<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, 1998
/ / 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 ----------
(Address of principal executive offices) (Zip Code)
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: 2,826.1 Units of Limited
Partnership Interest
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ClearComm, L.P.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Assets, Liabilities
and Partners' Capital as of September 30, 1998
(unaudited) and December 31, 1997 ......................... 3
Consolidated Statement of Revenues and Expenses
For the three months and nine month period ended
September 30, 1998 and 1997 and period from
January 24, 1995 (inception) to September 30,
1998 (unaudited) .......................................... 4
Consolidated Statement of Cash Flows for the nine
Months ended September 30, 1998 and 1997 and
period from January 24, 1995 (inception) to
September 30, 1998 (unaudited) ............................ 5
Consolidated Statement of Changes in Partners' Capital
Accounts from inception on January 24, 1995 through
September 30, 1998 (unaudited) ........................... 6
Notes to the Interim Consolidated Financial Statements .... 7
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings ......................................... 11
Item 6. Exhibits and Reports on Form 8-K .......................... 11
Signatures .......................................................... 12
Exhibit Index ....................................................... 13
</TABLE>
<PAGE>
Part I Financial Information
Item 1. Financial Statements
ClearComm, L.P.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES
AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
UNAUDITED
September 30, December 31,
------------- ------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 5,399,283 $ 9,761,729
Prepaid interest, FCC Debt 1,525,311
Prepaid expenses 5,287 108,700
----------- ------------
Total current assets 6,929,881 9,870,429
----------- ------------
Licenses, including capitalized interest
of $7,648,000 in 1998 and $25,672,000 in 1997 63,623,152 270,245,139
Deposits 39,083 25,000
Equipment, net 64,502 80,258
----------- ------------
Total assets $70,656,618 $280,220,826
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 837,946 $ 1,195,145
Accounts payable for legal fees, including
$70,549 (1997 - $63,329) to related parties 559,115 184,257
Accounts payable to related parties 641,174 690,118
Accrued interest - FCC currently payable 842,824 4,399,837
----------- ------------
Total current liabilities 2,881,059 6,469,357
----------- ------------
Long term liabilities
Notes payable - FCC 36,829,686 216,856,476
Accrued interest - FCC notes 1,188,297 14,559,513
----------- ------------
Total long term liabilities 38,017,983 231,415,989
----------- ------------
Limited partners' capital 2,826.1 units
(1997 - 2,825.9 units); issued and outstanding 70,975,000 70,969,000
General partner's capital 100,000 100,000
Undistributed losses accumulated during
development stage (41,317,424) (28,733,520)
----------- ------------
Total partners' capital 29,757,576 42,335,480
----------- ------------
Total liabilities and partners' capital $70,656,618 $280,220,826
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are integral part of these financial statements.
3
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE FROM
THREE MONTHS ENDED NINE MONTHS ENDED INCEPTION THRU
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------- -------------
1998 1997 1998 1997 1998
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income 74,230 $ 129,326 $ 271,077 $ 374,959 $ 2,302,557
----------- ----------- ------------ ------------ -------------
Expenses:Consulting and legal services rendered
by Related parties................................ 325,079 415,194 684,601 8,014,654 16,477,205
General and administrative services billed by
the General Partner............................... 82,724 89,687 282,055 281,128 1,589,320
Other legal fees.................................... 561,380 294,167 1,570,161 1,158,510 4,769,108
Other consulting services........................... 157,236 113,251 466,471 1,178,958 2,855,738
Insurance........................................... 33,413 33,414 97,633 96,855 393,749
Travel.............................................. 41,933 58,114 307,876 285,191 1,130,664
Salaries and bonuses................................ 158,874 801,529 1,532,357
Other administrative expenses....................... 160,077 405,225 503,057 568,420 1,199,097
Bid withdrawal penalty (Omaha, Nebraska)............ 1,257,771
Bid withdrawal penalty (Norfolk, Virginia).......... (2,848,374) 425,000
Forfeiture imposed by the FCC....................... 1,000,000
License cost forfeited after disaggregation,
prepayment and amnesty options offered by the FCC. 10,989,972 10,989,972
----------- ----------- ------------ ------------ -------------
Total expenses...................................... 1,520,716 1,409,052 12,854,981 11,583,716 43,619,981
----------- ----------- ------------ ------------ -------------
Net loss............................................ ($1,446,486) ($1,279,726) ($12,583,904) ($11,208,757) ($41,317,424)
----------- ----------- ------------ ------------ -------------
----------- ----------- ------------ ------------ -------------
Net loss attributable to general partner............ (361,622) (319,932) (3,145,975) (2,802,189)
----------- ----------- ------------ ------------
Net loss attributable to limited partners........... (1,084,864) (959,794) (9,437,929) (8,406,568)
----------- ----------- ------------ ------------
Net loss per limited partner unit................... ($ 383.87) ($ 343.61) ($ 3,339.68) ($ 3,032.78)
----------- ----------- ------------ ------------
Weighted average number of Limited Partnership
units outstanding during the period............... 2,826.1 2,793.3 2,826 2,771.9
</TABLE>
The accompanying notes are integral part of these financial statements.
