**Securitiesand Exchange Commission**

**Washington, D.C. 20549**

 

**FORM10-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,  2003**                                                                                                               |
|                                                                                                                                                             |   |   |
| **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 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 by Section 13 or15 (d) of the Securities Exchange Act of 1934 during the preceding 12 monthsand (2) has been subject to such filing requirements for the past 90 days.

 

Yes   o  No  ý

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

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, 2003 (unaudited) and December 31, 2002 (audited) |   |
|           |                                                                                                                                        |   |
|           | Consolidated Statements of Revenues and Expenses for the three-month  period ended March 31, 2003 and 2002 (unaudited)                      |   |
|           |                                                                                                                                        |   |
|           | Consolidated Statements of Changes in Partners’ Deficit for the  three-month period ended March 31, 2003 (unaudited)              |   |
|           |                                                                                                                                        |   |
|           | Consolidated Statements of Cash Flows for the three-month period  ended March 31, 2003 and 2002 (unaudited)                                 |   |
|           |                                                                                                                                        |   |
|           | Notes to Interim Consolidated Financial  Statements as of March 31, 2003 (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.

 

CONSOLIDATEDSTATEMENTS OF ASSETS, LIABILITIES

AND PARTNERS’ DEFICIT

 
| ** **                                                                                | ** ** | **March 31,**   | ** **      | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------|------------|-----------------|-----------------|------------------|------------|
| ** **                                                                                | ** ** | **2003**        | ** **      | **2002**         | ** ** |
| ** **                                                                                | ** ** | **(Unaudited)** | ** **      | **(Audited)**    | ** ** |
| **ASSETS:**                                                                               | ** ** | ** **      | ** **      | ** **       | ** ** |
| **Cash and cash equivalents**                                                             | ** ** | **$**           | **21,683,670**  | ** **       | **$**      | **22,709,786** | ** ** |
| **Accounts receivable, net**                                                              | ** ** | **12,795,332**  | ** **      | **11,594,949**   | ** ** |
| **Accounts receivable, other**                                                            | ** ** | **6,959,925**   | ** **      | **6,483,255**    | ** ** |
| **Insurance claims receivable**                                                           | ** ** | **239,529**     | ** **      | **270,002**      | ** ** |
| **Interest receivable**                                                                   | ** ** | **9,500**       | ** **      | **8,000**        | ** ** |
| **Inventories, net**                                                                      | ** ** | **4,573,007**   | ** **      | **10,461,112**   | ** ** |
| **Prepaid expenses**                                                                      | ** ** | **997,359**     | ** **      | **625,610**      | ** ** |
| **Investment in securities**                                                              | ** ** | **10,000,000**  | ** **      | **10,000,000**   | ** ** |
| **Investment in subsidiary**                                                              | ** ** | **372,769**     | ** **      | **277,254**      | ** ** |
| **PCS licenses, net**                                                                     | ** ** | **57,517,974**  | ** **      | **57,517,974**   | ** ** |
| **Deferred financing costs**                                                              | ** ** | **908,684**     | ** **      | **901,235**      | ** ** |
| **Note receivable from officer**                                                          | ** ** | **100,000**     | ** **      | **100,000**      | ** ** |
| **Property and equipment, net**                                                           | ** ** | **99,276,786**  | ** **      | **101,931,922**  | ** ** |
| ** **                                                                                | ** ** | ** **      | ** **      | ** **       | ** ** |
| ** **                                                                                | ** ** | **$**           | **215,434,535** | ** **       | **$**      | **222,881,099** | ** ** |
| ** **                                                                                | ** ** | ** **      | ** **      | ** **       | ** ** |
| **LIABILITIES AND PARTNERS’ DEFICIT:**                                               | ** ** | ** **      | ** **      | ** **       | ** ** |
| **Accounts payable and accrued liabilities**                                              | ** ** | **$**           | **40,778,541**  | ** **       | **$**      | **40,130,876** | ** ** |
| **Notes payable — short-term**                                                       | ** ** | **122,116,244** | ** **      | **89,538,758**   | ** ** |
| **Notes payable — long-term**                                                        | ** ** | **120,488,955** | ** **      | **150,505,987**  | ** ** |
| ** **                                                                                | ** ** | ** **      | ** **      | ** **       | ** ** |
| **Unitholders’ capital (deficit) 2,906.1  units and 1 general partnership interest** | ** ** | **(67,949,205** | **)**           | **(57,294,522**  | **)**      |
| ** **                                                                                | ** ** | ** **      | ** **      | ** **       | ** ** |
| **Total liabilities and partner’s deficit**                                          | ** ** | **$**           | **215,434,535** | ** **       | **$**      | **222,881,099** | ** ** |
| ** **                                                                                | ** ** | ** **      | ** **      | ** **       | ** ** |
| **BOOK VALUE(DEFICIT) PER UNIT**                                                          | ** ** | **$**           | **(23,374**     | **)**            | **$**      | **(19,708** | **)** |
|                                                                                           |            |                 |                 |                  |            |  |  |  |  |  |

 

The accompanying notes are anintegral part of these consolidated statements. 

 

3

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ClearComm, L.P.

CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES

(2003 UNAUDITED and 2002 UNAUDITED )

 
| ** **                                              | ** ** | **Three-Month Periods Ended  March 31,** | ** **      |
|---------------------------------------------------------|------------|------------------------------------------|-----------------|
| ** **                                              | ** ** | **2003**                                 | ** **      | **2002** | ** ** |
| **Revenues:**                                           | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Service revenues**                                    | ** ** | **$**                                    | **24,399,397**  | ** ** | **$** | **26,626,750** | ** ** |
| **Handsets and accessories sales**                      | ** ** | **1,895,484**                            | ** **      | **1,353,611** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Total Revenues**                                      | ** ** | **26,294,881**                           | ** **      | **27,980,361** | ** ** |
| **Expenses:**                                           | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Operating expenses**                                  | ** ** | **23,955,984**                           | ** **      | **25,367,945** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Income (loss) from operations**                       | ** ** | **2,338,897**                            | ** **      | **2,612,416** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Interest expense**                                    | ** ** | **(3,445,554**                           | **)**           | **(5,119,286** | **)** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Depreciation and amortization**                       | ** ** | **(4,018,139**                           | **)**           | **(3,947,728** | **)** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Loss before other income (expense)**                  | ** ** | **(5,124,796**                           | **)**           | **(6,454,598** | **)** |
| **Other Income (expense)**                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Equity in net loss of subsidiary**                    | ** ** | **(35,152**                              | **)**           | **—** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Interest income**                                     | ** ** | **64,524**                               | ** **      | **115,531** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Other**                                               | ** ** | **95**                                   | ** **      | **—** | ** ** |
| **Loss on write-off of inventories**                    | ** ** | **(5,559,350**                           | **)**           | **—** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Net loss**                                            | ** ** | **$**                                    | **(10,654,679** | **)** | **$** | **(6,339,067** | **)** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Net loss attributable to General Partner**            | ** ** | **$**                                    | **(10,654,679** | **)** | **$** | **(6,339,067** | **)** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Net loss attributable to Limited Partners**           | ** ** | **$**                                    | **—**      | ** ** | **$** | **—** | ** ** |
| ** **                                              | ** ** | ** **                               | ** **      | ** ** | ** ** |
| **Net loss per unit attributable to Limited  Partners** | ** ** | **$**                                    | **—**      | ** ** | **$** | **—** | ** ** |

 

The accompanying notes are anintegral part of these consolidated financial statements.  

 

4

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ClearComm, L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ DEFICIT

(Unaudited)

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2003

 
| ** **                                                     | ** ** | **Limited Partners** | ** ** | **General** | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|-------------|------------|
| ** **                                                     | ** ** | **Units**            | ** ** | **Amount**  | ** ** | **Partner** | ** ** | **Total** | ** ** |
| ** **                                                     | ** ** | ** **           | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **BALANCES,**December  31, 2002                                |       | 2,906.1              |       | —      |       | $ | (57,294,526 | ) | $ | (57,294,526 | ) |
|                                                           |       |                 |       |        |       |   |   |   |   |
| **Net loss for the three months period ended  March 31, 2003** |       | —               |       | —      |       | (10,654,679 | ) | (10,654,679 | ) |
|                                                           |       |                 |       |        |       |   |   |   |   |
| **BALANCES,**March  31, 2003                                   |       | 2,906.1              |       | —      |       | $ | (67,949,205 | ) | $ | (67,949,205 | ) |

 

The accompanying notes are anintegral part of these consolidated financial statements.  

 

5

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ClearComm, L.P.

CONSOLIDATED STATEMENTSOF CASH FLOWS  

(2003 UNAUDITED AND 2002 UNAUDITED)

 

The accompanying notes are anintegral part of these consolidated financial statements.

 
| ** **                                                                                  | ** ** | **Three-Month Periods Ended** | ** **  |
|---------------------------------------------------------------------------------------------|------------|-------------------------------|-------------|
| ** **                                                                                  | ** ** | **March 31,**                 | ** **  | **March 31,** | ** ** |
| ** **                                                                                  | ** ** | **2003**                      | ** **  | **2002** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                   |       |                          |        |   |   |
| Net loss                                                                                    |       | $                             | (10,654,679 | ) | $ | (6,339,067 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities-            |       |                          |        |   |   |
| Depreciation and amortization                                                               |       | 3,965,588                     |        | 3,947,728 |   |
| Equity in losses of unconsolidated  subsidiary                                              |       | 35,152                        |        | — |   |
| Amortization of loan origination fees                                                       |       | 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                                                                           |       | —                        |        | 2,224,128 |   |
| Bad debt expense                                                                            |       | 2,030,005                     |        | 3,480,728 |   |
| Other non-cash transactions                                                                 |       | (6,502                        | )           | — |   |
| Changes in operating assets and liabilities-                                                |       |                          |        |   |   |
| Increase in interest receivable                                                             |       | (1,500                        | )           | — |   |
| Increase in accounts receivable, before  write-offs                                         |       | (3,707,058                    | )           | (2,542,630 | ) |
| Decrease in insurance claim receivable                                                      |       | 30,473                        |        | (360 | ) |
| Decrease (increase) in inventories                                                          |       | 328,755                       |        | — |   |
| Increase in prepaid expenses                                                                |       | (371,749                      | )           | 135,293 |   |
| Increase accounts payable and accrued  liabilities                                          |       | 3,831,670                     |        | (7,119,365 | ) |
| Decrease in accounts payable to related  parties                                            |       | (3,184,003                    | )           | 1,194,006 |   |
| (Decrease) Increase in accrued interest                                                     |       | 1,768,451                     |        | 3,556,222 |   |
| (Decrease) increase in deferred income                                                      |       | 162,891                       |        | (179,032 | ) |
| Total adjustments                                                                           |       | 11,123,194                    |        | 4,696,718 |   |
| Net cash provided by operating activities                                                   |       | 468,515                       |        | (1,642,349 | ) |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                   |       |                          |        |   |   |
| Acquisition of property and equipment                                                       |       | (1,303,964                    | )           | (1,969,709 | ) |
| Payment for the investment in subsidiary                                                    |       | (130,667                      | )           | — |   |
| Payments for deferred financing costs                                                       |       | (60,000                       | )           | — |   |
| Net cash (used in) investing activities                                                     |       | (1,494,631                    | )           | (1,969,709 | ) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                   |       |                          |        |   |   |
| Proceeds from the sale NewComm Shares                                                       |       | —                        |        | 13,000,000 |   |
| Payment of note payable to Alcatel                                                          |       | —                        |        | 408,246 |   |
| Net cash used in financing activities                                                       |       | —                        |        | 13,408,246 |   |
| **NET INCREASE IN CASH AND CASH EQUIVALENTS**                                               |       | (1,026,116                    | )           | 9,796,188 |   |
| **CASH AND CASH EQUIVALENTS,**  beginning of period                                         |       | 22,709,786                    |        | 10,241,902 |   |
| **CASH AND CASH EQUIVALENTS,**end  of period                                                |       | $                             | 21,683,670  |   | $ | 20,038,090 |   |
|                                                                                        |       |                          |        |   |   |
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOWS  INFORMATION:**                                    |       |                          |        |   |   |
| **INTEREST PAID**                                                                           |       | $                             | 1,047,983   |   | $ | 1,578,520 |   |
| **SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING  AND FINANCING TRANSACTIONS:**                |       |                          |        |   |   |
|                                                                                        |       |                          |        |   |   |
| During the period ended March 31, 2003,  interest expense from TEM-PR totaling $262,363 was |       |                          |        |   |   |
| capitalized into long-term debt.                                                            |       |                          |        |   |   |

