**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

**(Mark One)**

** **

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGEACT OF 1934

** **

**For the quarterly periodended September 30, 2006**

** **

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGEACT 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          |   | (I.R.S. Employer     |
| incorporation or  organization)           |   | Identification  No.) |
|                                      |   |                 |
| **1112  Weston Road, Suite 117**          |   | ** **           |
| **Weston,  Florida**                      |   | **33326**            |
| (Address of  principal executive offices) |   | (Zip Code)           |

 

Registrant’s telephone number, including area code: **(954) 496-4325**

 

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 September 30, 2006 (unaudited) and December 31,  2005 (audited) |   |   |
|         |   |                                                                                                                                                  |   |   |
|         |   | Consolidated Statements of Revenues and Expenses for  the three-month and nine-month periods ended September 30, 2006 and 2005  (unaudited).     |   |   |
|         |   |                                                                                                                                                  |   |   |
|         |   | Consolidated Statements of Changes in Partners’  Deficit for the nine-month period ended September 30, 2006 (unaudited)                     |   |   |
|         |   |                                                                                                                                                  |   |   |
|         |   | Consolidated Statements of Cash Flows for the  nine-month periods ended September 30, 2006 and 2005 (unaudited)                                  |   |   |
|         |   |                                                                                                                                                  |   |   |
|         |   | Notes to Interim Consolidated Financial Statements as  of September 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 6.      |   | Exhibits                                                                                                                                              |   |   |
|         |   |                                                                                                                                                  |   |   |
| Signatures.  |   |                                                                                                                                                  |   |   |

 

2

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**PART I   FINANCIAL INFORMATION**

**ITEM 1.  FINANCIAL STATEMENTS**

**ClearComm, L.P.CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIESAND PARTNERS’ DEFICIT**
| ** **                                                          | ** ** | **September 30** | ** **      | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|-----------------|-----------------------|------------|
| ** **                                                          | ** ** | **2006**              | ** **      | **2005**              | ** ** |
| ** **                                                          | ** ** | **(Unaudited)**       | ** **      | **(Audited)**         | ** ** |
| **ASSETS:**                                                         | ** ** | ** **            | ** **      | ** **            | ** ** |
| **Cash and cash equivalents**                                       | ** ** | **$**                 | **2,687,557**   | ** **            | **$**      | **6,609,074** | ** ** |
| **Accounts receivable, net**                                        | ** ** | **5,708,369**         | ** **      | **6,127,025**         | ** ** |
| **Accounts receivable, other**                                      | ** ** | **2,350,501**         | ** **      | **1,851,278**         | ** ** |
| **Inventories, net**                                                | ** ** | **1,824,351**         | ** **      | **2,953,707**         | ** ** |
| **Prepaid expenses**                                                | ** ** | **1,416,388**         | ** **      | **1,389,516**         | ** ** |
| **Leasehold rights, net**                                           | ** ** | **3,565,053**         | ** **      | **3,465,685**         | ** ** |
| **PCS licenses, net**                                               | ** ** | **46,750,449**        | ** **      | **46,750,449**        | ** ** |
| **Deferred financing costs**                                        | ** ** | **810,941**           | ** **      | **658,660**           | ** ** |
| **Property and equipment, net**                                     | ** ** | **57,243,002**        | ** **      | **68,676,259**        | ** ** |
| ** **                                                          | ** ** | ** **            | ** **      | ** **            | ** ** |
| ** **                                                          | ** ** | **$**                 | **122,356,611** | ** **            | **$**      | **138,481,653** | ** ** |
| ** **                                                          | ** ** | ** **            | ** **      | ** **            | ** ** |
| **LIABILITIES AND PARTNERS’  DEFICIT:**                        | ** ** | ** **            | ** **      | ** **            | ** ** |
| **Accounts payable and accrued  liabilities**                       | ** ** | **$**                 | **33,602,818**  | ** **            | **$**      | **37,256,948** | ** ** |
| **Notes payable — short-term**                                 | ** ** | **67,704,262**        | ** **      | **14,162,119**        | ** ** |
| **Notes payable — long-term**                                  | ** ** | **97,875,527**        | ** **      | **143,705,806**       | ** ** |
| ** **                                                          | ** ** | ** **            | ** **      | ** **            | ** ** |
| **Unitholders’ capital (deficit)  2,768.20**                   | ** ** | ** **            | ** **      | ** **            | ** ** |
| **Units in 2006 and 2005 and 1  General partnership interest** | ** ** | **(76,825,996**       | **)**           | **(56,643,220**       | **)**      |
| ** **                                                          | ** ** | ** **            | ** **      | ** **            | ** ** |
| **Total liabilities and partner’s  deficit**                   | ** ** | **$**                 | **122,356,611** | ** **            | **$**      | **138,481,653** | ** ** |
| ** **                                                          | ** ** | ** **            | ** **      | ** **            | ** ** |
| **BOOK VALUE (DEFICIT) PER UNIT**                                   | ** ** | **$**                 | **(27,753**     | **)**                 | **$**      | **(20,462** | **)** |

 

Theaccompanying notes are an integral part of these consolidated statements.

