<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 June 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 -----
---------------------- (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: 2,826.1 Units of Limited
Partnership Interest
1
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ClearComm, L.P.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Assets, Liabilities
and Partners' Capital as of June 30, 1998
(unaudited) and December 31, 1997 ........................................... 3
Consolidated Statement of Revenues and Expenses For the three months
and six month period ended June 30, 1998 and 1997 and period from
January 24, 1995
(inception) to June 30, 1998 (unaudited) .................................... 4
Consolidated Statement of Cash Flows for the six Months ended June 30,
1998 and 1997 and period from January 24, 1995 (inception) to
June 30, 1998 (unaudited) ................................................... 5
Consolidated Statement of Changes in Partners' Capital Accounts from
inception on January 24, 1995 through
June 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 ......................................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................................ 10
Item 6. Exhibits and Reports on Form 8-K ............................................ 10
Signatures ........................................................................... 11
Exhibit Index ......................................................................... 12
</TABLE>
2
<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
June 30, December 31,
---------- -------------
1998 1997
---------- -------------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents ............................... $ 6,914,080 $ 9,761,729
Prepaid interest, FCC Debt .............................. 5,130,132
Prepaid expenses ........................................ 37,007 108,700
------------- -------------
Total current assets .................................. 12,081,219 9,870,429
------------- -------------
Licenses, including capitalized interest
of $6,516,590 in 1998 and $25,672,000 in 1997............... 62,491,584 270,245,139
Deposits .................................................... 39,083 25,000
Equipment, net .............................................. 85,947 80,258
------------- -------------
Total assets ....................................... $ 74,697,833 $280,220,826
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
--------------------------------
Current liabilities:
Accounts payable and accrued liabilities ................ $ 741,639 $ 1,195,145
Accounts payable for legal fees, including
$101,077 (1997 - $63,329) to related parties ........... 787,621 184,257
Accounts payable to related parties ..................... 630,449 690,118
Accrued interest - FCC currently payable ................ 2,322,046 4,399,837
------------- -------------
Total current liabilities ............................. 4,481,755 6,469,357
------------- -------------
Long term liabilities
Notes payable - FCC ..................................... 36,532,386 216,856,476
Accrued interest - FCC notes ............................ 2,479,630 14,559,513
------------- -------------
Total long term liabilities ........................... 39,012,016 231,415,989
------------- -------------
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 ... (39,870,938) (28,733,520)
------------- -------------
Total partners' capital ............................... 31,204,062 42,335,480
------------- -------------
Total liabilities and partners' capital ............ $ 74,697,833 $280,220,826
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an 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
Three Months Ended Six months ended from inception
June 30, June 30, thru June 30,
----------------------------- ----------------------------- --------------
1998 1997 1998 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income 89,077 $ 135,926 $ 196,847 $ 245,633 $ 2,228,327
------------ ------------ ----------- ------------ -------------
Expenses:
Consulting and legal services rendered by
Related parties 123,960 386,437 359,522 7,599,460 16,152,126
General and administrative services billed by
the General Partner 118,277 89,327 199,331 191,441 1,506,596
Other legal fees 649,283 461,139 1,008,781 864,343 4,207,728
Other consulting services 30,733 480,212 309,235 1,065,707 2,698,502
Insurance 31,720 31,720 64,220 63,441 360,336
Travel 134,816 159,869 265,943 227,077 1,088,731
Salaries and bonuses 311,161 642,655 1,373,483
Other administrative expenses 194,191 113,313 342,980 163,195 1,039,020
Bid withdrawal penalty (Omaha, Nebraska) 1,257,771
Bid withdrawal penalty (Norfolk, Virginia) (2,848,374) (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 10,989,972
------------ ------------ ----------- ------------ -------------
Total expenses 9,735,739 1,722,017 11,334,265 10,174,664 42,099,265
------------ ------------ ----------- ------------ -------------
------------ ------------ ----------- ------------ -------------
Net loss ($9,646,662) ($1,586,091) ($11,137,418) ($9,929,031) ($39,870,938)
------------ ------------ ----------- ------------ -------------
------------ ------------ ----------- ------------ -------------
Net loss attributable to general partner (2,411,666) (396,523) (2,784,354) (2,482,258)
------------ ------------ ----------- ------------
Net loss attributable to limited partners (7,234,996) (1,189,568) (8,353,064) (7,446,773)
------------ ------------ ----------- ------------
Net loss per limited partner unit ($2,580.06) ($428.21) ($2,955.79) ($2,692.16)
------------ ------------ ----------- ------------
Weighted average number of Limited Partnership
units outstanding during the period 2,826.1 2,778 2,826 2,766.1
</TABLE>
The accompanying notes are integral part of these financial statements.
