<PAGE>
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____TO
Commission file number 0-28362
ClearComm, L.P.
(Exact name of registrant as specified in its charter)
Delaware 66-0514434
------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
620 Broadway 95476
Sonoma, California (Zip Code)
------------------------------ -------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (707) 938-2428
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 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 2,817.5 Units of Limited
Partnership Interest
<PAGE>
ClearComm, L.P. (formerly PCS 2000, L.P.)
INDEX
<TABLE>
<CAPTION>
PAGE NO.
------------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Statement of Assets, Liabilities and Partners' Capital as of
September 30, 1997 (unaudited) and December 31, 1996 (audited).... 3
Statement of Revenues and Expenses for the three months
ended September 30, 1997 and 1996 (unaudited) and nine
months ended September 30, 1997 and 1996 (unaudited).............. 4
Statement of Cash Flows for the nine months ended
September 30, 1997 and 1996 (unaudited)........................... 5
Statement of Changes in Partners' Capital Accounts from
inception on January 24, 1995 through September 30,
1997 (unaudited).................................................. 7
Notes to the Interim Financial Statements......................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 17
Item 6. Exhibits and Reports on Form 8-K.................................. 17
Signatures................................................................ 18
Exhibit Index............................................................. 17
</TABLE>
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
STATEMENT OF ASSETS, LIABILITIES
AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
-----------------------------
ASSETS 1997 1996
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 10,215,726 $ 2,492,851
Prepaid expenses................................................................ 5,317 100,538
Other current assets--deposits.................................................. 25,000 45,468,855
-------------- -------------
Total current assets.......................................................... 10,246,043 48,062,244
Licenses, including capitalized interest of $13,875,015........................... 358,168,140
Restricted cash................................................................... 6,511,250
Equipment, net.................................................................... 86,458 14,535
-------------- -------------
Total assets.................................................................. $ 368,500,641 $ 54,588,029
-------------- -------------
-------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Payable to the--FCC............................................................. -- $ 1,000,000
Accounts payable and accrued liabilities........................................ $ 594,253 204,927
Accounts payable--General Partner............................................... 62,090 101,954
Accounts payable for legal fees................................................. 389,925 440,847
Accounts payable to related parties............................................. 539,514 539,514
Accrued interest--FCC currently payable......................................... 5,203,131 --
-------------- -------------
Total current liabilities..................................................... 6,788,912 2,287,242
-------------- -------------
Long term liabilities
Notes payable--FCC.............................................................. 309,863,813
Accrued interest--FCC notes..................................................... 8,671,884
--------------
Total long term liabilities................................................... 318,535,697
--------------
Limited partners' capital (2,601.5 units and 972.5 one fifth
units in 1997; and 2601.5 and 592 one fifth units in
1996; authorized and issued).................................................. 70,074,000 67,990,000
General partner's capital....................................................... 100,000 100,000
Undistributed losses............................................................ (26,997,968) (15,789,213)
-------------- -------------
Total partners' capital....................................................... 43,176,032 52,300,787
-------------- -------------
Total liabilities and partners' capital..................................... $ 368,500,641 $ 54,588,029
-------------- -------------
-------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE INTEGRAL PART OF THIS STATEMENT
<PAGE>
ClearComm, L.P.