3

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**ClearComm, L.P.CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES(UNAUDITED)**
| ** **                                              | ** ** | **Three-Month Periods Ended September 30** | ** ** | **Nine-Month Periods Ended September 30** | ** ** |
|---------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                                       | ** ** | **2005**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **Revenues:**                                           | ** ** | ** **                                                     | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenues                                        |       | $                                                              | 15,757,586 |                                                          | $          | 21,016,249 |   | $ | 50,027,056 |   | $ | 66,581,737 |   |
| Handset and  accessories sales                          |       | 1,914,195                                                      |       | 1,436,425                                                     |       | 5,070,196 |   | 3,343,509 |   |
|                                                    |       | 17,671,781                                                     |       | 22,452,674                                                    |       | 55,097,252 |   | 69,925,246 |   |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **Operating  Cost and Expenses:**                       | ** ** | ** **                                                     | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of handset  and accessories                        |       | 2,759,906                                                      |       | 3,527,856                                                     |       | 9,582,291 |   | 12,575,492 |   |
| Interconnection  expense                                |       | 378,690                                                        |       | 799,737                                                       |       | 1,077,847 |   | 2,403,221 |   |
| Sales and  dealers commissions                          |       | 572,632                                                        |       | 1,168,744                                                     |       | 2,924,645 |   | 5,094,668 |   |
| Salaries and  benefits                                  |       | 3,117,932                                                      |       | 3,657,896                                                     |       | 10,481,883 |   | 11,431,591 |   |
| Depreciation                                            |       | 4,831,831                                                      |       | 4,648,615                                                     |       | 14,219,419 |   | 13,744,283 |   |
| Advertising  expense                                    |       | 386,369                                                        |       | 337,457                                                       |       | 1,106,567 |   | 2,430,059 |   |
| Legal and  professional services                        |       | 2,321,852                                                      |       | 564,965                                                       |       | 3,706,306 |   | 1,244,267 |   |
| Provision for  doubtful accounts                        |       | 1,160,180                                                      |       | 3,357,054                                                     |       | 3,468,564 |   | 8,839,180 |   |
| Rent expense                                            |       | 2,148,213                                                      |       | 1,893,517                                                     |       | 6,387,037 |   | 5,511,480 |   |
| Taxes other than  income                                |       | 768,243                                                        |       | 1,044,220                                                     |       | 2,486,439 |   | 2,616,326 |   |
| Network  Operation and Maintenance                      |       | 1,716,747                                                      |       | 2,093,366                                                     |       | 5,701,188 |   | 6,045,603 |   |
| Other expenses                                          |       | 1,570,674                                                      |       | 1,678,100                                                     |       | 4,697,090 |   | 3,009,706 |   |
| Management fee  to General Partner                      |       | 132,435                                                        |       | 89,420                                                        |       | 382,435 |   | 291,888 |   |
| Services  rendered by related parties                   |       | 10,500                                                         |       | 347,867                                                       |       | 43,762 |   | 1,766,718 |   |
|                                                    |       | 21,876,204                                                     |       | 25,208,814                                                    |       | 66,265,473 |   | 77,004,482 |   |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **Income  (Loss) from Operations**                      |       | (4,204,423                                                     | )          | (2,756,140                                                    | )          | (11,168,221 | ) | (7,079,236 | ) |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **Other  Income (Expense)**                             | ** ** | ** **                                                     | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income                                         |       | 11,577                                                         |       | 61,102                                                        |       | 82,110 |   | 469,262 |   |
| Other Income FCC  Reimbursement                         |       | 1,356,237                                                      |       | —                                                        |       | 1,356,237 |   | — |   |
| Other Income                                            |       | —                                                         |       | —                                                        |       | — |   | 32,644 |   |
| Interest expense                                        |       | (4,323,936                                                     | )          | (3,042,508                                                    | )          | (12,452,901 | ) | (9,010,629 | ) |
|                                                    |       | (2,956,122                                                     | )          | (2,981,406                                                    | )          | (11,014,554 | ) | (8,508,723 | ) |
| **Net  Income (Loss)**                                  |       | $                                                              | (7,160,545 | )                                                             | $          | (5,737,546 | ) | $ | (22,182,775 | ) | $ | (15,587,959 | ) |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **Net  Income (Loss) Attributable to General Partner**  |       | $                                                              | (7,160,545 | )                                                             | $          | (5,737,546 | ) | $ | (22,182,775 | ) | $ | (15,587,959 | ) |
|                                                    |       |                                                           |       |                                                          |       |   |   |   |   |
| **Net  Income (Loss) Attributable to Limited Partners** |       | $                                                              | —     |                                                          | $          | — |   | $ | — |   | $ | — |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

