** **

**Securitiesand Exchange Commission**

**Washington,D.C. 20549**

 

 

**FORM 10-Q**

 

**(Mark One)**

**ý****                                 QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2003**

 

**o****                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from           to           **

 

**Commission file****number 0-28362**

 

 

**ClearComm, L.P.**

(Exactname of registrant as specified in its charter)

 
| **Delaware**                                                     | ** ** | **66-0514434**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer  Identification No.) |
|                                                             |       |                                   |
| **268 Muñoz Rivera Ave. Suite 2206  San Juan, Puerto Rico** | ** ** | **00918-1929**                         |
| (Address  of principal executive offices)                        |       | (Zip  Code)                            |

 

Registrant’stelephone number, including area code: **(787) 620-0140**

 

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months and (2) has beensubject to such filing requirements for the past 90 days.

 

 

Yes   ý  No  o

 

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

 

Yes   o  No  ý

 

 

 

----

 

ClearComm,L.P.

INDEX

 
| PART I        | FINANCIAL INFORMATION                                                                                                                            |   |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                                                             |   |
| Item 1.       | Financial Statements                                                                                                                             |   |
|          |                                                                                                                                             |   |
|          | Consolidated  Statements of Assets, Liabilities and Partners’ Deficit as of September 30,  2003 (unaudited) and December 31, 2002 (audited) |   |
|          |                                                                                                                                             |   |
|          | Consolidated  Statements of Revenues and Expenses for the three and nine-month period ended  September 30, 2003 and 2002 (unaudited)             |   |
|          |                                                                                                                                             |   |
|          | Consolidated  Statements of Changes in Partners’ Deficit for the nine-month period ended  September 30, 2003 (unaudited)                    |   |
|          |                                                                                                                                             |   |
|          | Consolidated  Statements of Cash Flows for the nine-month period ended September 30, 2003  and 2002 (unaudited)                                  |   |
|          |                                                                                                                                             |   |
|          | Notes  to Interim Consolidated Financial Statements as of September 30, 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

----

 

PART I   FINANCIAL INFORMATION

ITEM1.  FINANCIAL STATEMENTS

 

ClearComm,L.P.

 

CONSOLIDATEDSTATEMENTS OF ASSETS, LIABILITIES

AND PARTNERS’ DEFICIT

 

 

The accompanying notes are an integral partof these consolidated statements.

 

ClearComm,L.P.

CONSOLIDATEDSTATEMENTS OF REVENUES AND EXPENSES

(2003UNAUDITED and 2002 UNAUDITED )

 
| ** **                                              | ** ** | **Three Month Periods Ended September 30** | ** ** | **Nine Month Periods Ended September 30** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                              | ** ** | **2003**                                   | ** ** | **2002**                                  | ** ** | **2003** | ** ** | **2002** | ** ** |
| **Revenues:**                                           |       |                                       |       |                                      |       |   |   |   |   |
| Service revenues                                        |       | $                                          | 24,908,493 |                                      | $          | 20,340,849 |   | $ | 75,068,668 |   | $ | 72,411,264 |   |
| Handset and accessories sales                           |       | 1,811,184                                  |       | 5,868,471                                 |       | 5,742,195 |   | 9,581,532 |   |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
|                                                    |       | 26,719,677                                 |       | 26,209,320                                |       | 80,810,863 |   | 81,992,796 |   |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Operating Cost and Expenses:**                        |       | 4,970,662                                  |       | 1,346,332                                 |       | 15,888,091 |   | 13,778,576 |   |
| Cost of handset and accessories                         |       | 1,263,297                                  |       | 754,137                                   |       | 3,604,982 |   | 3,734,885 |   |
| Interconnection expense                                 |       | 1,338,561                                  |       | 1,364,697                                 |       | 4,301,766 |   | 3,624,206 |   |
| Sales and dealers commissions                           |       | 4,970,662                                  |       | 1,346,332                                 |       | 15,888,091 |   | 13,778,576 |   |
| Salaries and benefits                                   |       | 3,743,473                                  |       | 4,486,661                                 |       | 12,024,659 |   | 11,822,554 |   |
| Advertising expense                                     |       | 1,919,543                                  |       | 1,398,567                                 |       | 4,917,904 |   | 6,289,900 |   |
| Legal and professional services                         |       | 2,060,866                                  |       | 2,917,803                                 |       | 5,964,637 |   | 7,615,695 |   |
| Provision for doubtful accounts                         |       | 1,063,241                                  |       | 2,143,788                                 |       | 7,155,290 |   | 7,598,802 |   |
| Rent expense                                            |       | 2,176,087                                  |       | 7,269,060                                 |       | 6,565,186 |   | 11,440,856 |   |
| Taxes other than income                                 |       | 1,595,141                                  |       | 1,024,724                                 |       | 4,099,977 |   | 2,949,949 |   |
| Network Operation and Maintenance                       |       | 779,797                                    |       | —                                    |       | 2,518,987 |   | — |   |
| Other expenses                                          |       | 2,098,215                                  |       | 1,468,339                                 |       | 5,465,850 |   | 3,951,991 |   |
| Management fee to General Partner                       |       | 60,750                                     |       | 34,000                                    |       | 182,250 |   | 96,000 |   |
| Services rendered by related parties                    |       | 728,667                                    |       | 1,309,270                                 |       | 2,260,091 |   | 4,330,612 |   |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
|                                                    |       | 23,798,300                                 |       | 25,517,378                                |       | 74,949,670 |   | 77,234,026 |   |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Income (Loss) from Operations**                       |       | 2,921,377                                  |       | 691,942                                   |       | 5,861,193 |   | 4,758,770 |   |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Other Income (Expense)**                              |       |                                       |       |                                      |       |   |   |   |   |
| Interest income                                         |       | 32,637                                     |       | 12,737                                    |       | 163,541 |   | 318,199 |   |
| Depreciation                                            |       | (4,313,717                                 | )          | (4,203,439                                | )          | (12,739,229 | ) | (12,223,068 | ) |
| Gain on sale of NewComm’s Stock to Fleet           |       | —                                     |       | —                                    |       | — |   | 13,000,000 |   |
| Loss of WriteOff in inventory                           |       | (2,413,119                                 | )          | —                                    |       | (6,777,847 | ) | — |   |
| Other Income                                            |       | —                                     |       | —                                    |       | 46 |   | — |   |
| Interest expense                                        |       | (3,132,618                                 | )          | (3,062,518                                | )          | (10,094,425 | ) | (11,796,876 | ) |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
|                                                    |       | (9,826,817                                 | )          | (7,253,220                                | )          | (29,447,914 | ) | (10,701,745 |   |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Net Income (Loss)**                                   |       | $                                          | (6,905,440 | )                                         | $          | (6,561,278 | ) | $ | (23,586,721 | ) | $ | (5,942,975 | ) |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Net Income (Loss) Attributable to General  Partner**  |       | $                                          | (6,905,440 | )                                         | $          | (6,561,278 | ) | $ | (23,586,721 | ) | $ | (5,942,975 | ) |
|                                                    |       |                                       |       |                                      |       |   |   |   |   |
| **Net Income (Loss) Attributable to Limited  Partners** |       | $                                          | —     |                                      | $          | — |   | $ | — |   | $ | — |   |
|                                                         |            |                                            |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