 

6

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CLEARCOMM, L.P.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSAS OF MARCH 31, 2003 (UNAUDITED)

 

1.             BASIS OF PRESENTATION AND INTRODUCTION

 

The unaudited interim consolidated financialstatements presented herein have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialstatements and with the instructions to Form 10-Q and Regulation S-X pertainingto interim financial statements. Accordingly, they do not include all information and footnotes requiredby accounting principles generally accepted in the United States for completefinancial statements.  The unauditedinterim consolidated financial statements reflect all adjustments, consistingof normal recurring adjustments and accruals which, in the opinion of management,are considered necessary for a fair presentation of the Partnership’s financialposition at March 31, 2003 and results of operations and cash flows for thethree-month periods ended March 31, 2003 and 2002.  The unaudited interim consolidated financialstatements should be read in conjunction with the summary of significantaccounting policies and notes to consolidated financial statements included inthe Partnership’s Annual Report on Form 10-K for the year ended December 31,2002.  Results of operations for interimperiods are not necessarily indicative of the results that may be expected forthe full year.  

 

ClearComm, L.P. (the “Partnership”) is alimited partnership organized on January 24, 1995 under the laws of the Stateof Delaware.  The Partnership was formedto file applications with the Federal Communications Commission (“FCC”) underpersonal communications service (“PCS”) frequency Block C, originallyrestricted to minorities, small businesses and designated entities, to become aprovider of broadband PCS.  ThePartnership will terminate on December 31, 2005, or earlier upon the occurrenceof certain specified events as detailed in the Partnership Agreement.  

 

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

 

On January 22, 1997, the Partnership wasgranted the PCS Block C licenses for Puerto Rico and certain cities inCalifornia.  

 

On February 4, 1999, the Partnership enteredinto a joint venture agreement (the “Joint Venture Agreement”) with TelefónicaLarga Distancia De Puerto Rico, Inc. (“TLD”) to jointly develop and operatecertain PCS licenses in Puerto Rico. Among the most important provisions of the Joint Venture Agreement arethe following: 

 

•                                          ThePartnership transferred all of its Puerto Rico PCS licenses including itsrelated debt with the FCC to NewComm Wireless Services, Inc. (“NewComm”), anewly organized Puerto Rico corporation, in exchange for all of NewComm’sissued and outstanding common stock.  

 

•                                          TLDloaned approximately $20 million to NewComm by means of a secured convertiblepromissory note payable (the “Promissory Note”).  The Promissory Note is secured by a securityagreement pursuant to which a security interest is imposed upon NewComm’sassets, a Partnership guarantee and a pledge agreement, as defined. 

 

•                                          Oncecertain regulatory and other requirements are met, the Promissory Note will beconverted to NewComm’s common stock representing approximately 49.9% of NewComm’sequity at the time of the exchange. Originally, TLD had the option to buy an additional .2%, which wouldhave brought its ownership to 50.1%, subject to a third party valuation ofNewComm’s stock and approval by the FCC. On June 26, 2001, the Joint Venture Agreement was amended eliminatingthe TLD Option to buy the additional .2%. However, by means of a Stock Purchase Agreement dated as of March 12,2002, and subject to certain conditions, the Partnership has agreed to sell anamount of shares equal to 0.2% of NewComm to TLD. 