(Unaudited)
STATEMENT OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
CUMMULATIVE
THREE MONTHS ENDED NINE MONTHS ENDED FROM INCEPTION
SEPTEMBER 30, SEPTEMBER 30, THRU SEPTEMBER 30,
-------------------------- ----------------------------- ------------------
1997 1996 1997 1996 1997
------------- ----------- -------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income................... $ 129,326 $ 6,761 $ 374,959 $ 51,058 $ 1,910,825
Expenses:
Consulting and legal services
rendered by Related parties..... 415,194 134,471 8,014,654 540,320 15,515,766
General and administrative
services billed by the General
Partner......................... 89,687 109,397 281,128 328,695 1,218,750
Other legal fees.................. 294,167 432,879 1,158,510 1,092,902 2,810,570
Miscellaneous consulting
services........................ 113,251 71,406 1,178,958 351,945 2,061,913
Insurance......................... 33,414 59,000 96,855 123,000 262,639
Travel............................ 58,114 56,409 285,191 202,095 686,931
Other administrative expenses..... 405,225 45,391 568,420 83,928 821,079
Bid withdrawals and forfeiture
imposed by the FCC.............. 5,531,145
------------- ----------- -------------- ------------- ------------------
Total expenses.................... 1,409,052 908,953 11,583,716 2,722,885 28,908,793
------------- ----------- -------------- ------------- ------------------
Net loss.......................... ($ 1,279,726) ($ 902,192) ($ 11,208,757) ($ 2,671,827) ($ 26,997,968)
------------- ----------- -------------- ------------- ------------------
------------- ----------- -------------- ------------- ------------------
Net loss attributable to general
partner......................... (319,932) (225,548) (2,802,189) (667,957)
------------- ----------- -------------- -------------
Net loss attributable to limited
partners........................ (959,794) (676,644) (8,406,568) (2,003,870)
------------- ----------- -------------- -------------
Net loss per limited partner
unit............................ ($ 343.27) ($ 260.10) ($ 3,006.64) ($ 770.27)
------------- ----------- -------------- -------------
Total units of Limited Parneship
interest at the end of each
period.......................... 2,796 2,601.5 2,796 2,601.5
------------- ----------- -------------- -------------
</TABLE>
The accompanying notes are integral part of this statement.
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
STATEMENT OF CASHFLOWS
<TABLE>
<CAPTION>
CUMMULATIVE
NINE MONTHS ENDED FROM INCEPTION
SEPTEMBER 30, THRU SEPTEMBER 30,
----------------------------- --------------------
1997 1996 1997
-------------- ------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.......................................................... ($ 11,208,757) (2,671,827) ($ 26,997,968)
-------------- ------------- --------------------
Adjustments to reconcile the net loss for the period to net cash
used by operating activities:
Depreciation...................................................... 18,125 1,252 21,766
(Increase) Decrease in prepaid expenses........................... 95,221 96,000 (5,317)
Decrease in Bank overdraft........................................ (46,173)
Increase in security deposit...................................... (25,000) (25,000)
Decrease in payable to the FCC.................................... (1,000,000)
Increase in accounts payable and legal fees....................... 338,404 722,778 984,178
(Decrease) Increase in accounts payable:
General Partner................................................. (39,864) (298,633) 62,090
Related parties................................................. 283,670 539,514
-------------- ------------- --------------------
Total adjustments................................................. (613,114) 758,894 1,577,231
-------------- ------------- --------------------
Net cash used by operating activities........................... (11,821,871) (1,912,933) (25,420,737)
-------------- ------------- --------------------
Cash flows from investing activities:
FCC Auction deposit and down payment.............................. 11,039,542 (38,960,458)
Bid withdrawal payment............................................ 4,531,145
Equipment......................................................... (90,046) (17,260) (108,224)
-------------- ------------- --------------------
Net cash provided (used) by investing activities................ 10,949,496 (17,260) (34,537,537)
-------------- ------------- --------------------
Cash flows from financing activities:
Capital investment by partners.................................... 2,084,000 (75,000) 70,174,000
Restricted cash................................................... 6,511,250
-------------- ------------- --------------------
Net cash provided (used) by financing activities.............. 8,595,250 (75,000) 70,174,000
-------------- ------------- --------------------