3

----

 

ClearComm,L.P.

CONSOLIDATEDSTATEMENTS OF CHANGES IN PARTNERS’ DEFICIT

(Unaudited)

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 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 month period**

**ended March 31, 2003**     |       | 2,906.1              |       | —      |       | (10,654,679 | )           | (10,654,679 | ) |
|                                                                  |       |                 |       |        |       |        |        |   |   |
| **Net loss for the three month period**

**ended June 30, 2003**      |       | 2,906.1              |       | —      |       | (6,026,602  | )           | (6,026,602 | ) |
|                                                                  |       |                 |       |        |       |        |        |   |   |
| **Net loss for the three month period**

**ended September 30, 2003** |       | 2,906.1              |       | —      |       | (6,905,440  | )           | (6,905,440 | ) |
|                                                                  |       |                 |       |        |       |        |        |   |   |
| **BALANCES,**September 30, 2003                                       |       | 2,906.1              |       | —      |       | $           | (80,881,247 | ) | $ | (80,881,247 | ) |
|                                                                       |            |                      |            |             |            |             |             |  |  |  |  |  |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

4

----

 

ClearComm,L.P.

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(2003 UNAUDITED AND 2002 UNAUDITED)
| ** **                                                   | ** ** | **Nine-Month Periods Ended** | ** **  |
|--------------------------------------------------------------|------------|------------------------------|-------------|
| ** **                                                   | ** ** | **September 30,**            | ** **  | **September 30,** | ** ** |
| ** **                                                   | ** ** | **2003**                     | ** **  | **2002** | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                    |       |                         |        |   |   |
| Net loss                                                     |       | $                            | (23,586,721 | ) | $ | (5,942,975 | ) |
| Adjustments to reconcile net loss to net cash                |       |                         |        |   |   |
| provided by operating activities-                            |       |                         |        |   |   |
| Depreciation and amortization                                |       | 12,739,229                   |        | 12,223,068 |   |
| Equity in losses of unconsolidated subsidiary                |       | 105,456                      |        | — |   |
| Amortization of loan origination fees                        |       | 157,653                      |        | 159,595 |   |
| Amortization of discount on note payable to FCC              |       | 1,840,133                    |        | — |   |
| Inventory reserve                                            |       | 6,777,847                    |        | — |   |
| Bad debt expense                                             |       | 7,155,290                    |        | 7,598,802 |   |
| Changes in operating assets and liabilities-                 |       |                         |        |   |   |
| Increase in interest receivable                              |       | (4,500                       | )           | (4,500 | ) |
| Increase in accounts receivable, before write-offs           |       | (7,024,803                   | )           | (7,724,401 | ) |
| Decrease in insurance claim receivable                       |       | 270,002                      |        | 1,496,320 |   |
| Decrease (increase) in inventories                           |       | (2,232,890                   | )           | (669,282 | ) |
| Increase in prepaid expenses                                 |       | (658,084                     | )           | 719,381 |   |
| Increase accounts payable and accrued liabilities            |       | 3,720,363                    |        | 70,942 |   |
| Decrease in accounts payable to related parties              |       | (1,074,936                   | )           | 2,110,356 |   |
| (Decrease) Increase in accrued interest                      |       | (1,233,659                   | )           | (3,830,392 | ) |
| (Decrease) increase in deferred income                       |       | 345,597                      |        | (497,045 | ) |
| Total adjustments                                            |       | 20,882,698                   |        | 11,652,844 |   |
| Net cash (used in) provided by operating activities          |       | (2,704,023                   | )           | 5,709,869 |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                    |       |                         |        |   |   |
