** **

**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  September  30, 2001** |
|                                                         |
|                                                         | 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                                  | (I.R.S. Employer    |
| incorporation or  organization)                                   | Identification No.) |
|                                                              |                |
| **268  Muñoz Rivera Ave. Suite 2206  Hato Rey, Puerto Rico** | **00918-1929**      |
| (Address of principal  executive offices)                         | (Zip Code)          |

 

Registrant's telephonenumber, including area code: **(787) 620-0140**

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months and (2) has been subject to such filingrequirements for the past 90 days.

Yes   ý  No   o

 

 

ClearComm, L.P.

INDEX

 
| PART I   FINANCIAL INFORMATION |                                                                                                                                          |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                          |
| Item 1.  Financial Statements       |                                                                                                                                          |
|                                     |                                                                                                                                          |   |
|                                     | Consolidated  Statements of Assets, Liabilities and Partners' Deficit as of September 30,  2001 (unaudited) and December 31, 2000 (audited)   |   |
|                                     |                                                                                                                                          |   |
|                                     | Consolidated  Statements of Revenues and Expenses for the three-month and nine-month  periods ended September 30, 2001 and 2000 (unaudited) . |   |
|                                     |                                                                                                                                          |   |
|                                     | Consolidated  Statements of Changes in Partners' Deficit for the nine-month period ended  September 30, 2001 (unaudited)                      |   |
|                                     |                                                                                                                                          |   |
|                                     | Consolidated  Statements of Cash Flows for the nine-month periods ended September 30, 2001  and 2000 (unaudited)                              |   |
|                                     |                                                                                                                                          |   |
|                                     | Notes  to Interim Consolidated Financial Statements (unaudited)                                                                               |   |
|                                     |                                                                                                                                          |   |
| Item  2                                  | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                                        |   |
|                                     |                                                                                                                                          |   |
| Item  3                                  | Quantitative  Disclosure About Market Risk.                                                                                                   |   |
|                                     |                                                                                                                                          |   |
| PART II                                  | OTHER INFORMATION                                                                                                                             |   |
|                                     |                                                                                                                                          |   |
| Item 1.                                  | Legal Proceedings                                                                                                                             |   |
|                                     |                                                                                                                                          |   |
| Item 6.                                  | Exhibits and  Reports on Form 8-K                                                                                                             |   |
|                                     |                                                                                                                                          |   |
| Signatures.                              |                                                                                                                                          |
|                                     |                                                                                                                                          |   |
| Exhibit Index.                           |                                                                                                                                          |
|                                          |                                                                                                                                               |  |  |

 

PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS

 

ClearComm, L.P.

CONSOLIDATED STATEMENTS OF ASSETS,LIABILITIESAND PARTNERS' DEFICIT

 
|                                                                                        |   | **September  30,** |        | **December  31,** |   |
|---------------------------------------------------------------------------------------------|--------|--------------------|-------------|-------------------|--------|
|                                                                                        |   | **2001**           |        | **2000**          |   |
|                                                                                        |   | **(Unaudited)**    |        | **(Audited)**     |   |
| ASSETS                                                                                      |   |               |        |              |   |
| CURRENT ASSETS:                                                                             |   |               |        |              |   |
| Cash and cash equivalents                                                                   |   | $                  | 12,355,310  |              | $      | 9,338,798 |   |
| Accounts receivable, net of allowance  for doubtful accounts of $17,083,935 and $18,341,025 |   | 17,887,284         |        | 20,049,769        |   |
| Accounts receivable due from officer                                                        |   | 101,000            |        | -                 |   |
| Insurance claim receivable                                                                  |   | 1,490,958          |        | 1,256,285         |   |
| Inventories                                                                                 |   | 10,805,776         |        | 12,977,164        |   |
| Prepaid expenses                                                                            |   | 852,429            |        | 751,603           |   |
| Total current assets                                                                        |   | 43,492,757         |        | 44,373,619        |   |
|                                                                                        |   |               |        |              |   |
| DEFERRED FINANCING COSTS, net                                                               |   | 841,936            |        | 1,730,047         |   |
| PCS LICENSES, net                                                                           |   | 58,176,678         |        | 64,838,452        |   |
| PROPERTY AND EQUIPMENT, net                                                                 |   | 103,327,248        |        | 97,002,140        |   |
|                                                                                        |   | $                  | 205,838,619 |              | $      | 207,944,258 |   |
| LIABILITIES AND PARTNER'S DEFICIT                                                           |   |               |        |              |   |
| CURRENT LIABILITIES:                                                                        |   |               |        |              |   |
| Accounts payable and accrued liabilities                                                    |   | $                  | 40,278,960  |              | $      | 40,314,401 |   |
| Note payable to Lucent Technologies                                                         |   | 60,531,697         |        | 61,000,000        |   |
| Bridge Loan Facility                                                                        |   | 60,000,000         |        | 60,000,000        |   |
| Accounts payable to related parties                                                         |   | 5,329,177          |        | 2,041,767         |   |
| Accrued interest                                                                            |   | 2,119,745          |        | 1,566,872         |   |
| Deferred income                                                                             |   | 1,451,974          |        | 1,820,183         |   |
| Total current liabilities                                                                   |   | 169,711,553        |        | 166,743,223       |   |
| LONG-TERM NOTES PAYABLE                                                                     |   | 80,184,368         |        | 72,456,233        |   |
| MINORITY INTEREST                                                                           |   | 13,822,964         |        | 9,717,529         |   |
|                                                                                        |   |               |        |              |   |
| PARTNER'S DEFICIT                                                                           |   |               |        |              |   |
| Limited partners' capital (2,903.1  units, issued and outstanding)                          |   | 73,039,616         |        | 73,039,616        |   |
| General partner's capital                                                                   |   | 100,000            |        | 100,000           |   |
| Undistributed losses-                                                                       |   |               |        |              |   |
| Accumulated during development stage                                                        |   | (48,704,525        | )           | (48,704,525       | )      |
| Operations                                                                                  |   | (82,315,357        | )           | (65,407,818       | )      |
| Total partners' deficit                                                                     |   | (57,880,266        | )           | (40,972,727       | )      |
|                                                                                        |   | $                  | 205,838,619 |              | $      | 207,944,258 |   |