Net increase (decrease) in cash................................... $ 7,722,875 ($ 2,005,193) $ 10,215,726
-------------- ------------- --------------------
-------------- ------------- --------------------
Summary:
Net increase (decrease) in cash................................... $ 7,722,875 (2,005,193)
Cash and cash equivalents at:
beginning of the period......................................... 2,492,851 2,727,541
-------------- ------------- --------------------
end of the period............................................... $ 10,215,726 $ 722,348 $ 10,215,726
-------------- ------------- --------------------
-------------- ------------- --------------------
</TABLE>
THE ACCOMPANYING NOTES ARE INTEGRAL PART OF THIS STATEMENT
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
Nine Months Period Ended September 30, 1997
Supplemental schedule of non cash investing
and financing activities:
The Partnership was granted by the FCC on January 1997
PCS licenses for which the bid had been previously
submitted. In conjunction with this acquisition, the
following loan was granted by the FCC:
<TABLE>
<S> <C>
Acquisition of PCS licenses...................... $344,293,125
Down Payment..................................... (34,429,312)
------------
$309,863,813
------------
------------
The Partnership has capitalized as part of
the Licenses interest cost accrued on the
FCC loan, unpaid as of September 30, 1997,
amounting to................................... $13,875,015
</TABLE>
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS
(Unaudited)
FOR THE PERIOD FROM INCEPTION ON JANUARY 24, 1995 THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
GENERAL LIMITED LIMITED PARTNERS
PARTNER PARTNERS TOTAL UNITS
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Capital invested thru December 31, 1995 $ 100,000 $ 65,112,500 $ 65,212,500 2,604.5 units
1995 share of undistributed losses (1,678,592) (5,035,774) (6,714,366)
------------ ------------ ------------
Capital account balance (deficit) at
December 31, 1995 (1,578,592) 60,076,726 58,498,134 2,604.5 units
------------ ------------ ------------
Repurchase of Limited Partners units (75,000) (75,000) 3 units
Capital contributed during 1996 2,952,500 2,952,500 590.5 one fifth units
1996 share of undistributed losses (2,268,711) (6,806,134) (9,074,845)
------------ ------------ ------------
Capital account balance (deficit) at 2,601.5 units and
December 31, 1996 (3,847,303) 56,148,092 52,300,789 590.5 one fifth units
------------ ------------ ------------
Capital contributed during first quarter 1997 1,040,000 1,040,000 208 one fifth units
First quarter 1997 share of undistributed
losses (2,085,735) (6,257,205) (8,342,940)
------------ ------------ ------------
Capital account balance (deficit) at 2,601.5 units and
March 31, 1997 (5,933,038) 50,930,887 44,997,849 798.5 one fifth
------------ ------------ ------------
Capital contributed during second quarter 1997 876,000 876,000 146 one fifth units
Second quarter 1997 share of undistributed
losses (396,523) (1,189,568) (1,586,091)
------------ ------------ ------------
Capital account balance (deficit) at 2,601.5 units and
June 30, 1997 ($ 6,329,561) $50,617,319 $44,287,758 944.5 one fifth units
------------ ------------ ------------
Capital contributed during third quarter 1997 168,000 168,000 28 one fifth units
Third quarter 1997 share of undistributed
losses (319,932) (959,794) (1,279,726)
Capital account balance (deficit) at 2,601.5 units and
September 30, 1997 (6,649,493) 49,825,526 43,176,032 972.5 one fifth units
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are integral part of this statement.
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1 - REPORTING ENTITY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
ClearComm, L.P. (the "Partnership") (formerly, PCS 2000, L.P.), a development
stage enterprise, is a limited partnership organized on January 24, 1995 under
the laws of the State of Delaware. The Partnership was formed to file
applications with the Federal Communications Commission ("FCC") under personal
communications service ("PCS") frequency Block C, originally restricted to
minorities, small businesses and designated entities, to become a provider of
broadband PCS, a new telecommunications technology. The Partnership will
terminate on December 31, 2005, or earlier upon the occurrence of certain
specified events as detailed in the Partnership Agreement. The Partnership has
not yet generated revenues from commercial operations. In 1996, the
Partnership's former general partner, Unicom Corporation, sold its interest in
the Partnership to SuperTel Communications Corp., a Puerto Rico corporation (the
"General Partner"). The General Partner's total share of the income and losses
of the Partnership is 25% as per the Partnership's Partnership Agreement.
Approximately 1,600 limited partners also invested in the Partnership through a
private placement.
