**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

** **
| **x**                                                  | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                             | ** ** | ** **                                                                                               |
| **For the  quarterly period ended June 30, 2006** |
| ** **                                             | ** ** | ** **                                                                                               |
| **o**                                                  | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom            to             **

** **

**Commission file number0-28362**

** **

**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.) |
|                                                                                          |                                   |
| **City  View Plaza-Suite 700**

**No. 48  of Road 165**

**Guaynabo,  Puerto Rico** | **00918-1929**                         |
| (Address of principal  executive offices)                                                     | (Zip Code)                             |

 

Registrant’s telephone number, including area code: **(787) 810-5757**

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(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 x     No o

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).

Yes o    No x

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

Yes o  No x

 

----

 

ClearComm, L.P.

INDEX

 
| PART I         |   | FINANCIAL  INFORMATION                                                                                                                           |   |   |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                |   |                                                                                                                                             |   |   |
| Item  1.            |   | Financial  Statements                                                                                                                            |   |   |
|                |   |                                                                                                                                             |   |   |
|                |   | Consolidated Statements of Assets, Liabilities and  Partners’ Deficit as of June 30, 2006 (unaudited) and December 31, 2005  (audited) |   |   |
|                |   |                                                                                                                                             |   |   |
|                |   | Consolidated Statements of Revenues and Expenses for  the three-month and six-month periods ended June 30, 2006 and 2005  (unaudited).      |   |   |
|                |   |                                                                                                                                             |   |   |
|                |   | Consolidated Statements of Changes in Partners’  Deficit for the six-month period ended June 30, 2006 (unaudited)                      |   |   |
|                |   |                                                                                                                                             |   |   |
|                |   | Consolidated Statements of Cash Flows for the  six-month period ended June 30, 2006 and 2005 (unaudited)                               |   |   |
|                |   |                                                                                                                                             |   |   |
|                |   | Notes to Interim Consolidated Financial Statements as  of June 30, 2006 (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 4.             |   | Submission of Matters to a Vote of Limited Partners                                                                                              |   |   |
|                |   |                                                                                                                                             |   |   |
| Item 6.             |   | Exhibits and Reports on Form 8-K                                                                                                            |   |   |
|                |   |                                                                                                                                             |   |   |
| Signatures.         |   |                                                                                                                                             |   |   |
|                |   |                                                                                                                                             |   |   |
| Exhibit Index. |   |                                                                                                                                             |   |   |

 

 

----

 

**PART I   FINANCIAL INFORMATION**

**ITEM 1.  FINANCIALSTATEMENTS**

**ClearComm,L.P.**

**CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIESAND PARTNERS’ DEFICIT**
| ** **                                                                                                                        | ** ** | **June 30** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------------|-------------|-----------------------|------------|
| ** **                                                                                                                        | ** ** | **2006**         | ** **  | **2005**              | ** ** |
| ** **                                                                                                                        | ** ** | **(Unaudited)**  | ** **  | **(Audited)**         | ** ** |
| **ASSETS:**                                                                                                                       | ** ** | ** **       | ** **  | ** **            | ** ** |
| Cash and cash  equivalents                                                                                                        |       | $                | 4,690,758   |                  | $          | 6,609,074 |   |
| Accounts  receivable, net                                                                                                         |       | 6,258,414        |        | 6,127,025             |       |
| Accounts  receivable, other                                                                                                       |       | 1,202,596        |        | 1,851,278             |       |
| Inventories, net                                                                                                                  |       | 2,139,104        |        | 2,953,707             |       |
| Prepaid expenses                                                                                                                  |       | 1,262,140        |        | 1,389,516             |       |
| Leasehold  rights, net                                                                                                            |       | 3,716,893        |        | 3,465,685             |       |
| PCS licenses,  net                                                                                                                |       | 46,750,449       |        | 46,750,449            |       |
| Deferred  financing costs                                                                                                         |       | 803,288          |        | 658,660               |       |
| Property and  equipment, net                                                                                                      |       | 60,987,095       |        | 68,676,259            |       |
|                                                                                                                              |       |             |        |                  |       |
|                                                                                                                              |       | $                | 127,810,737 |                  | $          | 138,481,653 |   |
| ** **                                                                                                                        | ** ** | ** **       | ** **  | ** **            | ** ** |
| **LIABILITIES AND PARTNERS’  DEFICIT:**                                                                                      | ** ** | ** **       | ** **  | ** **            | ** ** |
| Accounts payable  and accrued liabilities                                                                                         |       | $                | 32,385,320  |                  | $          | 37,256,948 |   |
| Notes payable —  short-term                                                                                                  |       | 132,200,789      |        | 14,162,119            |       |
| Notes payable —  long-term                                                                                                   |       | 32,890,079       |        | 143,705,806           |       |
|                                                                                                                              |       |             |        |                  |       |
| Unitholders’  capital (deficit) 2,768.20 Units in 2006 and 2005 and 1 General partnership  interest.     |       | (69,665,451      | )           | (56,643,220           | )          |
|                                                                                                                              |       |             |        |                  |       |
| Total  liabilities and partner’s deficit                                                                                     |       | $                | 127,810,737 |                  | $          | 138,481,653 |   |
|                                                                                                                              |       |             |        |                  |       |
| BOOK VALUE  (DEFICIT) PER UNIT                                                                                                    |       | $                | (25,166     | )                     | $          | (20,462 | ) |
|                                                                                                                              |       |             |        |                  |       |

 

Theaccompanying notes are an integral part of these consolidated statements.

