **      |
| **Note receivable from officer**                                                          |   | **100,000**              | ** **      | **100,000**                 | ** **      |
| **Property and equipment, net**                                                           |   | **86,835,208**           | ** **      | **90,753,422**              | ** **      |
|                                                                                      |   |                     | ** **      |                        | ** **      |
|                                                                                      |   | **178,389,778**          |            | **$**                       | **183,738,712** | ** ** |
|                                                                                      |   |                     | ** **      |                        | ** **      |
| **LIABILITIES AND PARTNERS’ DEFICIT:**                                               |   |                     | ** **      |                        | ** **      |
| **Accounts payable and accrued liabilities**                                              |   | **$**                    | **44,093,163**  | ** **                  | **$**           | **40,224,333** | ** ** |
| **Notes payable — short-term**                                                       |   | **115,711,646**          | ** **      | **113,816,297**             | ** **      |
| **Notes payable — long-term**                                                        |   | **110,826,444**          | ** **      | **117,390,809**             | ** **      |
|                                                                                      |   |                     | ** **      |                        | ** **      |
| **Unitholders’ capital (deficit) 2,906.1 units and 1 general  partnership interest** |   | **(92,241,475**          | **)**           | **(87,692,727**             | **)**           |
|                                                                                      |   |                     | ** **      |                        | ** **      |
| **Total liabilities and partner’s deficit**                                          |   | **$**                    | **178,389,778** | ** **                  | **$**           | **183,738,712** | ** ** |
|                                                                                      |   |                     | ** **      |                        | ** **      |
| **BOOK VALUE(DEFICIT) PER UNIT**                                                          |   | **$**                    | **(31,730**     | **)**                       | **$**           | **(30,165** | **)** |

 

The accompanying notesare integral part of these consolidated statements.

 

3

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ClearComm, L.P.

CONSOLIDATED STATEMENTSOF REVENUES AND EXPENSES (UNAUDITED)

 
|                                                   |   | **Three-Month  Periods Ended  March 31,** |           |
|--------------------------------------------------------|--------|------------------------------------------------|----------------|
|                                                   |   | **2004**                                       |           | **2003** |   |
| **Revenues:**                                          |   |                                           | ** **     |   | ** ** |
| **Service revenues**                                   |   | **$**                                          | **26,878,225** | ** ** | **$** | **24,399,397** | ** ** |
| **Handsets and accessories sales**                     |   | **1,436,596**                                  | ** **     | **1,895,484** | ** ** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Total Revenues**                                     |   | **28,314,821**                                 |           | **26,294,881** |   |
| **Expenses:**                                          |   |                                           | ** **     |   | ** ** |
| **Operating expenses**                                 |   | **26,261,410**                                 | ** **     | **23,955,984** | ** ** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Income from operations**                             |   | **2,053,411**                                  |           | **2,338,897** |   |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Interest expense**                                   |   | **(2,366,768**                                 | **)**          | **(3,445,554** | **)** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Depreciation and amortization**                      |   | **(4,304,462**                                 | **)**          | **(4,018,139** | **)** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Loss before other income (expense)**                 |   | **(4,617,819**                                 | **)**          | **(5,124,796** | **)** |
| **Other Income (expense)**                             |   |                                           | ** **     |   | ** ** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Equity in net loss of subsidiary**                   |   | **(9,569**                                     | **)**          | **(35,152** | **)** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Interest income**                                    |   | **78,423**                                     | ** **     | **64,524** | ** ** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Other**                                              |   | **217**                                        | ** **     | **95** | ** ** |
| **Loss on write-off of inventories**                   |   | **—**                                     | ** **     | **(5,559,350** | **)** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Net loss**                                           |   |                                           | ** **     |   | ** ** |
|                                                   |   | **$**                                          | **(4,548,748** | **)** | **$** | **(10,654,679** | **)** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Net loss attributable to General Partner**           |   | **$**                                          | **(4,548,748** | **)** | **$** | **(10,654,679** | **)** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Net loss attributable to Limited Partners**          |   | **$**                                          | **—**     |   | **$** | **—** | ** ** |
|                                                   |   |                                           | ** **     |   | ** ** |
| **Net loss per unit attributable to Limited Partners** |   | **$**                                          | **—**     | ** ** | **$** | **—** | ** ** |

 

The accompanying notesare integral part of these consolidated financial statements.

 

4

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ClearComm, L.P.

CONSOLIDATED STATEMENTSOF CHANGES IN PARTNERS’ DEFICIT (Unaudited)

FOR THETHREE-MONTH PERIOD ENDED MARCH 31, 2004

 
|                                                                  |   |                  |   |        |   |              |        | **Accumulated** |   |       |   |
|-----------------------------------------------------------------------|--------|-----------------------|--------|-------------|--------|-------------------|-------------|-----------------|--------|------------|--------|
|                                                                  |   |                  |   |        |   |              |        | **Other**       |   |       |   |
|                                                                  |   | **Limited  Partners** |   | **General** |   | **Comprehensive** |        |            |   |
|                                                                  |   | **Units**             |   | **Amount**  |   | **Partner**       |        | **Loss**        |   | **Total**  |   |
|                                                                  |   |                  |   |        |   |              |        |            |   |       |   |
| **BALANCES,** December 31, 2003                                  |   | 2,906.1               |   | —      |   | $                 | (87,654,900 | )               | $      | (37,827    | )      | $ | (87,692,727 | ) |
|                                                                  |   |                  |   |        |   |              |        |            |   |       |   |
| **Net loss for the three months period****ended March 31, 2004** |   | —                |   | —      |   | (4,548,748        | )           | —          |   | (4,548,748 | )      |
|                                                                  |   |                  |   |        |   |              |        |            |   |       |   |
| **BALANCES,** March 31, 2004                                     |   | 2,906.1               |   | —      |   | $                 | (92,203,648 | )               | $      | (37,827    | )      | $ | (92,241,475 | ) |

 

The accompanying notesare integral part of these consolidated financial statements.