 

The accompanying notes are integral part of these consolidatedstatements.

 

ClearComm, L.P.

CONSOLIDATED STATEMENTSOF REVENUES AND EXPENSES(UNAUDITED)

 
|                                          |   | **Three-Month Period Ended September 30** |       | **Nine-Month Periods Ended September 30** |   |
|-----------------------------------------------|--------|-------------------------------------------|------------|-------------------------------------------|--------|
|                                          |   | **2001**                                  |       | **2000**                                  |   | **2001** |   | **2000** |   |
| **Revenues:**                                 |   |                                      |       |                                      |   |   |   |   |   |
| Service revenues                              |   | $                                         | 27,920,018 |                                      | $      | 19,310,007 |   | $ | 80,295,479 |   | $ | 48,002,768 |   |
| Handset and accessories sales                 |   | 2,924,974                                 |       | 5,069,821                                 |   | 12,081,137 |   | 11,322,453 |   |
|                                          |   | 30,844,992                                |       | 24,379,828                                |   | 92,376,616 |   | 59,325,221 |   |
|                                          |   |                                      |       |                                      |   |   |   |   |   |
| **Operating Cost and Expenses:**              |   |                                      |       |                                      |   |   |   |   |   |
| Cost of handset and accessories               |   | 6,906,804                                 |       | 5,627,373                                 |   | 24,667,649 |   | 11,908,495 |   |
| Interconnection expense                       |   | 1,079,937                                 |       | 784,320                                   |   | 3,538,053 |   | 3,156,597 |   |
| Sales and dealers commissions                 |   | 2,258,949                                 |       | 2,366,790                                 |   | 6,503,361 |   | 5,244,518 |   |
| Salaries and benefits                         |   | 3,611,364                                 |       | 3,140,493                                 |   | 10,088,527 |   | 8,196,183 |   |
| Advertising expense                           |   | 2,578,052                                 |       | 1,852,354                                 |   | 7,695,952 |   | 5,772,985 |   |
| Legal and professional services               |   | 3,464,697                                 |       | 3,526,331                                 |   | 9,715,377 |   | 6,695,725 |   |
| Depreciation and amortization                 |   | 3,717,106                                 |       | 4,450,945                                 |   | 13,715,283 |   | 15,224,653 |   |
| Provision for doubtful accounts               |   | 1,969,557                                 |       | 6,009,374                                 |   | 7,873,389 |   | 9,484,344 |   |
| Rent expense                                  |   | 2,148,514                                 |       | 652,141                                   |   | 6,044,268 |   | 1,733,256 |   |
| Taxes other than income                       |   | (473,111                                  | )          | -                                         |   | 2,984,015 |   | - |   |
| Other expenses                                |   | 2,575,321                                 |       | 6,605,473                                 |   | 7,226,712 |   | 12,381,745 |   |
| Management fee to General Partner             |   | 32,000                                    |       |                                      |   | 96,000 |   | 641,754 |   |
| Services rendered by related parties          |   | 1,032,596                                 |       | 1,651,252                                 |   | 1,708,166 |   | 3,115,993 |   |
| Gain on sale of Visalia-Porterville  license  |   | -                                         |       | -                                         |   | (4,814,337 | ) | - |   |
|                                          |   | 30,901,786                                |       | 36,666,846                                |   | 97,042,415 |   | 83,556,248 |   |
|                                          |   |                                      |       |                                      |   |   |   |   |   |
| **Loss from Operations**                      |   | (56,794                                   | )          | (12,287,018                               | )      | (4,665,799 | ) | (24,231,027 | ) |
|                                          |   |                                      |       |                                      |   |   |   |   |   |
| **Other Income (Expense)**                    |   |                                      |       |                                      |   |   |   |   |   |
| Interest income                               |   | 154,328                                   |       | 99,970                                    |   | 461,343 |   | 358,269 |   |
| Interest expense                              |   | (4,239,840                                | )          | (2,913,638                                | )      | (13,597,648 | ) | (6,739,921 | ) |
|                                          |   | (4,085,512                                | )          | (2,813,668                                | )      | (13,136,305 | ) | (6,381,652 | ) |
|                                          |   |                                      |       |                                      |   |   |   |   |   |
| **Net Loss before Minority Interest**         |   | (4,142,306                                | )          | (15,100,686                               | )      | (17,802,104 | ) | (30,612,679 | ) |
| **Minority Interest**                         |   | 187,873                                   |       | -                                         |   | 894,565 |   | - |   |
| **Net Loss**                                  |   | $                                         | (3,954,433 | )                                         | $      | (15,100,686 | ) | $ | (16,907,539 | ) | $ | (30,612,679 | ) |
|                                          |   |                                      |       |                                      |   |   |   |   |   |
| **Net Loss Attributable to General Partner**  |   | $                                         | (988,608   | )                                         | $      | (3,775,172 | ) | $ | (4,226,885 | ) | $ | (7,653,170 | ) |
|                                          |   |                                      |       |                                      |   |   |   |   |   |
| **Net Loss Attributable to Limited Partners** |   | $                                         | (2,965,825 | )                                         | $      | (11,325,515 | ) | $ | (12,680,654 | ) | $ | (22,959,509 | ) |