4
<PAGE>
ClearComm. L.P.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS ENDED FROM INCEPTION
SEPTEMBER 30, THRU SEPTEMBER 30,
----------------- ------------------
1998 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating
activities
Net loss...................... ($12,583,904) ($11,208,757) ($41,317,424)
------------ ------------ ------------------
Adjustments to reconcile the
net loss for the period to
net cash used by operating
activities:
Depreciation.................. 47,941 18,125 74,132
Bid withdrawal penalty
credit...................... (2,848,374) (2,848,374)
License cost forfeited after
disaggregation, prepayment
and amnesty options offered
by the FCC.................. 10,989,972 10,989,972
(Increase) decrease in prepaid
expenses.................... 103,414 95,221 (5,286)
Increase in deposits.......... (14,083) (25,000) (39,083)
Decrease in payable to the
FCC......................... (1,000,000)
Increase (decrease) in
accounts payable and accrued
liabilities................. (357,199) 338,404 837,946
(Decrease) increase in
accounts payable:
Related parties............. (48,944) (39,864) 641,174
Legal fees.................. 374,858 559,115
------------ ------------ ------------------
Total adjustments............. 8,247,585 (613,114) 10,209,596
------------ ------------ ------------------
Net cash used by operating
activities................. (4,336,319) (11,821,871) (31,107,828)
------------ ------------ ------------------
Cash flows from investing
activities:
FCC auction deposit returned
(paid)...................... 11,039,542 (38,960,457)
Bid withdrawal payment........ 4,531,145
Equipment..................... (32,127) (90,046) (138,577)
------------ ------------ ------------------
Net cash provided (used) by
investing activities....... (32,127) 10,949,496 (34,567,889)
------------ ------------ ------------------
Cash flows from financing
activities:
Capital investment by
partners.................... 6,000 2,084,000 71,150,000
Capital repurchased from
partner..................... (75,000)
Restricted cash............... 6,511,250
------------ ------------ ------------------
Net cash provided by financing
activities................. 6,000 8,595,250 71,075,000
------------ ------------ ------------------
Net increase (decrease) in
cash and cash equivalents... ($ 4,362,446) $ 7,722,875 $ 5,399,283
Cash and cash equivalents at:
beginning of the period..... 9,761,729 2,492,851
------------ ------------ ------------------
end of the period........... $ 5,399,283 $ 10,215,726 $ 5,399,283
------------ ------------ ------------------
------------ ------------ ------------------
Supplemental cash flow
disclosure:
Capitalization of interest
not paid.................. $ 3,394,704 $ 13,965,370 $ 7,648,157
Forgiven accrued interest
capitalized............... (19,978,183) ($19,978,183)
Acquisition (returned)
licenses with notes payable
to FCC..................... ($174,826,005) $210,143,476 $ 35,317,471
</TABLE>
The accompanying notes are integral part of these financial statements.