| Redemption of investment securities                          |       | 1,831,736                    |        | — |   |
| Proceeds from the sale of vehicle                            |       | —                       |        | — |   |
| Gain on Sale of Stock to Fleet                               |       | —                       |        | (13,000,000 | ) |
| Acquisition of property and equipment                        |       | (3,689,590                   | )           | (8,655,511 | ) |
| Payment for the investment in subsidiary                     |       | (261,334                     | )           | (205,964 | ) |
| Payments for deferred financing costs                        |       | (60,000                      | )           | — |   |
| Net cash provided by (used in) investing activities          |       | (2,179,188                   | )           | (21,861,475 | ) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                    |       |                         |        |   |   |
| Proceeds from issuance of note payable to Telefonica Moviles |       | 3,662,428                    |        | 13,996,410 |   |
| Proceeds from Sale of Stock to Fleet                         |       |                         |        | 13,000,000 |   |
| Payment of note payable                                      |       | (18,269,142                  | )           | (5,354,111 | ) |
| Net cash (used in) provided by financing activities          |       | (14,606,714                  | )           | 21,642,299 |   |
| **NET (DECREASE) INCREASE IN CASH AND CASH  EQUIVALENTS**    |       | (19,489,925                  | )           | 5,490,693 |   |
| **CASH AND CASH EQUIVALENTS,** beginning of  period          |       | 22,709,786                   |        | 10,241,902 |   |
| **CASH AND CASH EQUIVALENTS,** end of  period                |       | $                            | 3,219,861   |   | $ | 15,732,595 |   |
|                                                         |       |                         |        |   |   |
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOWS  INFORMATION:**     |       |                         |        |   |   |
| **INTEREST PAID**                                            |       | $                            | 6,314,000   |   | $ | 11,796,876 |   |

 

 

5

----

 

CLEARCOMM,L.P.

NOTESTO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2003 (UNAUDITED)

 

1.             BASISOF PRESENTATION AND INTRODUCTION

 

The unaudited interimconsolidated financial statements presented herein have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial statements and with the instructions to Form 10-Q andRegulation S-X pertaining to interim financial statements.  Accordingly, they do not include allinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  The unaudited interim consolidated financialstatements reflect all adjustments, consisting of normal recurring adjustmentsand accruals which, in the opinion of management, are considered necessary fora fair presentation of the Partnership’s financial position at September 30,2003 and results of operations and cash flows for the nine-month periods endedSeptember 30, 2003 and 2002.  Theunaudited interim consolidated financial statements should be read inconjunction with the summary of significant accounting policies and notes toconsolidated financial statements included in the Partnership’s Annual Reporton Form 10-K for the year ended December 31, 2002.  Results of operations for interim periods arenot necessarily indicative of the results that may be expected for the fullyear.

 

ClearComm, L.P. (the “Partnership”)is a limited partnership organized on January 24, 1995 under the laws of theState of Delaware.  The Partnership wasformed to file applications with the Federal Communications Commission (“FCC”)under personal 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 CommunicationsCorp. (“SuperTel”), a Puerto Rico corporation, is the General Partner.  Its total share of the income and losses of thePartnership 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, thePartnership was granted the PCS Block C licenses for Puerto Rico and certaincities in California.

 

On February 4, 1999, thePartnership entered into a joint venture agreement (the “Joint VentureAgreement”) with Telefónica Larga Distancia De Puerto Rico, Inc. (“TLD”) tojointly develop and operate certain PCS licenses in Puerto Rico.  Among the most important provisions of theJoint Venture Agreement are the following:

 

•                                          The Partnershiptransferred all of its Puerto Rico PCS licenses including its related debt withthe FCC to NewComm Wireless Services, Inc. (“NewComm”), a newly organizedPuerto Rico corporation, in exchange for all of NewComm’s issued andoutstanding common stock.

 

•                                          TLD loanedapproximately $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.

 

•                                          Once certainregulatory 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.