 

•                                          Thenew Sale Agreement provides that at any time after 14 months from the signingof the Stock Purchase Agreement with TLD, that is, any time after May 2003,ClearComm (or TLD), as the case may be, may trigger a shareholder obligation tosell NewComm.  Within 30 days of a noticeof sale, TLD (or ClearComm as the case may be) would have the right to purchaseClearComm’s (or TLD’s) interest.  Thepurchase price to be paid at that time would be based on a valuation performedby the investment banking firm that prepared the one under the Stock PurchaseAgreement.  If TLD does not exercise itsright to buy out ClearComm’s interest, the shareholders will be bound toproceed with the sales process to attempt a sale of NewComm.  All shareholders are bound to cooperate andundertake all that is necessary in that effort. Further, the shareholders are bound to 

 

7

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accept the highest price proposed by aninterested buyer, which price must be payable in cash or freely tradablesecurities, or a combination thereof, and which must be for a price not less thanthe valuation prepared by the investment banker.  Some additional points are that at theclosing of the sale of NewComm the Management Agreement and the TechnologyTransfer Agreement held by TLD will terminate. Also, no premium for controlling interest or discount for holding aminority interest in NewComm will apply. The Sale Agreement shall continue in full force and effect even if theStock Purchase Agreement with TLD, for whatever reason, does not close. 

 

•                                          NewCommand TLD entered into certain management and technology transfer agreements.

 

In September 1999, NewComm commencedproviding PCS services in Puerto Rico.  Ineach of November 2000, December 2000, and March 2001, NewComm received$5,000,000, from Syndicated Communications Venture Partners IV, L.P. (Syncom), athird party, in exchange for approximately 4.92% ownership in NewComm. Syncomhas contributed $25 million to NewComm in exchange for approximately 8.2%ownership interest in NewComm.  The last$10 million installment was contributed in November 2002.  

 

On March 2, 2002, the Partnership soldapproximately 4.08% of NewComm to a group of investors led by Fleet DevelopmentVentures for $13 million.  ThePartnership and TEM contributed approximately $9 million each to NewComm in theform of equity and convertible debt, respectively. The Partnership and TEM havecommitted an additional $10M each to close the Project Finance Facility.  The Partnership believes it has obtainedsufficient funds, together with TEM, to provide NewComm with the capitalnecessary for the Project Finance Facility and to fund NewComm’s operations. 

 

In 2003, TLD transferred all its rights andinterests in NewComm to Telefónica Móviles (“TEM”), the wireless communicationsaffiliate of the Telefónica Group, the largest wireless operator in LatinAmerican with over 35 million subscribers world-wide.  The Partnership believes it has obtainedsufficient funds, together with TEM, to provide NewComm with the capitalnecessary for the Project Finance Facility and to fully fund NewComm’soperations.  TEM and ClearComm have eachadvanced in the form of loans a total of $9.2M to make the scheduled loanpayments on the Puerto Rico licenses to the FCC.  

 

California Licenses  

 

On August 28, 2000, the Partnershipentered into a 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. 

 

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

 

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

 

The eMilios concept involves internetcommunication galleries that are geared towards educating people in the use ofcomputers and the internet, and acts as a communication and recreational centeras well.  The broadband connectivity thatis offered at eMilios allows the stores to efficiently offer internetcommunications and also access to a great variety of interactive content, suchas cyber games, as well as software and tools for free lancers and smallbusiness entities.  The service isprovided and collected with a proprietary smart card and softwareapplication.  The commitment of thePartnership to ISS is $1 million and eMilios International has committed$500,000 in cash plus trade-name, systems, software, and technology know-how equivalentto $500,000.  The Partnership isresponsible for the management and day to day operations of ISS.  ISS opened its first store with 48 computerstations on October 23, 2002.  Asecond store with 40 computer stations was inaugurated on January 11, 2003to serve the western part of Puerto Rico. The investment has an exit mechanism whereby at any time after 2003,ClearComm can force the acquisition of its shares in ISS or the sale of thewhole company.

 

8

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2.             FINANCINGREQUIREMENTS  

 

The accompanying consolidated financialstatements have been prepared on a going concern basis, which contemplates therealization of assets and the satisfaction of liabilities in the normal courseof business.  The Partnership commencedoperations in September 1999 and has incurred losses amounting to $10.7 millionfor the three-month period ended March 31, 2003 and incurred operating lossesof $6.3 million for the three month period ended March 31, 2002.  It also has working capital deficits andpartners’ capital deficit of $115.6 million and $67.9 million, respectively, asof March 31, 2003.  The Partnership islikely 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, NewCommentered into a contract with Lucent Technologies, Inc. (“Lucent”) that requiredLucent to 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. As of March 31, 2003, the Partnership isnegotiating the restructuring of Lucent’s and Alcatel outstanding debts. Theoutstanding debt to Lucent is approximately $48M and Alcatel is $2.5M.  Also, by means of letter from TEM (and itsparent, Telefónica Internacional, S.A.), TEM has agreed to issue a corporateguarantee to serve as collateral for a $110M bank loan.  

 

Management believes that the Partnership willcomply with all the requirements for obtaining the financing and believes thatcash and cash equivalents on hand, anticipated growth in revenues, vendorfinancing and the permanent financing will be adequate to fund its operations,at a minimum, through the end of 2004. However, in the absence of improved operating results and cash flows,and without the closing of its contemplated permanent financing, thePartnership 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.             INVENTORY – CHANGEIN ACCOUNTING METHOD  

 

Effective January 1, 2003, the Partnershipchanged its method to account for the loss on sale of handsets to customers,from the recognition of such loss at the time of sale, to the establishment ofan inventory reserve to account for that loss at the end of each accountingperiod.  Management believes that thisnew method better matches costs and revenues. 

 

In accordance with Accounting Principle BoardOpinion No. 20, “Accounting Changes”, the change in accounting method explainedabove requires the determination of the cumulative effect, as if the newlyadopted method had been applied during all periods affected.  In this specific situation, the retroactiveapplication and determination of pro-forma information is impracticable,because the effects are not determinable, since it requires assumptions aboutManagement’s intent in prior periods, and significant estimates byManagement.  The effect of the change onnet income for the period ended March 31, 2003 was $5,559,350.