 

The accompanying notes are integral part of these consolidatedfinancial statements.

 

ClearComm, L.P.

CONSOLIDATED STATEMENTSOF CHANGES IN PARTNERS' DEFICIT(Unaudited)

FOR THE NINE-MONTH PERIODENDED SEPTEMBER 30, 2001

 
|                                           |   | **Limited Partners** |   | **General** |        |        |   |
|------------------------------------------------|--------|----------------------|--------|-------------|-------------|-------------|--------|
|                                           |   | **Units**            |   | **Amount**  |        | **Partner** |   | **Total** |   |
| Balance  (deficit) at December 31, 2000        |   | 2,903.1              |   | $           | (12,544,641 | )           | $      | (28,428,086 | ) | $ | (40,972,727 | ) |
|                                           |   |                 |   |        |        |        |   |   |   |
| Nine-month  period ended September 30, 2001    |   |                 |   |        |        |        |   |   |   |
| Net loss                                       |   | -                    |   | (12,680,654 | )           | (4,226,885  | )      | (16,907,539 | ) |
|                                           |   |                 |   |        |        |        |   |   |   |
| Balance  (deficit) at September  30, 2001 |   | 2,903.1              |   | $           | (25,225,295 | )           | $      | (32,654,971 | ) | $ | (57,880,266 | ) |

 

The accompanying notes are integral part of these consolidatedfinancial statements.

ClearComm, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
|                                                                                             |   | **Nine-Month Periods Ended** |        |
|--------------------------------------------------------------------------------------------------|--------|------------------------------|-------------|
|                                                                                             |   | **September 30,**            |        | **September 30,** |   |
|                                                                                             |   | **2001**                     |        | **2000** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                             |   |                         |        |   |   |
| Net loss                                                                                         |   | $                            | (16,907,539 | ) | $ | (30,612,679 | ) |
|                                                                                             |   |                         |        |   |   |
| Adjustments to reconcile net loss for  the period to net cash used in operating  activities |   |                         |        |   |   |
| Depreciation and amortization                                                                    |   | 13,715,283                   |        | 15,224,653 |   |
| Provision for doubtful accounts                                                                  |   | 7,873,389                    |        | 9,484,344 |   |
| Minority interest                                                                                |   | (894,565                     | )           | - |   |
| Gain from sale of Visalia-Porterville  license                                                   |   | (4,814,337                   | )           |   |   |
| Increase in accounts receivable                                                                  |   | (5,710,904                   | )           | (15,908,970 | ) |
| Increase in accounts receivable due from  officer                                                |   | (101,000                     | )           | - |   |
| Increase in insurance claim receivable                                                           |   | (234,673                     | )           | - |   |
| Decrease (increase) in inventories                                                               |   | 2,171,388                    |        | (6,035,512 | ) |
| Decrease (increase) in prepaid expenses  and deferred financing cost                             |   | 787,285                      |        | (216,493 | ) |
| (Decrease) increase in accounts payable  and accrued liabilities                                 |   | 1,133,906                    |        | 3,654,178 |   |
| Increase in accounts payable to related  parties                                                 |   | 3,287,410                    |        | - |   |
| Increase in accrued interest                                                                     |   | 1,700,143                    |        | - |   |
| (Decrease) increase in deferred income                                                           |   | (368,209                     | )           | 1,399,922 |   |
| Total adjustments                                                                                |   | 16,277,304                   |        | 7,602,122 |   |
| Net cash provided by (used in) operating  activities                                             |   | (630,235                     | )           | (23,010,557 | ) |
|                                                                                             |   |                         |        |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                            |   |                         |        |   |   |
| Acquisition of property and equipment                                                            |   | (7,544,445                   | )           | (7,819,311 | ) |
|                                                                                             |   |                         |        |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                            |   |                         |        |   |   |
| Proceeds from sale of  Visalia-Porterville license                                               |   | 9,500,000                    |        | - |   |
| Capital contribution from minority  interest                                                     |   | 5,000,000                    |        | - |   |
| Proceeds from issuance of notes payable  to TLD                                                  |   | 4,990,000                    |        | - |   |
| Payment of Note Payable to Lucent                                                                |   | (8,298,808                   | )           | - |   |
| Proceeds from line of credit                                                                     |   | -                            |        | 33,500,000 |   |
| Net cash provided by financing  activities                                                       |   | 11,191,192                   |        | 33,500,000 |   |
|                                                                                             |   |                         |        |   |   |
| NET INCREASE IN CASH AND CASH  EQUIVALENTS                                                       |   | 3,016,512                    |        | 2,670,132 |   |
|                                                                                             |   |                         |        |   |   |
| CASH AND CASH EQUIVALENTS, beginning of  period                                                  |   | 9,338,798                    |        | 6,546,305 |   |
|                                                                                             |   |                         |        |   |   |
| CASH AND CASH EQUIVALENTS, end of period                                                         |   | $                            | 12,355,310  |   | $ | 9,216,437 |   |
|                                                                                             |   |                         |        |   |   |
| SUPPLEMENTAL CASH FLOWS INFORMATION:                                                             |   |                         |        |   |   |
| Network construction costs financed  through note payable to Lucent and accounts payable         |   | $                            | 14,233,744  |   | $ | - |   |
| Accounts receivable written-off against  the allowance for doubtful accounts                     |   | $                            | 9,143,191   |   | $ | - |   |
| Interest paid                                                                                    |   | $                            | 9,876,260   |   | $ | - |   |