4

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**ClearComm, L.P.CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ DEFICIT(unaudited)FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 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 | ) |
| ** **                                                               | ** ** | ** **                | ** ** | ** **  | ** ** | ** **  | ** **  | ** ** | ** ** |
| **Net loss for the three months period ended  September 30, 2006**  |       |                      |       |        |       | (7,160,545  | )           | (7,160,545 | ) |
| ** **                                                               | ** ** | ** **                | ** ** | ** **  | ** ** | ** **  | ** **  | ** ** | ** ** |
| **BALANCES,**September 30, 2006                                          |       | 2,768.2                   |       | —      |       | $           | (76,825,996 | ) | $ | (76,825,996 | ) |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

5

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ClearComm, L.P.CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
| ** **                                                                       | ** ** | **Nine-Month Periods Ended** | ** **  |
|----------------------------------------------------------------------------------|------------|----------------------------------------|-------------|
| ** **                                                                       | ** ** | **September 30,**                 | ** **  | **September 30,** | ** ** |
| ** **                                                                       | ** ** | **2006**                               | ** **  | **2005** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                       | ** ** | ** **                             | ** **  | ** ** | ** ** |
| Net loss                                                                         |       | $                                      | (22,182,775 | ) | $ | (15,587,959 | ) |
| Adjustments to reconcile net loss to net cash provided  by operating activities- |       |                                   |        |   |   |
| Depreciation and amortization                                                    |       | 14,219,419                             |        | 13,744,283 |   |
| Equity in losses of unconsolidated subsidiary                                    |       | —                                 |        | 30,000 |   |
| Inventory Reserve                                                                |       | —                                 |        | 172,033 |   |
| Bad debt expense                                                                 |       | 3,468,564                              |        | 8,839,180 |   |
| Amortization of deferred financing costs                                         |       | 310,656                                |        | — |   |
| Gain from sale of vehicles                                                       |       | —                                 |        | (527,457 | ) |
| Capitalized interest                                                             |       | —                                 |        | 102,919 |   |
| Other Non-Cash transactions                                                      |       | (164,061                               | )           | — |   |
| Changes in operating assets and liabilities-                                     |       |                                   |        |   |   |
| Increase in accounts receivable, before write-offs                               |       | (3,549,131                             | )           | (9,244,550 | ) |
| Decrease in insurance claim receivable                                           |       | —                                 |        | 403,657 |   |
| Decrease in inventories                                                          |       | 1,129,356                              |        | 1,891,425 |   |
| Increase in prepaid expenses                                                     |       | (26,871                                | )           | (1,039,687 | ) |
| Decrease in accounts payable and accrued liabilities                             |       | (5,267,939                             | )           | (2,123,735 | ) |
| (Decrease) increase in accounts payable to related  parties                      |       | 512,366                                |        | (2,831,084 | ) |
| Increase in accrued interest                                                     |       | 1,964,189                              |        | 1,692,243 |   |
| (Decrease) increase in deferred income                                           |       | 68,346                                 |        | (25,424 | ) |
| Total adjustments                                                                |       | 12,664,894                             |        | 11,083,803 |   |
| Net cash provided by operating activities                                        |       | (9,517,881                             | )           | (4,504,156 | ) |
| ** **                                                                       | ** ** | ** **                             | ** **  | ** ** | ** ** |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                       | ** ** | ** **                             | ** **  | ** ** | ** ** |
| Proceeds from the sale of vehicle                                                |       | —                                 |        | 483,161 |   |
| Proceeds from sale of accounts receivable                                        |       | —                                 |        | 455,890 |   |
| Payment for deferred financing costs                                             |       | —                                 |        | (1,217,334 | ) |
| Acquisition of property and equipment                                            |       | (3,348,467                             | )           | (2,941,798 | ) |
| Net cash provided by (used in) investing activities                              |       | (3,348,467                             | )           | (3,220,081 | ) |
| ** **                                                                       | ** ** | ** **                             | ** **  | ** ** | ** ** |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                       | ** ** | ** **                             | ** **  | ** ** | ** ** |
| Principal payments of capital leases                                             |       | (219,823                               | )           | (95,226 | ) |
| Proceeds from extension of note payable to ABN/AMRO                              |       | 11,714,085                             |        | — |   |
| Proceeds of issuance of subordinated loan                                        |       | 6,059,343                              |        | 19,413,024 |   |
| Cash received from issuance of preferred stock                                   |       | 2,000,000                              |        | 2,254,998 |   |
| Principal payments of long term debt                                             |       | (10,608,774                            | )           | (14,680,899 | ) |
| Net cash provided by financing activities                                        |       | 8,944,831                              |        | 6,891,897 |   |
| ** **                                                                       |       |                                   |        |   |   |
| **NET  DECREASE IN CASH AND CASH EQUIVALENTS**                                   |       | (3,921,517                             | )           | (832,340 | ) |
| **CASH  AND CASH EQUIVALENTS, beginning of period**                              |       | 6,609,074                              |        | 10,612,430 |   |
| **CASH  AND CASH EQUIVALENTS, end of period**                                    |       | $                                      | 2,687,557   |   | $ | 9,780,090 |   |
| ** **                                                                       | ** ** | ** **                             | ** **  | ** ** | ** ** |
| **SUPPLEMENTAL  DISCLOSURES OF CASH FLOWS INFORMATION:**                         | ** ** | ** **                             | ** **  | ** ** | ** ** |
| **INTEREST PAID**                                                                |       | $                                      | 7,203,502   |   | $ | 7,391,526 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