 

5

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ClearComm, L.P.

CONSOLIDATED STATEMENTSOF CASH FLOWS(UNAUDITED)

 
|                                                                             |   | **Three-Month  Periods Ended** |       |
|----------------------------------------------------------------------------------|--------|--------------------------------|------------|
|                                                                             |   | **March 31,****2004**     |       | **March 31,****2003** |   |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                       |   |                           |       |   |   |
| Net loss                                                                         |   | $                              | (4,548,748 | ) | $ | (10,654,679 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities- |   |                           |       |   |   |
| Depreciation and amortization                                                    |   | 4,249,438                      |       | 3,965,588 |   |
| Equity in losses of unconsolidated subsidiary                                    |   | 9,569                          |       | 35,152 |   |
| Amortization of loan origination fees                                            |   | 55,051                         |       | 52,551 |   |
| Amortization of discount on note payable to FCC                                  |   | —                         |       | 629,120 |   |
| Write-off on discount of note payable to FCC                                     |   | —                         |       | 5,559,350 |   |
| Inventory reserve                                                                |   | 174,000                        |       | — |   |
| Bad debt expense                                                                 |   | 2,346,800                      |       | 2,030,005 |   |
| Gain from sale of vehicles                                                       |   | 16,454                         |       | — |   |
| Capitalized interest                                                             |   | 184,830                        |       | — |   |
| Other non-cash transactions                                                      |   |                           |       | (6,502 | ) |
| Changes in operating assets and liabilities-                                     |   |                           |       |   |   |
| Increase in interest receivable                                                  |   | (51,218                        | )          | (1,500 | ) |
| Increase in accounts receivable, before write-offs                               |   | (3,202,354                     | )          | (3,707,058 | ) |
| Decrease in insurance claim receivable                                           |   |                           |       | 30,473 |   |
| (Decrease)  in checks drawn in excess of bank balance                            |   | (82,469                        | )          | — |   |
| Decrease (increase) in inventories                                               |   | (149,140                       | )          | 328,755 |   |
| Increase in prepaid expenses                                                     |   | (638,378                       | )          | (371,749 | ) |
| Increase accounts payable and accrued liabilities                                |   | 3,431,423                      |       | 3,831,670 |   |
| Decrease in accounts payable to related parties                                  |   | (930,406                       | )          | (3,184,003 | ) |
| (Decrease) Increase in accrued interest                                          |   | (35,000                        | )          | 1,768,451 |   |
| (Decrease) increase in deferred income                                           |   | (174,070                       | )          | 162,891 |   |
| Total adjustments                                                                |   | 5,204,530                      |       | 11,123,194 |   |
| Net cash provided by operating activities                                        |   | 655,782                        |       | 468,515 |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                       |   |                           |       |   |   |
| Redemption of investment securities                                              |   | 2,853,949                      |       | — |   |
| Proceeds from the sale of vehicle                                                |   | 38,000                         |       |   |   |
| Acquisition of property and equipment                                            |   | (352,771                       | )          | (1,303,964 | ) |
| Payment for the investment in subsidiary                                         |   | (130,667                       | )          | (130,667 | ) |
| Payments for deferred financing costs                                            |   | —                         |       | (60,000 | ) |
| Net cash provided by (used in) investing activities                              |   | 2,408,511                      |       | (1,494,631 | ) |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                       |   |                           |       |   |   |
| Proceeds from issuance of note payable to  Telefonica Moviles                    |   | 1,831,214                      |       | — |   |
| Payment of note payable to Alcatel                                               |   | (4,975,989                     | )          | — |   |
| Net cash used in financing activities                                            |   | (3,144,775                     | )          | — |   |
| **NET INCREASEIN CASH AND CASH  EQUIVALENTS**                                    |   | (80,482                        | )          | (1,026,116 | ) |
| **CASH AND CASH EQUIVALENTS,** beginning of period                               |   | 1,007,353                      |       | 22,709,786 |   |
| **CASH AND CASH EQUIVALENTS,** end of period                                     |   | $                              | 926,871    |   | $ | 21,683,670 |   |
|                                                                             |   |                           |       |   |   |
| **SUPPLEMENTAL DISCLOSURES OF CASH  FLOWS INFORMATION:**                         |   |                           |       |   |   |
| **INTEREST PAID**                                                                |   | $                              | 2,265,518  |   | $ | 6,314,000 |   |
| **SUPPLEMENTAL SCHEDULEOF NON-CASH  INVESTING AND FINANCING TRANSACTIONS:**      |   |                           |       |   |   |

 

During the period endedMarch 31, 2004, interest expense from TEM-PR totaling $184,830 wascapitalized into long-term debt

 

The accompanying notesare integral part of these consolidated financial statements.

 

6

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CLEARCOMM, L.P.

NOTES TO INTERIMCONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2004(UNAUDITED)

 

1.                                       BASISOF PRESENTATION AND INTRODUCTION

 

The unaudited interimconsolidated financial statements presented herein have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial statements and with the instructions to Form 10-Q andRegulation S-X pertaining to interim financial statements.  Accordingly, they do not include allinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  The unaudited interim consolidated financialstatements reflect all adjustments, consisting of normal recurring adjustmentsand accruals which, in the opinion of management, are considered necessary fora fair presentation of the Partnership’s financial position at March 31,2004 and results of operations and cash flows for the three-month periods endedMarch 31, 2004 and 2003.  Theunaudited interim consolidated financial statements should be read inconjunction with the summary of significant accounting policies and notes toconsolidated financial statements included in the Partnership’s Annual Reporton Form 10-K for the year ended December 31, 2003.  Results of operations for interim periodsare not necessarily indicative of the results that may be expected for the fullyear.

