**Securities and 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.**

(Exactname of registrant 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 mark whetherthe 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 notes areintegral part of these consolidated statements.

 

3

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ClearComm,L.P.

CONSOLIDATEDSTATEMENTS OF 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 notes areintegral part of these consolidated financial statements.

 

4

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ClearComm,L.P.

CONSOLIDATEDSTATEMENTS OF CHANGES IN PARTNERS’ DEFICIT (Unaudited)

FORTHE THREE-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 notes areintegral part of these consolidated financial statements.

 

5

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ClearComm,L.P.

CONSOLIDATEDSTATEMENTS OF 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 periodended March 31, 2004, interest expense from TEM-PR totaling $184,830 wascapitalized into long-term debt

 

The accompanying notes areintegral 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 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 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 periods arenot 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.

 

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 limitedpartners also invested in the Partnership through a private placement.

 

OnJanuary 22, 1997, the Partnership was granted the PCS Block C licenses forPuerto Rico and certain cities in California.

 

NewComm Wireless Services, Inc.(NewComm)

 

The Partnership established its Puerto Rico network byforming a wholly owned subsidiary, NewComm, on January 29, 1999.  On February 4, 1999, the Partnership andNewComm entered into an agreement with Telefónica Móviles, S.A. (TEM), wherebythe Partnership contributed its two Puerto Rico Licenses to NewComm and TEMprovided NewComm a $19,960,000 loan to develop the Puerto Rico Licenses.  TEM’s loan is pursuant to a secured convertiblepromissory note (the “Note”) which is convertible into 49.9% of NewComm’sequity.  The Note however, cannot beconverted until the FCC authorizes TEM to hold more than a 25% equity interestin NewComm.

 

The Partnership has agreed to sell shares in NewCommto TEM in sufficient amount to provide TEM with an additional 0.2% shareinterest in NewComm, enabling TEM to have a total of 50.1% interest inNewComm.  The transaction involves aStock Purchase Agreement, a Shareholders Agreement, and a Sale Agreement.  A summary of the terms of the sale and theseagreements are included in the Partnership’s Annual Report on Form 10-K for theyear 2003.

 

InSeptember 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 ofinvestors led by Fleet Development Ventures for $13 million.  The Partnership and TEM contributedapproximately $9 million each to NewComm in the form of equity and convertibledebt, respectively. The Partnership and TEM have committed an additional $10Meach

 

7

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to close the Project FinanceFacility.  The Partnership believes ithas obtained sufficient funds, together with TEM, to provide NewComm with thecapital necessary for the Project Finance Facility and to fund NewComm’soperations.

 

California Licenses

 

On August 28, 2000, the Partnership entered intoa Purchase and Sale Agreement with Leap Wireless International (“LeapWireless”), pursuant to which the Partnership sold the Visalia-Portervillelicense to Leap Wireless in exchange for a $9,500,000 cash payment.  The sale was approved by the FCC and closedon June 8, 2001.

 

On November 26, 2003 the Partnership entered intoa Purchase and Sale Agreement with Metro PCS pursuant to which the Partnershipsold all of its remaining California Licenses. The sale was approved by the FCC and the licenses were transferred toMetro PCS on April 15, 2004 for a $10,900,000 cash payment.  The Partnership has no other licenses inCalifornia,

 

Internet Surfing Stores of P.R.,Inc. - (eMilios)

 

On April 16, 2002, ClearComm, L.P. entered into aShareholders’ Agreement to form a joint venture with eMilios International,L.L.C., a Florida limited liability company, to promote and establish in PuertoRico the eMilios concept (described below). The joint venture was formed under a Puerto Rico corporation namedInternet Surfing Stores of Puerto Rico, Inc. (“ISS”).  The Partnership owns 49% and eMiliosInternational owns 51% of ISS.