6

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CLEARCOMM, L.P.NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 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 September 30, 2006 and results of operations and cashflows for the nine-month periods ended September 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 ended December 31,2005.  Results of operations for interimperiods are not necessarily indicative of the results that may be expected forthe 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 astate-of-the-art PCS network in Puerto Rico (the “Puerto Rico Network”). ThePartnership directly or indirectly, through NewComm, owns two 15 MHz C-BlockPCS licenses covering the entire island of Puerto Rico (the “Puerto RicoLicenses”) and owned four 15 MHz licenses in California (the “CaliforniaLicenses”) which were sold 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% in accordancewith 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 owned subsidiary,NewComm, on January 29, 1999.  OnFebruary 4, 1999, the Partnership and NewComm entered into an agreementwith Telefónica Moviles, S.A. (“TEM”), whereby the Partnership contributed itstwo Puerto Rico Licenses to NewComm and TEM provided NewComm a $19,960,000 loanto develop the Puerto Rico Licenses. NewComm commenced providing PCS servicesin Puerto Rico in 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 165 points of sale throughout Puerto Rico. The Partnership believes thatit currently has approximately 5% 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.

7

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ThePuerto Rico Network is a Code Division Multiple Access (“CDMA”) network.Pursuant to a roaming agreement with Sprint PCS, MoviStar customers havemainland 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 Communications VenturePartners IV, L.P. (“Syncom”), a third party, in exchange for approximately4.92% ownership in NewComm. Syncom has contributed $25 million to NewComm inexchange for approximately 8.2% ownership interest in NewComm.  The last $10 million installment wascontributed in November 2002.

On March 2, 2002, the Partnership soldapproximately 4.08% of NewComm to a group of investors led by Fleet DevelopmentVentures (the “Fleet Group”) for $13 million. The Partnership and TEM contributed approximately $9 million each toNewComm in the form of equity and convertible debt, respectively. ThePartnership and TEM have committed an additional $10 million each to close theProject 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 convertiblestock, of which:

·                  12.372 are designated as Series A-1convertible participating preferred;

·                  12.323 are designated as Series A-2convertible participating preferred;

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

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

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

8

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NewComm’s Shareholders possess the following ownershipinterests in NewComm, as of September 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 tolack of support of eMilios International and lack luster results in PuertoRico, the Partnership wrote off its investment in the project in 2005 andclosed ISS operations during June 2006.

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 $22.1million for the nine-month period ended September 30, 2006 and incurredoperating losses of $15.6 million for the nine-month period ended September 30,2005.  It also has working capitaldeficits and partners’ capital deficit of $148 million and $76.8 million,respectively, as of September 30, 2006. The Partnership is likely to continue incurring losses until such timeas its subscriber base generates revenue in excess of the Partnership’sexpenses.  Development of a significantsubscriber base is likely to take time, during which the Partnership mustfinance its operations by means other than its revenues.

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’srights and obligations under the Senior Credit Agreement. On February 16,2006, NewComm and D.B. Zwirn amended and restated the Senior Credit Agreement(the “Amended Senior Credit Agreement”). The new outstanding principal balanceis $60,539,828, including some accrued and unpaid interest, and $5,000,000 inadditional principal made available at the time of closing. The maturity dateis March 31, 2007. The facility bears interest at a rate per annum equalto LIBOR + 700 basis points. Additionally, the facility accrues pay-in-kind(PIK) interest on the aggregate principal amount, payable upon maturity,acceleration or repayment. The PIK interest is based on a grid that ranges from2% to 4%, depending on quarterly EBITDA results. The Amended Senior CreditAgreement includes various affirmative, negative and financial covenants.  As of September 30, 2006, NewComm was incompliance with all the requirements under such covenants. On November 1, 2006,however, NewComm received a notice from D.B. Zwirn indicating that NewComm isin default under the Amended Senior Credit Agreement due to NewComm’s failureto comply with certain requirements set forth in the Amended Senior CreditAgreement, including NewComm’s failure to make required interest payments. NewCommneither has sought nor plans to seek a waiver from D.B. Zwirn with respect tothe default.

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 Partnership’sacquisition of its PCS licenses.  ThePartnership owes the United States federal government approximately $7.4million plus accrued interest at 6.5% as of September 30, 2006.