Interim Financial Data; Use of estimates in preparation of financial statements
The interim financial data is unaudited; however, in the opinion of the
management, the interim data includes all adjustments, consisting of normal
recurring adjustments, necessary for a fair statement of the results of the
interim periods.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Basis of accounting and fiscal year
The Partnership's records are maintained on the accrual basis of accounting for
financial reporting and tax purposes. The fiscal year of the Partnership ends on
December 31.
8
<PAGE>
Cash equivalents
The Partnership considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents.
PCS Licenses
PCS licenses are recorded at cost, and will be amortized over the estimated life
of the licenses (forty years) once the PCS network is placed in service.
The interest related to debt pertaining to the PCS licenses during the
construction period is capitalized.
NOTE 2 - FINANCING REQUIREMENTS:
The Partnership has no revenues (other than interest income) and is likely to
incur operating losses after commencing commercial operations until such time as
its subscriber base generates revenue in excess 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 other means than its
revenues. Consequently, the Partnership will need additional debt or equity
financing to develop and construct the infrastructure necessary to operate
wireless telephone systems, introduce and market a new range of service
offerings on a commercial basis and otherwise operate its licensed PCS systems.
The Partnership raised $1,689,000 in an offering that commenced on March 26,
1997 and concluded on October 31, 1997.
The Partnership is currently evaluating several options to satisfy its
financing needs.
NOTE 3 - BID WITHDRAWAL PAYMENT AND PENALTY:
In 1996, the Partnership, through its bidding agent, inadvertently submitted
to the FCC an erroneous bid for one of the PCS licenses being auctioned
(Norfolk, Virginia). Although the Partnership withdrew the bid immediately,
the FCC could have imposed a substantial penalty for withdrawal of the then
highest submitted bid, which penalty is based on the difference between the
bid withdrawn and the eventual highest bid. The General Partner
9
<PAGE>
met with FCC officials and filed a petition for a waiver of the penalty or,
in the alternative, a substantial reduction in the penalty amount, as the
FCC's rules were intended to deter frivolous and manipulative bids, and not
errors.
On December 20, 1996, the FCC issued an order (the "Order") resolving the
Partnership's request for waiver of the related bid withdrawal payment for
the license applicable to Round 11 of the Broad Band PCS C Block auction
(Norfolk, Virginia)for which the FCC ordered the Partnership to pay a penalty
of approximately $3,273,000. This Order also assessed a bid withdrawal
payment of approximately $1,258,000 for license B332 (Omaha, Nebraska) for
the Broad Band PCS C block auction. In accordance with the Order, these
amounts were deducted from the Partnership's deposit with the FCC. In
addition to the December 20, 1996 Order, the FCC issued a Notice of Apparent
Liability and Forfeiture dated January 22, 1997, finding the Partnership
liable for $1,000,000 for misrepresentations made to the Commission by its
bidding agent. This amount was recorded as of December 31, 1996 and is
reflected as a liability in the accompanying balance sheet as of that date.
The Partnership and its General Partner have filed an action in court to
recover the FCC assessments made in connection with the bidding error as well
as other related expenses incurred (See Note 9). The action filed resulted in
the attachment of a $6.5 million escrow account deposited in the name of the
bidding agent, Romulus Telecommunications, Inc. ("Romulus"), with a Puerto
Rico bank, which would have been payable upon obtaining the PCS licenses. It
is management's intention to pursue vigorously the recovery of the FCC
assessments from Romulus. Management believes it will prevail in collecting
from the restricted cash all the assessments made by the FCC in connection
with the bidding error and other related expenses.
NOTE 4 - RESTRICTED CASH:
As of December 31, 1996, restricted cash amounting to $6,511,250 was held in
trust by Romulus and was restricted for payment of all services related to the
auction process. The amount is payable only if the Partnership obtains at least
one PCS license. However, the Partnership has obtained a court order attaching
this amount as a result of a lawsuit more fully explained in Note 9.
NOTE 5 - PARTNERS' CAPITAL:
At December 31, 1995, the limited partners' capital was composed of 2,604.5
units distributed among approximately 1,600 limited partners. In 1996, the
Partnership repurchased 3 units from a limited partner and sold to its limited
partners 590.5 one-fifth units. As a result the limited partners' capital at
December 31, 1996 consisted of 2,601.5 units and 590.5 one-fifth units.