 

The eMilios concept involves internet communicationgalleries that are geared towards educating people in the use of computers andthe internet, and acts as a communication and recreational center as well.  The broadband connectivity that is offered ateMilios allows the stores to efficiently offer internet communications and alsoaccess to a great variety of interactive content, such as cyber games, as wellas software and tools for free lancers and small business entities.  The service is provided and collected with aproprietary smart card and software application.  The commitment of the Partnership to ISS is$1 million and eMilios International has committed $500,000 in cash plustrade-name, systems, software, and technology know-how equivalent to$500,000.  The Partnership is responsiblefor 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 million forthe three-month period ended March 31, 2004 and incurred operating lossesof $10.7 million for the three month period ended March 31, 2003.  It also has working capital deficits andpartners’ capital deficit of $131.6 million and $92.2 million, respectively, asof March 31, 2004.  The Partnershipis likely to continue incurring losses until such time as its subscriber basegenerates revenue in excess of the Partnership’s expenses.  Development of a significant subscriber baseis likely to take time, during which the Partnership must finance itsoperations by means other than its revenues.

 

As part of the agreement with TEM, NewComm enteredinto a contract with Lucent Technologies, Inc. (“Lucent”) that required Lucentto build a network that uses the Code Division Multiple Access (“CDMA”)protocol.  The total cost of the networkwas approximately $125 million.  During2000, NewComm’s management and Lucent agreed on formally extending the paymentof up to $61.0 million of the total amount due under the contract under aformal financing agreement. An Agreement restructuring Lucent’s outstandingdebt was executed on June 4, 2003. The now outstanding debt to Lucent is $48M and is payable over asix-year period at 8% annual interest rate. On June 20, 2003, an agreement restructuring Alcatel’s debt wasexecuted.  Alcatel’s credit is now $2.5Mat 6.5% payable over a three year period. Also, by means of letter from TEM (and its parent, TelefónicaInternacional, S.A.), TEM has agreed to issue a corporate guarantee to serve ascollateral for a $110M bank loan.

 

Managementbelieves that the Partnership will comply with all the requirements forobtaining the 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 of 2004.  However, in the absence of

 

8

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improved operating results andcash flows, and without the closing of its contemplated permanent financing,the Partnership may face liquidity problems to fund its operations and meet itsobligations.  As a result of thesematters, substantial doubt exists about the Partnership’s ability tocontinue as a going concern.  Theaccompanying consolidated financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty.

 

3.                                       **Recent accounting pronouncements:**

 

**(a)**          InJuly 2001, the Financial Accounting Standard Board (FASB) issued SFAS No.143, ***Accountingfor Asset Retirement Obligations***. SFAS No. 143 addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs.  SFAS No. 143becomes effective for fiscal years beginning after June 15, 2002.  The implementation of SFAS No. 143 did nothave a material effect on the Partnership’s consolidated results of operationsor its financial position.

 

**(b)****         **In April 2002, theFASB 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, ***ReportingGains and Losses from Extinguishment of Debt*** – ***an amendment of APB Opinion No.30***,  which required all gains andlosses from extinguishments of debt to be aggregated and, if material,classified as an extraordinary item, net of related income tax effect. As aresult, the criteria in Opinion 30 will now be used to classify those gains andlosses.  SFAS No. 145 becomes effectivefor financial statements issued on or after May 15, 2002.Requirements andguidance of SFAS No. 145 were applied in connection with the write-off of theFCC debt discount.  Please refer to Note14 (c).

 

**(c)****         **In June 2002, the FASBissued SFAS No. 146, ***Accounting for Costs Associated with Exit orDisposal Activities***.  SFAS No.146 requires 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. 146 alsoestablishes that fair value is the objective for initial measurement of theliability.  SFAS No. 146 applies to costsassociated with an exit activity but does not involve an entity newly acquiredin a business combination or with a disposal activity covered by SFAS No.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)****         **In December 2002, theFASB issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others”.  For a guaranteesubject to FASB Interpretation No. 45, a guarantor is required to:

 

•                  Measure and recognize the fair value of theguarantee at inception (for many guarantees, fair value will be determinedusing a present value method); and

•                  Provide new disclosures regarding the natureof any recourse provisions or assets held as payments, the current carryingamount of the guarantee liability, and the nature of any recourse provisions orassets held as collateral that could be liquidated and allow the guarantor torecover all or a portion of its payments in the event guarantee payments arerequired.

