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Securities and Exchange Commission
Washington, D.C. 20549
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 March 31, 1999
/ / 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.
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(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.)
221 Ponce de Leon Avenue Suite 1407 00917-1814
San Juan, Puerto Rico ----------
---------------------------------------- (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (787) 756-0840
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
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<PAGE>
ClearComm, L.P.
INDEX
<TABLE>
<CAPTION>
Page No.
-------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Assets, Liabilities and Partners' Capital as of March 31, 1999
(unaudited) and December 31, 1998.................................................................. 3
Consolidated Statement of Revenues and Expenses For the three months March 31, 1999 and 1998 and
period from January 24, 1995 (inception) to March 31, 1999 (unaudited)............................. 4
Consolidated Statement of Cash Flows for the three Months ended March 31, 1999 and 1998 and period
from January 24, 1995 (inception) to March 31, 1999 (unaudited).................................... 5
Consolidated Statement of Changes in Partners' Capital Accounts from inception on January 24, 1995
through March 31, 1999 (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.................................................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................................................... 11
Signatures.................................................................................................. 12
Exhibit Index............................................................................................... 13
</TABLE>
2
<PAGE>
ClearComm, L.P.
(a development stage enterprise)
CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES
AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
Unaudited
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $24,453,705 $ 4,246,412
Accounts receivable 101,135 1,633,024
Prepaid expenses 68,728 125,388
----------- ----------
Total current assets 24,623,568 6,004,824
----------- ----------
Licenses, including capitalized interest of $10,481,000
(1998 $8,782,000) 66,455,761 64,757,512
Equipment, net 3,967 18,495
----------- -----------
Total assets $91,083,296 $70,780,831
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 849,495 $ 352,670
Accounts payable for legal fees, including
$55,488 (1998 - $68,460) to related parties 339,194 633,021
Accounts payable to related parties 51,285 412,540
Accrued interest 841,262 919,450
----------- -----------
Total current liabilities 2,081,236 2,317,681
----------- -----------
Long term liabilities:
Notes payable - FCC 37,424,285 37,126,985
Secured convertible promissory note payable 19,960,000
Accrued interest - FCC notes 1,335,909 423,363
----------- -----------
Total long term liabilities 58,720,194 37,550,348
----------- -----------
Partners' Capital:
Limited partners' capital 2,826.1 units, issued and outstanding 70,975,000 70,975,000
General partner's capital 100,000 100,000
Undistributed losses accumulated during development stage (40,793,134) (40,162,198)
----------- -----------
Total partners' capital 30,281,866 30,912,802
----------- -----------
Total liabilities and partners' capital $91,083,296 $70,780,831
=========== ===========
</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>
January 24,1995
Three Months Ended (inception) to
March 31, March 31,
--------- ---------
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
Interest income $ 127,579 $ 107,770 $ 2,483,291
---------- ----------- ------------
Expenses:
Consulting and legal services
rendered by Related parties 109,429 235,562 16,659,818
Settlement credit on legal disputes
with related parties (2,090,876)
Management fee to General Partner 71,500 81,054 1,739,217
Manangement Fee TLD 75,000 75,000
Other legal fees 195,585 359,498 5,227,934
Consulting services 28,452 278,502 2,672,445
Insurance 31,721 32,500 457,969
Travel 22,406 131,127 1,171,038
Salaries and bonuses 27,116 331,494 2,089,549
Interest expense 104,790 104,790
Other administrative expenses 92,516 148,789 1,496,798
Bid withdrawals and forfeiture
imposed by the FCC 2,682,771
License cost forfeiture after dissagregation,
prepayment and amnesty options offered
by the FCC 10,989,972
---------- ----------- ------------
Total expenses 758,515 1,598,526 43,276,425