5
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM INCEPTION ON JANUARY 24, 1995 THROUGH SEPTEMBER 30, 1998
-----------------------------------------------------------------------------
General Limited Limited Partners
Partner Partners Total Units
----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Capital invested............................ $100,000 $65,112,500 $65,212,500 2,604.5
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
Repurchase of Limited Partners units........ (75,000) (75,000) (3.0)
Capital contributed during 1996............. 2,952,500 2,952,500 118.1
1996 share of undistributed losses.......... (2,268,712) (6,806,135) (9,074,847)
------------ ----------- ----------- --------
Capital account balance (deficit) at
December 31, 1996....................... (3,847,304) 56,148,091 52,300,787 2,719.6
Capital contributed during 1997............. 2,979,000 2,979,000 106.3
1997 share of undistributed losses.......... (3,236,077) (9,708,230) (12,944,307)
------------ ----------- ----------- --------
Capital account balance (deficit) at
December 31, 1997....................... (7,083,381) 49,418,861 42,335,480 2,825.9
First quarter 1998 share of
undistributed losses................... (372,689) (1,118,067) (1,490,756)
Capital contributed during second
quarter 1998.......................... 6,000 6,000 0.2
Second quarter 1998 share of
undistributed losses................... (2,411,666) (7,234,996) (9,646,662)
Third quarter 1998 share of
undistributed losses................... (361,622) (1,084,864) (1,446,486)
------------ ----------- ----------- --------
Capital account balance (deficit) at
September 30, 1998...................... ($10,229,358) $39,986,934 $29,757,576 2,826.1
------------ ----------- ----------- --------
------------ ----------- ----------- --------
</TABLE>
The accompanying notes are integral part of these financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions for Form 10-Q. Additional
information regarding the financial statements can be found in the Notes to
Consolidated Financial Statements for the year ended December 31, 1997
included in the 1997 Form 10-K.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (principally
consisting of normal recurring accruals) necessary for a fair presentation of
the financial condition as of September 30, 1998 and December 31, 1997, and
the results of operations and changes in its cash flows for the three months
and nine months periods ended September 30, 1998 and 1997 and from January
24, 1995 (inception) to September 30, 1998.
2. NET LOSS PER LIMITED PARTNERSHIP UNIT
Net loss per limited partnership unit is computed by dividing net
loss for the period by the weighted-average number of limited partnership
units outstanding during the period. The weighted-average number of limited
partnership units outstanding during the nine months period ended September
30, 1998 and 1997 was approximately 2,826 and 2,771.9 respectively and for
the three month period then ended was approximately 2,826.1 and 2,793.3
respectively.
3. BID WITHDRAWAL PAYMENT AND PENALTY
On June 12, 1998 the FCC reduced the penalty imposed for the
withdrawal of the Norfolk, Virginia erroneous bid from $3,273,374 to
$425,000. This resulted in a credit of $2,848,374, which will be available to
be applied against future interest payments. As of September 30, 1998, the
unapplied prepaid balance amounts to $1,525,311.
4. LICENSES AND LONG TERM-TERM NOTES PAYABLE
On June 8, 1998 the due date established by the FCC to file the
elections available to C Block licensees, the Partnership made the following
elections on its licenses:
- - The following licenses were returned to the FCC under the amnesty choice:
Bakersfield, CA, Boise-Nampa, ID; Fresno, CA; Lewinston-Moscow, ID; Logan,
UT; Provo - Orem, UT; Reno, NV and Salt Lake City, UT. As a result the
entire outstanding debt on these markets was forgiven amounting to
$179,368,965 of principal and $13,861,237 in accrued interest.
- - For the remaining Western licenses the election made was to disaggregate (
return 15 MHz of the original 30 MHz ) and with the available funds as the
result of the amnesty indicated above elected the prepayment option. As a
result the following licenses are now paid for in its entirety: Eureka, CA;
Merced, CA; Modesto, CA; Redding, CA; and Visalia-Porterville all are part
of the San Francisco MTA.
7
<PAGE>
- - For the Puerto Rico licenses the election made was to disaggregate ( return
15 MHz of the original 30 MHz ). This decision resulted in a reduction of
$51,339,555 in principal and $3,967,407 of accrued interest.
As a result of the decision made, the Partnership recorded $10,989,972 as a
license cost adjustment due to forfeiture of part of the original down
payment made on the returned licenses for amnesty, disaggregation and
prepayment. Also $2,281,758 was available as a prepayment credit and was
applied to suspension interest balance. This decision resulted in a
substantial reduction in debt, the regular quarterly interest installments of
$5,035,284 are now $834,268 and the suspension interest installments of
$2,993,199 are now $210,706.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The ClearComm, L.P. (the "Partnership") was formed in January 1995 and is
managed by its general partner, SuperTel Communications, Corp. The
Partnership was organized to acquire, own and operate personal communication
services PCS licenses in frequency Block C and to take advantage of the
benefits that the FCC has set aside for Entrepreneurs. The Partnership's
income to date has consisted only of interest earnings as the Partnership was
awarded its PCS licenses on January 22, 1997 and has not yet established
operations.
Results of Operations
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED WITH QUARTER ENDED
SEPTEMBER 30, 1997
Revenues
The Partnership's sole source of revenue for the quarter ended September 30,
1998 continued to be interest income. Interest income for the third quarter was
$74,230 compared to $129,326 in the third quarter of 1997. The decrease in
interest income is attributable to a reduction in available cash used to pay the
Partnership expenses.