1

----

**ClearComm, L.P.**

**CONSOLIDATED STATEMENTS OFREVENUES AND EXPENSES (UNAUDITED)**

** **

 
| ** **                                              | ** ** | **Three-Month Periods Ended  June 30** | ** ** | **Six-Month Periods Ended  June 30** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------|------------|--------------------------------------|------------|
| ** **                                              | ** ** | **2006**                               | ** ** | **2005**                             | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                    | ** ** | ** **                             | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Revenues:**                                           |       |                                   |       |                                 |       |   |   |   |   |
| Service revenues                                        |       | $                                      | 16,793,646 |                                 | $          | 22,686,968 |   | $ | 34,269,470 |   | $ | 45,565,488 |   |
| Handset and  accessories sales                          |       | 1,504,873                              |       | 1,169,624                            |       | 3,156,001 |   | 1,907,084 |   |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
|                                                    |       | 18,298,519                             |       | 23,856,592                           |       | 37,425,471 |   | 47,472,572 |   |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
| **Operating Cost and Expenses:**                        |       |                                   |       |                                 |       |   |   |   |   |
| Cost of handset  and accessories                        |       | 3,069,195                              |       | 4,362,624                            |       | 6,822,385 |   | 9,047,636 |   |
| Interconnection  expense                                |       | 73,120                                 |       | 807,907                              |       | 699,157 |   | 1,603,484 |   |
| Sales and  dealers commissions                          |       | 1,206,131                              |       | 1,891,224                            |       | 2,352,013 |   | 3,925,924 |   |
| Salaries and  benefits                                  |       | 3,408,346                              |       | 3,859,776                            |       | 7,363,951 |   | 7,773,695 |   |
| Depreciation                                            |       | 4,696,195                              |       | 4,524,200                            |       | 9,387,588 |   | 9,095,338 |   |
| Advertising  expense                                    |       | 424,118                                |       | 1,382,099                            |       | 720,198 |   | 2,092,602 |   |
| Legal and  professional services                        |       | 836,601                                |       | 287,520                              |       | 1,384,454 |   | 679,302 |   |
| Provision for  doubtful accounts                        |       | 909,352                                |       | 3,293,557                            |       | 2,308,384 |   | 5,482,126 |   |
| Rent expense                                            |       | 2,119,792                              |       | 1,824,870                            |       | 4,238,824 |   | 3,617,963 |   |
| Taxes other than  income                                |       | 751,782                                |       | 529,874                              |       | 1,718,196 |   | 1,572,106 |   |
| Network  Operation and Maintenance                      |       | 2,029,605                              |       | 2,011,529                            |       | 3,984,441 |   | 3,952,237 |   |
| Other expenses                                          |       | 1,610,897                              |       | -136,634                             |       | 3,126,416 |   | 1,396,574 |   |
| Management fee  to General Partner                      |       | 125,000                                |       | 68,750                               |       | 250,000 |   | 137,500 |   |
| Services  rendered by related parties                   |       | 17,315                                 |       | 626,235                              |       | 33,262 |   | 1,418,851 |   |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
|                                                    |       | 21,277,449                             |       | 25,333,531                           |       | 44,389,269 |   | 51,795,338 |   |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
| **Income  (Loss) from Operations**                      |       | (2,978,930                             | )          | (1,476,939                           | )          | (6,963,798 | ) | (4,323,096 | ) |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
| **Other Income (Expense)**                              |       |                                   |       |                                 |       |   |   |   |   |
| Interest income                                         |       | 21,503                                 |       | 75,134                               |       | 70,533 |   | 408,160 |   |
| Other Income                                            |       | (50                                    | )          | —                               |       | — |   | 32,644 |   |
| Interest expense                                        |       | (4,106,158                             | )          | (2,913,539                           | )          | (8,128,965 | ) | (5,968,121 | ) |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
|                                                    |       | (4,084,705                             | )          | (2,838,405                           | )          | (8,058,432 | ) | (5,527,317 | ) |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
| **Net  Income (Loss)**                                  |       | $                                      | (7,063,635 | )                                    | $          | (4,315,344 | ) | $ | (15,022,230 | ) | $ | (9,850,413 | ) |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
| **Net  Income (Loss) Attributable to General Partner**  |       | $                                      | (7,063,635 | )                                    | $          | (4,315,344 | ) | $ | (15,022,230 | ) | $ | (9,850,413 | ) |
|                                                    |       |                                   |       |                                 |       |   |   |   |   |
| **Net Income (Loss) Attributable  to Limited Partners** |       | $                                      | —     |                                 | $          | — |   | $ | — |   | $ | — |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

2

----

 

**ClearComm, L.P.**

**CONSOLIDATED STATEMENTS OFCHANGES IN PARTNERS’ DEFICIT (Unaudited)FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2006**

 
| ** **                                                          | ** ** | **Limited Partners** | ** ** | **General** | ** ** | ** **  | ** **  |
|---------------------------------------------------------------------|------------|---------------------------|------------|-------------|------------|-------------|-------------|
| ** **                                                          | ** ** | **Units**                 | ** ** | **Amount**  | ** ** | **Partner** | ** **  | **Total** | ** ** |
|                                                                |       |                      |       |        |       |        |        |   |   |
|                                                                |       |                      |       |        |       |        |        |   |   |
| **BALANCES,**December 31, 2005                                      |       | 2,768.2                   |       | —      |       | $           | (56,643,220 | ) | $ | (56,643,220 | ) |
| ** **                                                          |       |                      |       |        |       |        |        |   |   |
| **DILUTION  GAIN**                                                  |       |                      |       |        |       | 2,000,000   |        | 2,000,000 |   |
| ** **                                                          |       |                      |       |        |       |        |        |   |   |
| **Net loss for the three months period ended  March 31, 2006** |       |                      |       | —      |       | (7,958,596  | )           | (7,958,596 | ) |
| ** **                                                          |       |                      |       |        |       |        |        |   |   |
| **Net loss for the three months period ended  June 30, 2006**  |       |                      |       |        |       | (7,063,635  | )           | (7,063,635 | ) |
| ** **                                                          |       |                      |       |        |       |        |        |   |   |
| **BALANCES,**June 30, 2006                                          |       | 2,768.2                   |       | —      |       | $           | (69,665,451 | ) | $ | (69,665,451 | ) |
|                                                                |       |                      |       |        |       |        |        |   |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

3

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ClearComm, L.P.

CONSOLIDATED STATEMENTSOF CASH FLOWS (UNAUDITED)