 

The accompanying notes are integral part of these consolidatedfinancial statements.

 

CLEARCOMM, L.P.

NOTES TO INTERIMCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

1.             BASIS OF PRESENTATION ANDINTRODUCTION

 

                The unauditedinterim consolidated financial statements presented herein have been preparedin accordance with accounting principles generally accepted in the UnitedStates for interim financial statements and with the instructions to Form 10-Qand Regulation 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 September 30,2001 and results of operations and cash flows for the nine-month periods endedSeptember 30, 2001 and 2000.  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, 2000.  Results of operations for interim periods are not necessarilyindicative of the results that may be expected for the full year.

 

                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 communicationsservice ("PCS") frequency Block C, originally restricted tominorities, small businesses and designated entities, to become a provider ofbroadband PCS.  The Partnership willterminate on December 31, 2005, or earlier upon the occurrence of certain specifiedevents as detailed in the Partnership Agreement.

 

                SuperTelCommunications Corp. (“SuperTel”), a Puerto Rico corporation, is the GeneralPartner.  Its total share of the incomeand losses of the Partnership is 25% in accordance with the PartnershipAgreement.  Approximately 1,600 limited partnersalso invested 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.

 

                On February 4,1999, the Partnership entered into a joint venture agreement (the “JointVenture Agreement”) with Telefónica Larga Distancia De Puerto Rico, Inc.(“TLD”) to jointly develop and operate certain PCS licenses in PuertoRico.  Among the most importantprovisions of the Joint Venture Agreement are the following:

 
|   | • |   | The Partnership transferred all of its Puerto Rico  PCS licenses including its related debt with the FCC to NewComm Wireless  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 to NewComm by  means of a secured convertible promissory note payable (the “Promissory  Note”).  The Promissory Note is  secured by a security agreement pursuant to which a security interest is  imposed upon NewComm’s assets, a Partnership guarantee and a pledge  agreement, as defined.                                                                                                                                                                                               |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | • |   | Once certain regulatory and other requirements are  met, the Promissory Note will be converted to NewComm’s common stock  representing approximately 49.9% of NewComm’s equity at the time of the  exchange.  Originally, TLD had the  option to buy an additional .2%, which would have brought its ownership to  50.1%, subject to a third party valuation of NewComm’s stock and approval by  the FCC.  On June 26, 2001, the Joint  Venture Agreement was amended eliminating the TLD Option to buy the  additional .2%. |
|   |   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | • |   | NewComm and TLD entered into certain management and  technology transfer agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

                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, fromSyndicated Communications Venture Partners IV, L.P. (Syncom), a third party, inexchange for 4.92% ownership in NewComm. Syncom has committed to contribute up to $25 million to NewComm inexchange for an 8.2% ownership interest in Newcomm.

 

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 incurredoperating losses amounting to $16.9 million for the nine-month period endedSeptember 30, 2001 and incurred operating losses of $41.4 million for the yearended December 31, 2000.  It also hasworking capital and partners’ capital deficits of $126.2 and $57.9 million,respectively, as of September 30, 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 theagreement with TLD, NewComm entered into a contract with Lucent Technologies,Inc. (“Lucent”) that requires Lucent to build a network that uses the CodeDivision Multiple Access (“CDMA”) protocol. It is expected that the total cost of this project will approximate $125million.  During 2000, NewComm’smanagement and Lucent agreed on formally extending the payment of up to $61.0million of the total amount due under the contract under a formal financingagreement.  The financing agreementextends payments for an eight-month period (through June 2001) at an annualinterest rate 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.  If such sumis not paid by March 15, 2002, then all outstanding amounts will bear a 16%annual interest rate.