 

4.             RECENT ACCOUNTINGPRONOUNCEMENTS:  

 

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

 

**(b)****                                 **InApril 2002, the FASB issued SFAS No. 145, ***Rescissionof FASB No. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections***.  SFAS No. 145 rescinds SFAS No. 4, ***Reporting Gains and Losses from Extinguishment ofDebt*** – ***an amendment of APBOpinion No. 30***,  whichrequired all gains and losses from extinguishments of debt to be aggregatedand, if material, classified as an extraordinary item, net of related incometax effect. As a result, the criteria in Opinion 30 will now be used toclassify those gains and losses.  SFASNo. 145 becomes effective for financial statements issued on or afterMay 15, 2002.Requirements and guidance of SFAS No. 145 were applied inconnection with the write-off of the FCC debt discount.

 

9

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**(c)****                                 **InJune 2002, the FASB issued SFAS No. 146, ***Accountingfor Costs Associated with Exit or Disposal Activities***.  SFAS No. 146 requires that a liability for acost associated with an exit or disposal activity to be recognized and measuredinitially at fair value only when the liability is incurred.  SFAS No. 146 also establishes that fair valueis the objective for initial measurement of the liability.  SFAS No. 146 applies to costs associated withan exit activity but does not involve an entity newly acquired in a businesscombination or with a disposal activity covered by SFAS No. 144.  SFAS No. 146 does not apply to costsassociated 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 not havea material effect on the Partnership’s consolidated financial position or resultsfrom operations.  

 

**(d)****                                 **InDecember 2002, the FASB issued Interpretation No. 45 (FIN 45), “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others”. For a guarantee subject to FASB Interpretation No. 45, a guarantor isrequired to:  

 

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

 

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

 

The disclosure requirement of thisInterpretation is effective for financial statements for fiscal years endingafter December 15, 2002; it did not have any effect on the Partnership’sfinancial statements.  The initialrecognition and measurement provisions are effective prospectively forguarantees issued or modified on or after January 1, 2003, which did nothave any effect on the Partnership’s financial statements.  

 

**(e)****                                 **InJanuary 2003, the FASB issued FASB Interpretation No. 46, “Consolidationof Variable Interest Entities” (“FIN 46”). Fin 46 clarifies the application of Accounting Research Bulletin No. 51,“Consolidated Financial Statements” and provides guidance on the identificationof entities (“variable interest entities” or “VIE’s”) for which control isachieved through means other than through voting rights and how to determinewhen and which business enterprise should consolidate the VIE.  This new model for consolidation applies toan entity in which either (1) the equity investors (if any) do not have acontrolling financial interest of or (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 a revisionof the interpretation No. 46 to defer the implementation, classify some of itsprovisions and to exempt certain entities from its requirements.  Management does not expect that the applicationof this standard will have any effect on the Partnership’s consolidated resultsof operations or financial condition.  

 

5.             LEGAL PROCEEDINGS  

 

From time to time the Partnership is involvedin litigation 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’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

 

Forward-looking statements in 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

 

10

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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 andresults may differ materially from those expressed in forward-lookingstatements made by the Partnership as a result of a number of importantfactors.  Examples of these factorsinclude, without limitation ; rapid technological developments and changes inthe telecommunications industry; ongoing deregulation (and the resultinglikelihood of significantly increased price and product/service competition) inthe telecommunications industry as a result of the Telecommunications Act of1996 and other similar federal and state legislation and the federal and staterules and regulations enacted pursuant to that legislation; regulatorylimitations on the Partnership’s ability to compete in the telecommunicationsservices industry; and continuing consolidation in the telecommunicationsservices industry.  In addition to thesefactors, actual future performance, outcomes and results may differ materiallybecause of other, more general factors including, without limitation, generalindustry and market conditions and growth rates, domestic and internationaleconomic conditions, 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 2 updates, and should be read in conjunction with, information set forthin Part II, Items 7 and 8, in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2002, in addition to the interim consolidated financialstatements and accompanying notes presented in Part 1, Item 1 of thisForm 10-Q.  The Partnership wasformed 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.  

 

The Partnership owns the Puerto RicoLicenses, which consist of two 15 MHz PCS licenses covering Puerto Rico. Thelicense covering Visalia-Porterville, California, had been previously sold andtransferred to Leap Wireless on June 8, 2001 in exchange for $9,500,000 cashpayment.  

 

The Partnership commenced commercialoperations of its PCS network in Puerto Rico on September 24, 1999 when itbegan offering wireless services in Puerto Rico to the public.  Prior to that date, its income had consistedof interest earnings only.  

 

The Partnership established its Puerto Riconetwork by forming a wholly owned subsidiary, NewComm, on January 29,1999.  On February 4, 1999, thePartnership and NewComm entered into an agreement with TEM, whereby thePartnership 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 securedconvertible promissory note (the “Note”) which is convertible into 49.9% ofNewComm’s equity.  The Note however,cannot be converted until the FCC authorizes TEM to hold more than a 25% equityinterest in NewComm.  By means of a StockPurchase Agreement executed on March 12, 2002, the Partnership has agreed tosell shares equal to 0.2% in NewComm to TEM conditioned to obtaining permanentfinancing 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  

 

 

Set forth below is a summary of the resultsof operations before other income and expenses for the three-month period endedMarch 31, 2003 as compared with the three-month period ended March 31, 2002:

 

11

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| ** **                             | ** ** | **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 thethree-month period ended March 31, 2003 decreased by 6% or $2 million from$27.9 million to $26.3 as compared for the same period in 2002. Total revenuesinclude service as well as handset and accessories revenues.  Service revenues for the three-month periodended March 31, 2003 decreased by 8% or $2.1 million when compared to the sameperiod in 2002 while handset and accessories sales increased by 40% or .4million.  The increase in handsets andaccessories revenues is mainly due to handset units pricing adjustments.  The decrease in service revenues is relatedto the migration to a new billings and collection software that efficientlyidentifies delinquent accounts and prevents excessive billing on thoseaccounts.  