 

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

 

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,the Partnership was granted the PCS Block C licenses for Puerto Rico andcertain cities in California.

 

NewComm WirelessServices, Inc. (NewComm)

 

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 agreementwith Telefónica Móviles, S.A. (TEM), whereby the Partnership contributed itstwo Puerto Rico Licenses to NewComm and TEM provided NewComm a $19,960,000 loanto develop the Puerto Rico Licenses. TEM’s loan is pursuant to a secured convertible promissory note (the“Note”) which is convertible into 49.9% of NewComm’s equity.  The Note however, cannot be converted untilthe FCC authorizes TEM to hold more than a 25% equity interest in NewComm.

 

The Partnership hasagreed to sell shares in NewComm to TEM in sufficient amount to provide TEMwith an additional 0.2% share interest in NewComm, enabling TEM to have a totalof 50.1% interest in NewComm.  Thetransaction involves a Stock Purchase Agreement, a Shareholders Agreement, anda Sale Agreement.  A summary of theterms of the sale and these agreements are included in the Partnership’s AnnualReport on Form 10-K for the year 2003.

 

In September 1999,NewComm commenced providing PCS services in Puerto Rico.

 

In each ofNovember 2000, December 2000, and March 2001, NewComm received $5,000,000,from Syndicated Communications Venture Partners IV, L.P. (Syncom), a thirdparty, in exchange for approximately 4.92% ownership in NewComm. Syncom hascontributed $25 million to NewComm in exchange for approximately 8.2% ownershipinterest in NewComm.  The last $10million installment was contributed in November 2002.

 

On March 2, 2002,the Partnership sold approximately 4.08% of NewComm to a group of investors ledby Fleet Development Ventures for $13 million. The Partnership and TEM contributed approximately $9 million each toNewComm in the form of equity and convertible debt, respectively. ThePartnership and TEM have committed an additional $10M each

 

7

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to close the ProjectFinance Facility.  The Partnershipbelieves it has obtained sufficient funds, together with TEM, to provideNewComm with the capital necessary for the Project Finance Facility and to fundNewComm’s operations.

 

California Licenses

 

On August 28, 2000,the Partnership 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.

 

On November 26, 2003the Partnership entered into a Purchase and Sale Agreement with Metro PCSpursuant to which the Partnership sold all of its remaining CaliforniaLicenses.  The sale was approved by theFCC and the licenses were transferred to Metro PCS on April 15, 2004 for a$10,900,000 cash payment.  ThePartnership has no other licenses in California,

 

Internet Surfing Storesof P.R., Inc. - (eMilios)

 

On April 16, 2002,ClearComm, L.P. entered into a Shareholders’ Agreement to form a joint venturewith eMilios International, L.L.C., a Florida limited liability company, topromote and establish in Puerto Rico the eMilios concept (describedbelow).  The joint venture was formedunder a Puerto Rico corporation named Internet Surfing Stores of Puerto Rico,Inc. (“ISS”).  The Partnership owns 49%and eMilios International owns 51% of ISS.

 

The eMilios conceptinvolves internet communication galleries that are geared towards educatingpeople in the use of computers and the internet, and acts as a communicationand recreational center as well.  Thebroadband connectivity that is offered at eMilios allows the stores toefficiently offer internet communications and also access to a great variety ofinteractive content, such as cyber games, as well as software and tools forfree lancers and small business entities. The service is provided and collected with a proprietary smart card andsoftware application.  The commitment ofthe Partnership to ISS is $1 million and eMilios International has committed$500,000 in cash plus trade-name, systems, software, and technology know-howequivalent to $500,000.  The Partnershipis responsible for the management and day to day operations of ISS.  ISS opened its first store with 48 computerstations on October 23, 2002.  Asecond store with 40 computer stations was inaugurated on January 11, 2003to serve the western part of Puerto Rico. The investment has an exit mechanism whereby at any time after 2003,ClearComm can force the acquisition of its shares in ISS or the sale of thewhole company.

 

2.                                       FINANCINGREQUIREMENTS

 

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  incurred losses amounting to $4.5 millionfor the three-month period ended March 31, 2004 and incurred operatinglosses of $10.7 million for the three month period ended March 31,2003.  It also has working capitaldeficits and partners’ capital deficit of $131.6 million and $92.2 million,respectively, as of March 31, 2004. 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 TEM, NewComm entered into a contract with Lucent Technologies, Inc.(“Lucent”) that required Lucent to build a network that uses the Code DivisionMultiple Access (“CDMA”) protocol.  Thetotal cost of the network was approximately $125 million.  During 2000, NewComm’s management and Lucentagreed on formally extending the payment of up to $61.0 million of the totalamount due under the contract under a formal financing agreement. An Agreementrestructuring Lucent’s outstanding debt was executed on June 4, 2003.  The now outstanding debt to Lucent is $48Mand is payable over a six-year period at 8% annual interest rate.  On June 20, 2003, an agreementrestructuring Alcatel’s debt was executed. Alcatel’s credit is now $2.5M at 6.5% payable over a three year period.  Also, by means of letter from TEM (and itsparent, Telefónica Internacional, S.A.), TEM has agreed to issue a corporateguarantee to serve as collateral for a $110M bank loan.