 

                During November2000, NewComm entered into a $60 million bridge loan agreement (the “BridgeLoan Facility”) with ABN-AMRO and BBVA (the “Banks”) with interest at 1.5% over90-day LIBOR, which expired on March 15, 2001, and was extended until March 13,2002, with an interest rate at .75% over 90-day LIBOR.  The Bridge Loan is now guaranteed byTelefónica Internacional, S.A. (TISA), an affiliate of TLD.  ClearComm and TLD continue to work towardssecuring a permanent financing facility, which will require that thePartnership, through Syncom and TLD, to each contribute approximately $25million in equity and convertible debt. As part of this commitment, during the second half of 2000 and firsthalf of 2001, Syncom and TLD have contributed $15 million in the form of equityand convertible debt.

 

                Each of thePartnership’s C-Block licenses is subject to a FCC requirement that thePartnership construct network facilities that offer coverage to at leastone-third of the population in the market covered by such license within fiveyears following the grant of the applicable license and to at least two-thirdsof the population within ten years following the grant.  Although the Partnership’s build-out plancalls for it to exceed these minimum requirements, failure to comply with theserequirements could result in the revocation of the related licenses or theimposition of fines on the Partnership by the FCC.  Therefore, delays in constructing its PCS network for licensesgranted for markets outside Puerto Rico could have a material adverse effect onthe Partnership’s financial condition and results of operations.  The Partnership is working on plans toprovide coverage in the areas covered by the California Licenses to be incompliance with the FCC build-out requirements.

 

                Management believesthat the Partnership will comply with all the requirements for obtaining theinterim financing and believes that cash and cash equivalents on hand,anticipated growth in revenues, vendor financing and the permanent financingwill be adequate to fund its operations, at a minimum, through the end of2001.  However, in the absence ofimproved operating results and cash flows, and without the closing of itscontemplated permanent financing, the Partnership may face liquidity problemsto fund its operations and meet its obligations.  As a result of these matters, substantial doubt exists about thePartnership’s ability to continue as a going concern.  The accompanying consolidated financialstatements do not include any adjustments that might result from the outcome ofthis uncertainty.

3.             OTHER ACCOUNTINGPRONOUNCEMENTS

 

                In June 1998, theFinancial Accounting Standards Board ("FASB") issued Statement ofFinancial Accounting Standards No. 133, "Accounting for DerivativeInstruments and Hedging Activities" ("SFAS 133"). SFAS 133established accounting and reporting standards requiring that every derivativeinstrument (including certain derivative instruments embedded in othercontracts) be recorded in the balance sheet as either an asset or liabilitymeasured at its fair value. SFAS 133 requires that changes in the derivative'sfair value be recognized currently in earnings unless specific hedge accountingcriteria are met. In June 2000, the FASB issued Statement of FinancialAccounting Standards No. 138 ("SFAS 138") which amends SFAS 133 forcertain derivative instruments and certain hedging activities. SFAS 133, asamended, is effective for fiscal years beginning after June 15, 2000. ThePartnership adopted SFAS 133 beginning January 1, 2001, but did not have anyderivatives.

 

                In June 2001, theFinancial Accounting Standards Board issued SFAS No. 141, "BusinessCombinations" (effective July 1, 2001) and SFAS No. 142, "Goodwilland Other Intangible Assets" (effective for the Company on January 1,2002). SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions.SFAS No. 142 specifies that goodwill and some intangible assets will no longerbe amortized but instead will be subject to periodic impairment testing. TheCompany is in the process of evaluating the financial statement impact ofadoption of SFAS No. 142.

 

4.             LEGAL PROCEEDINGS

 

                The Partnership issubject to certain legal proceedings and an FCC proceeding, which weredescribed in the Partnership's Form 10-K for the year ended December 31, 2000.

 

                On February 4,1999, the Partnership and NewComm filed an application with the FCC for a proforma assignment of the Puerto Rico Licenses to NewComm, and the FCC grantedthe application on February 18, 1999. On March 22, 1999, CentennialCommunications Corp. ("Centennial") filed a Petition forReconsideration (the "Petition") with the FCC seeking to rescind theassignment of the Licenses to NewComm or to stay the effectiveness of theassignment pending resolution of the issues raised in the Petition.  On October 17, 2001, by means of aMemorandum and Order, the Petition for Reconsideration that had been filed byCentennial with the FCC seeking to rescind the assignment of the Puerto RicoLicenses to NewComm was denied, and the assignment of the Puerto Rico licenseswas granted to NewComm.

 

NewComm filed a Complaint for tortious interferencewith contract against Sprint PCS on September 21, 2001 before the United StatesDistrict Court for the District of Puerto Rico. Sprint PCS was broadcasting asystem identification number (known as an “SID”) that was causing NewComm’ssubscribers to “hook into” the Puerto Rico Sprint PCS network, and as a resultNewComm’s subscribers appeared to be roaming while in their home area.  The Court granted a preliminary injunction,ordering Sprint PCS to cease and desist from using the SID that was causingNewComm’s subscribers to “hook into” the Sprint PCS network.  On November 1, 2001, Sprint PCS filed anappeal of this Order to the United States Court of Appeals of the First Circuit.  Management believes that the Court ofAppeals will not overturn the injunction. NewComm intends to pursue a permanent injunction and to seek damages andattorneys’ fees in connection with this litigation.