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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 the Company is facing liquidity challenges that will affect itsability to fund its operations and meet its obligations.  In light of these liquidity challenges,NewComm’s default under the Amended Senior Credit Agreement (described above),and other related factors, substantial doubt exists as to the Company’s abilityto continue operating as a going concern. In addition, due to NewComm’s default under the Amended Senior CreditAgreement, NewComm’s management is exploring alternatives, including amongothers the possibility of seeking protection from its creditors under Chapter11 of the U.S. Bankruptcy Code.  Theaccompanying financial statements do not include any adjustments that arelikely to be made as a result of the Company’s inability to fund its operationsand meet its obligations.

3.             RECENTACCOUNTING PRONOUNCEMENTS

InMay 2005, the FASB issued Interpretation No. 47, Accounting forConditional Asset Retirement Obligations (an interpretation of FASB StatementNo. 143) (FIN 47). This Interpretation clarifies that the term “ConditionalAsset Retirement Obligations” refers to a legal obligation to perform anasset retirement activity in which the timing and (or) method of settlement areconditional on a future event that may or may not be within thecontrol of the entity. The obligation to perform the asset retirementactivity is unconditional even though uncertainty may exist about thetiming and (or) method of settlement. Accordingly, an entity is required torecognize the fair value of a liability for the conditional asset retirement obligationwhen incurred and the uncertainty about the timing and (or method) ofsettlement should be factored into the measurement of the liability whensufficient information exists. This Interpretation is effective no later thanDecember 31, 2005. Retrospective application of interim financialinformation is permitted but is not required. Additionally, companies shallrecognize the cumulative effect of initially applying this Interpretation as achange in accounting principle. The Company adopted this new pronouncementeffective December 31, 2005. The impact of the Company’s financialstatements as a result of adopting this new statement is not material.

4.             LEGAL PROCEEDINGS

Fromtime to time the Partnership is involved in litigation arising in the ordinarycourse of business, some of which is ongoing. The General Partner does not believe that any litigation involving thePartnership will have a material adverse effect on the Partnership’s businessor 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.

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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.  The Partnership was organized to acquire,own, consult and operate PCS licenses in the Block C band and to take advantageof the benefits that the FCC has set aside for entrepreneurs.  The Partnership owns the Puerto RicoLicenses, which consist of two 15 MHz PCS licenses covering Puerto Rico. TheCalifornia Licenses, which consist of four 15 MHz PCS licenses covering theCalifornia cities of Eureka, Redding, Modesto, and Merced were sold andtransferred to Metro PCS on April 15, 2004 for a $10,900,000 cash payment.The license covering Visalia-Porterville, California, had been previously soldand transferred to Leap Wireless on June 8, 2001 in exchange 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.

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:

·                  A mutual waiverand release between all parties.

·                  Payment of$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.

·                  Payment of$2,239,492.21 in full satisfaction of the management fee due to TEM under themanagement agreement through issuance of a convertible promissory note andcapitalization.

·                  Payment toClearComm and TEM of $11,447,758.28 and $11,396,338.88, respectively, in fullsatisfaction of the loans granted for purposes of meeting the matured portionof the FCC debt through issuance of a convertible promissory note andcapitalization.

·                  In addition,$62.4 million in other notes and interest payable to TEM were converted toequity, for a total equity conversion of $80.5 million in accounts payable toTEM and TEM Puerto Rico, Inc. Upon conversion of all convertible promissorynotes, TEM Puerto Rico, Inc. received an aggregate amount of shares of NewCommequal to 49.9% and the other stockholders hold an aggregate amount of shares ofNewComm equal to 50.1%.

11

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·                  Forgiveness fromTEM of $1,859,068.97 corresponding to all amounts outstanding with TMmas (a TEMaffiliate) under the SCL agreements.

·                  Agreement onpremium to be paid by TEM/TEM Puerto Rico, Inc. to the other shareholders upona potential liquidation or a change in control. TEM and/or TEM Puerto Rico,Inc. shall pay a premium from the liquidation/sale proceeds that in any eventwill not exceed 16.6% of the equity valuation.

·                  In the eventthat, 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.

·                  Amend the StockPurchase Agreement in order to extend by 3 1⁄2 years, to approximately October2008, TEM Puerto Rico, Inc.’s option to buy a majority interest in NewComm andto clarify the procedures that would apply upon the sale of NewComm to athird-party purchaser in the event that neither TEM Puerto Rico, Inc. nor thePartnership exercised its rights under the Sale Agreement to purchase NewComm.

·                  Enter into a LicenseBrand Agreement that allows the Partnership to use the MoviStar brand name freeof cost for 5 years. 

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

·                  TEM Puerto Rico,Inc. becoming the holder of 49.9% of NewComm’s capital stock.

·                  The terminationof the Joint Venture Agreement, the Management Agreement, and the TechnologyTransfer Agreement, each of which involved NewComm and included TEM as a party.