 

Management believes thatthe Partnership will comply with all the requirements for obtaining thefinancing and believes that cash and cash equivalents on hand, anticipatedgrowth in revenues, vendor financing and the permanent financing will beadequate to fund its operations, at a minimum, through the end of 2004.  However, in the absence of

 

8

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improved operatingresults and cash flows, and without the closing of its contemplated permanentfinancing, the Partnership may face liquidity problems to fund its operationsand meet its obligations.  As a resultof these matters, substantial doubt exists about the Partnership’sability to continue as a going concern. The accompanying consolidated financial statements do not include anyadjustments that might result from the outcome of this uncertainty.

 

3.                                       **Recentaccounting pronouncements:**

 

**(a)**          In July 2001, the Financial AccountingStandard Board (FASB) issued SFAS No. 143, ***Accounting for Asset Retirement Obligations***.  SFAS No. 143 addresses financial accountingand reporting for obligations associated with the retirement of tangiblelong-lived assets and the associated asset retirement costs.  SFAS No. 143 becomes effective for fiscalyears beginning after June 15, 2002. The implementation of SFAS No. 143 did not have a material effect on thePartnership’s consolidated results of operations or its financial position.

 

**(b)****         **InApril 2002, the FASB issued SFAS No. 145, ***Rescission of FASB No. 4, 44 and 64, Amendment of SFAS No.13, and Technical Corrections***. SFAS No. 145 rescinds SFAS No. 4, ***Reporting Gains and Losses from Extinguishment of Debt*** –***an amendment of APB Opinion No. 30***,  which required all gains and losses fromextinguishments of debt to be aggregated and, if material, classified as anextraordinary item, net of related income tax effect. As a result, the criteriain Opinion 30 will now be used to classify those gains and losses.  SFAS No. 145 becomes effective for financialstatements issued on or after May 15, 2002.Requirements and guidance ofSFAS No. 145 were applied in connection with the write-off of the FCC debtdiscount.  Please refer to Note 14 (c).

 

**(c)****         **InJune 2002, the FASB issued SFAS No. 146, ***Accounting for Costs Associated with Exit or DisposalActivities***.  SFAS No. 146requires that a liability for a cost associated with an exit or disposalactivity to be recognized and measured initially at fair value only when theliability is incurred.  SFAS No. 146also establishes that fair value is the objective for initial measurement ofthe liability.  SFAS No. 146 applies tocosts associated with an exit activity but does not involve an entity newlyacquired in a business combination or with a disposal activity covered by SFASNo. 144.  SFAS No. 146 does not apply tocosts associated with a retirement covered by SFAS No. 143.  SFAS No. 146 became effective for exit ordisposal activities that were initiated after December 31, 2002.  The implementation of SFAS No. 146 did nothave a material effect on the Partnership’s consolidated financial position orresults from operations.

 

**(d)****         **InDecember 2002, the FASB issued Interpretation No. 45 (FIN 45),“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others”.  For a guarantee subject to FASB Interpretation No. 45, aguarantor is required to:

 

•                  Measureand recognize the fair value of the guarantee at inception (for manyguarantees, fair value will be determined using a present value method); and

•                  Providenew disclosures regarding the nature of any recourse provisions or assets heldas payments, the current carrying amount of the guarantee liability, and thenature of any recourse provisions or assets held as collateral that could beliquidated and allow the guarantor to recover all or a portion of its payments inthe event guarantee payments are required.

 

The disclosurerequirement of this Interpretation is effective for financial statements forfiscal years ending after December 15, 2002; it did not have any effect onthe Partnership’s financial statements. The initial recognition and measurement provisions are effectiveprospectively for guarantees issued or modified on or after January 1,2003, which did not have any effect on the Partnership’s financial statements.

 

**(e)****         **InJanuary 2003, the FASB issued FASB Interpretation No. 46, “Consolidationof Variable Interest Entities” (“FIN 46”). Fin 46 clarifies the application of Accounting Research Bulletin No. 51,“Consolidated Financial Statements” and provides guidance on the identificationof entities (“variable interest entities” or “VIE’s”) for which control isachieved through means other than through voting rights and how to determinewhen and which business enterprise should consolidate the VIE.  This new model for consolidation applies toan entity which either (1) the equity investors (if any) do not have acontrolling financial interest of (2) the equity  investment at risk is insufficient to finance that entity’sactivities without receiving additional subordinated financial support fromother parties.  In December 2003,the FASB issued a revision of the interpretation No. 46 to defer theimplementation, classify some of its provisions and to exempt certain entitiesfrom its requirements.  Management doesnot expect that the application of

 

9

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this standard will haveany effect on the Partnership’s consolidated results of operations or financialcondition.

 

4.                                       LEGALPROCEEDINGS

 

##### From time to time thePartnership 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.

 

 

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS

 

Forward-lookingStatements

 

This Form 10-Q 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-lookingstatements, including (without limitation) statements with respect toanticipated future operating and financial performance, growth opportunitiesand growth rates, acquisition and divestitive opportunities, and other similarforecasts and statements of expectation. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”“seeks,” “estimates,” and “should,” and variations of these words and similarexpressions, are intended to identify these forward-looking statements.  Forward-looking statements by thePartnership are based on estimates, projections, beliefs and assumptions ofmanagement and are not guarantees of future performance.  The Partnership disclaims any obligation toupdate or revise any forward-looking statement based on the occurrence offuture 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 ; rapid technological developments andchanges in the telecommunications industry; ongoing deregulation (and theresulting likelihood of significantly increased price and product/servicecompetition) in the telecommunications industry as a result of theTelecommunications Act of 1996 and other similar federal and state legislationand the federal and state rules and regulations enacted pursuant to thatlegislation; regulatory limitations on the Partnership’s ability to compete inthe telecommunications services industry; and continuing consolidation in thetelecommunications services industry. In addition to these factors, actual future performance, outcomes andresults may differ materially because of other, more general factors including,without limitation, general industry and market conditions and growth rates,domestic and international economic conditions, governmental and public policychanges and the continued availability of financing in the amounts, at theterms and on the conditions necessary to support the Partnership’s futurebusiness.