During the quarter ending on March 31, 1997, the Partnership raised $1,040,000
from a capital call that ended on January 22, 1997. As a result, the limited
partners' capital at March 31, 1997 consisted of 2,601.5 units and 798.5
one-fifth units.
10
<PAGE>
During the quarter ended on June 30, 1997, the Partnership raised $876,000 from
a capital call that commenced on March 26, 1997. As of June 30, 1997, the
limited partners' capital consisted of 2601.5 units and 944.5 one-fifth units.
During the quarter ended on September 30, 1997, the Partnership raised $168,000
from an offering that commenced on March 26, 1997. The offering ended on
October 30, 1997 and the Partnership raised a total of $1,686,000. As of
September 30, 1997, the limited partners' capital consisted of 2,601.5 units and
972.5 one-fifth units.
The Partnership Agreement provides that the Partnership may sell additional
limited partnership interests after the initial offering to raise additional
equity.
Cash flow received from normal operations of the Partnership which the General
Partner, in its sole discretion, determines to distribute to the investors of
the Partnership, will be distributed 75% to the limited partners and 25% to the
General Partner. The operating losses of the Partnership for federal income tax
purposes will be allocated first to the partners as necessary to offset any
profits previously allocated to them until each partner has cumulative losses
equal to cumulative profits previously allocated to each partner, and second,
75% to the limited partners in accordance with the number of units held by each
limited partner and 25% to the General Partner; provided, however, that any
losses that would have the effect of causing or increasing a partner's capital
account deficit will be allocated first, pro rata to the other partners in
accordance with their respective share of partnership distributions, and second,
when such allocations can be made without increasing a partner's capital account
deficit, to the General Partner.
NOTE 6 - RELATED PARTY TRANSACTIONS:
During the third quarter and the nine months period ended on September 30,
1997, the Partnership incurred legal and consulting expenses paid to limited
partners and members of the Board of Directors amounting to approximately
$415,194 (1996 - $134,471) and $1,503,404 (1996 - $540,320), respectively.
Additionally, the application, preparation and auction bidding services were
performed by a related party for which a fee of $6,511,250 was paid during 1995.
An additional $6,511,250 was expensed in the first quarter of 1997 as a
contingent fee payable upon acquisition of at least one PCS license.
The Partnership Agreement, as amended, provides for payment of a management
fee to its General Partner, equal to the reasonable costs of operating the
business of the Partnership, plus 10% of such aggregate amount, which fee
shall be payable monthly, on the first day of each month during the year.
Expenses reimbursed include, but are not limited to, compensation costs and
expenses related to the officers, directors, and employees in the performance
of their duties. In connection with this agreement, the General Partner
billed for these services $89,687 and $281,128 for the quarter and nine
months period ended on September 30, 1997, respectively.
NOTE 7 - LICENSES AND LONG TERM NOTES PAYABLE:
11
<PAGE>
On January 22, 1997, the Partnership was granted its 15 Broad Band PCS C block
licenses. This resulted in recognizing the cost of the licenses of $344,293,125
and the related liability of $309,863,813. The down payment, or 10% of the bid
amount, was deducted by the FCC from the deposit held.
The liability is represented by 10-year notes due to the FCC bearing interest at
6.5%. According to the notes, interest shall be paid quarterly for the first
six(6) years and principal and interest over the next four (4) years. In March
1997, the FCC issued an order suspending interest payments on Block C licenses
indefinitely; however, interest on the notes is accrued.