 

•                                          The new SaleAgreement provides that at any time after 14 months from the signing of theStock Purchase Agreement with TLD, that is, any time after May 2003, ClearComm(or TLD), as the case may be, may trigger a shareholder obligation to sellNewComm.  Within 30 days of a notice ofsale, 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

 

 

6

----

 

accept the highestprice proposed by an interested buyer, which price must be payable in cash orfreely tradable securities, or a combination thereof, and which must be for aprice not less than the valuation prepared by the investment banker.  Some additional points are that at the closingof the sale of NewComm, the Management Agreement and the Technology TransferAgreement 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.

 

•                                            NewComm and TLDentered into certain management and technology transfer agreements.

 

In September 1999, NewCommcommenced providing PCS services in Puerto Rico.  In each of November 2000, December 2000, andMarch 2001, NewComm received $5,000,000, from Syndicated Communications VenturePartners IV, L.P. (Syncom), a third party, in exchange for approximately 4.92%ownership in NewComm. Syncom has contributed $25 million to NewComm in exchangefor approximately 8.2% ownership interest in NewComm.  The last $10 million installment wascontributed in November 2002.

 

On March 2, 2002, thePartnership sold approximately 4.08% of NewComm to a group of investors led byFleet Development Ventures for $13 million. The Partnership and TEM contributed approximately $9 million each toNewComm in the form of equity and convertible debt, respectively. The Partnershipand TEM have committed an additional $10 million each to close the ProjectFinance Facility.  The Partnershipbelieves it has obtained sufficient funds, together with TEM, to provideNewComm with the capital necessary for the Project Finance Facility and to fundNewComm’s operations.

 

In 2003, TLD transferred allits rights and interests in NewComm to Telefónica Móviles (“TEM”), the wirelesscommunications affiliate of the Telefónica Group, the largest wireless operatorin Latin American 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 $9.2 million to make the scheduledloan payments on the Puerto Rico licenses to the FCC.

 

California Licenses

 

On August 28, 2000, thePartnership entered into a Purchase and Sale Agreement with Leap WirelessInternational (“Leap Wireless”), pursuant to which the Partnership sold theVisalia-Porterville license to Leap Wireless in exchange for a $9,500,000 cashpayment.  The sale was approved by theFCC and closed on June 8, 2001.

 

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

 

 

7

----

 

2.             FINANCINGREQUIREMENTS

 

The accompanyingconsolidated financial statements have been prepared on a going concern basis,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. The Partnership commenced operations in September 1999.  The Partnership has incurred losses amountingto $23.6 million for the nine-month period ended September 30, 2003 andincurred operating losses of $5.9 million for the nine month period endedSeptember 30, 2002.  It also has workingcapital deficits and partners’ capital deficit of $124.5 million and $80.9million, respectively, as of September 30, 2003.  The Partnership is likely to continueincurring losses until such time as its subscriber base generates revenue inexcess of the Partnership’s expenses. Development of a significant subscriber base is likely to take time,during which the Partnership must finance its operations by means other thanits revenues.

 

Aspart of the agreement with TEM, NewComm entered into a contract with LucentTechnologies, Inc. (“Lucent”) that required Lucent to build a network that usesthe Code Division Multiple Access (“CDMA”) protocol.  The total cost of the network wasapproximately $125 million.  During 2000,NewComm’s management and Lucent agreed to formally extend the payment of up to$61.0 million of the total amount due under the contract under a formalfinancing agreement. An Agreement restructuring Lucent’s outstanding debt wasexecuted on June 4, 2003.  The nowoutstanding debt to Lucent is approximately $46 million and is payable over asix-year period at 8% annual interest rate. On June 20, 2003, an agreement restructuring Alcatel’s debt wasexecuted.  Alcatel’s credit is now $1.3million at 6.5% payable over a three year period.  Also, by means of a letter from TEM (and itsparent, Telefónica Internacional, S.A.), TEM has agreed to issue a corporateguarantee to serve as collateral for a $110 million bank loan.

 

Management believes that thePartnership will comply with all the requirements for obtaining the financingand believes that cash and cash equivalents on hand, anticipated growth inrevenues, vendor financing and the permanent financing will be adequate to fundits operations, at a minimum, through the end of 2004.  However, in the absence of improved operatingresults and cash flows, and without the closing of its contemplated permanentfinancing, the Partnership may face liquidity problems to fund its operationsand meet its obligations.  As a result ofthese matters, 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— CHANGE IN ACCOUNTING METHOD

 

Effective January 1, 2003,the Partnership changed its method to account for the loss on sale of handsetsto customers, from the recognition of such loss at the time of sale, to theestablishment of an inventory reserve to account for that loss at the end ofeach accounting period.  Managementbelieves that this new method better matches costs and revenues.

 

In accordance with AccountingPrinciple Board Opinion No. 20, “Accounting Changes”, the change in accountingmethod explained above requires the determination of the cumulative effect, asif the newly adopted 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 September 30, 2003 was $6,777,847.

 

4.             RECENTACCOUNTING PRONOUNCEMENTS:

 

(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 aggregated and,if material, classified as an extraordinary item, net of related income taxeffect. As a result, the criteria in Opinion 30 will now be used to classifythose gains and losses.  SFAS No. 145becomes effective for financial statements issued on or after May 15,2002.  Requirements and guidance of SFASNo. 145 were applied in connection with the write-off of the FCC debt discount.