·                  The amendment ofthe Stock Purchase Agreement, the Sale Agreement, dated March 12, 2002 (the “SaleAgreement”), among NewComm, TEM Puerto Rico, Inc., the Partnership, and theother shareholders of NewComm, and the Shareholders Agreement, dated March 12,2002 (the “Shareholders Agreement”), among the Partnership, NewComm, TEM PuertoRico, Inc., and the other shareholders of NewComm.

·                  TEM’s entry intoa line of credit to be used to pay the balance of NewComm’s indebtedness to theFCC; and an extension or refinancing of NewComm’s bridge loan from ABN AmroBank, 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 between itselfand 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 stock,of which:

·                  12.372 are designated as Series A-1convertible participating preferred;

·                  12.323 are designated as Series A-2convertible participating preferred;

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

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

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

On July 1, 2005, LucentTechnologies, Inc, (“Lucent”) assigned and transferred to D.B. Zwirn SpecialOpportunities Fund, LTD (“D.B. Zwirn”) 100% of Lucent’s rights and obligationsunder the June 2003 Senior Credit Agreement between NewComm and Lucent (the“Senior Credit Agreement”).  On February16, 2006, NewComm and D.B. Zwirn amended and restated the Senior CreditAgreement (the “Amended Senior Credit Agreement”).  The maturity date is March 31, 2007.  The Amended Senior Credit Agreement with D.B.Zwirn includes various affirmative, negative and financial covenants.  On November 1, 2006, NewComm received anotice from D.B. Zwirn indicating that NewComm is in default under the AmendedSenior Credit Agreement due to NewComm’s failure to comply with certain requirementsset forth in the Amended Senior Credit Agreement, including NewComm’s failureto make required interest payments. NewComm neither has sought nor plans to seek a waiver from D.B. Zwirnwith respect to the default.

Management believes thatthe Company is facing liquidity challenges that will affect its ability to fundits operations and meet its obligations. In light of these liquidity challenges, NewComm’s default under theAmended Senior Credit Agreement (described above), and other related factors,substantial doubt exists as to the Company’s ability to continue operating as agoing concern.  In addition, due toNewComm’s default under the Amended Senior Credit Agreement, NewComm’smanagement is exploring alternatives, including among others the possibility ofseeking protection from its creditors under Chapter 11 of the U.S. BankruptcyCode.  

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Resultsof Operations

Three-monthperiod ended September 30, 2006 compared with three-month period endedSeptember 30, 2005.

Set forth below isa summary of the results of operations before other income and expenses for theperiods indicated:
| ** **                                              | ** ** | **Three-Month Periods Ended** | ** **     | ** **     | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------|----------------|----------------|------------|
| ** **                                              | ** ** | **September 30,**                  | ** **     | ** **     | ** ** |
| ** **                                              | ** ** | **2006**                                | ** **     | **2005**       | ** ** | **Change** | ** ** |
| **Revenues:**                                           | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Service  revenues**                                   | ** ** | **$**                                   | **15,757,586** | ** **     | **$**      | **21,016,249** | ** ** | **-25%** | ** ** |
| **Handsets  and accessories sales**                     | ** ** | **1,914,195**                           | ** **     | **1,436,425**  | ** ** | **33%** | ** ** |
| **Total Revenues**                                      | ** ** | **17,671,781**                          | ** **     | **22,452,674** | ** ** | **-21%** | ** ** |
| ** **                                              | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Expenses:**                                           | ** ** | ** **                              | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Operating  expenses, excluding depreciation expense** | ** ** | **15,688,136**                          | ** **     | **20,560,198** | ** ** | **-24%** | ** ** |
| **Income (loss) from operations**                       | ** ** | **1,983,645**                           | ** **     | **1,892,476**  | ** ** | **5%** | ** ** |
| **Interest expense**                                    | ** ** | **(4,323,936**                          | **)**          | **(3,042,508** | **)**      | **42%** | ** ** |
| **Income (loss) before other  income (expense)**        | ** ** | **$**                                   | **(2,340,291** | **)**          | **$**      | **(1,150,032** | **)** | **103%** | ** ** |

 

Revenues

ThePartnership’s revenues for the three-month period ended September 30, 2006decreased by 21% from $22.5 million to $17.7 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 September 30, 2006 decreased by 25% whencompared to the same period in 2005 while handset and accessories salesincreased by 33%.  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 third quarter quarter of 2006.