 
| ** **                                                                       | ** ** | **Six-Month Periods Ended** | ** **  |
|----------------------------------------------------------------------------------|------------|---------------------------------------|-------------|
| ** **                                                                       | ** ** | **June 30,**                     | ** **  | **June 30,** | ** ** |
| ** **                                                                       | ** ** | **2006**                              | ** **  | **2005** | ** ** |
| **CASH FLOWS FROM OPERATING  ACTIVITIES:**                                       |       |                                  |        |   |   |
| Net loss                                                                         |       | $                                     | (15,022,230 | ) | $ | (9,850,413 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities- |       |                                  |        |   |   |
| Depreciation and amortization                                                    |       | 8,778,883                             |        | 9,095,668 |   |
| Equity in losses of unconsolidated subsidiary                                    |       | —                                |        | 30,000 |   |
| Inventory Reserve                                                                |       | 63,000                                |        | 172,033 |   |
| Bad debt expense                                                                 |       | 2,308,383                             |        | 5,482,126 |   |
| Amortization of deferred financing costs                                         |       | 608,705                               |        | — |   |
| FCC interest paid directly by ABN AMRO                                           |       | 513,317                               |        | — |   |
| Gain from sale of vehicles                                                       |       | (60,361                               | )           | (432,527 | ) |
| Capitalized interest                                                             |       | 1,584,413                             |        | 102,761 |   |
| Other non-cash items                                                             |       | (247,000                              | )           | — |   |
| Changes in  operating assets and liabilities-                                    |       |                                  |        |   |   |
| Increase in accounts receivable, before write-offs                               |       | (1,791,092                            | )           | (6,968,218 | ) |
| Decrease in insurance claim receivable                                           |       | —                                |        | 403,657 |   |
| Decrease (increase) in inventories                                               |       | 751,603                               |        | 1,541,022 |   |
| Increase in prepaid expenses                                                     |       | 18,373                                |        | (107,080 | ) |
| Decrease in accounts payable and accrued liabilities                             |       | (5,528,845                            | )           | 2,000,205 |   |
| Decrease in accounts payable to related parties                                  |       | 699,998                               |        | (3,196,515 | ) |
| (Decrease) Increase in accrued interest                                          |       | 162,207                               |        | 565,151 |   |
| (Decrease) increase in deferred income                                           |       | 371,237                               |        | 66,460 |   |
| Total adjustments                                                                |       | 8,232,821                             |        | 8,754,743 |   |
| Net cash provided by operating activities                                        |       | (6,789,409                            | )           | (1,095,670 | ) |
| ** **                                                                       |       |                                  |        |   |   |
| **CASH FLOWS FROM INVESTING  ACTIVITIES:**                                       |       |                                  |        |   |   |
| Redemption of  investment securities                                             |       |                                  |        |   |   |
| Proceeds from the sale of vehicle                                                |       | —                                |        | 483,161 |   |
| Proceeds from sale of accounts receivable                                        |       | —                                |        | 455,890 |   |
| Acquisition of property and equipment                                            |       | (967,044                              | )           | (1,279,113 | ) |
|                                                                             |       |                                  |        |   |   |
| Net cash provided by (used in) investing activities                              |       | (967,044                              | )           | (340,062 | ) |
| ** **                                                                       |       |                                  |        |   |   |
| **CASH FLOWS FROM FINANCING  ACTIVITIES:**                                       |       |                                  |        |   |   |
| Principal payments of capital leases                                             |       | (222,501                              | )           | (104,297 | ) |
| Proceeds from issuance of preferred stock                                        |       | 2,000,000                             |        |   |   |
| Proceeds from issuance of note payable                                           |       | 5,000,000                             |        |   |   |
| Payment for deferred financing costs                                             |       | (653,333                              | )           | (117,091 | ) |
| Proceeds of issuance of subordinated loan                                        |       | —                                |        | 11,743,256 |   |
| Principal payments of long term debt                                             |       | (286,029                              | )           | (10,698,408 | ) |
|                                                                             |       |                                  |        |   |   |
| Net cash used in financing activities                                            |       | 5,838,137                             |        | 823,460 |   |
| ** **                                                                       |       |                                  |        |   |   |
| **NET  INCREASE IN CASH AND CASH EQUIVALENTS**                                   |       | (1,918,316                            | )           | (612,272 | ) |
| **CASH  AND CASH EQUIVALENTS,** beginning of period                              |       | 6,609,074                             |        | 10,612,430 |   |
| **CASH  AND CASH EQUIVALENTS,** end of period                                    |       | $                                     | 4,690,758   |   | $ | 10,000,158 |   |
| ** **                                                                       |       |                                  |        |   |   |
| **SUPPLEMENTAL DISCLOSURES OF  CASH FLOWS INFORMATION:**                         |       |                                  |        |   |   |
| **INTEREST  PAID**                                                               |       | $                                     | 6,382,344   |   | $ | 4,349,229 |   |
|                                                                             |       |                                  |        |   |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

4

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CLEARCOMM, L.P.NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2006(UNAUDITED)

1.                                       BASISOF 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-Xpertaining to 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 ofmanagement, are considered necessary for a fair presentation of the Partnership’sfinancial position at June 30, 2006 and results of operations and cash flowsfor the six-month periods ended June 30, 2006 and 2005.  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 endedDecember 31, 2005.  Results ofoperations for interim periods are not necessarily indicative of the resultsthat may be expected for the full year.

Thereporting entity for purposes of this 10-Q is ClearComm, L.P. (the “Partnership”),a limited partnership organized on January 24, 1995 under the laws of theState of Delaware, which together with its majority-owned subsidiary, NewCommWireless Services, Inc., a Puerto Rico corporation (“NewComm” and,together with the Partnership, the “Company”), owns and operates a state-of-the-artPCS network in Puerto Rico (the “Puerto Rico Network”). The Partnershipdirectly or indirectly, through NewComm, owns two 15 MHz C-Block PCS licensescovering the entire island of Puerto Rico (the “Puerto Rico Licenses”) andowned four 15 MHz licenses in California (the “California Licenses”) which weresold in a transaction approved by the FCC.

The Partnership was formed to file applications withthe Federal Communications Commission (“FCC”) under personal communicationsservice (“PCS”) frequency Block C, originally restricted to minorities, smallbusinesses and designated entities, to become a provider of broadband PCS.

OnNovember 30, 2005, the Agreement of Limited Partnership of the Partnership(the “Partnership Agreement”) was amended to extend the date the Partnershipwill terminate to December 31, 2010. The Partnership will dissolve on suchdate (unless terminated earlier or unless the Partnership Agreement is amendedto change such date). The Partnership Agreement also provides for a reasonabletime to wind-up the affairs of the Partnership in case of termination.

SuperTel Communications Corp. (“SuperTel”), a PuertoRico corporation, is the General Partner. Its total share of the income and losses of the Partnership is 25% inaccordance with the Partnership Agreement. Approximately 1,600 limited partners also invested in the Partnershipthrough a private placement.

NewCommWireless Services, Inc.

ThePartnership established its Puerto Rico network by forming a wholly ownedsubsidiary, NewComm, on January 29, 1999. On February 4, 1999, the Partnership and NewComm entered into anagreement with TEM, whereby the Partnership contributed its two Puerto RicoLicenses to NewComm and TEM provided NewComm a $19,960,000 loan to develop thePuerto Rico Licenses. NewComm commenced providing PCS services in Puerto Ricoin September 1999.

ThePartnership was the fifth entrant into the Puerto Rico wirelesstelecommunications market. It currently provides wireless coverage in the areaswhere 95% of the Puerto Rico wireless traffic occurs and is expanding. ThePartnership has established points of sale in all major shopping districts andhas over 200 points of sale throughout Puerto Rico. The Partnership believesthat it currently has approximately 7% of the Puerto Rico wireless market.

ThePartnership’s Puerto Rico Network operates under the image and brand name “MoviStar.”  MoviStar is the PCS brand name of theTelefónica Group in Spain and certain other countries in Latin America.

ThePuerto Rico Network is a state-of-the-art Code Division Multiple Access (“CDMA”)network. Pursuant to a roaming agreement with Sprint PCS, MoviStar customershave mainland U.S. coverage.  LucentTechnologies, Inc. (“Lucent”) built the Puerto Rico Network on behalf ofNewComm. The Partnership continues optimizing the network to maintain and offerbetter quality service to its customers.