On October 16, 1997 the FCC issued an order of proposed rule making indicating
the resumption of installment payments on March 31, 1998. Interest accrued
during the interest suspension period will be paid over eight quarterly
installments commencing in March 1998. The FCC also is adopting certain options
designed to assist C block licensees in obtaining financing and building their
systems. The options are as follows:
1. DISAGGREGATION. A licensee can elect to return one-half of its
spectrum (15 MHz of its 30 MHz) and surrender such spectrum to the
Commission for reauction for a reduction of 50% of its debt. A
licensee must disaggregate spectrum for all of the Basic Trading Area
(BTA) licenses it holds within any Major Trading Area (MTA), but need
not disaggregate the licenses it holds in other MTAs. The licensee
will have the 50% of its down payment on such licenses forfeited. The
licensee will be prohibited for rebidding for this spectrum, or
otherwise acquiring it in the secondary market, for two years from the
date of the start of the reauction. Licensees electing this option
will repay over eight equal quarterly installments beginning with the
payment due on March 31, 1998, all interest that was accrued due to the
payment suspension, adjusted to reflect the reduction in debt
obligation.
2. AMNESTY. A licensee can elect to surrender all of its licenses, and in
return will have all of its outstanding C block debt forgiven. The
single exception to the "all- or-nothing" requirement for a grant of
amnesty applies to licensees that meet or exceeded the five-year
built-out requirement by September 25, 1997. Those licensees meeting
the build-out exception may retain their built-out BTA's, but must also
keep the other BTAs in the MTA where the build-out requirement has been
met. The licensees choosing the amnesty option will not have its down
payment amounts returned. The licensee may bid on any of its
surrendered licenses or any other license in the reauction, and there
is no restriction on after-market acquisitions.
3. PREPAYMENT. A licensee can elect to purchase any of its licenses at
their face value. All licenses within any single MTA must be purchased
under this option. In addition, a licensee can use 70% of its total down
payments on surrendered licenses as a credit towards the prepayment of
any of its licenses it elects to purchase.
12
<PAGE>
The licensee may not rebid in the reauction for any of the licenses
surrenders, and is forbidden to acquire this licenses in the secondary
market for a period of two years.
4. EXISTING NOTE OBLIGATIONS. Licensees can continue making payments under
the terms of their original installment payment plans.
Licensees will have until January 15, 1998 to elect any of the above options
or continue with the original terms. At this point, the Partnership is
evaluating these alternatives.
NOTE 8 - INCOME TAX:
The Partnership, as a limited partnership, is not subject to income tax and the
tax effect of its activities accrues to the partners.
Taxable income to the General Partner and the limited partners differs from that
reported in the statement of revenues and expenses mainly due to different
treatment of operational expenses incurred in 1996 and 1995 for tax and book
purposes. Since the Partnership has not operated any PCS licenses yet, all
operating expenses were deferred for tax purposes creating a temporary
difference for the partners.
These expenses will be amortized over a period not exceeding 10 years. The
taxable income for the partners is determined as follows:
Thru Year Ended
Nine Months Ended ----------------------------
September 30, 1997 1996 1995
------------------ ------------ -------------
Net loss per book ($11,208,757) ($9,074,846) ($6,714,366)
Add - Operating
expenses deferred
until a PCS license
is assigned to the
Partnership 11,583,716 9,141,613 8,183,465
------------------ ------------ -------------
Taxable income $ 374,959 $ 66,767 $1,469,099
------------------ ------------ -------------
------------------ ------------ -------------
There are no other significant differences between taxable income for the
partners and the net loss reported in the statement of revenues and expenses.
NOTE 9 - CONTINGENCY:
13
<PAGE>
In 1996, the Partnership's bidding agent, Romulus, submitted an erroneous bid
for one of the PCS licenses being auctioned (Norfolk, Virginia). The Partnership
withdrew the bid immediately and the General Partner filed a petition for a
waiver of the penalty or, in the alternative, a substantial reduction in the
penalty amount.
On December 20, 1996, the FCC resolved the Partnership's request and assessed a
bid withdrawal payment of $3,273,000 for the Norfolk, Virginia market. Also, on
January 22, 1997 the FCC issued a Notice of Apparent Liability and Forfeiture
and found the Partnership liable for $1,000,000 for misrepresentations made by
its bidding agent.