---------- ----------- ------------
Net loss ($630,936) ($1,490,756) ($40,793,134)
========== =========== ============
Net loss attributable to general partner (157,734) (372,689)
---------- -----------
Net loss attributable to limited partners (473,202) (1,118,067)
---------- -----------
Net loss per limited partner unit ($167.44) ($395.65)
========== ===========
Weighted average number of Limited Partnership
units outstanding during the period 2,826.1 2,825.9
========== ===========
</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>
January 24, 1995
Three Months Ended (inception) to
March 31, March 31,
--------- ---------
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($630,936) ($1,490,756) $40,793,134)
------------ ------------ -----------
Adjustments to reconcile the net loss for the period to net
cash provided (used) by operating activities:
Depreciation 18,584 11,580 116,400
License cost forfeiture after dissagregation,
prepayment and amnesty options offered 10,989,972
(Increase) decrease in accounts receivable 1,531,889 (101,135)
(Increase) decrease in prepaid expenses 56,660 36,027 (68,728)
Increase (decrease) in accounts payable and
accrued liabilities 496,825 (233,533) 849,495
(Decrease) increase in accounts payable:
General Partner (361,255) (68,946) 51,285
Legal fees (293,827) 208,882 339,194
----------- ----------- -----------
Total adjustments 1,448,876 (45,990) 12,176,483
----------- ----------- -----------
Net cash provided (used) by operating activities 817,940 (1,536,746) (28,616,651)
----------- ----------- -----------
Cash flows from investing activities:
FCC auction deposit (paid) (38,960,457)
Bid withdrawal payment 1,682,771
Equipment (3,967) (34,338) (120,278)
----------- ----------- -----------
Net cash provided (used) by investing activities (3,967) (34,338) (37,397,964)
----------- ----------- -----------
Cash flows from financing activities:
Capital investment by partners 71,150,000
Capital repurchased from partner (75,000)
Proceed from secured convertible promissory note 19,960,000 19,960,000
Interest installment paid to the FCC (566,680) (566,680)
------------ ------------- -------------
Net cash provided (used) by financing activities 19,393,320 90,468,320
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents $20,207,293 ($1,571,084) $24,453,705
Cash and cash equivalents at:
beginning of the period 4,246,412 9,761,729
------------ ----------- --------------
end of the period $24,453,705 $8,190,645 $24,453,705
============ =========== ==============
Supplemental cash flow disclosure:
Capitalization of interest not paid $297,300 $1,794,000
</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 March 31, 1999
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partner Total
----- ------ ------- -----
<S> <C> <C> <C> <C>
Capital invested 2,604.5 $65,112,500 $100,000 $65,212,500
1995 share of undistributed losses (5,035,774) (1,678,592) (6,714,366)
------- ----------- ------------ -----------
Capital account balance (deficit) at
December 31, 1995 2,604.5 60,076,726 (1,578,592) 58,498,134
Repurchase of Limited Partners units (3.0) (75,000) (75,000)
Capital invested in 1996 118.1 2,952,500 2,952,500
1996 share of undistributed losses (6,806,135) (2,268,712) (9,074,847)
------- ----------- ------------ -----------
Capital account balance (deficit) at
December 31, 1996 2,719.6 56,148,091 (3,847,304) 52,300,787
Capital invested in 1997 106.3 2,979,000 2,979,000
1997 share of undistributed losses (9,708,230) (3,236,077) (12,944,307)
------- ----------- ------------ -----------
Capital account balance (deficit) at
December 31, 1997 2,825.9 49,418,861 (7,083,381) 42,335,480
Capital invested in 1998 0.2 6,000 6,000
1998 share of undistributed losses (8,571,509) (2,857,169) (11,428,678)
------- ----------- ------------ -----------
Capital account balance (deficit) at
December 31, 1998
2,826.1 40,853,352 (9,940,550) 30,912,802
First quarter 1999 share
of undistributed losses (473,202) (157,734) (630,936)
------- ----------- ------------ -----------
Capital account balance (deficit) at
March 31, 1999 2,826.1 $40,380,150 ($10,098,284) $30,281,866
======= =========== ============ ===========
</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, 1998 included
in the 1998 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 March 31, 1999 and December 31, 1998 of ClearComm, L.P. (the
"Partnership"), and the results of operations and changes in its cash flows for
the three months periods ended March 31, 1999 and 1998 and from January 24, 1995
(inception) to March 31, 1999.