In each of November 2000, December 2000, andMarch 2001, NewComm received $5,000,000 from Syndicated CommunicationsVenture Partners IV, L.P. (“Syncom”), a third party, in exchange forapproximately 4.92% ownership in NewComm. Syncom has contributed $25 million toNewComm in exchange for approximately 8.2% ownership interest in NewComm.  The last $10 million installment wascontributed in November 2002.

5

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On March 2,2002, the Partnership sold approximately 4.08% of NewComm to a group ofinvestors led by Fleet Development Ventures (the “Fleet Group”) for $13million.  The Partnership and TEMcontributed approximately $9 million each to NewComm in the form of equity andconvertible debt, respectively. The Partnership and TEM have committed anadditional $10 million each to close the Project Finance Facility.

Under the Partnership’s direction, the Board ofDirectors of NewComm terminated TEM as manager under the management agreementon October 28, 2004. TEM alleged unlawful and wrongful termination of thetechnology and management agreement. The Partnership on behalf of NewComm, wasproactively seeking compensation for damages caused by the mismanagement of TEMeither by settlement or within the arbitration process. On April 21, 2005,NewComm and its shareholders entered into a Settlement Agreement and MutualRelease with TEM (the “Settlement Agreement”) in which all the parties resolvedall outstanding disputes. As a result, TEM no longer provides managementservices to NewComm but has extended significant financial support in theform of guarantees / lines of credit (see Part I, Item 2).

OnApril 21, 2005, NewComm reorganized its capital structure by collapsing itsmany classes of common stock into a single class of common stock.

OnAugust 5, 2005, NewComm made effective a Series A Convertible ParticipatingPreferred Stock purchase agreement between itself and its investors to fundcash flow deficiencies. On February 16 2006, NewComm made effective anotherSeries A Convertible Participating Preferred Stock purchase agreement betweenitself and its investors to fund cash flow deficiencies.

Immediately after theFebruary 16, 2006 closing, the authorized capital of NewComm is:

1.               50,024.695 shares of preferred convertible ofwhich:

·                  12.372 designated as Series A-1 convertibleparticipating preferred

·                  12.323 designated as Series A-2 convertibleparticipating preferred

·                  25,645.165 designated as Series A-3 convertibleparticipating preferred

·                  24,354.835 designated as Series A-4convertible participating preferred

2.               52,044.142 shares of common stock, 2,019.447of which are issued and outstanding and 50,024.695 are reserved for theissuance upon the conversion of the Series A Convertible Preferred Stock.

NewComm’s Shareholders possess the following ownershipinterests in NewComm, as of June 30, 2006:
| ** **                             | ** ** | **Common  Shares** | ** ** | **%**   | ** ** | **Shares  Fully Diluted** | ** ** | **%**   | ** ** |
|----------------------------------------|------------|--------------------|------------|---------|------------|--------------------------------|------------|---------|------------|
| ClearComm, L.P.                        |       | 793.063            |       | 39.27%  |       | 30,804.147                     |       | 59.19%  |       |
| SynComm Venture  Partners IV, L.P.     |       | 145.680            |       | 7.21%   |       | 13,921.050                     |       | 26.75%  |       |
| Fleet  Development Ventures, LLC       |       | 28.077             |       | 1.39%   |       | 30.299                         |       | 0.06%   |       |
| Opportunity  Capital Partners IV, L.P. |       | 28.077             |       | 1.39%   |       | 3,852.772                      |       | 7.40%   |       |
| Power Equities,  Inc.                  |       | 16.846             |       | 0.83%   |       | 2,428.170                      |       | 4.67%   |       |
| TEM Puerto Rico  Inc.                  |       | 1,007.704          |       | 49.90%  |       | 1,007.704                      |       | 1.94%   |       |
|                                   |       |               |       |    |       |                           |       |    |       |
|                                   |       | 2,019.447          |       | 100.00% |       | 52,044.142                     |       | 100.00% |       |

 

InternetSurfing Stores of P.R., Inc. - (eMilios)

OnApril 16, 2002, the Partnership entered into a Shareholders’ Agreement toform a joint venture with eMilios International, L.L.C., a Florida limitedliability company, to promote and establish in Puerto Rico the eMilios concept,which essentially provides internet access for the general public at a feebased by the hour.  The joint venture wasformed under a Puerto Rico corporation named Internet Surfing Stores of PuertoRico, Inc. (“ISS”). The Partnership owns 49% and eMilios Internationalowns 51% of ISS.

Due to lack ofsupport of eMilios International and lack luster results in Puerto Rico, thePartnership wrote off its investment in the project in 2005 and closed ISSoperations during June, 2006.

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2.             FINANCING REQUIREMENTS

The accompanying consolidated financial statementshave been prepared on a going concern basis, which contemplates the realizationof assets and the satisfaction of liabilities in the normal course ofbusiness.  The Partnership commencedoperations in September 1999 and has incurred losses amounting to $15.0million for the six-month period ended June 30, 2006 and incurred operatinglosses of $9.9 million for the six-month period ended June 30, 2005.  It also has working capital deficits andpartners’ capital deficit of $149 million and $69.7 million, respectively, asof June 30, 2006.  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.

Aspart of an agreement with TEM, NewComm entered into a contract with Lucent thatrequired Lucent to build a network that uses the CDMA protocol.  The total cost of the network wasapproximately $125 million.  DuringJune 2003, NewComm and Lucent entered into a Senior Credit Agreement (the “SeniorCredit Agreement”) which refinanced the existing promissory note balance dueunder the CDMA network construction payable. The interest rate was set at 8%per annum and the maturity date was extended to September 2009. The notepayable is guaranteed by a security agreement covering most of NewComm’sassets, as defined.

On July 1, 2005, Lucent assigned and transferredto D.B Zwirn Special Opportunities Fund, LTD (“D.B Zwirn”) 100% of Lucent’s rightsand obligations under the Senior Credit Agreement. On February 16, 2006,NewComm and D.B Zwirn amended and restated the Senior Credit Agreement. The newoutstanding principal balance is $60,539,828, including some accrued and unpaidinterest, and $5,000,000.00 in additional principal made available at the timeof closing. The maturity date is March 31, 2007. The facility bearsinterest at a rate per annum equal to LIBOR + 700 basis points. Additionally,the facility accrues pay-in-kind (PIK) interest on the aggregate principalamount, payable upon maturity, acceleration or repayment. The PIK interest isbased on a grid that ranges from 2% to 4%, depending on quarterly EBITDAresults. The maturity date on the facility was January 31, 2006. The SeniorCredit Agreement with D.B Zwirn includes various affirmative, negative andfinancial covenants.  As of June 30,2006, NewComm was in compliance with all the requirements under such covenants.

Pursuantto the Settlement Agreement, and with respect to the FCC debt, TEM has securedthe repayment of this debt by means of a subordinated line of credit guaranteedas described in the Settlement Agreement. This debt relates to the Partnershipacquisition of its PCS licenses.  ThePartnership owes the United States federal government approximately $10.7million plus accrued interest at 6.5% as of June 30, 2006.