 

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)****         **In January 2003, theFASB issued FASB Interpretation No. 46, “Consolidation of Variable InterestEntities” (“FIN 46”).  Fin 46 clarifiesthe application of Accounting Research Bulletin No. 51, “Consolidated FinancialStatements” and provides guidance on the identification of entities (“variableinterest entities” or “VIE’s”) for which control is achieved through meansother than through voting rights and how to determine when and which businessenterprise should consolidate the VIE. This new model for consolidation applies to an entity which either (1)the equity investors (if any) do not have a controlling financial interest of(2) the equity  investment at risk isinsufficient to finance that entity’s activities without receiving additionalsubordinated financial support from other parties.  In December 2003, the FASB issued arevision of the interpretation No. 46 to defer the implementation, classifysome of its provisions and to exempt certain entities from itsrequirements.  Management does not expectthat the application of

 

9

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this standardwill have any effect on the Partnership’s consolidated results of operations orfinancial condition.

 

4.                                       LEGALPROCEEDINGS

 

##### From time to time the Partnership is involved inlitigation arising from the ordinary course of business, some of which isongoing.  The General Partner does notbelieve that any litigation involving the Partnership will have a materialadverse effect on the Partnership’s business or financial condition.

 

 

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

 

Forward-looking Statements

 

This Form 10-Qand future filings by the Partnership on Form 10-Q and Form 8-K and future oraland written 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 the Partnershipare based on estimates, projections, beliefs and assumptions of management andare not guarantees of future performance. The Partnership disclaims any obligation to update or revise anyforward-looking statement based on the occurrence of future events, the receiptof new information, or otherwise.

 

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 ; rapid technological developments and changes in thetelecommunications industry; ongoing deregulation (and the resulting likelihoodof significantly increased price and product/service competition) in thetelecommunications industry as a result of the Telecommunications Act of 1996and other similar federal and state legislation and the federal and state rulesand regulations enacted pursuant to that legislation; regulatory limitations onthe Partnership’s ability to compete in the telecommunications servicesindustry; and continuing consolidation in the telecommunications servicesindustry.  In addition to these factors,actual future performance, outcomes and results may differ materially becauseof other, more general factors including, without limitation, general industryand market conditions and growth rates, domestic and international economicconditions, governmental and public policy changes and the continuedavailability of financing in the amounts, at the terms and on the conditionsnecessary to support the Partnership’s future business.

 

Introduction

 

The information contained in this Part I, Item 2updates, and should be read in conjunction with, information set forth in PartII, Items 7 and 8, in the Company’s Annual Report on Form 10-K for the yearended December 31, 2003, in addition to the interim consolidated financialstatements and accompanying notes presented in Part 1, Item 1 of thisForm 10-Q.

 

The Partnershipwas formed in January 1995 and is managed by its General Partner, SuperTelCommunications Corp.  The Partnership wasorganized to acquire, own, consult and operate personal communication servicesPCS licenses in the Block C band and to take advantage of the benefits that theFCC has set aside for entrepreneurs.  ThePartnership owns the Puerto Rico Licenses, which consist of two 15 MHz PCSlicenses covering Puerto Rico. The California Licenses, which consist of four15 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, 2001in exchange for $9,500,000 cash payment.

 

The Partnershipcommenced commercial operations of its PCS network in Puerto Rico onSeptember 24, 1999 when it began offering wireless services in Puerto Ricoto the public.  Prior to that date, itsincome had 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.  By meansof a Stock Purchase Agreement executed on March 12, 2002, the Partnershiphas agreed to sell shares equal to 0.2% in NewComm to TEM conditioned toobtaining permanent financing and a clear exit path for the Partnership.  This transaction is pending Department ofHomeland Security and FCC approval.  ThePartnership believes this transaction and permanent finance will be obtainedbefore the end of 2004.