 

Expenses  

 

The following table shows the variances forthe three month period ended March 31, 2003 as compared to the same period in2002:

 
| ** **                                                     | ** ** | **Three-Month Periods Ended  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**                              | ** **     | **—**    | ** ** | **0** | **%** |
| **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** | **%** |

 

12

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Expenses for the three-month period endedMarch 31, 2003 totaled $23,955,984 as compared to $25,367,945 for the sameperiod in 2002.  During such firstquarter of 2003, the Partnership’s expenses decreased by 6% or $1.3 million.

 

The overall decrease in expenses of $1.3million is mainly due to the decrease in the cost of handset and accessoriesand a decrease in the provision for doubtful accounts due to pricingadjustments and the migration to the new billing system which more efficientlyidentifies delinquent customers.  Theincreases in taxes other than income and other expenses and the decrease inlegal services are actually related to reclassification of certain accounts.  

 

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

 

Income from operations for the three monthperiod ended March 31, 2003 of $2,338,897 shows a slight decrease of 10% or$273,000 as compared to the income from operations for the same period in2002.  This reduction in income fromoperations is related to the cost of acquiring new customers. 

 

Interest expense for the three month periodended March 31, 2003 of $3.4 million ($5.1 million in 2002) and depreciationexpense of $4 million ($3.9 million in 2002) reduce the income from operationsand result in a net loss before other income of $5,124,796 for the firstquarter of 2003 ($6,454,598 in 2002); an overall reduction in net loss of 21% whencompared to 2002.  The reduction ininterest expense is mainly attributable to the refinancing of the various debtsand to reduction of debt outstanding related to the Note Payable to Alcatel.   

 

The increase in depreciation expense isrelated to the increase in the depreciable assets placed in service during theperiod.  

 

13

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The following tables summarize changes incertain financial information for the three-month period ended March 31, 2002as compared with the three-month period ended March 31, 2001.(1)

 

Revenues  

 
| ** **                             | ** ** | **Three-Month Periods Ended  March 31,** | ** **     | ** **     | ** ** |
|----------------------------------------|------------|------------------------------------------|----------------|----------------|------------|
| ** **                             | ** ** | **2002**                                 | ** **     | **2001**       | ** ** | **Change** | ** ** |
| **Revenues:**                          |       |                                     |           |           |       |   |   |
| **Service revenues**                   | ** ** | **$**                                    | **26,626,750** | ** **     | **$**      | **25,030,382** | ** ** | **6** | **%** |
| **Handsets and accessories sales**     | ** ** | **1,353,611**                            | ** **     | **2,981,884**  | ** ** | **-55** | **%** |
| ** **                             | ** ** | ** **                               | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Total Revenues**                     | ** ** | **27,980,361**                           | ** **     | **28,012,266** | ** ** | **0** | **%** |
| **Expenses:**                          | ** ** | ** **                               | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Operating expenses**                 | ** ** | **25,367,945**                           | ** **     | **30,779,740** | ** ** | **-18** | **%** |
| ** **                             | ** ** | ** **                               | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Income (loss) from operations**      | ** ** | **2,612,416**                            | ** **     | **(2,767,474** | **)**      | **-194** | **%** |
| ** **                             | ** ** | ** **                               | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Interest expense**                   | ** ** | **(5,119,286**                           | **)**          | **(4,703,966** | **)**      | **9** | **%** |
| ** **                             | ** ** | ** **                               | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Depreciation and amortization**      | ** ** | **(3,947,728**                           | **)**          | **(5,682,180** | **)**      | **-31** | **%** |
| ** **                             | ** ** | ** **                               | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Loss before other income (expense)** | ** ** | **$**                                    | **(6,454,598** | **)**          | **$**      | **(13,153,620** | **)** | **-51** | **%** |

 

The Partnership’s revenues for thethree-month period ended March 31, 2002 totaled $27,980,361 as compared to$28,012,266 for the same period in 2001.  Revenues for the three-monthperiod ended March 31, 2002 included $26,626,750 in service revenues and$1,353,611 in handset and accessories sales generated from NewComm’s wirelessoperations, as compared to $25,030,382 and $2,981,884 respectively, for thesame period in 2001.  The increase inservice revenues is mainly due to an increase in the customer base and airtimeused for the period as compared to the same period in 2001.  

 

----

(1) **Restatementof Financial Statements**

 

The Partnership restated its financialstatements for 2001, as described in Note 2 to the audited consolidatedfinancial statements included as part of the Annual Report on Form 10-K for theperiod ended December 31, 2002.  ThePartnership’s prior independent accountants, Arthur Andersen LLP, are not ableto reissue their report relating to the Partnership’s financial statements for2001 or to audit the restatement adjustments described therein, because theyceased operations in 2002.  ThePartnership’s successor independent accountants, Kevane Soto Pasarell GrantThornton LLP, did not audit such year and did not issue an opinion on thefinancial statements for the calendar year ended December 31, 2001.  The Partnership’s successor independentaccountants audited the Partnership’s financial statements for the calendaryears ended December 31, 2003 and 2002 and issued the Independent Auditor’sreports included in the Annual Reports on Form 10-K for the periods then ended.