 

 

8

----

 

(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 nothave a material effect on the Partnership’s consolidated financial position orresults from operations.

 

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

 

•                                          Measure andrecognize the fair value of the guarantee at inception (for many guarantees,fair value will be determined using a present value method); and

 

•                                          Provide new disclosuresregarding the nature of any recourse provisions or assets held as payments, thecurrent carrying amount of the guarantee liability, and the nature of anyrecourse provisions or assets held as collateral that could be liquidated andallow the guarantor to recover all or a portion of its payments in the eventguarantee payments are required.

 

The disclosure requirementof this Interpretation is effective for financial statements for fiscal yearsending after December 15, 2002; it did not have any effect on thePartnership’s financial statements.  Theinitial recognition 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 theapplication of this standard will have any effect on the Partnership’sconsolidated results of operations or financial condition.

 

5.             LEGALPROCEEDINGS

 

From time to time thePartnership is involved in litigation arising from the ordinary course ofbusiness, some of which is ongoing.  TheGeneral Partner does not believe that any litigation involving the Partnershipwill have a material adverse effect on the Partnership’s business or financialcondition.

 

ITEM2. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-looking statementsin this Form 10-Q and future filings by the Partnership on Form 10-Q and Form8-K and future oral and written statements by the Partnership may includecertain forward-looking statements, including (without limitation) statementswith respect to anticipated future operating and financial performance, growthopportunities and growth rates, acquisition and divestitive 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-lookingstatements by the Partnership are based on estimates, projections, beliefs andassumptions of management and are not guarantees of future performance.  The

 

9

----

 

Partnership disclaims any obligation toupdate or revise any forward-looking statement based on the occurrence offuture events, the receipt of new information, or otherwise.

 

Actual future performance,outcomes and results may differ materially from those expressed inforward-looking statements made by the Partnership as a result of a number ofimportant factors.  Examples of thesefactors include, without limitation, rapid technological developments andchanges in the telecommunications industry; ongoing deregulation (and theresulting likelihood of significantly increased price and product/servicecompetition) in the telecommunications industry as a result of theTelecommunications Act of 1996 and other similar federal and state legislationand the federal and state rules and regulations enacted pursuant to thatlegislation; regulatory limitations on the Partnership’s ability to compete inthe telecommunications services industry; and continuing consolidation in thetelecommunications services industry.  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

 

The information contained inthis Part I, Item 2 updates, and should be read in conjunction with,information set forth in Part II, Items 7 and 8, in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2002, in addition to the interimconsolidated financial statements and accompanying notes presented in Part 1,Item 1 of this Form 10-Q.  ThePartnership was formed in January 1995 and is managed by its General Partner,SuperTel Communications Corp.  ThePartnership was organized to acquire, own, consult and operate personalcommunication services PCS licenses in the Block C band and to take advantageof the benefits that the FCC has set aside for entrepreneurs.

 

The Partnership owns thePuerto Rico Licenses, which consist of two 15 MHz PCS licenses covering PuertoRico. The license covering Visalia-Porterville, California, had been previouslysold and transferred to Leap Wireless on June 8, 2001 in exchange for$9,500,000 cash payment.

 

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

 

The Partnership establishedits Puerto Rico network by forming a wholly owned subsidiary, NewComm, onJanuary 29, 1999.  On February 4,1999, the Partnership and NewComm entered into an agreement with TLD, wherebythe Partnership contributed its two Puerto Rico Licenses to NewComm and TLDprovided NewComm a $19,960,000 loan to develop the Puerto Rico Licenses.  TLD’s loan is pursuant to a securedconvertible promissory note (the “Note”) which is convertible into 49.9% ofNewComm’s equity.  The Note, however,cannot be converted until the FCC authorizes TEM (as TLD’s assignee) to holdmore than a 25% equity interest in NewComm. By means of a Stock Purchase Agreement executed on March 12, 2002, thePartnership has agreed to sell shares equal to 0.2% in NewComm to TEM (as TLD’sassignee) conditioned upon obtaining permanent financing and a clear exit pathfor the Partnership.  This transaction ispending Department of Homeland Security and FCC approval.  The Partnership believes this transaction andpermanent finance will be obtained before the end of 2004.