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. NOTE PAYABLE TELEFONICA LARGA DISTANCIA DE PUERTO RICO, INC.
On March 3, 1999, a newly created wholly owned subsidiary of the
Partnership, NewComm Wireless Services, Inc. ("NewComm"), as part of the
agreement with Telefonica Larga Distancia de Puerto Rico, Inc. ("TLD"), borrowed
$19,960,000 from TLD in exchange for a Secured Convertible Promissory Note (the
"Note") in the amount of $19,960,000. The Note bears interest at the floating
rate of the 90 days London Interbank Offer Rate (LIBOR) plus 1-1/2%. The Note is
convertible into 49.9% of NewComm's equity. Because of restrictions on the PCS
licenses, the Note cannot be converted until the Federal Communications
Commission authorizes TLD to hold more than a 25% equity interest in NewComm.
The Partnership has the option to buy out TLD in the last year before
the restrictions on the Puerto Rico licenses lapse at an amount equal to the
higher of 50% of the principal plus accrued interest on the Note or 125% of the
fair market value of NewComm's shares.
4. INFRASTRUCTURE CONSTRUCTION CONTRACT
As part of the Joint Venture Agreement dated, February 4, 1999, between
NewComm and TLD, NewComm executed a Technology Transfer Agreement with
Telefonica Internacional, S.A. ("TISA"). On behalf of NewComm, TISA conducted a
request for proposal ("RFP") proceeding inviting recognized PCS equipment
suppliers to submit their proposals for a turnkey project for the deployment of
the Puerto Rico NewComm network. In evaluating the proposals, the quality,
warranties, capacity, cost, terms, engineering support considerations committed
by the equipment vendor were considered. The best alternative selected is a
network that will utilize Code Division Multiple Access (CDMA) protocol and it
is expected that the total cost will approximate $85 million. The final contract
is expected to be signed during the second quarter.
7
<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 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
Federal Communications Commission (the "FCC") has set aside for Entrepreneurs.
The Partnership's income to date has consisted of interest earnings only, as the
Partnership was awarded the Licenses on January 22, 1997 and has not yet
established operations. The Partnership formed a wholly owned subsidiary NewComm
Wireless Services Inc. ("NewComm") on January 29, 1999. On February 4, 1999 the
Partnership and NewComm entered into an agreement with Telefonica Larga
Distancia de Puerto Rico, Inc, ("TLD"), whereby the Partnership contributed its
two Puerto Rico PCS licenses to NewComm and TLD provided NewComm a $19,960,000
loan to develop the Puerto Rico licenses. TLD's loan is pursuant to a secured
convertible promissory note (the "Note") which is a convertible into 49.9% of
NewComm's equity. The Note cannot be converted until the FCC authorizes TLD to
hold more than a 25% equity interest in NewComm. TLD also received an option
(the "Option") to buy an additional 0.2%, which would bring its ownership to
50.1%, subject to a third-party valuation and FCC approval. The Option cannot be
exercised prior to January 22, 2002, unless the ownership restrictions on the
Puerto Rico licenses are eliminated by the FCC. NewComm, however, has the option
to buyout TLD in the last year before the restrictions on the Puerto Rico
licenses lapse.
Results of Operations
QUARTER ENDED MARCH 31, 1999 COMPARED WITH QUARTER ENDED MARCH 31, 1998
Revenues
Partnership's sole source of revenue for the quarter ended March 31,
1999 continued to be interest income. Interest income for this quarter was
$127,579. In the first quarter of 1998, the Partnership had interest earnings of
$107,770. The increase in interest income during 1999 is attributable to
NewComm's investment of the cash contributed by TLD.
Expenses
Expenses for the quarter ended March 31, 1999 totaled $758,515 compared
to $1,598,526 for the same period in 1998. The Partnership's expenses in the
first quarter of 1999 included $246,000 of NewComm expenses which included
$104,790 for interest expense due on the Note and a $75,000 management fee paid
to TLD. Expenses incurred during the first quarter of 1998 included legal fees
incurred in the Oregon litigation and proceedings before the FCC.