 

**Impact ofUnaudited Financial Statements**

 

The Partnership believes that the effect ofthe adjustments made in the re-stated financial statements for the calendaryear ended December 31, 2001, and the nature of the accounting issues addressedby those adjustments, do not have a material effect on the Partnership’sfinancial position as a whole or on the Partnership’s investors, creditors,suppliers, employees or customers. Therefore, the Partnership believes that a re-audit of the Partnership’s2001 consolidated financial statements is unnecessary.  Accordingly, the figures presented in thetables below for 2001 are drawn from the Partnership’s financial statements forthe calendar year ended December 31, 2001 as restated and unaudited.

 

14

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Expenses  

 
| ** **                                                     | ** ** | **Three-Month Periods Ended  March 31,** | ** **     | ** **    | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------|----------------|---------------|------------|
| ** **                                                     | ** ** | **2002**                                 | ** **     | **2001**      | ** ** | **Change** | ** ** |
|                                                           |       |                                     |           |          |       |   |   |
| **Cost of handset and accesories**                             | ** ** | **$**                                    | **7,050,742**  | ** **    | **$**      | **8,060,352** | ** ** | **-13** | **%** |
| **Interconnection expense**                                    | ** ** | **978,920**                              | ** **     | **2,057,800** | ** ** | **-52** | **%** |
| **Sales and dealers commissions**                              | ** ** | **1,468,300**                            | ** **     | **1,759,593** | ** ** | **-17** | **%** |
| **Salaries and benefits**                                      | ** ** | **4,158,188**                            | ** **     | **3,196,936** | ** ** | **30** | **%** |
| **Selling and advertising expense**                            | ** ** | **1,651,170**                            | ** **     | **2,317,299** | ** ** | **-29** | **%** |
| **Legal and professional services**                            | ** ** | **2,494,392**                            | ** **     | **2,941,118** | ** ** | **-15** | **%** |
| **Provision for doubtful accounts**                            | ** ** | **3,480,728**                            | ** **     | **3,968,722** | ** ** | **-12** | **%** |
| **Rent expense**                                               | ** ** | **1,474,505**                            | ** **     | **2,054,225** | ** ** | **-28** | **%** |
| **Taxes, other than income**                                   | ** ** | **380,859**                              | ** **     | **1,620,847** | ** ** | **-77** | **%** |
| **Other expenses**                                             | ** ** | **654,292**                              | ** **     | **2,493,546** | ** ** | **-74** | **%** |
| **Management fee to General Partner**                          | ** ** | **32,000**                               | ** **     | **32,000**    | ** ** | **0** | **%** |
| **Consulting and legal services rendered by  related parties** | ** ** | **1,543,849**                            | ** **     | **277,302**   | ** ** | **457** | **%** |
| ** **                                                     |       |                                     |           |          |       |   |   |
| **Total Expenses**                                             | ** ** | **$**                                    | **25,367,945** | ** **    | **$**      | **30,779,740** | ** ** | **-18** | **%** |

 

Expenses for the three-month period endedMarch 31, 2002 totaled $25,367,945 as compared to $30,779,740 for the sameperiod in 2001.  During the three-month period ended March 31, 2002, thePartnership’s expenses decreased by 18% due to pricing adjustments made bysuppliers for the cost of handsets which resulted in a 13% reduction in suchexpense and due to the 12% reduction in the provision for doubtfulaccounts.  The other variances as shownabove are mostly related to reclassifications among accounts made at thePartnerships subsidiary level to properly record transactions in a moreefficient manner.  

 

Income from Operations  

 

Income from operations reflects the abilityof the Partnership to generate positive cash flows from its operations, whichdoes not take into consideration expenses such as amortization, depreciationand interest that must be reported for generally accepted accounting principles(GAAP) to arrive to the net income or loss.

 

Income from operations for the three monthperiod ended March 31, 2002 of $2,612,416 shows a substantial increase of 194%as compared to the loss from operations for the same period in 2001.  This increase in income from operations isrelated to the reduction of overall expenses at the Partnership subsidiarylevel due to efficiencies in operational procedures.  

 

Interest expense for the three month period endedMarch 31, 2002 of $5.1 million ($4.7million in 2001) and depreciation expenseof $3.9 million ($5.7million in 2001) reduce income from operations and resultin a net loss before other income (expense) of $6,454,598 for the first quarterof 2002 ($13,153,620 in 2001); an overall reduction in net loss before otherincome (expense) of 51% when compared to 2001. The increase in interest expense is attributable to the debt outstandingrelated to the Note Payable to Alcatel.  

 

The decrease in depreciation expense isrelated to a change in the depreciable assets placed in service during theperiod.  

 

Liquidity and Capital Resources  

 

As of March 31, 2003, the Partnership hadcash and cash equivalents amounting to $21,683,670, which are mostly related toproceeds from the sale of the Visalia-Porterville, California license in thesecond quarter, 2001, and the Fleet Transaction.  

 

15

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As part of the agreement with TEM, NewCommentered into a contract with Lucent Technologies, Inc. (“Lucent”) that requiredLucent to build a network that uses the Code Division Multiple Access (“CDMA”)protocol.  The total cost of the originalnetwork was approximately $125 million. During 2000, NewComm’s management and Lucent agreed on formallyextending the payment of up to $61.0 million of the total amount of networkconstruction payable, at the time, under a formal financing agreement.  An agreement restructuring Lucent’soutstanding debt was is expected to be executed before June 30, 2003.  This outstanding debt is approximately $48million at a fixed annual interest over a six year term.  