 

Results of Operations

 

Three-month period ended March 31-, 2004 comparedwith three-month period ended March 31, 2003.

 

Set forth below is a summary ofthe results of operations before other income and expenses for the periodsindicated:

 
| ** **                          | ** ** | **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

 

ThePartnership’s revenues for the three-month period ended March 31, 2004increased by 8% or $2million from $26.3 millions to $28.3 as compared for thesame period in 2003. Total revenues include service as well as handset andaccessories revenues.  Service revenuesfor the three-month period ended March 31, 2004 increased by 10% or $2.5million when compared to the same period in 2003 while handset and accessoriessales decreased by 24% or .5 million. The decrease in handsets and accessories revenues is mainly due tohandset units pricing adjustments.  Theincrease in service revenues is related to the utilization of airtime and anincrease in our contract customer base.

 

Expenses

 

The following table shows thevariances for the three month period ended March 31, 2004 as compared tothe same period in 2003:

 

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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 overallincrease in expenses of $2.3 million is mainly due to an increase of 22% in thecost of handsets and accessories sold, combined with an increase in networkmaintenance costs, dealers commissions and professional services.  The increase in cost of handsets sold isdirectly related to the handset subsidy whereby the cost of acquiring handsetsis higher than the pricing offered to customers.  In fact, the handset subsidy for the threemonth period ended March 31, 2004 was $4.5 million compared to $3 millionfor the same period in 2003.

 

Income from Operations

 

Income fromoperations reflects the ability of the Partnership to generate positive cashflows from its operations, which does not take into consideration expenses suchas amortization, depreciation and interest that must be reported for generallyaccepted accounting principles (GAAP) to arrive to the net income or loss.

 

Income fromoperations for the three month period ended March 31, 2004 of $2,053,411shows a slight decrease of 12% or $280,000 as compared to the income fromoperations for the same period in 2003. This reduction in income from operations is related to the cost ofacquiring new customers and the increase in network maintenance.

 

Interest expensefor the three month period ended March 31, 2004 of $2.4 million($3.4million in 2003) and depreciation expense of $4.3million ($4 million in2003) reduce the income from operations and result in a net loss before otherincome of $4,617,818 for the first quarter of 2004 ($5,124,796 in 2003); anoverall reduction in net loss of 10% when compared to 2003.  The reduction in interest expense is mainlyattributable to the refinancing of the various debts and to reduction of debtoutstanding related to the Note Payable to Alcatel.

 

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

 

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

 

The following table summarizeschanges 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’s revenues for the three-month periodended March 31, 2003 totaled $26,294,881 as compared to $27,980,361 forthe same period in 2002.  Revenues for the three-month period endedMarch 31, 2003 included $24,399,397 in service revenues and $1,895,484 inhandset and accessories sales generated from NewComm’s wireless operations, ascompared to $26,626,750 and $1,353,611 respectively, for the same period in2002.  The decrease in service revenuesis mainly due to the migration to new billing software that avoids excessbillings on delinquent accounts.

 

Expenses

 

The following table shows the variancesfor the three month period ended March 31, 2003 as compared to the sameperiod in 2002:

 

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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 are mostlyrelated to reclassifications among accounts made at the Partnerships subsidiarylevel 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 fromoperations for the three month period ended March 31, 2003 of $2,338,897shows a slight decrease of 10% as compared to the income from operations forthe same period in 2002.  This reductionin income from operations is related to the cost of acquiring new customers andthe increase in network maintenance.

 

Interest expensefor the three month period ended March 31, 2003 of $3.4 million($5.1million in 2002) and depreciation expense of $4 million ($3.9million in2002) reduce income from operations and result in a net loss before otherincome (expense) of $5,124,796 for the first quarter of 2003 ($6,454,598 in2002); an overall reduction in net loss before other income (expense) of 21%when compared to 2002.  The reduction ininterest expense is attributable to the 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.