As a result of the penalty and assessment imposed by the FCC, the Partnership
and its General Partner filed, on June 6, 1996, an action for damages against
Romulus (bidding agent) and one of its directors, wherein they seek
reimbursement for the defendants' gross negligence and subsequent fraudulent
acts in covering up an error in bidding in the January 23, 1996 FCC auction for
certain telecommunication markets. In connection with this case, the Partnership
has attached the $6.5 million deposited in the name of Romulus with a local bank
and posted a $25,000 bond pursuant to such order. Romulus and one of its
directors have both filed separate requests for arbitration. The Partnership has
filed for dismissal of the arbitration proceedings. Management is pursuing this
matter vigorously and is confident that its position will prevail.
In November 1996, certain limited partners of the Partnership filed a suit in
the Circuit Court of the State of Oregon against the Company and certain of its
officers, directors, employees and consultants. The suit alleges that defendants
employed misstatements and omissions of fact in connection with the sale of
limited partnership units of the Partnership and seeks the return of the
investment of $25,000 per unit for approximately 22 units, plus interest and
attorney fees. The case is in the early stage, however, the Partnership is
defending this matter vigorously.
On January 27, 1997, in the Superior Court of the State of California for the
County of San Mateo, the trustee of the SDE Trust filed a complaint for damages
of $300 million and equitable relief against Unicom Corporation, the General
Partner, the Partnership and certain officers and directors, trustees of trusts
holding Unicom shares and attorneys for breach of fiduciary duty arising out of
an alleged conspiracy among the defendants to attempt to unlawfully purchase the
Unicom shares held by the SDE Trust for personal gain of Unicom shareholders.
The Partnership denies engaging in any unlawful activity in connection with the
Unicom shares held by the SDE Trust. On April 7, 1997, the Partnership filed a
motion to move this case to Puerto Rico, which was granted on July 21, 1997.
The Partnership was subject to three petitions to deny the award of any licenses
to the Partnership. Although the FCC denied these petitions on January 22, 1997,
on February 21, 1997 the SDE Trust filed a petition asking the FCC to reconsider
its statements in its order granting the licenses. The Partnership filed its
response on March 6, 1997, and the SDE Trust filed a reply on March 18, 1997.
Failure to retain its licenses or failure to prevail in the litigation to which
the Partnership is subject will have a material adverse effect on the
Partnership's business and operations.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
ClearComm, L.P. (the "Partnership") was formed in January 1995 under the name
PCS 2000, L.P. The Partnership is managed by SuperTel Communications Corp.
(the "General Partner"). The Partnership was organized to acquire, own and
operate personal communication services ("PCS") licenses in frequency Blocks
C and F, and to take advantage of the benefits that the FCC has set aside for
Entrepreneurs.
Results of Operations
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED WITH QUARTER ENDED
SEPTEMBER 30, 1996
Revenues
The Partnership's sole source of revenue for the quarter ended September 30,
1997 continued to be interest income. Interest income for this quarter was
$129,326. In the third quarter of 1996, the Partnership had interest earnings
of $6,761. The increase in interest earnings was primarily due to the Federal
Communications Commission (the "FCC") refunding to the Partnership
approximately $11,039,602, which the Partnership had placed on deposit with
the FCC in connection with the acquisition of its PCS licenses and the
interest earned by the additional capital invested by the limited partners
during the quarter.
Expenses
Expenses for the quarter ended September 30, 1997 totaled $1,409,052 expenses
for the same period in 1996 amounted to $908,953. The Partnership's expenses
in the third quarter of 1997 were greater than the third quarter of 1996
because of the costs associated in developing the Partnership's licenses,
which included commencing hiring a staff.
Year-to-Date Results Analysis
Revenues
The Partnership's sole source of revenue for the nine months ended September
30, 1997 continued to be interest income. Interest income for this period
was $374,959. In the same period of 1996, the Partnership had interest
earnings of $51,058. The increase in interest earnings was primarily due to
the FCC refunding to the Partnership approximately $11,039,602, as described
above, and the interest earned by the additional capital invested by the
limited partners during the period.
15
<PAGE>
Expenses
Expenses for the nine months ended September 30, 1997 totaled $11,583,716,
expenses for the same period in 1996 amounted to $2,722,885. The
Partnership's expenses in the first nine months of 1997 were greater than the
first nine months of 1996 because of the costs associated in developing the
Partnership's licenses and the $6,511,250 advanced to Romulus
Telecommunications, Inc. under the Services Agreement expensed in the first
quarter of 1997.