 

Results of Operations

 

 

Set forth below is a summaryof the results of operations before other income and expenses for the three-monthperiod ended September 30, 2003 as compared with the three-month period endedSeptember 30, 2002:

 

10

----

 
| ** **                             | ** ** | **Three-Month  Periods Ended** | ** **     | ** **     | ** ** |
|----------------------------------------|------------|--------------------------------|----------------|----------------|------------|
| ** **                             | ** ** | **September  30,**             | ** **     | ** **     | ** ** |
| ** **                             | ** ** | **2003**                       | ** **     | **2002**       | ** ** | **Change** | ** ** |
| **Revenues:**                          |       |                           |           |           |       |   |   |
| **Service revenues**                   | ** ** | **$**                          | **24,908,493** | ** **     | **$**      | **20,340,849** | ** ** | **22** | **%** |
| **Handsets and accessories sales**     | ** ** | **1,811,184**                  | ** **     | **5,868,471**  | ** ** | **-69** | **%** |
| ** **                             | ** ** | ** **                     | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Total Revenues**                     | ** ** | **26,719,677**                 | ** **     | **26,209,320** | ** ** | **2** | **%** |
| **Expenses:**                          | ** ** | ** **                     | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Operating expenses**                 | ** ** | **23,798,300**                 | ** **     | **25,517,378** | ** ** | **-7** | **%** |
| ** **                             | ** ** | ** **                     | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Income (loss) from operations**      | ** ** | **2,921,377**                  | ** **     | **691,942**    | ** ** | **322** | **%** |
| ** **                             | ** ** | ** **                     | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Interest expense**                   | ** ** | **(3,132,618**                 | **)**          | **(3,062,518** | **)**      | **2** | **%** |
| ** **                             | ** ** | ** **                     | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Depreciation and amortization**      | ** ** | **(4,313,717**                 | **)**          | **(4,203,439** | **)**      | **3** | **%** |
| ** **                             | ** ** | ** **                     | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Loss before other income (expense)** | ** ** | **$**                          | **(4,524,958** | **)**          | **$**      | **(6,574,015** | **)** | **-31** | **%** |

 

Revenues

 

The Partnership’s revenuesfor the three-month period ended September 30, 2003 increased by 2% from $26.2million to $26.7 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 September 30, 2003 increased by 22% when compared to the same period in2002 while handset and accessories sales decreased by 69% or 4.1 million.  The decrease in handsets and accessoriesrevenues is mainly due to handset units pricing adjustments and to a flatgrowth in the subscriber base for the period as compared to 2002.  The increase in service revenues is relatedto higher airtime consumption generated by existing subscribers and to theratio of contract subscribers and prepaid accounts.

 

Expenses

 

The following table showsthe variances for the three month period ended September 30, 2003 as comparedto the same period in 2002:

 
| **Cost of handset and accesories**                                 | ** ** | **$**         | **4,970,662**  | ** **    | **$**      | **1,346,332**  | ** ** | **269** | **%** |
|--------------------------------------------------------------------|------------|---------------|----------------|---------------|------------|----------------|------------|---------|-------|
| **Interconnection expense**                                        | ** ** | **1,263,297** | ** **     | **754,137**   | ** ** | **68**         | **%**      |
| **Sales and dealers commissions**                                  | ** ** | **1,338,561** | ** **     | **1,364,697** | ** ** | **-2**         | **%**      |
| **Salaries and benefits**                                          | ** ** | **3,743,473** | ** **     | **4,486,661** | ** ** | **-17**        | **%**      |
| **Selling and advertising expense**                                | ** ** | **1,919,543** | ** **     | **1,398,567** | ** ** | **37**         | **%**      |
| **Legal and professional services**                                | ** ** | **2,060,866** | ** **     | **2,917,803** | ** ** | **-29**        | **%**      |
| **Provision for doubtful accounts**                                | ** ** | **1,063,241** | ** **     | **2,143,788** | ** ** | **-50**        | **%**      |
| **Rent expense**                                                   | ** ** | **2,176,087** | ** **     | **7,269,060** | ** ** | **-70**        | **%**      |
| **Taxes, other than income**                                       | ** ** | **1,595,141** | ** **     | **1,024,724** | ** ** | **56**         | **%**      |
| **Network operation and maintenance**                              | ** ** | **779,797**   | ** **     | **—**    | ** ** | **0**          | **%**      |
| **Other expenses**                                                 | ** ** | **2,098,215** | ** **     | **1,468,339** | ** ** | **43**         | **%**      |
| **Management fee to General Partner**                              | ** ** | **60,750**    | ** **     | **34,000**    | ** ** | **79**         | **%**      |
| **Consulting and legal services**

**rendered by related parties** | ** ** | **728,667**   | ** **     | **1,309,270** | ** ** | **-44**        | **%**      |
| ** **                                                         | ** ** | ** **    | ** **     | ** **    | ** ** | ** **     | ** ** |
| **Total Expenses**                                                 | ** ** | **$**         | **23,798,300** | ** **    | **$**      | **25,517,378** | ** ** | **-7**  | **%** |

 

 

11

----

 

Expenses for the three-monthperiod ended September 30, 2003 totaled $23,798,300 as compared to $25,517,378for the same period in 2002.  During thethird quarter of 2003, the Partnership’s expenses decreased by 7% or $1.7million.

 

The overall decrease inexpenses of $1.7 million is mainly due to the decrease in the cost of handsetand accessories and a decrease in the provision for doubtful accounts due topricing adjustments and the migration to the new billing system which moreefficiently identifies delinquent customers. The increases in taxes other than income and other expenses and thedecrease in legal services are actually related to reclassification of certainaccounts.