Expenses
Expenses for the quarter ended September 30, 1998 totaled $1,520,716 compared
to $1,409,052 for the same period in 1997. The increase in expenses this
quarter is attributable mostly to legal fees incurred primarily in
negotiating a settlement with the bidding agent and termination of the Oregon
litigation.
YEAR-TO-DATE RESULTS ANALYSIS
Revenues
The Partnership's sole source of revenue for the nine months ended September
30, 1998 continued to be interest income. Interest income for this period was
$271,077 compared to $374,959 for the same period of 1997. The decrease in
interest income is attributable to a reduction in available cash used to pay
the Partnership expenses.
Expenses
Expenses for the nine months ended September 30, 1998 totaled $12,854,981
compared to $11,583,716 for the same period in 1997. The 1997 expenses
include a charge of $6,511,250 advanced to Romulus Telecommunications, Inc.
under the Services Agreement. The 1998 expenses include $10,989,926 of
license cost forfeited after disaggregation, prepayment and amnesty options
offered by the FCC. The FCC also reduced the penalty imposed for the
9
<PAGE>
Norfolk, Virginia erroneous bid from $3,273,374 to $425,000 which resulted in
an expense reduction of $2,848,374. Excluding these charge, expenses for the
nine months period ended September 30, 1998 would have been approximately
$4,713,383 compared to $5,072,466 for the same period in 1997.
Liquidity and Capital Resources
The prepaid interest expense at September 30, 1998 is related to the
reduction in the bid withdrawal penalty in the Norfolk, Virginia erroneous
bid which is available to offset future quarterly interest installments. The
Partnership made its first interest installment on July 31, 1998 to the FCC
from the available prepaid interest amount.
Management believes that once the pending litigation is deposed of, the
necessary resources and strategic investors needed to develop the licenses
will be more accessible. Although no assurance can be made, the Partnership
expects to develop the necessary business relations with equipment vendors,
strategic partners and financiers to develop its licenses.
In addition, the Partnership owes the United States federal government
approximately $51,339,555 (undiscounted) plus accrued interest at 6.5% of
$2,031,121 in connection with the acquisition of the Licenses. At September
30, 1998, the notes payable to the FCC are presented net of a discount of
approximately $14,509,869.
YEAR 2000 DISCLOSURE
The Partnership is aware of the Year 2000 ("Y2K") problem, which is the
result of a widespread programming technique that causes computer systems to
identify a date base on the last two numbers of a year, with the assumption
that the first two numbers of the year are "19." As a result, the year 2000
would be stored as "00," causing computers to incorrectly interpret the year
as 1900. Left uncorrected, the Y2K problem may cause information technology
systems (such as computer databases) and non-information technology systems
(such as elevators) to produce incorrect data or cease operating completely.
The Partnership, however, has not yet assessed the impact of the Y2K problem
on the Partnership because it does not yet have established operations. As
the Partnership begins to establish operations, it will identify and evaluate
its internal Y2K problems and those of its suppliers. The Partnership will
then develop a phased plan to ensure Y2K compliance.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership is subject to certain legal proceedings and FCC
proceedings which were described in the Partnership's Form 10-K for
the year ended December 31, 1997 (the "1997 Form 10-K") and the
Partnership's Form 10-Q for the quarter ended June 30, 1998 (the
"Form 10-Q").
As previously reported in the Partnership's 1997 Form 10-K and Form
10-Q, two separate civil actions were filed in the Circuit Court of
the State of Oregon for Multnomah County in November 1996 and August
1997 that were dismissed on August 11, 1998. On October 20, 1998,
the Partnership was notified that the plaintiffs had filed a request
for arbitration of some of the claims underlying those actions with
the American Arbitration Association.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.0 Financial Data Schedule
(b) No reports on Form 8-K were filed by the Partnership during the
quarter ended September 30, 1998.
ITEMS 2, 3, 4 and 5 are not applicable and have been omitted.
11
<PAGE>
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
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,399
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,930
<PP&E> 65
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,657
<CURRENT-LIABILITIES> 2,881
<BONDS> 38,018
0
0
<COMMON> 71,075
<OTHER-SE> (41,317)
<TOTAL-LIABILITY-AND-EQUITY> 70,657
<SALES> 0
<TOTAL-REVENUES> 74
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,446)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,446)
<EPS-PRIMARY> (384)
<EPS-DILUTED> (512)
</TABLE>