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Expenses

The followingtable shows the variances for the three-month period ended September 30,2006 as compared to the same period in 2005:
| ** **                            | ** ** | **Three-months ended September 30,** | ** ** | **%**     | ** ** |
|---------------------------------------|------------|-----------------------------------------------------|------------|-----------|------------|
| **Expenses**                          | ** ** | **2006**                                            | ** ** | **2005**  | ** ** | **Change** | ** ** |
|                                  |       |                                                |       |      |       |   |   |
| Cost of handset  and accessories      |       | 2,759,906                                           |       | 3,527,856 |       | -22% |   |
| Interconnection  expense              |       | 378,690                                             |       | 799,737   |       | -53% |   |
| Sales and  dealers commissions        |       | 572,632                                             |       | 1,168,744 |       | -51% |   |
| Salaries and  benefits                |       | 3,117,932                                           |       | 3,657,896 |       | -15% |   |
| Advertising  expense                  |       | 386,369                                             |       | 337,457   |       | 14% |   |
| Depreciation                          |       | 4,831,831                                           |       | 4,648,615 |       | 4% |   |
| Legal and  professional services      |       | 2,321,852                                           |       | 564,965   |       | 311% |   |
| Provision for  doubtful accounts      |       | 1,160,180                                           |       | 3,357,054 |       | -65% |   |
| Rent expense                          |       | 2,148,213                                           |       | 1,893,517 |       | 13% |   |
| Taxes other than  income              |       | 768,243                                             |       | 1,044,220 |       | -26% |   |
| Network  Operation and Maintenance    |       | 1,716,747                                           |       | 2,093,366 |       | -18% |   |
| Other expenses                        |       | 214,437                                             |       | 1,678,100 |       | -87% |   |
| Management fee  to General Partner    |       | 132,435                                             |       | 89,420    |       | 48% |   |
| Services  rendered by related parties |       | 10,500                                              |       | 347,867   |       | -97% |   |
| Total expenses                        |       | $                                                   | 20,519,967 |      | $          | 25,208,814 |   | -19% |   |
|                                       |            |                                                     |            |           |            |  |  |  |  |

 

Expensesfor the three-month period ended September 30, 2006 totaled $20,519,967 ascompared to $25,208,814 for the same period in 2005.  There was an overall reduction of 19% inoperating expenses or $4.7 million during the third 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,and the provision for doubtful accounts. The increase in legal and professional fees is related to arbitrationproceedings being currently 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 at the net income orloss.

Incomefrom operations for the three-month period ended September 30, 2006 of$1,983,645 shows an increase of 5% as compared to the income from operationsfor the same period in 2005.  Thisincrease in income from operations is related to the overall 19% reduction inexpenses.

Interestexpense for the three month-period ended September 30, 2006 of $4.3million ($3.0 million in 2005) reduced the income from operations and resultedin net loss before other income and expenses of $2.3 million for the thirdquarter of 2006 and a net loss of $1.1 for the same period in 2005; an overallincrease in net loss of 103% when compared to 2005.  Depreciation expense of $4.8 million ($4.7million in 2005), a non-cash item, further reduced the book loss to $7.1 millionin 2006 ($5.7 million in 2005).

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Nine-monthperiod ended September 30, 2006 compared with nine-month period endedSeptember 30, 2005.

The followingtable summarizes changes in certain financial information for the periodindicated:
| ** **                                                                       | ** ** | **Nine-Month Periods Ended** | ** **     | ** **     | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------|----------------|----------------|------------|
| ** **                                                                       | ** ** | **September 30,**                 | ** **     | ** **     | ** ** |
| ** **                                                                       | ** ** | **2006**                               | ** **     | **2005**       | ** ** | **Change** | ** ** |
| **Revenues:**                                                                    | ** ** | ** **                             | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Service revenues**                                                             | ** ** | **$**                                  | **50,027,056** | ** **     | **$**      | **66,581,737** | ** ** | **-25%** | ** ** |
| **Handsets and accessories sales**                                               | ** ** | **5,070,196**                          | ** **     | **3,343,509**  | ** ** | **52%** | ** ** |
| **Total  Revenues**                                                              | ** ** | **55,097,252**                         | ** **     | **69,925,246** | ** ** | **-21%** | ** ** |
| ** **                                                                       | ** ** | ** **                             | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Expenses:**                                                                    | ** ** | ** **                             | ** **     | ** **     | ** ** | ** ** | ** ** |
| **Operating expenses, excluding depreciation  expense**                          | ** ** | **50,689,817**                         | ** **     | **63,260,199** | ** ** | **-20%** | ** ** |
| **Income  (loss) from operations**                                               | ** ** | **4,407,435**                          | ** **     | **6,665,047**  | ** ** | **-34%** | ** ** |
| **Interest  expense**                                                            | ** ** | **(12,452,901**                        | **)**          | **(9,010,629** | **)**      | **38%** | ** ** |
| **Income  (loss) before other income (expense), excluding depreciation expense** | ** ** | **$**                                  | **(8,045,466** | **)**          | **$**      | **(2,345,582** | **)** | **243%** | ** ** |

 

Revenues

ThePartnership’s revenues for the nine-month period ended September 30, 2006totaled $55,097,252, as compared to $69,925,246 for the same period in2005.  Revenues for the nine-month period ended September 30, 2006included $50,027,056 in service revenues and $5,070,196 in handset andaccessories sales generated from NewComm’s wireless operations, as compared to$66,581,737 and $3,343,509 respectively, for the same period in 2005.  The 25% decrease in service revenues isconsistent with a decrease in the Partnership’s customer base, while theincrease in handset and accessories sales is related to the  reduction on the handset subsidy on thehandsets sold.