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-looking Statements

 

                This Form 10-Q andfuture filings 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 variationsof these 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 Partnershipdisclaims any obligation to update or revise any forward-looking statementbased on the occurrence of future events, the receipt of new information, orotherwise.

Actual future performance, outcomes and results maydiffer materially from those expressed in forward-looking statements made bythe Partnership as a result of a number of important factors.  Examples of these factors include, withoutlimitation, failure to develop the Partnership's PCS licenses in California dueto an inability to obtain satisfactory financing or partners capital; rapidtechnological developments and changes in the telecommunications industry;ongoing deregulation (and the resulting likelihood of significantly increasedprice and product/service competition) in the telecommunications industry as aresult of the Telecommunications Act of 1996 and other similar federal andstate legislation and the federal and state rules and regulations enactedpursuant to that legislation; regulatory limitations on the Partnership'sability to compete in the telecommunications services industry; and continuingconsolidation in the telecommunications services industry.  In addition to these factors, actual futureperformance, outcomes and results may differ materially because of other, moregeneral factors including, without limitation, general industry and marketconditions and growth rates, domestic and international economic conditions,governmental and public policy changes and the continued availability offinancing in the amounts, at the terms and on the conditions necessary tosupport the Partnership's future business.

 

Introduction

 

                Theinformation contained in this Part I, Item 2 updates, and should be read inconjunction with, information set forth in Part II, Items 7 and 8, in theCompany's Annual Report on Form 10-K for the year ended December 31, 2000, inaddition to the interim consolidated financial statements and accompanyingnotes presented in Part 1, Item 1 of this Form 10-Q.

 

                The Partnershipwas formed 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. The license covering Visalia-Porterville,California, was sold and transferred to Leap Wireless on June 8, 2001 for$9,500,000.

 

                The Partnershipcommenced commercial operations of its PCS network in Puerto Rico on September24, 1999 when it began offering wireless services in Puerto Rico to thepublic.  Prior to that date, its incomehad consisted of interest earnings only. Since the Partnership commenced commercial operations in 1999 and during2000 was still in the start-up process, the comparisons presented below may notbe indicative of future operations.

 

                The Partnership establishedits Puerto Rico network by forming a wholly owned subsidiary, NewComm, onJanuary 29, 1999.  On February 4,1999, the Partnership and NewComm entered into an agreement with TLD, wherebythe Partnership contributed its two Puerto Rico Licenses to NewComm and TLDprovided NewComm a $19,960,000 loan to develop the Puerto Rico Licenses.  TLD’s loan is pursuant to a securedconvertible promissory note (the “Note”) which is convertible into 49.9% ofNewComm’s equity.  The Note however,cannot be converted until the FCC authorizes TLD to hold more than a 25% equityinterest in NewComm.  NewComm, maintainsan option to repurchase TLD’s interests in NewComm in the last year before therestrictions on the Puerto Rico licenses lapse.

 

                With respect toits California Licenses, the Partnership anticipates developing these licensesby means of strategic alliances and/or partnerships with other operators.  Although no assurances can be made, thePartnership anticipates that it will negotiate acceptable agreements regardingthese licenses so that it will be able to offer wireless services in theregions covered by these licenses.

 

Results of Operations

 

Three-month period ended September 30, 2001 comparedwith three-month period ended September 30, 2000

 

Revenues

 

                The Partnership’srevenues for the three-month period ended September 30, 2001 totaled$30,844,992 as compared to $24,379,828 for the same period in 2000. Revenuesfor the three-month period ended September 30, 2001 included $27,920,018 inservice revenues and $2,924,974 in handset and accessories sales generated fromNewComm’s wireless operations, as compared to $19,310,007, and $5,069,821respectively, for the same period in 2000. The increase in revenues is mainly due to growth in the subscriber baseas NewComm.

Expenses

 

                Expenses for thethree-month period ended September 30, 2001 totaled $30,901,786 as compared to$36,666,846 for the same period in 2000. During the third quarter of 2001, the Partnership's expenses included$6,906,804 ($5,627,373 as of September 30, 2000) in costs of handset andaccessories, $3,611,364 ($3,140,493 as of September 30, 2000) for salaries andbenefits, $3,464,697 ($3,526,331 as of September 30, 2000) for legal andprofessional services, $3,717,106 ($4,450,945 as of September  30, 2000) in depreciation and amortization,$1,969,557 ($6,009,374 as of September 30, 2000) in provision for doubtfulaccounts, $10,199,662 ($12,261,078 as of September 30, 2000) ininterconnection, sales and dealers commissions, advertising, rent, taxes otherthan income, other expenses and management fee to General Partner, and$1,032,596 ($1,651,252 as of September 30, 2000) for services rendered byrelated parties.