Atotal of $73.8 million in accounts payable to TEM and T-Móviles was convertedinto equity as a result of the Settlement Agreement on April 20,2005.  This conversion has significantlydecreased the Partnership’s accounts payable by said amount and increasedNewComm’s capital account from $44.5 million to $118 million.

Managementbelieves that cash and cash equivalents on hand, anticipated growth inrevenues, capital contributions and the additional indebtness incurred with D.BZwirn will be adequate to fund its operations, at a minimum, through the end of2006.  However, in the absence ofimproved operating results and cash flows, the Company may face liquidity problemsto fund its operations and meet its obligations.  However, and because of the existence ofthese matters, substantial doubt exists as to the Company’s ability to continueoperating as a going concern.  Theaccompanying financial statements do not include any adjustments that mightresult should the Company face liquidity issues to fund its operations and meetits obligations.

3.             RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, theFASB issued Interpretation No. 47, Accounting for Conditional Asset RetirementObligations (an interpretation of FASB Statement No. 143) (FIN 47). ThisInterpretation clarifies that the term conditional asset RetirementObligations, refers to a legal obligation to perform an asset retirementactivity in which the timing and (or) method of settlement are conditional on afuture event that may or may not be within the control of the entity.The obligation to perform the asset retirement activity is unconditionaleven though uncertainty may exist about the timing and (or) method ofsettlement. Accordingly, an entity is required to recognize the fair value of aliability for the conditional asset retirement obligation when incurred and theuncertainty about the timing and (or method) of settlement should be factoredinto the measurement of the liability when sufficient information exists. ThisInterpretation is effective no later than December 31, 2005. Retrospectiveapplication of interim financial information is permitted but is not required.Additionally, companies shall recognize the cumulative effect of initiallyapplying this Interpretation as a change in accounting principle. The Companyadopted this new pronouncement effective December 31, 2005. The impact ofthe Company’s financial statements as a result of adopting this new statementis not material.

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4.             LEGAL PROCEEDINGS

Fromtime to time the Partnership is involved in litigation arising from theordinary course of business, some of which is ongoing.  The General Partner does not believe that anylitigation involving the Partnership will have a material adverse effect on thePartnership’s business or financial condition.

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

Forward-lookingStatements

This Quarterly Report on Form 10-Q and futurefilings by the Partnership on Form 10-Q, Form 10-K and Form 8-K andfuture oral and written statements by the Partnership may include certainforward-looking statements, including (without limitation) statements withrespect to anticipated future operating and financial performance, growthopportunities and growth rates, acquisition and divestiture opportunities, andother similar forecasts and statements of expectation.  Words such as “expects,” “anticipates,” “intends,”“plans,” “believes,” “seeks,” “estimates,” and “should,” and variations ofthese words and similar expressions, are intended to identify theseforward-looking statements. Forward-looking statements by the Partnership are based on estimates,projections, beliefs and assumptions of management and are not guarantees offuture performance.  The Partnershipdisclaims any obligation to update or revise any forward-looking statementbased on the occurrence of future events, the receipt of new information, orotherwise.

Actualfuture performance, outcomes and results may differ materially from thoseexpressed in forward-looking statements made by the Partnership as a result ofa number of important factors.  Examplesof these factors include, without limitation: rapid technological developmentsand changes in the telecommunications industry; ongoing deregulation (and theresulting likelihood of significantly increased price and product/servicecompetition) in the telecommunications industry as a result of theTelecommunications Act of 1996 and other similar federal and state legislationand the federal and state rules and regulations enacted pursuant to thatlegislation; regulatory limitations on the Partnership’s ability to compete inthe telecommunications services industry; and continuing consolidation in thetelecommunications services industry.  Inaddition to these factors, actual future performance, outcomes and results maydiffer materially because of other, more general factors including, withoutlimitation, general industry and market conditions and growth rates, domesticand international economic conditions, governmental and public policy changesand the continued availability of financing in the amounts, at the terms and onthe conditions necessary to support the Partnership’s future business.

Introduction

Theinformation contained in this Part I, Item 2 updates, and should be readin conjunction with information set forth in Part II, Items 7 and 8, inthe Company’s Annual Report on Form 10-K for the year endedDecember 31, 2005, in addition to the interim consolidated financialstatements and accompanying notes presented in Part 1, Item 1 of thisQuarterly Report on Form 10-Q.

The Partnership was formed on January 24,  1995and is managed by its General Partner, SuperTel Communications Corp.  The Partnership was organized to acquire,own, consult and operate personal communication services PCS licenses in theBlock C band and to take advantage of the benefits that the FCC has set asidefor entrepreneurs.  The Partnership ownsthe Puerto Rico Licenses, which consist of two 15 MHz PCS licenses coveringPuerto Rico. The California Licenses, which consist of four 15 MHz PCS licensescovering the California cities of Eureka, Redding, Modesto, and Merced weresold and transferred to Metro PCS on April 15, 2004 for $10,900,000 cashpayment. The license covering Visalia-Porterville, California, had beenpreviously sold and transferred to Leap Wireless on June 8, 2001 inexchange for $9,500,000 cash payment.

The Partnership commenced commercial operations of itsPCS network in Puerto Rico on September 24, 1999 when it began offeringwireless services in Puerto Rico to the public. Prior to that date, its income had consisted of interest earnings only.

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 TEM, whereby the Partnership contributedits two Puerto Rico Licenses to NewComm and TEM provided NewComm a $19,960,000loan to develop the Puerto Rico Licenses. TEM’s loan was made pursuant to a secured convertible promissory note(the “Note”) which would be convertible into 49.9% of NewComm’s equity.  The Note, however, could not be converteduntil the FCC authorized TEM to hold more than a 25% equity interest inNewComm.  By means of a Stock PurchaseAgreement executed on March 12, 2002 (the “Stock Purchase Agreement”), thePartnership agreed to sell shares equal to 0.2% in NewComm to TEM conditionedto obtaining permanent financing and a clear exit path for thePartnership.  This transaction wassubsequently approved by the Department of Homeland Security and the FCC.

8

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In August 2004, the Partnership retained the servicesof a consulting firm (other than its external auditors) to audit the operationsand performance of NewComm under the management of TEM.  The results of the audit were reported to theBoard of Directors of NewComm on September 30, 2004, with the conclusion thatTEM had not performed adequately.  Underthe Partnership’s direction, the Board of Directors of NewComm terminated TEMas manager under the management agreement on October 28, 2004. TEM allegedunlawful and wrongful termination of the technology and management agreement.The Partnership, on behalf of NewComm, was proactively seeking compensation fordamages caused by the mismanagement of TEM either by settlement or within thearbitration process.

On April 21, 2005, NewComm and its shareholdersentered into a Settlement Agreement and Mutual Release in which all the partiesresolved all outstanding disputes. The parties agreed to:

–                 Amutual waiver and release between all parties.