Liquidity and Capital Resources
As of September 30, 1997, the Partnership had assets totaling $368,500,641,
consisting of $10,215,726 in cash and cash equivalents, $5,317 in prepaid
expenses, $25,000 on deposit, $344,293,125 of PCS licenses, $13,875,015 of
capitalized interest on the license debt during the construction period of
the PCS system and $86,458 of equipment. Current liabilities totaled
$6,788,912 and long term debt of $318,535,697 bearing interest at the rate of
6.5% relating to the acquisition of the PCS licenses. This debt is
represented by 10-year notes due to the FCC, including accrued interest.
According to the notes, interest shall be paid quarterly for the first six
(6) years, and interest and principal shall be paid quarterly over the last
four (4) years. In March 1997, the FCC issued an order suspending interest
payments on all C Block licenses indefinitely; however, interest on the notes
will continue to accrue at an annual rate of 6.5%. On October 16, 1997 the
FCC issued an order providing certain alternatives to C block licensees and
reinstating interest installments effective with the March 31, 1998
installment, interest accrued through December 1997 will be paid in eight
equal quarterly installments commencing on that date. In addition, the FCC
has adopted certain alternatives under which licensees can restructure their
licenses and associated debt. The Partnership is presently evaluating these
alternatives. The Partnership's assets and liabilities increased
significantly during the first quarter of 1997 because of the Partnership's
receipt of the PCS licenses which were awarded in January 1997.
During the quarter ended September 30, 1997, the Partnership raised $168,000
of additional capital from an offering to its limited partners that began on
March 26, 1997. This offering ended on October 30, 1997, and the Partnership
raised $1,689,000 and issued 281.5 one fifth units to its limited partners.
For the nine months ended September 30, 1997 the Partnership raised
$2,084,000 of additional capital from two capital calls to its limited
partners.
In addition, the Partnership is continuing to seek additional capital for
purposes of developing the licenses. The Partnership's efforts to raise
additional capital to develop its PCS licenses is dependent upon whether the
Partnership retains any of the licenses. On February 21, 1997, a party filed
with the FCC a petition for reconsideration of the order which granted the
Partnership its licenses. Failure to retain its licenses or failure to
prevail in the litigation to which the Partnership is subject will have a
material adverse effect on the Partnership's business and operations.
Although no assurance can be made, the Partnership expects to retain its PCS
licenses and raise the additional amounts it needs
16
<PAGE>
to develop its licenses. The Partnership currently estimates it will need to
raise approximately $290 million over the next three years to develop its PCS
licenses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership is subject to certain legal proceedings and an FCC proceeding
which were described in the Partnership's Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K") and Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997.
As previously reported in the Partnership's 1996 Form 10-K, on January 27,
1997, the trustee of the SDE Trust filed a complaint for damages of $300
million and equitable relief against Unicom, the General Partner, the
Partnership and certain officers and directors, trustees of trusts holding
Unicom shares and attorneys. In an order dated July 21, 1997, the judge
granted the Partnership's motion to move this case to Puerto Rico.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.0 Financial Data Schedule
(b) During the period covered by this report, the
Partnership filed the following Current Report of
Form 8-K: None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ClearComm, L.P.
By: SuperTel Communications Corp.
By: /s/ Javier O. Lamoso
--------------------------
Name: Javier O. Lamoso
Title: Executive Vice President
November 14, 1997
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,216
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,246
<PP&E> 108
<DEPRECIATION> 22
<TOTAL-ASSETS> 368,501
<CURRENT-LIABILITIES> 6,789
<BONDS> 318,536
0
0
<COMMON> 70,074
<OTHER-SE> (26,998)
<TOTAL-LIABILITY-AND-EQUITY> 368,501
<SALES> 0
<TOTAL-REVENUES> 129
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,280)
<EPS-PRIMARY> 343
<EPS-DILUTED> 618
</TABLE>