 

                The increase ininterest expense ($4,239,840 and $2,913,638 for the quarter ended September 30,2001 and 2000, respectively) is attributable to the higher level of debtoutstanding related to the FCC Note, TLD Promissory Note, Note Payable toLucent and the Bridge Loan Facility.

 

                The Net loss of$3,954,433 for the three-month period ended September 30, 2001, as compared to$15,100,686 for the same period in 2000, reflects the Partership’s increase inservice revenues of $8,610,011 from a larger subscriber base.  In order to remain competitive, asignificant subsidy is granted in the sale of handsets and accessories, onwhich a negative margin of $ 3,981,830 and $557,552 was generated during thethree-month periods ended September 30, 2001 and 2000, respectively.  The reduction on the provision for doubtfulaccounts of approximately $4 million dollars as compared to the provision forthe same period ended September 30, 2000 had a significant impact on the netloss for the quarter ended September 30, 2001. In summary, the $11.1 million reduction of the third quarter net loss ascompared to the September 30, 2000 is mainly due to an increase in servicerevenues of $8.6 million and a reduction of overall expenses of $6 milliondollars. The reduction in expenses (taxes other than income) is due to a $2.1million reversal of real estate property taxes accrued in current and priorperiods based on discussions with the Puerto Rico property tax authorities.

 

                Nine-month periodended September 30, 2001 compared with nine-month period ended September 30,2000

 

Revenues

 

                The Partnership’srevenues for the nine-month period ended September 30, 2001 totaled$92,376,616, as compared to $59,325,221 for the same period in 2000.  Revenues for the nine-month period endedSeptember 30, 2001 included $80,295,479 in service revenue and $12,081,137 inhandset and accessories sales generated from NewComm’s wireless operations, ascompared to $48,002,768, and $11,322,453 respectively, for the same period in2000.  The increase in revenues ismainly due to growth in the subscriber base.

 

Expenses

 

                Expenses for thenine-month period ended September 30, 2001 totaled $97,042,415 as compared to$83,556,248 for the same period in 2000. During the nine-month period ended September 30, 2001, the Partnership'sexpenses included $24,667,649 ($11,908,495 as of September 30, 2000) in costsof handset and accessories, $10,088,527 ($8,196,183 as of September 30, 2000)for salaries and benefits, $9,715,377 ($6,695,725 as of September 30, 2000) forlegal and professional services, $13,715,283 ($15,224,653 as of September 30, 2000)in depreciation and amortization, $7,873,389 ($9,484,344  as of September 30, 2000) in provision fordoubtful accounts, $34,088,361 ($28,930,855 as of September 30, 2000) ininterconnection, sales and dealers commissions, advertising, rent, taxes other thanincome, other expenses and management fee to General Partner, and $1,708,166($3,115,993 as of September 30, 2000) for services rendered by related parties.The increase in interest expense ($13,697,648 and $6,739,921 for the nine-monthperiods ended September 30, 2001 and 2000, respectively) is related to thehigher level of debt outstanding related to the FCC Note, TLD Promissory Note,Note Payable to Lucent and the Bridge Loan Facility.

                The Net loss of$16,907,539 for the nine-month period ended September 30, 2001, as compared to$30,612,679 for the same period in 2000, reflects the ongoing costs ofcompeting with existing cellular and PCS operators in order to develop asubscriber base.  In order to be competitive,a significant subsidy is granted in the sale of handsets and accessories, onwhich a negative margin of $12,586,512 and $586,042 was generated during thenine-month periods ended September 30, 2001 and 2000, respectively.  In addition, the provision for doubtfulaccounts decreased to $7,873,389 and interest expense increased to $13,597,648for the nine-month period ended September 30, 2001, as compared to $9,484,344and $6,739,921 respectively, for the same period in 2000.  The $13.7 million reduction in thenine-month period loss, as compared to the prior year, is mainly due to thegrowth in the subscriber base, increased scrutiny by management of accountsreceivable, which has significantly reduced the provision for doubtfulaccounts, and a $4.8 million gain from the sale of the Visalia PCS licenseduring the second quarter of 2001.

 

Liquidity and Capital Resources

 

As of September 30, 2001, the Partnership had cash andcash equivalents amounting to $12,355,310, which are mostly related to proceedsfrom the sale of the Visalia-Porterville, California, license in the secondquarter, 2001.

 

                As part of theagreement with TLD, NewComm entered into a contract with Lucent Technologies,Inc. (“Lucent”) that requires Lucent to build a network that uses the CodeDivision Multiple Access (“CDMA”) protocol. It is expected that the total cost will approximate $125 million.  During 2000, NewComm’s management and Lucentagreed on formally extending the payment of up to $61.0 million of the totalamount of network construction payable, at the time, under a formal financingagreement.  The financing agreement wasrestructured as a Promissory Note on September 26, 2001, with a principal sumof $60.5 million plus interest, due March 15, 2002.  The interest rate on the Promissory Note is 14%, which increasesto 16% if the note is not satisfied by March 15, 2002.

 

In addition, the Partnership owes the United Statesfederal government approximately $51,339,555 (undiscounted) plus accruedinterest at 6.5% of $836,418 in connection with the acquisition of its PCSlicenses.  As of September 30, 2001, thenotes payable to FCC are presented net of a discount of approximately$10,167,734.