 

Introduction

 

The information containedin this Part I, Item 2 updates, and should be read in conjunction with,information set forth in Part II, Items 7 and 8, in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2003, in addition to theinterim consolidated financial statements and accompanying notes presented inPart 1, Item 1 of this Form 10-Q.

 

The Partnership was formedin 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. The California Licenses, which consistof four 15 MHz PCS licenses covering the California cities of Eureka, Redding,Modesto, and Merced were sold and transferred to Metro PCS on April 15,2004 for $10,900,000 cash payment. The license covering Visalia-Porterville,California, had been previously sold and transferred to Leap Wireless on June 8,2001 in exchange for $9,500,000 cash payment.

 

The Partnership commencedcommercial operations of its PCS network in Puerto Rico on September 24,1999 when it began offering wireless services in Puerto Rico to thepublic.  Prior to that date, its incomehad consisted of interest earnings only.

 

10

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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 agreementwith TEM, whereby the Partnership contributed its two Puerto Rico Licenses toNewComm and TEM provided NewComm a $19,960,000 loan to develop the Puerto RicoLicenses.  TEM’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 TEM to hold more than a25% equity interest in NewComm.  Bymeans of a Stock Purchase Agreement executed on March 12, 2002, thePartnership has agreed to sell shares equal to 0.2% in NewComm to TEMconditioned to obtaining permanent financing and a clear exit path for thePartnership.  This transaction ispending Department of Homeland Security and FCC approval.  The Partnership believes this transactionand permanent finance will be obtained before the end of 2004.

 

Results of Operations

 

Three-month period endedMarch 31-, 2004 compared with three-month period ended March 31,2003.

 

Set forth below is asummary of the results of operations before other income and expenses for theperiods indicated:

 
|                               |   | **Three-Month  Periods Ended  March 31,** |       |       |   |
|------------------------------------|--------|------------------------------------------------|------------|------------|--------|
|                               |   | **2004**                                       |       | **2003**   |   | **Change** |   |
| Revenues:                          |   |                                           |       |       |   |   |   |
| Service revenues                   |   | $                                              | 26,878,225 |       | $      | 24,399,397 |   | 10 | % |
| Handsets and accessories sales     |   | 1,436,596                                      |       | 1,895,484  |   | -24 | % |
|                               |   |                                           |       |       |   |   |   |
| Total Revenues                     |   | 28,314,821                                     |       | 26,294,881 |   | 8 | % |
| Expenses:                          |   |                                           |       |       |   |   |   |
| Operating expenses                 |   | 26,261,410                                     |       | 23,955,984 |   | 10 | % |
|                               |   |                                           |       |       |   |   |   |
| Income (loss) from operations      |   | 2,053,411                                      |       | 2,338,897  |   | -12 | % |
|                               |   |                                           |       |       |   |   |   |
| Interest expense                   |   | (2,366,767                                     | )          | (3,445,554 | )      | -31 | % |
|                               |   |                                           |       |       |   |   |   |
| Depreciation and amortization      |   | (4,304,462                                     | )          | (4,018,139 | )      | 7 | % |
|                               |   |                                           |       |       |   |   |   |
| Loss before other income (expense) |   | (4,617,818                                     | )          | (5,124,796 | )      | -10 | % |
|                                    |        |                                                |            |            |        |  |  |  |  |

 

Revenues

 

The Partnership’srevenues for the three-month period ended March 31, 2004 increased by 8%or $2million from $26.3 millions to $28.3 as compared for the same period in2003. Total revenues include service as well as handset and accessoriesrevenues.  Service revenues for thethree-month period ended March 31, 2004 increased by 10% or $2.5 millionwhen compared to the same period in 2003 while handset and accessories salesdecreased by 24% or .5 million.  Thedecrease in handsets and accessories revenues is mainly due to handset unitspricing adjustments.  The increase inservice revenues is related to the utilization of airtime and an increase inour contract customer base.

 

Expenses

 

The following table showsthe variances for the three month period ended March 31, 2004 as comparedto the same period in 2003:

 