–                 Paymentof $4,392,978.55 in full satisfaction of the technology transfer fee due to TEMunder the technology transfer agreement through issuance of a convertiblepromissory note and capitalization.

–                 Paymentof $2,239,492.21 in full satisfaction of the management fee due to TEM underthe management agreement through issuance of a convertible promissory note andcapitalization.

–                 Paymentto ClearComm and TEM of $11,447,758.28 and $11,396,338.88, respectively, infull satisfaction of the loans granted for purposes of meeting the maturedportion of the FCC debt through issuance of a convertible promissory note andcapitalization.

–                 Inaddition, $62.4 million in other notes and interest payable to TEM wereconverted to equity, for a total equity conversion of $ 80.5 million inaccounts payable to TEM and TEM Puerto Rico, Inc. Upon conversion of allconvertible promissory notes, TEM Puerto Rico, Inc. received an aggregateamount of shares of NewComm equal to 49.9% and the other stockholders hold anaggregate amount of shares of NewComm equal to 50.1%.

–                 Forgivenessfrom TEM of $1,859,068.97 corresponding to all amounts outstanding with TMmas(a TEM affiliate) under the SCL agreements.

–                 Agreementon premium to be paid by TEM/TEM Puerto Rico, Inc. to the other shareholdersupon a potential liquidation or a change in control. TEM and/or TEM PuertoRico, Inc. shall pay a premium from the liquidation/sale proceeds that in anyevent will not exceed 16.6% of the equity valuation.

–                 Inthe event that as of September 30, 2006, NewComm’s net income, as determined inaccordance with U.S. generally accepted accounting principles and measured onthe basis of EBITDA for the twelve-month period then ended, is less than$10,970,000, TEM may require that the Partnership, and NewComm’s shareholders,together with TEM Puerto Rico, Inc., sell their respective interests in NewCommto a third party.

–                 Amendthe Stock Purchase Agreement in order to extend by 3 1⁄2 years, to approximatelyOctober 2008, TEM Puerto Rico, Inc.’s option to buy a majority interest inNewComm and to clarify the procedures that would apply upon the sale of NewCommto a third-party purchaser in the event that neither TEM Puerto Rico, Inc. northe Partnership exercised its rights under the Sale Agreement to purchaseNewComm.

–                 Enterinto a License Brand Agreement that allows the Partnership to use the MoviStarbrand name free of cost for 5 years.

The effectiveness of the Settlement Agreement wasconditioned upon the satisfaction of certain events, including the following:

–                 TEMPuerto Rico, Inc. becoming the holder of 49.9% of NewComm’s capital stock.

–                 Thetermination of the Joint Venture Agreement, the Management Agreement, and theTechnology Transfer Agreement, each of which involved NewComm and included TEMas a party.

–                 Theamendment of the Stock Purchase Agreement, the Sale Agreement, dated March 12,2002 (the “Sale Agreement”), among NewComm, TEM Puerto Rico, Inc., thePartnership, and the other shareholders of NewComm, and the ShareholdersAgreement, dated March 12, 2002 (the “Shareholders Agreement”), among thePartnership, NewComm, TEM Puerto Rico, Inc., and the other shareholders ofNewComm.

–                 TEM’sentry into a line of credit to be used to pay the balance of NewComm’sindebtedness to the FCC; and an extension or refinancing of NewComm’s bridgeloan from ABN Amro Bank, N.V.

OnApril 21, 2005, NewComm reorganized its capital structure by collapsing itsmany classes of common stock into a single class of common stock.

Subsequently,on August 5, 2005, NewComm made effective a Series A Convertible ParticipatingPreferred Stock purchase agreement between itself and its investors to fundcash flow deficiencies. On February 16, 2006, NewComm made effective anotherSeries A Convertible Participating Preferred Stock purchase agreement betweenitself and its investors to fund cash flow deficiencies.

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Immediately after theFebruary 16, 2006 closing, the authorized capital of NewComm is:

1.               50,024.695 shares of preferred convertible ofwhich:

·                  12.372 designated as Series A-1 convertibleparticipating preferred

·                  12.323 designated as Series A-2 convertibleparticipating preferred

·                  25,645.165 designated as Series A-3convertible participating preferred

·                  24,354.835 designated as Series A-4convertible participating preferred

2.               52,044.142 shares of common stock, 2,019.447of which are issued and outstanding and 50,024.695 are reserved for theissuance upon the conversion of the Series A Convertible Preferred Stock.

Resultsof Operations

Three-monthperiod ended June 30, 2006 compared with three-month period endedJune 30, 2005.

Set forth below isa summary of the results of operations before other income and expenses for theperiods indicated:
| ** **                                              | ** ** | **Three-Month Periods Ended** | ** **     | ** **     | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------|----------------|----------------|------------|
| ** **                                              | ** ** | **June 30,**                       | ** **     | ** **     | ** ** |
| ** **                                              | ** ** | **2006**                                | ** **     | **2005**       | ** ** | **Change** | ** ** |
| **Revenues:**                                           | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Service revenues**                                    | ** ** | **$**                                   | **16,793,646** | ** **     | **$**      | **22,686,968** | ** ** | **-26** | **%** |
| **Handsets and accessories sales**                      | ** ** | **1,504,873**                           | ** **     | **1,169,624**  | ** ** | **29** | **%** |
| ** **                                              | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Total  Revenues**                                     | ** ** | **18,298,519**                          | ** **     | **23,856,592** | ** ** | **-23** | **%** |
| **Expenses:**                                           | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Operating expenses, excluding depreciation  expense** | ** ** | **16,581,254**                          | ** **     | **20,809,331** | ** ** | **-20** | **%** |
| ** **                                              | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Income  (loss) from operations**                      | ** ** | **1,717,265**                           | ** **     | **3,047,261**  | ** ** | **-44** | **%** |
| ** **                                              | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Interest  expense**                                   | ** ** | **(4,106,105**                          | **)**          | **(2,913,539** | **)**      | **41** | **%** |
| ** **                                              | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Income  (loss) before other income (expense)**        | ** ** | **$**                                   | **(2,388,840** | **)**          | **$**      | **133,722** | ** ** | **-1886** | **%** |

 

Revenues

ThePartnership’s revenues for the three-month period ended June 30, 2006decreased by 23% from $23.9 million to $18.3 million as compared to the sameperiod in 2005. Total revenues include service as well as handset andaccessories revenues.  Service revenuesfor the three-month period ended June 30, 2006 decreased by 26% whencompared to the same period in 2005 while handset and accessories salesincreased by 29%.  The increase inhandsets and accessories revenues is mainly due to the shift from the handsetsubsidy policy whereby a customer is now required to purchase the handset atcompetitive prices under the new available plans.  The decrease in service revenues is relatedto tighter credit policies and a reduction in the Partnership’s customer baseduring the second quarter of 2006.