 

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 generally acceptedaccounting principles (GAAP) to arrive to the net income or loss.

 

Income from operations forthe three month period ended September 30, 2003 of $2,921,377 shows asubstantial increase of 377% or $2.2 million as compared to the income fromoperations for the same period in 2002. The increase in income from operation is related to the increase inairtime consumption of existing customers and the mix between contractcustomers and prepaid contracts.

 

Interest expense for thethree-month period ended September 30, 2003 of $3.1 million ($3.0 million in2002) and depreciation expense of $4.3 million ($4.2 million in 2002) reducethe income from operations and result in a net loss before other income of$4,524,928 for the third quarter of 2003 ($6,574,015 in 2002); an overallreduction in net loss of 31% when compared to 2002.  The overall reduction in net loss of $2.2million is mainly due to efficiencies generated by the migration to a newbilling system and the increase in airtime consumption by existing clients.

 

The increase in depreciationexpense is related to the increase in the depreciable assets placed in serviceduring the period.

 

 

12

----

 

The following tablessummarize changes in certain financial information for the nine-month periodended September 30, 2003 as compared with the nine-month period ended September30, 2002.

 

Revenues

 
| ** **                             | ** ** | **Nine-Month  Periods Ended** | ** **     | ** **      | ** ** |
|----------------------------------------|------------|-------------------------------|----------------|-----------------|------------|
| ** **                             | ** ** | **September  30,**            | ** **     | ** **      | ** ** |
| ** **                             | ** ** | **2003**                      | ** **     | **2002**        | ** ** | **Change** | ** ** |
| **Revenues:**                          |       |                          |           |            |       |   |   |
| **Service revenues**                   | ** ** | **$**                         | **75,068,668** | ** **      | **$**      | **72,411,264** | ** ** | **4** | **%** |
| **Handsets and accessories sales**     | ** ** | **5,742,195**                 | ** **     | **9,581,532**   | ** ** | **-40** | **%** |
| ** **                             | ** ** | ** **                    | ** **     | ** **      | ** ** | ** ** | ** ** |
| **Total Revenues**                     | ** ** | **80,810,863**                | ** **     | **81,992,796**  | ** ** | **-1** | **%** |
| **Expenses:**                          | ** ** | ** **                    | ** **     | ** **      | ** ** | ** ** | ** ** |
| **Operating expenses**                 | ** ** | **74,949,670**                | ** **     | **77,234,026**  | ** ** | **-3** | **%** |
| ** **                             | ** ** | ** **                    | ** **     | ** **      | ** ** | ** ** | ** ** |
| **Income (loss) from operations**      | ** ** | **5,861,193**                 | ** **     | **4,758,770**   | ** ** | **23** | **%** |
| ** **                             | ** ** | ** **                    | ** **     | ** **      | ** ** | ** ** | ** ** |
| **Interest expense**                   | ** ** | **(10,094,425**               | **)**          | **(11,796,876** | **)**      | **-14** | **%** |
| ** **                             | ** ** | ** **                    | ** **     | ** **      | ** ** | ** ** | ** ** |
| **Depreciation and amortization**      | ** ** | **(12,739,229**               | **)**          | **(12,223,068** | **)**      | **4** | **%** |
| ** **                             | ** ** | ** **                    | ** **     | ** **      | ** ** | ** ** | ** ** |
| **Loss before other income (expense)** | ** ** | **(16,972,461**               | **)**          | **(19,261,174** | **)**      | **-12** | **%** |
|                                        |            |                               |                |                 |            |  |  |  |  |

 

 

 

The Partnership’s revenuesfor the nine-month period ended September 30, 2003 totaled $80,810,863 ascompared to $81,992,796 for the same period in 2002.  Revenues for thenine-month period ended September 30, 2003 included $75,068,668 in servicerevenues and $5,742,195 in handset and accessories sales generated from NewComm’swireless operations, as compared to $72,411,264 and $9,581,532 respectively,for the same period in 2002.  Theincrease in service revenues is mainly due to an increase in the customer baseand airtime used for the period as compared to the same period in 2002.  While the decrease in handset and accessoriessales is related to pricing adjustments and a reduction in new accounts.

 

 

13

----

 

 

 

Expenses

 

Expenses for the nine-monthperiod ended September 30, 2003 totaled $74,949,670 as compared to $77,234,026for the same period in 2002.  During the nine-month period ended September30, 2003, the Partnership’s expenses decreased by 3% due to a reduction insales and dealers commissions which are proportionally related to the mixbetween contract and non contract customers. The other variances as shown above are mostly related toreclassifications among accounts made at the Partnership’s subsidiary level toproperly record transactions in a more efficient manner.

 

Income from Operations

 

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

 

Income from operations forthe nine month period ended September 30, 2003 of $5,861,193 shows asubstantial increase of 23% as compared to the same period in 2002.  This increase in income from operations isrelated to the reduction of overall expenses at the Partnership’s subsidiarylevel due to efficiencies in operational procedures.