11

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|                                                           |   | **March 31,** |           |          |       |
|----------------------------------------------------------------|--------|--------------------|----------------|---------------|------------|
|                                                           |   | **2004**           |           | **2003**      |       | **Change** |   |
|                                                           |   |               | ** **     |          | ** ** |   | ** ** |
| **Cost  of handset and accesories**                            |   | **$**              | **5,938,964**  | ** **    | **$**      | **4,884,546** | ** ** | **22** | **%** |
| **Interconnection  expense**                                   |   | **975,554**        | ** **     | **1,126,352** | ** ** | **-13** | **%** |
| **Sales  and dealers commissions**                             |   | **2,846,832**      | ** **     | **1,387,505** | ** ** | **105** | **%** |
| **Salaries  and benefits**                                     |   | **4,034,411**      | ** **     | **4,234,708** | ** ** | **-5** | **%** |
| **Selling  and advertising expense**                           |   | **1,456,666**      | ** **     | **1,555,198** | ** ** | **-6** | **%** |
| **Legal  and professional services**                           |   | **713,352**        | ** **     | **1,699,872** | ** ** | **-58** | **%** |
| **Provision  for doubtful accounts**                           |   | **2,346,800**      | ** **     | **2,030,005** | ** ** | **16** | **%** |
| **Rent  expense**                                              |   | **1,635,825**      | ** **     | **2,256,443** | ** ** | **-28** | **%** |
| **Taxes,  other than income**                                  |   | **1,008,538**      | ** **     | **1,197,387** | ** ** | **-16** | **%** |
| **Network  operation and maintenance**                         |   | **1,566,547**      | ** **     | **942,075**   | ** ** | **66** | **%** |
| **Other  expenses**                                            |   | **2,341,278**      | ** **     | **1,701,558** | ** ** | **38** | **%** |
| **Management  fee to General Partner**                         |   | **68,750**         | ** **     | **60,750**    | ** ** | **13** | **%** |
| **Consulting  and legal services rendered by related parties** |   | **1,327,894**      | ** **     | **879,585**   | ** ** | **51** | **%** |
|                                                           |   | **—**         | ** **     |          | ** ** |   | ** ** |
| **Total  Expenses**                                            |   | **$**              | **26,261,410** | ** **    | **$**      | **23,955,984** | ** ** | **10** | **%** |

 

Expenses for thethree-month period ended March 31, 2004 totaled $26,261,410 as compared to$23,955,984 for the same period in 2003. During such first quarter of 2004, the Partnership’s expenses increasedby 10% or $2.3 million

 

The overall increase inexpenses of $2.3 million is mainly due to an increase of 22% in the cost ofhandsets and accessories sold, combined with an increase in network maintenancecosts, dealers commissions and professional services.  The increase in cost of handsets sold is directly related to thehandset subsidy whereby the cost of acquiring handsets is higher than thepricing offered to customers.  In fact,the handset subsidy for the three month period ended March 31, 2004 was$4.5 million compared to $3 million for the same period in 2003.

 

Income from Operations

 

Income from operations reflectsthe ability of the Partnership to generate positive cash flows from itsoperations, which does not take into consideration expenses such asamortization, depreciation and interest that must be reported for generallyaccepted accounting principles (GAAP) to arrive to the net income or loss.

 

Income from operationsfor the three month period ended March 31, 2004 of $2,053,411 shows aslight decrease of 12% or $280,000 as compared to the income from operationsfor the same period in 2003.  This reductionin income from operations is related to the cost of acquiring new customers andthe increase in network maintenance.

 

Interest expense for thethree month period ended March 31, 2004 of $2.4 million ($3.4million in2003) and depreciation expense of $4.3million ($4 million in 2003) reduce theincome from operations and result in a net loss before other income of$4,617,818 for the first quarter of 2004 ($5,124,796 in 2003); an overallreduction in net loss of 10% when compared to 2003.  The reduction in interest expense is mainly attributable to therefinancing of the various debts and to reduction of debt outstanding relatedto the Note Payable to Alcatel.

 

The increase indepreciation expense is related to the increase in the depreciable assetsplaced in service during the period.

 

12

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Three-month period endedMarch 31, 2003 compared with three-month period ended March 31, 2002.

 

The following tablesummarizes changes in certain financial information for the period indicated:

 
|                               |   | **Three-Month  Periods Ended  March 31,** |       |       |   |
|------------------------------------|--------|------------------------------------------------|------------|------------|--------|
|                               |   | **2003**                                       |       | **2002**   |   | **Change** |   |
| Revenues:                          |   |                                           |       |       |   |   |   |
| Service revenues                   |   | $                                              | 24,399,397 |       | $      | 26,626,750 |   | -8 | % |
| Handsets and accessories sales     |   | 1,895,484                                      |       | 1,353,611  |   | 40 | % |
|                               |   |                                           |       |       |   |   |   |
| Total Revenues                     |   | 26,294,881                                     |       | 27,980,361 |   | -6 | % |
| Expenses:                          |   |                                           |       |       |   |   |   |
| Operating expenses                 |   | 23,955,984                                     |       | 25,367,945 |   | -6 | % |
|                               |   |                                           |       |       |   |   |   |
| Income (loss) from operations      |   |                                           |       |       |   |   |   |
|                               |   | 2,338,897                                      |       | 2,612,416  |   | -10 | % |
|                               |   |                                           |       |       |   |   |   |
| Interest expense                   |   | (3,445,554                                     | )          | (5,119,286 | )      | -33 | % |
|                               |   |                                           |       |       |   |   |   |
| Depreciation and amortization      |   | (4,018,139                                     | )          | (3,947,728 | )      | 2 | % |
|                               |   |                                           |       |       |   |   |   |
| Loss before other income (expense) |   | (5,124,796                                     | )          | (6,454,598 | )      | -21 | % |
|                                    |        |                                                |            |            |        |  |  |  |  |

 

Revenues

 

The Partnership’srevenues for the three-month period ended March 31, 2003 totaled$26,294,881 as compared to $27,980,361 for the same period in 2002. Revenues for the three-month period ended March 31, 2003 included$24,399,397 in service revenues and $1,895,484 in handset and accessories salesgenerated from NewComm’s wireless operations, as compared to $26,626,750 and$1,353,611 respectively, for the same period in 2002.  The decrease in service revenues is mainly due to the migrationto new billing software that avoids excess billings on delinquent accounts.