 

Liquidity and Capital Resources

 

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

 

As part of theagreement with TEM, NewComm entered into a contract with Lucent Technologies,Inc. (“Lucent”) that required Lucent to build a network that uses the CodeDivision Multiple Access (“CDMA”) protocol. The total cost of the original network was approximately $125million.  During 2000, NewComm’smanagement and Lucent agreed on

 

14

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formally extending the payment ofup to $61.0 million of the total amount of network construction payable, at thetime, under a formal financing agreement. An agreement restructuring Lucent’s outstanding debt was executed onJune 4, 2003.  This now outstandingdebt is of $48 million at a fixed annual interest over a six year term.

 

In addition, the Partnership owes the United Statesfederal government approximately $39,718,087 plus accrued interest at 6.5% inconnection with the acquisition of its PCS licenses.

 

The Partnership has a secured promissory note payableto TEM, 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 millionwhich has been extended until November 29, 2002, with an interest rate of..75% over 90-day LIBOR.  The Bridge Loanis now guaranteed by Telefónica Internacional, S.A. (TISA), an affiliate ofTEM.  ClearComm and TEM continue to worktowards securing 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 Partnershipanticipates that earnings and cash distributions derived from its Puerto RicoNetwork, interim and permanent financing and, if necessary, additional capitalcalls from its Investors or accessing the public capital markets, shouldprovide it with the liquidity to meet its obligations.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

ThePartnership’s exposure to market risk through derivative financial instrumentsand other financial instruments is not material because the Partnership doesnot use derivative financial instruments and does not have foreign currencyexchange risks.  The Partnership investscash balances in excess of operating requirements in short-term money marketfunds.  As of March 31, 2004, thePartnership had cash equivalents and short-term investments of approximately$5,411,210 consisting of cash and highly liquid, short-term investments inmoney market funds.

 

The Partnership’s cash and cash equivalents willincrease or decrease by an immaterial amount if market interest rates increaseor decrease, and therefore, its exposure to interest rate changes has beenimmaterial.  The Partnership’s loanspayable to the FCC have a fixed interest rate of 6.5% and therefore are notexposed to interest rate risks.  The TEMNote relating to indebtedness of NewComm bears interest at the floating rate ofthe 90-day LIBOR plus 1.5% and has been extended to December 2004.

 

An agreement restructuring Lucent’s outstanding debtwas executed on June 4, 2003.  Thenow outstanding debt to Lucent is $48M and is payable over a six-year period at8% annual interest rate.  OnJune 20, 2003, an agreement restructuring Alcatel’s debt wasexecuted.  Alcatel’s credit is now $2.5Mat 6.5% payable over a three year period. Also, by means of letter from TLD (and its parent, TelefónicaInternacional, S.A., and its affiliate, TEM), TLD has agreed to issue acorporate guarantee to serve as collateral for a $110M bank loan.

 

ITEM 4. CONTROLS AND PROCEDURES

 

ThePartnership’s Chief Executive Officer, Javier O. Lamoso, and the Partnership’sChief Financial Officer, Edileen Salicrup, have evaluated the Partnership’sdisclosure controls and procedures within 90 days of the filing of this report.

 

Mr. Lamoso andMs. 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 ensurethat information required to be disclosed by the Partnership in the reportsthat it files or submits with the Commission is recorded, processed, summarizedand reported within the time periods specified in the Commission’s rules andforms.

 

15

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PART II: OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

Information regarding legal proceedings is disclosedin Part I, Item 1, Notes to Interim Consolidated Financial Statements(unaudited), Section 4, and is hereby incorporated into Part II, Item 1 bythis reference.

 

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

 

(a)                                  List ofExhibits

 

                Exhibit 31:  Certifications by the Chief Executive Officerand Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Actof 2002

 

Exhibit32:  Certifications by the ChiefExecutive Office and Chief Financial Officer pursuant to Section 1350 ofChapter b3 of Title 18 of the United States Code.

 

(b)           No reports on Form 8-Khave been filed during the quarter for which this report is filed.

 

ITEMS 2, 3, 4 and 5 are notapplicable and have been omitted.

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

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

 

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