4
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ClearComm, L.P.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Cumulative
Six Months Ended from inception
June 30, thru June 30,
-------- -------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($11,137,418) ($9,929,031) ($39,870,938)
--------------- ------------- --------------
Adjustments to reconcile the net loss for the
period to net cash used by operating activities:
Depreciation 29,748 5,022 55,939
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 71,693 63,501 (37,007)
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 (453,506) 458,302 741,639
(Decrease) increase in accounts payable:
Related parties (59,669) (43,559) 630,449
Legal fees 603,364 2,647 787,621
--------------- ------------- --------------
Total adjustments 8,319,145 (539,087) 10,281,156
--------------- ------------- --------------
Net cash used by operating activities (2,818,273) (10,468,118) (29,589,782)
--------------- ------------- --------------
Cash flows form investing activities:
FCC auction deposit returned (paid) 11,039,542 (38,960,457)
Bid withdrawal payment 4,531,145
Equipment (35,376) (32,651) (141,826)
--------------- ------------ -------------
Net cash provided (used) by investing activities (35,376) 11,006,891 (34,571,138)
--------------- ------------ -------------
Cash flows from financing activities:
Capital investment by partners 6,000 1,916,000 71,150,000
Capital repurchased from partner (75,000)
Restricted cash 6,511,250
--------------- ------------ -------------
Net cash provided by financing activities 6,000 8,427,250 71,075,000
--------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents ($2,847,649) $8,966,023 $6,914,080
Cash and cash equivalents at:
beginning of the period 9,761,729 2,492,851
--------------- ------------ -------------
end of the period $6,914,080 $11,458,874 $6,914,080
--------------- ------------ -------------
--------------- ------------ -------------
Supplemental cash flow disclosure:
Capitalization of interest not paid $2,263,136 $8,875,870 $6,516,590
Forgiven accrued interest capitalized ($17,159,699) ($17,159,699)
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)
FOR THE PERIOD FROM INCEPTION ON JANUARY 24, 1995 THROUGH JUNE 30, 1998
<TABLE>
<CAPTION>
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)
----------- ------------- ------------ --------
Capital account balance (deficit) at
June 30, 1998 ($9,867,736) $41,071,798 $31,204,062 2,626.1
----------- ------------- ------------ --------
----------- ------------- ------------ --------
</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 (consisting mainly of normal
recurring accruals) necessary for a fair presentation of the financial condition
as of June 30, 1998 and December 31, 1997, and the results of operations and
changes in its cash flows for the three months and six months periods ended June
30, 1998 and 1997 and from January 24, 1995 (inception) through June 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.
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. The
$2,848,374 reduction is to be applied as credit for future interest payments.
4. LICENSES AND LONG TERM-TERM NOTES PAYABLE
On the due date established by the FCC to file the elections available
to C Block licensees (June 8, 1998), the Partnership made the following
elections on its licenses:
- Returned the following licenses to the FCC under the amnesty
alternative: 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
related to the licenses on these markets was cancelled which at
the time amounted to $179,368,965 of principal and $13,861,237 of
accrued interest, undiscounted.
- Disaggregated the remaining Western licenses (returned 15 MHz of
the original 30 MHz) and with the available funds resulting from
the amnesty election indicated above the Partnership elected the
prepayment option. As a result the following licenses were paid in
full: Eureka, CA; Merced, CA; Modesto, CA; Redding, CA; and
Visalia-Porterville. All these licenses are part of the San
Francisco MTA.
- Disaggregated the Puerto Rico licenses (returned 15 MHz of the
original 30 MHz). This decision resulted in a reduction of FCC
debt of $51,339,555 of principal and $3,967,407 of accrued
interest, undiscounted.
As a result of the elections made, the Partnership charged to current operations
$10,989,972 consisting of the forfeiture by the FCC of part of the original down
payment made on the licenses returned under the amnesty, disaggregation and
prepayment options. Also $2,281,758 is available as a prepayment credit to be
applied to FCC suspension interest installments.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The Partnership was formed in January 1995 and is managed by the General
Partner. 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 the Licenses on January 22, 1997 and has not yet established operations.
Results of Operations
QUARTER ENDED JUNE 30, 1998 COMPARED WITH QUARTER ENDED JUNE 30, 1997
Revenues
The Partnership's sole source of revenue for the quarter ended June 30, 1998
continued to be interest income. Interest income for the second quarter was
$89,077 compared to $135,926 in the second 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 June 30, 1998 totaled $9,735,739 compared to
$1,722,017 for the same period in 1997. The expenses for the second quarter of
1998 include $10,989,972 of license cost forfeited after disaggregation,
prepayment and amnesty options offered by the FCC. The FCC also reduced the
penalty imposed for the Norfolk, Virginia erroneous bid from $3,273,374 to
$425,000 which resulted in an expense reduction of $2,848,374. Without
considering the license cost forfeited and the reduced penalty described above,
the total expenses for the second quarter of 1998 would have been approximately
$1,594,000. The reduction in consulting expenses, when the second quarter of
1998 is compared with the same period of 1997 is due to that the Partnership
commenced hiring personnel in the third quarter of 1997 substituting outsource
consulting services.