 

Expenses

 

The following table showsthe variances for the three month period ended March 31, 2003 as comparedto the same period in 2002:

 

13

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|                                                           |   | **March 31,** |           |          |       |
|----------------------------------------------------------------|--------|--------------------|----------------|---------------|------------|
|                                                           |   | **2003**           |           | **2002**      |       | **Change** |   |
|                                                           |   |               | ** **     |          | ** ** |   | ** ** |
| **Cost  of handset and accesories**                            |   | **$**              | **4,884,546**  | ** **    | **$**      | **7,050,742** | ** ** | **-31** | **%** |
| **Interconnection  expense**                                   |   | **1,126,352**      | ** **     | **978,920**   | ** ** | **15** | **%** |
| **Sales  and dealers commissions**                             |   | **1,387,505**      | ** **     | **1,468,300** | ** ** | **-6** | **%** |
| **Salaries  and benefits**                                     |   | **4,234,708**      | ** **     | **4,158,188** | ** ** | **2** | **%** |
| **Selling  and advertising expense**                           |   | **1,555,198**      | ** **     | **1,651,170** | ** ** | **-6** | **%** |
| **Legal  and professional services**                           |   | **1,699,872**      | ** **     | **2,494,392** | ** ** | **-32** | **%** |
| **Provision  for doubtful accounts**                           |   | **2,030,005**      | ** **     | **3,480,728** | ** ** | **-42** | **%** |
| **Rent  expense**                                              |   | **2,256,443**      | ** **     | **1,474,505** | ** ** | **53** | **%** |
| **Taxes,  other than income**                                  |   | **1,197,387**      | ** **     | **380,859**   | ** ** | **214** | **%** |
| **Network  operation and maintenance**                         |   | **942,075**        | ** **     | **—**    | ** ** | **100** | **%** |
| **Other  expenses**                                            |   | **1,701,558**      | ** **     | **654,292**   | ** ** | **160** | **%** |
| **Management  fee to General Partner**                         |   | **60,750**         | ** **     | **32,000**    | ** ** | **90** | **%** |
| **Consulting  and legal services rendered by related parties** |   | **879,585**        | ** **     | **1,543,849** | ** ** | **-43** | **%** |
|                                                           |   | **—**         |           |          | ** ** |   | ** ** |
| **Total  Expenses**                                            |   | **$**              | **23,955,984** | ** **    | **$**      | **25,367,945** | ** ** | **-6** | **%** |

 

Expenses for thethree-month period ended March 31, 2003 totaled $23,955,984 as compared to$25,367,945 for the same period in 2002.  During the three-month periodended March 31, 2003, the Partnership’s expenses decreased by 6% due topricing adjustments made by suppliers for the cost of handsets which resultedin a 31% reduction in such expense and due to the 42% reduction in theprovision for doubtful accounts which resulted from the migration to a newbilling software that avoids billings on delinquent accounts.  The other variances as shown above aremostly related to reclassifications among accounts made at the Partnershipssubsidiary level to properly record transactions in a more efficient manner.

 

Income from Operations

 

Income from operationsreflects the ability of the Partnership to generate positive cash flows fromits operations, which does not take into consideration expenses such asamortization, depreciation and interest that must be reported for generallyaccepted accounting principles (GAAP) to arrive to the net income or loss.

 

Income from operationsfor the three month period ended March 31, 2003 of $2,338,897 shows aslight decrease of 10% as compared to the income from operations for the sameperiod in 2002.  This reduction inincome from operations is related to the cost of acquiring new customers andthe increase in network maintenance.

 

Interest expense for thethree month period ended March 31, 2003 of $3.4 million ($5.1million in2002) and depreciation expense of $4 million ($3.9million in 2002) reduceincome from operations and result in a net loss before other income (expense)of $5,124,796 for the first quarter of 2003 ($6,454,598 in 2002); an overallreduction in net loss before other income (expense) of 21% when compared to2002.  The reduction in interest expenseis attributable to the reduction of debt outstanding related to the NotePayable to Alcatel.

 

The increase indepreciation expense is related to the increase in the depreciable assetsplaced in service during the period.

 

Liquidity and CapitalResources

 

As of March 31,2004, the Partnership had cash and cash equivalents amounting to $5,411,210,which are mostly related to proceeds from the sale of the Visalia-Porterville,California, license in the second quarter, 2001, and the Fleet Transaction.

 

As part of the agreementwith TEM, NewComm entered into a contract with Lucent Technologies, Inc.(“Lucent”) that required Lucent to build a network that uses the Code DivisionMultiple Access (“CDMA”) protocol.  Thetotal cost of the original network was approximately $125 million.  During 2000, NewComm’s management and Lucentagreed on

 

14

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formally extending thepayment of up to $61.0 million of the total amount of network constructionpayable, at the time, under a formal financing agreement.  An agreement restructuring Lucent’soutstanding debt was executed on June 4, 2003.  This now outstanding debt is of $48 million at a fixed annualinterest over a six year term.

 

In addition, thePartnership owes the United States federal government approximately $39,718,087plus accrued interest at 6.5% in connection with the acquisition of its PCSlicenses.

 

The Partnership has asecured promissory note payable to TEM, which bears interest at the floatingrate of 90-day LIBOR plus 1.5% and is due in March, 2004.

 

The Partnership estimatesthat the total cost to implement NewComm’s business plan will be approximately$200 million.  This consists ofapproximately $125 million in costs associated with building-out the PuertoRico Network, and approximately $75 million to fund NewComm’s operations untilthese become profitable.  NewCommobtained a short term financing (“Bridge Loan”) of $60 million which has beenextended until November 29, 2002, with an interest rate of .75% over90-day LIBOR.  The Bridge Loan is nowguaranteed by Telefónica Internacional, S.A. (TISA), an affiliate of TEM.  ClearComm and TEM continue to work towardssecuring a permanent financing facility.