 

In addition, the Partnership owes the UnitedStates federal government approximately $39,718,087 plus accrued interest at6.5% in connection with the acquisition of its PCS licenses.  

 

The Partnership has a secured promissory notepayable to TEM, which bears interest at the floating rate of 90-day LIBOR plus1.5% and is due in March, 2004.  

 

The Partnership estimates that the total costto implement NewComm’s business plan will be approximately $200 million.  This consists of approximately $125 millionin costs associated with building-out the Puerto Rico Network, andapproximately $75 million to fund NewComm’s operations until these becomeprofitable.  NewComm obtained a shortterm financing (“Bridge Loan”) of $60 million which has been extended untilNovember 29, 2002, with an interest rate of .75% over 90-day LIBOR.  The Bridge Loan is now guaranteed byTelefónica Internacional, S.A. (TISA), an affiliate of TEM.  ClearComm and TEM continue to work towardssecuring a permanent financing facility.  

 

During 2001, the Partnership sold 8.02% ofNewComm to Syncom Venture Funds in exchange for $25 million,  and on March 2, 2002, the Partnership sold4.08% of NewComm to a group of investors led by Fleet Development Ventures for$13 million.  

 

The Partnership anticipates that earnings andcash distributions derived from its Puerto Rico Network, interim and permanentfinancing and, if necessary, additional capital calls from its Investors oraccessing the public capital markets, should provide it with the liquidity tomeet its obligations.  

 

ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 

 

The Partnership’s exposure to market riskthrough derivative financial instruments and other financial instruments is notmaterial because the Partnership does not use derivative financial instrumentsand does not have foreign currency exchange risks.  The Partnership invests cash balances in excessof operating requirements in short-term money market funds.  As of March 31, 2003, the Partnership hadcash equivalents and short-term investments of approximately $21,683,670consisting of cash and highly liquid, short-term investments in money marketfunds.  

 

The Partnership’s cash and cash equivalentswill increase or decrease by an immaterial amount if market interest ratesincrease or decrease, and therefore, its exposure to interest rate changes hasbeen immaterial.  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%. 

 

ITEM 4. CONTROLS ANDPROCEDURES  

 

The Partnership’s Chief Executive Officer,Javier O. Lamoso, and the Partnership’s Chief Financial Officer, EdileenSalicrup, have evaluated the Partnership’s disclosure controls and procedureswithin 90 days of the filing of this report. 

 

Mr. Lamoso and Ms. Salicrup have concludedthat the Partnership’s disclosure controls and procedures provide reasonableassurance that the Partnership can meet its disclosure obligations.  The Partnership’s disclosure controls andprocedures are based upon a roll-up of financial and non-financial reportingthat is consolidated by TEM pursuant to the Partnership’s Management Agreementwith TEM.  The reporting process isdesigned to ensure that information required to be disclosed by the Partnershipin the reports that it files or submits with the Commission is recorded,processed, summarized and reported within the time periods specified in theCommission’s rules and forms.  

 

There have been no significant changes in thePartnership’s internal controls or in other factors that could significantlyaffect these controls subsequent to the date of their evaluation.  

 

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PART II: OTHER

 

INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS 

 

Information regarding legal proceedings isdisclosed in Part I, Item 1, Notes to Interim Consolidated Financial Statementsas of March 31, 2003 (unaudited), Section 5, and is hereby incorporated intoPart II, Item 1 by this reference.  

 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K  

 
| (a)    | List of Exhibits                                                             |
|--------|------------------------------------------------------------------------------|
|   |                                                                         |   |   |
|   | Exhibit 18:                                                                  |   | Letter from Kevane Soto Pasarell Grant  Thornton LLP regarding change in accounting principles |
|   |                                                                         |   |   |
|   | Exhibit 31.1:                                                                |   | Certification of Principal Executive  Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|   |                                                                         |   |   |
|   | Exhibit 31.2:                                                                |   | Certification of Principal Financial  Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|   |                                                                         |   |   |
|   | Exhibit 32.1:                                                                |   | Certification pursuant to Section 1350  of Chapter 63 of Title 18 of the United States Code |
|   |                                                                         |   |   |
|   | Exhibit 32.2:                                                                |   | Certification pursuant to Section 1350  of Chapter 63 of Title 18 of the United States Code |
|   |                                                                         |   |   |
| (b)    | No reports on Form 8-K were filed during  the period covered by this report. |

 

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

 

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SIGNATURES

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 
|                    |   | ClearComm,  L.P.                                |
|-------------------------|--------|-------------------------------------------------|
|                    |   |                                            |
|                    |   |                                            |
|                    | By:    | SuperTel  Communications Corp., General Partner |
|                    |   |                                            |
|                    |   |                                            |
| Date:  October 15, 2004 |   | By: /s/  Javier O. Lamoso                       |
|                    |   | Name: Javier  O. Lamoso                         |
|                    |   | Title:  President                               |

 

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**EXHIBIT INDEX**

 

Exhibit 18:          Letter from Kevane Soto Pasarell GrantThornton LLP regarding change in accounting principles  

 

Exhibit 31.1:       Certification of Principal ExecutiveOfficer pursuant to Rule 13a-14(a)/15d-14(a) 

 

Exhibit 31.2:       Certification of Principal FinancialOfficer pursuant to Rule 13a-14(a)/15d-14(a) 

 

Exhibit 32.1:       Certification Pursuant toSection 1350 of Chapter 63 of Title 18 of the United States Code  

 

Exhibit 32.2:       Certification Pursuant toSection 1350 of Chapter 63 of Title 18 of the United States Code   

 

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