YEAR-TO-DATE RESULTS ANALYSIS
Revenues:
The Partnership's sole source of revenue for the six months ended June 30, 1998
continued to be interest income. Interest income for this period was $196,847
compared to $245,633 for the same period of 1997. The decrease in interest
income between these periods is attributable to a reduction in available cash
used to pay the Partnership expenses.
Expenses:
Expenses for the six months period ended June 30, 1998 amounted to $11,334,265
compared to $10,174,664 for the same period of 1997. The 1997 expenses included
a charge of $6,511,250 advanced to Romulus Telecommunications, Inc. under the
Services Agreement. Excluding these charge, expenses for the six-month period
ended June 30, 1998 would have been approximately $3,193,000 compared to
$3,663,000 for the same period in 1997. The Partnership
8
<PAGE>
commenced hiring personnel in the third quarter of 1997. Prior to this date most
functions of the Partnership were being outsource. As a result, consulting
expenses were reduced when comparing the six month period of 1998 with that of
1997. The Partnership commenced the formal planning of its network during the
third quarter of 1997.
Liquidity and Capital Resources
The increase in prepaid interest expense at June 30, 1998 is related to the
$2,848,374 reduction in the bid withdrawal penalty in the Norfolk, Virginia
erroneous bid which is available to offset future quarterly interest
installments and the $2,281,758 available as a prepayment credit to be applied
to the suspension interest installments resulting from the FCC elections made by
the Partnership.
The reduction in license costs, accrued interest and long term notes payable
to the FCC between June 30, 1998 and December 31, 1997 is attributable to the
elections promulgated by the FCC in an effort to assist C Block license
holders in restructuring their financial condition. The Partnership took
advantage of these elections and returned eight of its western licenses under
the amnesty option, disaggregated and prepaid five western licenses and
disaggregated the two Puerto Rico licenses resulting in a reduction of
$258,524,258 in the original debt and accrued interest of $19,978,182 due to
the FCC, undiscounted. See Note 4 to the Financial Statements contained in
Item 1. Quarterly interest installments originally of $5,035,287 are now
$834,268 of which three and one half installments are prepaid with the
available credit form the reduction in the bid withdrawal penalty in the
Norfolk, Virginia erroneous bid. Suspension interest payments originally
$2,993,198 (only due for eight consecutive quarterly installments) are now
$495,926 of which four and one half installments are prepaid with a credit
available form the Puerto Rico disaggregated licenses original down payment.
In addition, the Partnership is continuing to seek additional capital for
purposes of developing the licenses. The Partnership's effort to raise
additional capital to develop licenses is dependent upon whether the Partnership
retains any of the licenses. Failure to retain its licenses or the 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 raise the additional
amounts it needs to develop the licenses it retains. The Partnership currently
estimates that it will need to raise approximately $116 million over the next
three years to develop all of the Licenses.
As of June 30, 1998, the Partnership owes the federal government approximately
$51,339,555 plus accrued interest at 6.5% of $4,801,675 in connection with the
acquisition of the Licenses, undiscounted. At June 30, 1998, the notes payable
to the FCC are presented net of a discount of approximately $14,807,000.
9
<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").
As previously reported in the Partnership's 1997 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 Corporation, the former General
Partner ("Unicom"), SuperTel Communications Corp., the General Partner
("SuperTel"), 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 Company's motion to move this case to Puerto Rico. The
SDE Trust filed an appeal with the California Court of Appeals on April 28,
1998, and the Partnership's response was filed on August 13, 1998. The
decision of the California Court of Appeals is not expected until about
mid-1999.
As previously reported in the Partnership's 1997 10-K, 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 have now been
consolidated for all purposes. In February 1998, the court dismissed the
racketeering claim and on April 6, 1998, dismissed the other claims on
grounds of improper forum. The plaintiffs filed a motion to abate order which
seeks to clarify the court's order, which was denied on July 9, 1998. The
plaintiffs filed for a Writ of Mandamus from the Oregon Supreme Court
compelling reversal of that Order, which was denied on August 11, 1998.
As previously reported in the Partnership's 1997 10-K, the Partnership
obtained a stay of the Romulus and Easton arbitration proceedings. The order of
the U.S. Federal District Court for the Commonwealth of Puerto Rico staying the
proceedings was reversed by the U.S. Court of Appeals for the First
Circuit on July 8, 1998. The Court of Appeals ruled that the U.S. District
Court had no jurisdiction to hear matter, and the case was dismissed on
August 3, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.0 Financial Data Schedule
(b) No reports of Form 8-K were filed by the Partnership during the
quarter ended June 30, 1998.
ITEMS 2, 3, 4 and 5 are not applicable have been omitted.
10
<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
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,914
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,081
<PP&E> 86
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,698
<CURRENT-LIABILITIES> 4,482
<BONDS> 39,012
0
0
<COMMON> 71,075
<OTHER-SE> (39,871)
<TOTAL-LIABILITY-AND-EQUITY> 74,698
<SALES> 0
<TOTAL-REVENUES> 89
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,647)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,647)
<EPS-PRIMARY> (2,560)
<EPS-DILUTED> (3,365)
</TABLE>