 

 During 2001, the Partnership sold 8.02% ofNewComm to Syncom Venture Funds in exchange for $25 million,  and on March 2, 2002, the Partnershipsold 4.08% of NewComm to a group of investors led by Fleet Development Venturesfor $13 million.

 

The Partnership anticipatesthat earnings and cash distributions derived from its Puerto Rico Network,interim and permanent financing and, if necessary, additional capital callsfrom its Investors or accessing the public capital markets, should provide itwith the liquidity to meet its obligations.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT 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 market funds.  As of March 31, 2004, the Partnershiphad cash equivalents and short-term investments of approximately $5,411,210consisting of cash and highly liquid, short-term investments in money marketfunds.

 

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 TEM Note relating to indebtedness ofNewComm bears interest at the floating rate of the 90-day LIBOR plus 1.5% andhas been extended to December 2004.

 

An agreementrestructuring Lucent’s outstanding debt was executed on June 4, 2003.  The now outstanding debt to Lucent is $48Mand is payable over a six-year period at 8% annual interest rate.  On June 20, 2003, an agreementrestructuring Alcatel’s debt was executed. Alcatel’s credit is now $2.5M at 6.5% payable over a three yearperiod.  Also, by means of letter fromTLD (and its parent, Telefónica Internacional, S.A., and its affiliate, TEM),TLD has agreed to issue a corporate guarantee to serve as collateral for a$110M bank loan.

 

ITEM4. CONTROLS AND PROCEDURES

 

The Partnership’s ChiefExecutive Officer, Javier O. Lamoso, and the Partnership’s Chief FinancialOfficer, Edileen Salicrup, have evaluated the Partnership’s disclosure controlsand procedures within 90 days of the filing of this report.

 

Mr. Lamoso and Ms.Salicrup have concluded that the Partnership’s disclosure controls andprocedures provide reasonable assurance that the Partnership can meet itsdisclosure obligations.  ThePartnership’s disclosure controls and procedures are based upon a roll-up offinancial and non-financial reporting that is consolidated by TEM pursuant tothe Partnership’s Management Agreement with TEM.  The reporting process is designed to ensure that informationrequired to be disclosed by the Partnership in the reports that it files orsubmits with the Commission is recorded, processed, summarized and reportedwithin the time periods specified in the Commission’s rules and forms.

 

15

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PARTII: OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

Information regardinglegal proceedings is disclosed in Part I, Item 1, Notes to Interim ConsolidatedFinancial Statements (unaudited), Section 4, and is hereby incorporatedinto Part II, Item 1 by this reference.

 

ITEM 6.       EXHIBITS AND REPORTS ON FORM8-K

 

(a)                                  Listof Exhibits

 

                Exhibit 31:  Certifications by the Chief ExecutiveOfficer and Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of 2002

 

Exhibit 32:  Certifications by the Chief Executive Officeand Chief Financial Officer pursuant to Section 1350 of Chapter b3 ofTitle 18 of the United States Code.

 

(b)           No reports on Form 8-K have beenfiled during the quarter for which this report is filed.

 

ITEMS 2, 3, 4 and 5 arenot applicable and have been omitted.

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|                     |   | ClearComm, L.P.                |
|--------------------------|--------|--------------------------------|
|                     |   |                           |
|                     |   |                           |
|                     | By:    | SuperTel Communications  Corp. |
|                     |   |                           |
|                     |   |                           |
| Date:  May 24, 2004 |   | By:  /s/ Javier O. Lamoso |
|                     |   | Name: Javier O. Lamoso         |
|                     |   | Title: President               |

 

17

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CERTIFICATION OFCHIEF EXECUTIVE OFFICER

 

I, Javier O. Lamoso,President of ClearComm, L.P., certify that:

 

1.               I have reviewedthis annual report of ClearComm, L.P.;

 

2.               Based on myknowledge, this report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for,the periods presented in this report; and

 

4.               The company’s othercertifying officer(s) and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) for the registrant and have:

 

(a)                            Designedsuch disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that materialinformation relating to the company, including its consolidated subsidiaries,is made known to us by others within those entities, particularly during theperiod in which this report is being prepared; and

 

(b)                           Evaluatedthe effectiveness of the company’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation.

 

Date:  May 24,2004

 
|   |   | /s/ Javier O. Lamoso    |
|--------|--------|-------------------------|
|   |   | Javier O. Lamoso        |
|   |   | Chief Executive Officer |

 

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CERTIFICATION OFCHIEF FINANCIAL OFFICER

 

I, Edileen Salicrup,Chief Financial Officer of ClearComm, L.P., certify that:

 

1.               I have reviewedthis annual report of ClearComm, L.P.;

 

2.               Based on myknowledge, this report does not contain any untrue statement of a material factor omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;

 

3.               Based on myknowledge, the financial statements, and other financial information includedin this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the company as of, and for,the periods presented in this report; and

 

4.               The company’s othercertifying officer(s) and I are responsible for establishing and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) for the registrant and have:

 

(a)                             Designedsuch disclosure controls and procedures, or caused such disclosure controls andprocedures to be designed under our supervision, to ensure that materialinformation relating to the company, including its consolidated subsidiaries,is made known to us by others within those entities, particularly during theperiod in which this report is being prepared; and

 

(b)                            Evaluatedthe effectiveness of the company’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation.

 

Date:  May 24,2004

 
|   |   | /s/Edileen Salicrup     |
|--------|--------|-------------------------|
|   |   | Edileen Salicrup        |
|   |   | Chief Financial Officer |

 

19

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