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Expenses

The followingtable shows the variances for the three-month period ended June 30, 2006as compared to the same period in 2005.
| **Expenses**                          | ** ** | **Three-months ended June 30,** | ** ** | **%**     | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|-----------|------------|
| ** **                            | ** ** | **2006**                                       | ** ** | **2005**  | ** ** | **Change** | ** ** |
|                                  |       |                                           |       |      |       |   |   |
| Cost of handset  and accessories      |       | 3,069,195                                      |       | $         | 4,362,624  |   | -30 | % |
| Interconnection  expense              |       | 73,120                                         |       | 807,907   |       | -91 | % |
| Sales and  dealers commissions        |       | 1,206,131                                      |       | 1,891,224 |       | -36 | % |
| Salaries and  benefits                |       | 3,408,346                                      |       | 3,859,776 |       | -12 | % |
| Depreciation                          |       | 4,696,195                                      |       | 4,524,200 |       | 4 | % |
| Advertising  expense                  |       | 424,118                                        |       | 1,382,099 |       | -69 | % |
| Legal and  professional services      |       | 836,601                                        |       | 287,520   |       | 191 | % |
| Provision for  doubtful accounts      |       | 909,352                                        |       | 3,293,557 |       | -72 | % |
| Rent expense                          |       | 2,119,792                                      |       | 1,824,870 |       | 16 | % |
| Taxes other than  income              |       | 751,782                                        |       | 529,874   |       | 42 | % |
| Network  Operation and Maintenance    |       | 2,029,605                                      |       | 2,011,529 |       | 1 | % |
| Other expenses                        |       | 1,610,897                                      |       | -136,634  |       | -1279 | % |
| Management fee  to General Partner    |       | 125,000                                        |       | 68,750    |       | 82 | % |
| Services  rendered by related parties |       | 17,315                                         |       | 626,235   |       | -97 | % |
|                                  |       |                                           |       |      |       |   |   |
| Total expenses                        |       | $                                              | 21,277,449 |      | $          | 25,333,531 |   | -16 | % |
|                                       |            |                                                |            |           |            |  |  |  |  |

 

Expensesfor the three-month period ended June 30, 2006 totaled $21,277,449 ascompared to $25,333,531 for the same period in 2005.  There was an overall reduction of 16% inoperating expenses or $4 million during the second quarter of 2006.

Theoverall decrease in expenses is mainly due to decreases in the cost of handsetsand accessories sold, interconnection expenses, sales and dealers commissions,advertising expense, and the provision for doubtful accounts.  The increase in legal and professional feesis related to arbitration proceedings being currently held between thePartnership and Telefonica.

Income fromOperations

Incomefrom operations reflects the ability of the Partnership to generate positivecash flows from its operations, which does not take into consideration expensessuch as amortization, depreciation and interest that must be reported forgenerally accepted accounting principles (GAAP) to arrive at the net income orloss.

Incomefrom operations for the three-month period ended June 30, 2006 of$1,717,265 shows a significant decrease of 44% or $1.3 million as compared tothe income from operations for the same period in 2005.  This decrease in income from operations isrelated to overall 23% reduction in revenues.

Interestexpense for the three month-period ended June 30, 2006 of $4.1 million ($2.9million in 2005) reduce the income from operations and result in net lossbefore other income and expenses of $2.4 million for the second quarter of 2006and a net income of $133,722 for the same period in 2005; an overall increasein net loss of 1886% when compared to 2005. Depreciation expense of $4.7million ($4.4 million in 2005), a non-cashitem, further reduces the book income to $7.1 million in 2005 ($4.3 million in2005).

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Six-monthperiod ended June 30, 2006 compared with six-month period endedJune 30, 2005.

The followingtable summarizes changes in certain financial information for the periodindicated:
| ** **                                                                                   | ** ** | **Six-Month Periods Ended** | ** **     | ** **     | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------------|----------------|----------------|------------|
| ** **                                                                                   | ** ** | **June 30,**                     | ** **     | ** **     | ** ** |
| ** **                                                                                   | ** ** | **2006**                              | ** **     | **2005**       | ** ** | **Change** | ** ** |
| **Revenues:**                                                                                | ** ** | ** **                            | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Service revenues**                                                                         | ** ** | **$**                                 | **34,269,470** | ** **     | **$**      | **45,565,488** | ** ** | **-25** | **%** |
| **Handsets and accessories sales**                                                           | ** ** | **3,156,001**                         | ** **     | **1,907,084**  | ** ** | **65** | **%** |
| ** **                                                                                   | ** ** | ** **                            | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Total  Revenues**                                                                          | ** ** | **37,425,471**                        | ** **     | **47,472,572** | ** ** | **-21** | **%** |
| **Expenses:**                                                                                | ** ** | ** **                            | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Operating expenses, excluding depreciation  expense**                                      | ** ** | **35,001,681**                        | ** **     | **42,670,000** | ** ** | **-18** | **%** |
| ** **                                                                                   | ** ** | ** **                            | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Income  (loss) from operations**                                                           | ** ** | **2,423,790**                         | ** **     | **4,802,572**  | ** ** | **-50** | **%** |
| ** **                                                                                   | ** ** | ** **                            | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Interest  expense**                                                                        | ** ** | **(8,128,965**                        | **)**          | **(5,968,121** | **)**      | **36** | **%** |
| ** **                                                                                   | ** ** | ** **                            | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Income (loss) before other  income (expense), excluding depreciation expense**   | ** ** | **$**                                 | **(5,705,175** | **)**          | **$**      | **(1,165,549** | **)** | **389** | **%** |

 

Revenues

ThePartnership’s revenues for the six-month period ended June 30, 2006totaled $37,425,471, as compared to $47,472,572 for the same period in2005.  Revenues for the six-month period ended June 30, 2006 included$34,269,470 in service revenues and $3,156,001 in handset and accessories salesgenerated from NewComm’s wireless operations, as compared to $45,565,488 and$1,907,084 respectively, for the same period in 2005.  The 25% decrease in service revenues isconsistent with a decrease in the Partnership’s customer base which was offsetby an increase in airtime on contract subscribers.  The increase in handset and accessories salesis related to the  reduction on thehandset subsidy on the handsets sold.