8
<PAGE>
Liquidity and Capital Resources
As of March 31, 1999, the Partnership had cash and cash equivalents
amounting to $24,453,705 of which $19,365,000 related to NewComm's assets. In
addition, the Partnership collected, during the first quarter of 1999,
$1,500,000 from a settlement reached with its bidding agent. This amount was
recorded as a receivable as of December 31, 1998.
On March 3, 1999 TLD funded the Partnership's wholly owned subsidiary
NewComm with $19,960,000 in exchange for the Note.
In addition, the Partnership owes the United States federal government
approximately $51,339,555 (undiscounted) plus accrued interest at 6.5% of
$2,177,171 in connection with the acquisition of its PCS licenses. As of March
31, 1999, the notes payable to the FCC are presented net of a discount of
approximately $13,915,000.
As a result of the restructuring of its FCC debt, effective June of
1998, the Partnership has no outstanding debt on its C Block Licenses of 15 MHz
of bandwidth covering an approximate population of 1.6 million people in Eureka,
Redding, Merced, Modesto and Versalia, all within the state of California. Major
C Block licensee holders surrounding these licenses are currently under
bankruptcy court proceedings. A re-auction of D, E, F, and dissagregated C Block
licenses concluded on April 16, 1999. The Partnership is actively pursuing
alliances and possible funding mechanisms to develop these licenses.
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 based 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 at "00," causing computers to incorrectly interpret the year as
1900. Left uncorrected, the Y2K problem may cause information technology systems
such as computer databases ("IT Systems"), and non-information technology
systems, such as elevators ("Non-IT Systems") to produce incorrect data or cease
operating completely.
As the Partnership does not yet have operations, it has minimal IT and
non-IT systems. The Partnership has retained a certified Y2K consultant who has
reviewed the Partnership's IT and non-IT systems, and will issue a certificate
to certify that those systems are Y2K compliant.
All of the equipment required to build out the Puerto Rico network will
be purchased from third party vendors. The Partnership will require such
suppliers to warrant that products sold or licensed to the Partnership are Y2K
compliant.
Since the Partnership does not yet have operations, total costs
incurred to date specifically associated with becoming Y2K compliant have not
been material. The total estimated specific costs of becoming Y2K complaint is
not material.
Once the Partnership begins operations, it recognizes that the Y2K
problem will impose certain risks, including the possibility of a failure of the
Partnership's signal, computer, and non-information technology systems. Such
failures could have a material adverse effect upon the
9
<PAGE>
Partnership and may cause systems malfunctions, signal loss, incorrect or
incomplete transaction processing, the inability to reconcile accounting books
and records, and the inability for the Partnership to manage its business. In
addition, the Partnership, once it begins operations, can be materially and
adversely affected by failures of third parties to become Y2K compliant. The
failure of third parties with which the Partnership then has financial or
operational relationships such as network maintenance contractors, roaming
partners, handset and accessory providers, financial institutions, payroll
contractors, regulatory agencies and utility companies, to become Y2K compliant
in a timely manner could result in material adverse effects on the Partnership's
results of operations.
10
<PAGE>
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, 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 March 31, 1999.
ITEMS 2, 3, 4 and 5 are not applicable have been omitted.
11
<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.
Date: May 14, 1999 By: SuperTel Communications Corp.
Date: May 14, 1999 By: /s/ Javier O. Lamoso
--------------------------
Name: Javier O. Lamoso
Title: President
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001013267
<NAME> ClearComm, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 20,454
<SECURITIES> 0
<RECEIVABLES> 101
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,624
<PP&E> 4
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,083
<CURRENT-LIABILITIES> 2,081
<BONDS> 58,720
0
0
<COMMON> 71,075
<OTHER-SE> (40,793)
<TOTAL-LIABILITY-AND-EQUITY> 91,083
<SALES> 0
<TOTAL-REVENUES> 128
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 759
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</TABLE>