 

Interest expense for thenine month period ended September 30, 2003 of $10.0 million ($11.8 million in2002) and depreciation expense of $12.7 million ($12.2 million in 2002) reduceincome from operations and result in a net loss before other income (expense)of $16,972,461 for the third quarter of 2003 ($19,264,174 in 2002); an overallreduction in net loss before other income (expense) of 12% when compared to2002.

 

The increase in depreciationexpense is related to a change in the depreciable assets placed in serviceduring the period.

 

Liquidity and Capital Resources

 

As of September 30, 2003,the Partnership had cash and cash equivalents amounting to $3,219,861, whichare mostly related to proceeds from the sale of the Visalia-Porterville,California license in the second quarter of 2001, and the Fleet Transaction.

 

14

----

 

As part of the agreementwith TEM, NewComm entered into a contract with Lucent Technologies, Inc. (“Lucent”)that required Lucent to build a network that uses the Code Division MultipleAccess (“CDMA”) protocol.  The total costof the original network was approximately $125 million.  During 2000, NewComm’s management and Lucentagreed on formally extending the payment of up to $61 million of the totalamount of network construction payable, at the time, under a formal financingagreement.  An agreement restructuringLucent’s debt was executed on June 4, 2003.  This outstanding debt is approximately $46million at a fixed annual interest over a six year term.

 

In addition, the Partnershipowes the United States federal government approximately $43 million plusaccrued interest at 6.5% in connection with the acquisition of its PCSlicenses.

 

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

 

The Partnership estimatesthat the total cost to implement NewComm’s business plan will be approximately$200 million.  This consists ofapproximately $125 million in costs associated with building out the PuertoRico Network, and approximately $75 million to fund NewComm’s operations untilthese become profitable.  NewCommobtained a short term financing (“Bridge Loan”) of $60 million which has beenextended until December 31, 2004, with an interest rate of .75% over 90-dayLIBOR.  The Bridge Loan is now guaranteedby Telefónica Internacional, S.A. (TISA), an affiliate of TEM.  ClearComm and TEM continue to work towardssecuring a permanent financing facility.

 

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

 

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

 

ITEM3. QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

The Partnership’s exposureto market risk through derivative financial instruments and other financialinstruments is not material because the Partnership does not use derivativefinancial instruments and does not have foreign currency exchange risks.  The Partnership invests cash balances inexcess of operating requirements in short-term money market funds.  As of September 30, 2003, the Partnership hadcash equivalents and short-term investments of approximately $3,219,861consisting of cash and highly liquid, short-term investments in money marketfunds.

 

The Partnership’s cash andcash equivalents will increase or decrease by an immaterial amount if marketinterest rates increase or decrease, and therefore, its exposure to interestrate 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 relating toindebtedness of NewComm bears interest at the floating rate of the 90-day LIBORplus 1.5%.

 

ITEM4. CONTROLS ANDPROCEDURES

 

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

 

Mr. Lamoso and Ms. Salicruphave concluded that the Partnership’s disclosure controls and proceduresprovide reasonable assurance that the Partnership can meet its disclosureobligations.  The Partnership’sdisclosure controls and procedures are based upon a roll-up of financial andnon-financial reporting that is consolidated by TEM pursuant to the Partnership’sManagement Agreement with TEM.  Thereporting process is designed to ensure that information required to bedisclosed by the Partnership in the reports that it files or submits with theCommission is recorded, processed, summarized and reported within the timeperiods specified in the Commission’s rules and forms.

 

There have been nosignificant changes in the Partnership’s internal controls or in other factorsthat could significantly affect these controls subsequent to the date of theirevaluation.

 

 

15

----

 

PART II: OTHER

 

INFORMATION

 

ITEM1.  LEGAL PROCEEDINGS

 

Information regarding legalproceedings is disclosed in Part I, Item 1, Notes to Interim ConsolidatedFinancial Statements as of September 30, 2003 (unaudited), Section 5, and ishereby incorporated into Part II, Item 1 by this reference.

 

ITEM6.  EXHIBITS AND REPORTS ON FORM 8-K

 
| (a)    | List of Exhibits                                                                                                 |                                                                                             |   |
|--------|------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                             |                                                                                             |   |
|   | 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)    | The Partnership filed a  Form 8-K/A on July 7, 2003 for the purpose of making a report under Item 4  and Item 7. |                                                                                             |

 

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

 

16

----

 

 

SIGNATURES

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                    |   | ClearComm, L.P.                                       |
|-------------------------|--------|-------------------------------------------------------|
|                    |   |                                                  |
|                    |   |                                                  |
|                    | By:    |  SuperTel Communications Corp., General  Partner |
|                    |   |                                                  |
|                    |   |                                                  |
| Date: February 22, 2005 |   | By: /s/ Javier O. Lamoso                              |
|                    |   | Name: Javier O. Lamoso                                |
|                    |   | Title: President                                      |

 

 

17

----

 

 

**EXHIBIT INDEX**

 

 
| 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 |
|           |   |                                                                                              |

 

 

18

----