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Expenses

Thefollowing table shows the variances for the six-month period ended June 30,2006 as compared to the same period in 2005:
| **Expenses**                          | ** ** | **Six-months ended June 30,** | ** ** | **%**     | ** ** |
|---------------------------------------|------------|----------------------------------------------|------------|-----------|------------|
| ** **                            | ** ** | **2006**                                     | ** ** | **2005**  | ** ** | **Variances** | ** ** |
|                                  |       |                                         |       |      |       |   |   |
| Cost of handset  and accessories      |       | $                                            | 6,822,385  |      | $          | 9,047,636 |   | -25 | % |
| Interconnection  expense              |       | 699,157                                      |       | 1,603,484 |       | -56 | % |
| Sales and  dealers commissions        |       | 2,352,013                                    |       | 3,925,924 |       | -40 | % |
| Salaries and  benefits                |       | 7,363,951                                    |       | 7,773,695 |       | -5 | % |
| Depreciation                          |       | 9,387,588                                    |       | 9,095,668 |       | 3 | % |
| Advertising  expense                  |       | 720,198                                      |       | 2,092,602 |       | -66 | % |
| Legal and  professional services      |       | 1,384,454                                    |       | 679,302   |       | 104 | % |
| Provision for  doubtful accounts      |       | 2,308,384                                    |       | 5,482,126 |       | -58 | % |
| Rent expense                          |       | 4,238,824                                    |       | 3,617,963 |       | 17 | % |
| Taxes other than  income              |       | 1,718,196                                    |       | 1,572,106 |       | 9 | % |
| Network  Operation and Maintenance    |       | 3,984,441                                    |       | 3,952,237 |       | 1 | % |
| Other expenses                        |       | 3,126,416                                    |       | 1,396,574 |       | 124 | % |
| Management fee  to General Partner    |       | 250,000                                      |       | 137,500   |       | 82 | % |
| Services  rendered by related parties |       | 33,262                                       |       | 1,418,851 |       | -98 | % |
|                                  |       |                                         |       |      |       |   |   |
| Total expenses                        |       | $                                            | 44,389,269 |      | $          | 51,795,668 |   | -14 | % |

 

Expensesfor the six-month period ended June 30, 2006 totaled $44,389,269 ascompared to $51,795,668 for the same period in 2005.  During the six-monthperiod ended June 30, 2006, the Partnership’s expenses decreased by 14%due to pricing adjustments which reduced the handset subsidy on the purchase ofhandsets and contributed to the 25% reduction in cost of handsets andaccessories.  The Partnership managed toreduce overall expenses by implementing new operations procedures andeliminating various outsourcing contracts related to inventory management andcustomer service.  The increase in legaland professional services is related to the arbitration proceedings beingcurrently held between the Partnership and Telefonica.

Income fromOperations

Incomefrom operations reflects the ability of the Partnership to generate positivecash flows from its operations, which does not take into consideration expensessuch as amortization, depreciation and interest that must be reported forgenerally accepted accounting principles (GAAP) to arrive to the net income orloss.

Incomefrom operations for the six-month period ended June 30, 2006 of $2.4million shows a reduction of 50% as compared to the income from operations forthe same period in 2005.  This decreasein income from operations is mainly due to the overall decrease in revenues dueto the reduction of the customer base.

Interestexpense for the six-month period ended June 30, 2006 of $8.1 million ($6.0million in 2005) reduce income from operations and result in a net loss beforeother income (expense) of $5.7 million for the second quarter of 2006 ($1.2million in 2005); an overall reduction in net income before other income(expense) of 389% when compared to 2005. Depreciation expense of $9.4 million ($9.0 million in 2005) reduces thePartnership’s book income but as a non-cash item it does not representadditional disbursements for operations.

Theincrease in depreciation expense is related to the increase in the depreciableassets placed in service during the period.

Liquidity andCapital Resources

As ofJune 30, 2006, the Partnership had cash and cash equivalents amounting to$4,684,382, which are mostly related to proceeds from the sale of theVisalia-Porterville and California licenses in prior periods and the FleetTransaction.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUTMARKET RISK

The Partnership’s exposure to market risk throughderivative 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 inexcess of operating requirements in short-term money market funds.  As of June 30, 2006, the Partnership had cashequivalents and short-term investments of approximately $4,684,382 consistingof cash and highly liquid, short-term investments in money market funds.

ThePartnership’s cash and cash equivalents will increase or decrease by animmaterial amount if market interest rates increase or decrease, and therefore,its exposure to interest rate changes has been immaterial.  The Partnership’s loans payable to the FCChave a fixed interest rate of 6.5% and therefore are not exposed to interestrate risks.  The TEM Note has beenconverted into equity as described on the Settlement Agreement.

ITEM 4. CONTROLS AND PROCEDURES

The Partnership’s Chief Executive Officer, Javier O.Lamoso, and the Partnership’s Chief Financial Officer, Edileen Salicrup, haveevaluated the Partnership’s disclosure controls and procedures within 90 daysof 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 informationconcerning the Partnership and NewComm. The reporting process is designed to ensure that information required tobe disclosed by the Partnership in the reports that it files or submits withthe Commission is recorded, processed, summarized and reported within the timeperiods specified in the Commission’s rules and forms.

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PART II: OTHERINFORMATION

ITEM 1. LEGAL PROCEEDINGS

Informationregarding legal proceedings is disclosed in Part I, Item 1, Notes toInterim Consolidated Financial Statements (unaudited), Section 4, and ishereby incorporated into Part II, Item 1 by this reference.

##### ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS

On September 16, 2005 the Partnership’s GeneralPartner, SuperTel Communications Corp., initiated a consent solicitation amongits partners proposing to extend the Partnership’s termination date untilDecember 31, 2010. By November 30, 2005, the final day of thesolicitation period, a total of 2,072.7 Partnership Units were votedrepresenting 74.96% of the 2,765.20 Partnership Units outstanding and entitledto vote. Of the Partnership Units voted, 1,920.6 Partnership Units (92% of theparticipants) voted in favor of the extension, 129.3 Partnership Units votedagainst the extension and 22.8 abstained. As a result, the Partnership’spartners approved the amendment to the Partnership’s Agreement of LimitedPartnership, as previously amended, to extend the latest date on which thePartnership will dissolve from December 31, 2005 to December 31,2010.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)                                  Listof Exhibits

Exhibit 31.1:  Certification of Chief Executive Officerpursuant to Rule 13a-14(a)/15d-14(a).

Exhibit 31.2:  Certification of Chief Financial Officerpursuant to Rule 13a-14(a)/15d-14(a).

Exhibit 32.1:  Certification Pursuant to Section 1350of Chapter 63 of Title 18 of the United States Code.

Exhibit 32.2:  Certification Pursuant to Section 1350of Chapter 63 of Title 18 of the United States Code.

(b)                                  Noreports on Form 8-K have been filed during the quarter for which thisreport is filed.

ITEMS2, 3 and 5 are not applicable and have been omitted.

SIGNATURES

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.
|                        |   | ClearComm, L.P. |
|------------------------|--------|-----------------|
|                   |   |            |   |   |
|                   |   |            |   |   |
|                   |   | By:             |   | SuperTel Communications Corp. |
|                   |   | Its:            |   | General Partner |
|                   |   |            |   |   |
|                   |   |            |   |   |
| Date: August 14,  2006 |   | By:             |   | /s/ Javier O. Lamoso |
|                   |   | Name:           |   |  Javier O.  Lamoso |
|                   |   | Title:          |   |  President |

 

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