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Expenses

Thefollowing table shows the variances for the nine-month period endedSeptember 30, 2006 as compared to the same period in 2005:
| ** **                            | ** ** | **Nine-months ended September 30,** | ** ** | **%**      | ** ** |
|---------------------------------------|------------|----------------------------------------------------|------------|------------|------------|
| **Expenses**                          | ** ** | **2006**                                           | ** ** | **2005**   | ** ** | **Variances** | ** ** |
|                                  |       |                                               |       |       |       |   |   |
| Cost of handset  and accessories      |       | 9,582,291                                          |       | $          | 12,575,492 |   | -24% |   |
| Interconnection  expense              |       | 1,077,847                                          |       | 2,403,221  |       | -55% |   |
| Sales and  dealers commissions        |       | 2,924,645                                          |       | 5,094,668  |       | -43% |   |
| Salaries and  benefits                |       | 10,481,883                                         |       | 11,431,591 |       | -8% |   |
| Depreciation                          |       | 14,219,419                                         |       | 13,744,283 |       | 3% |   |
| Advertising  expense                  |       | 1,106,567                                          |       | 2,430,059  |       | -54% |   |
| Legal and  professional services      |       | 3,706,306                                          |       | 1,244,267  |       | 198% |   |
| Provision for  doubtful accounts      |       | 3,468,564                                          |       | 8,839,180  |       | -61% |   |
| Rent expense                          |       | 6,387,037                                          |       | 5,511,480  |       | 16% |   |
| Taxes other than  income              |       | 2,486,439                                          |       | 2,616,326  |       | -5% |   |
| Network  Operation and Maintenance    |       | 5,701,188                                          |       | 6,045,603  |       | -6% |   |
| Other expenses                        |       | 3,340,853                                          |       | 3,009,706  |       | 11% |   |
| Management fee  to General Partner    |       | 382,435                                            |       | 291,888    |       | 31% |   |
| Services  rendered by related parties |       | 43,762                                             |       | 1,766,718  |       | -98% |   |
| Total expenses                        |       | $                                                  | 64,909,236 |       | $          | 77,004,482 |   | -16% |   |
|                                       |            |                                                    |            |            |            |  |  |  |  |

 

Expensesfor the nine-month period ended September 30, 2006 totaled $64,909,236 ascompared to $77,004,482 for the same period in 2005.  During thenine-month period ended September 30, 2006, the Partnership’s expensesdecreased by 16% due to pricing adjustments which reduced the handset subsidyon the purchase of handsets and contributed to the 24% reduction in cost ofhandsets and accessories.  ThePartnership managed to reduce overall expenses by implementing new operationsprocedures and eliminating various outsourcing contracts related to inventorymanagement and customer service.  Theincrease in legal and professional services is related to the arbitrationproceedings being currently 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 nine-month period ended September 30, 2006 of $4.4million shows a reduction of 37% as compared to the income from operations forthe same period in 2005.  This decrease inincome from operations is mainly due to the overall decrease in revenues due tothe reduction of the customer base.

Interestexpense for the nine-month period ended September 30, 2006 of $12.4million ($9.0 million in 2005) reduced income from operations and resulted in anet loss before other income (expense) of $8.0 million for the third quarter of2006 ($2.1 million in 2005); an overall reduction in net income before otherincome (expense) of 243% when compared to 2005. Depreciation expense of $14.2 million ($13.7 million in 2005) reducedthe Partnership’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.

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Liquidity andCapital Resources

As ofSeptember 30, 2006, the Partnership had cash and cash equivalents amounting to$2,687,557, which are mostly related to cash generated from operatingactivities and the sale of California licenses in prior periods.

Notwithstandingthe foregoing sentence, management believes that the Company is facingliquidity challenges that will affect its ability to fund its operations andmeet its obligations.  In light of theseliquidity challenges, NewComm’s default under the Amended Senior CreditAgreement (described above), and other related factors, substantial doubtexists as to the Company’s ability to continue operating as a goingconcern.  In addition, due to NewComm’sdefault under the Amended Senior Credit Agreement, NewComm’s management isexploring alternatives, including among others the possibility of seekingprotection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET 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 September 30, 2006, the Partnership hadcash equivalents and short-term investments of approximately $2,687,557consisting of cash and highly liquid, short-term investments in money marketfunds.

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 TEM Note has been converted into equityas described on the Settlement Agreement.

ITEM 4. CONTROLS AND PROCEDURES

The Partnership’s Chief Executive Officer, John Duffy,and the Partnership’s Chief Financial Officer, Edileen Salicrup, have evaluatedthe Partnership’s disclosure controls and procedures within 90 days of thefiling of this report.

Mr. Duffy 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 6. 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.

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

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: November  14, 2006 |   | By:             |   | /s/ John Duffy |
|                     |   | Name:           |   | John Duffy |
|                     |   | Title:          |   | President |

 

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