 

The Partnership has a secured promissory note payableto TLD, which bears interest at the floating rate of 90-day LIBOR plus 1.5% andis due in March, 2004.

 

                The Partnershipestimates that the total cost to implement NewComm’s business plan will beapproximately $200 million.  Thisconsists of approximately $125 million in costs associated with building-outthe Puerto Rico Network, and approximately $75 million to fund NewComm’soperations until these become profitable. NewComm obtained a short term financing (“Bridge Loan”) of $60 millionwas subsequently extended until March 13, 2002, with an interest rate of .75%over 90-day LIBOR.  The Bridge Loan isnow guaranteed by Telefónica Internacional, S.A. (TISA), an affiliate ofTLD.  ClearComm and TLD continue to worktowards securing a permanent financing facility.  The Partnership anticipates that banks will be willing to providelong term financing of $150 million, provided that the Partnership and TLDcontribute additional capital or convertible debt to NewComm.  The Partnership, through Syncom and TLD,contributed a total of $30 million of additional capital or convertible debtduring the second half of 2000 and first half of 2001.  Syncom and TLD have each contributed $15million in the form of equity and convertible debt.  Syncom invested $15 million in NewComm in exchange for 4.92% ofNewComm.  The Partnership believes thatthe capital or convertible debt contributed by Syncom and TLD, along with theextended interim financing, would fully fund NewComm’s operations through theend of 2001.

 

                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 1.5 million people in Eureka, Redding, Merced, andModesto, all within the state of California. Holders of major C Block licenses covering areas surrounding the areascovered by the California Licenses are currently under bankruptcy courtproceedings, which adversely affects the Partnership’s ability to enter intojoint venture agreements to develop these licenses.  However, a re-auction of D, E, F and disaggregated C Blocklicenses was concluded on April 16, 1999. Another re-auction was concluded in January 2001.  However, this re-auction was set aside bythe Washington D.C. Court of Appeals on June 22, 2001.  The FCC has filed for an appeal of this ruling before  the United States Supreme Court. Accordingly, there continues to be uncertainty regarding the ownershipof the licenses surrounding the California Licenses.   The Partnership is actively pursuing alliances and possiblefunding mechanisms to develop its California Licenses.

 

                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 develop its California Licenses, it will haveadditional sources of revenues and profits.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUTMARKET 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 September 30, 2001, the Partnershiphad cash equivalents and short-term investments of approximately $12,355,310consisting of cash and highly liquid, short-term investments in money marketfunds.

 

                The Partnership’scash and 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.  The amounts owedto Lucent in connection with its build out of the Puerto Rico Network are nowdue on March 15, 2002 and bear interest at 14% per annum.  The Partnership anticipates that theinterest rate applicable to the permanent financing will be similar or lowerthan the ones related to the TLD Note and the short-term financing.

 

 

PART II: OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

                The Partnership issubject to certain legal proceedings and a FCC proceeding, all of which werepreviously reported in the Partnership's Form 10-K for the year ended December31, 2000.  On February 4, 1999, thePartnership and NewComm filed an application with the FCC for a pro formaassignment of the Puerto Rico Licenses to NewComm, and the FCC granted theapplication on February 18, 1999. On March 22, 1999, Centennial CommunicationsCorp. ("Centennial") filed a Petition for Reconsideration (the "Petition")with the FCC seeking to rescind the assignment of the Licenses to NewComm or tostay the effectiveness of the assignment pending resolution of the issuesraised in the Petition.  On October 17,2001, by means of a Memorandum and Order, the Petition for Reconsideration thathad been filed by Centennial with the FCC seeking to rescind the assignment ofthe Puerto Rico Licenses to NewComm was denied, and the assignment of thePuerto Rico licenses was granted to NewComm.

 

NewComm filed a Complaint for tortious interferencewith contract against Sprint PCS on September 21, 2001 before the United StatesDistrict Court for the District of Puerto Rico. Sprint PCS was broadcasting asystem identification number (known as an “SID”) that was causing NewComm’ssubscribers to “hook into” the Puerto Rico Sprint PCS network, and as a resultNewComm’s subscribers appeared to be roaming while in their home area.  The Court granted a preliminary injunction,ordering Sprint PCS to cease and desist from using the SID that was causingNewComm’s subscribers to “hook into” the Sprint PCS network.  On November 1, 2001, Sprint PCS filed anappeal of this Order to the United States Court of Appeals of the FirstCircuit.  Management believes that theCourt of Appeals will not overturn the injunction.  NewComm intends to pursue a permanent injunction and to seekdamages and attorneys’ fees in connection with this litigation.

 

 

 

 

ITEM 6.  EXHIBITSAND REPORTS ON FORM 8-K

 

                (a)           List of Exhibits - None

 

                (b)           The Partnership did not file a Form 8-Kin the quarter ended September 30, 2001.

 

ITEMS 2, 3, 4 and 5 are not applicable and have been omitted.

 

 

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:   November 14, 2001 |   | By:  /s/  Javier O. Lamoso |
|                           |   | Name: Javier O. Lamoso          |
|                           |   | Title: President                |