UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

For Annual and Transition Reports to Section 13 or 15(d) of the
Securities Exchange Act of 1934

ý	Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the calendar year ended December 31, 2005

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)

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 Incorporation or Organization)		(I.R.S. Employer Identification No.)

City View Plaza-Suite 700 No. 48 of Road 165 Guaynabo, Puerto Rico		00968
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (787) 810-5757

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
Securities registered pursuant to Section 12(g) of the Act:

Units of Limited Partnership Interest

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Note.—If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

ClearComm, L.P.

CLEARCOMM, L.P. (THE “PARTNERSHIP”) RESTATED ITS CONSOLIDATED FINANCIAL STATEMENTS FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2001. OUR PRIOR INDEPENDENT ACCOUNTANTS, ARTHUR ANDERSEN LLP, ARE NOT ABLE TO REISSUE THEIR REPORT RELATING TO THE PARTNERSHIP’S FINANCIAL STATEMENTS FOR 2001 OR TO AUDIT THE RESTATEMENT ADJUSTMENTS BECAUSE THEY CEASED OPERATIONS IN 2002. THE PARTNERSHIP BELIEVES THAT THE EFFECT OF THE ADJUSTMENTS MADE IN THE RESTATED FINANCIAL STATEMENTS, AND THE NATURE OF THE ACCOUNTING ISSUES ADDRESSED BY THOSE ADJUSTMENTS, DO NOT HAVE A MATERIAL EFFECT ON THE PARTNERSHIP’S FINANCIAL POSITION AS A WHOLE OR ON THE PARTNERSHIP’S INVESTORS, CREDITORS, SUPPLIERS, EMPLOYEES OR CUSTOMERS. THEREFORE, THE PARTNERSHIP BELIEVES THAT A RE-AUDIT OF THE PARTNERSHIP’S 2001 CONSOLIDATED FINANCIAL STATEMENTS IS UNNECESSARY. ACCORDINGLY, OUR CONSOLIDATED FINANCIAL STATEMENTS FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2001 IS RESTATED AND UNAUDITED.

THE RESTATEMENTS OF THE PARTNERSHIP’S CONSOLIDATED FINANCIAL STATEMENTS FOR THE CALENDAR YEAR ENDED DECEMBER 31, 2001 IS DESCRIBED IN DETAIL WITHIN ITEM 7, “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”.

IN ADDITION, THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE CALENDAR YEARS ENDED DECEMBER 31, 2004 AND DECEMBER 31, 2003 HAVE BEEN RESTATED TO REFLECT THE CHANGE IN INVENTORY PRICING METHODOLOGY. THESE RESTATEMENTS ARE ALSO DESCRIBED IN DETAIL WITHIN ITEM 7, “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”.

TABLE OF CONTENTS

Part I

Item 1.		Business
Item 2.		Properties
Item 3.		Legal Proceedings
Item 4		Submission of matters to a vote of limited partners

Part II

Item 5.		Market for Registrant’s Common Equity and Related Stockholder Matters
Item 6.		Selected Financial Data
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk
Item 8.		Financial Statements and Supplementary Data
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.		Controls and Procedures

Part III

Item 10.		Directors and Executive Officers of the Registrant
Item 11.		Executive Compensation
Item 12.		Security Ownership of Certain Beneficial Owners and Management
Item 13.		Certain Relationships and Related Transactions

Part IV

Item 14.		Principal Accounting Fees and Services
Item 15.		Exhibits, Financial Statement Schedules, and Reports on Form 8-K

SIGNATURES

Part I

FORWARD-LOOKING STATEMENTS

This Form 10-K and future filings by the Partnership on Form 10-Q and Form 8-K and future oral and written statements by the Partnership may include certain forward-looking statements, including (without limitation) statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestiture opportunities, and other similar forecasts and statements of expectation. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and “should,” and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by the Partnership are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. The Partnership disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.

Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by the Partnership as a result of a number of important factors. Examples of these factors include, without limitation, rapid technological developments and changes in the telecommunications industry; ongoing deregulation (and the resulting likelihood of significantly increased price and product/service competition) in the telecommunications industry as a result of the Telecommunications Act of 1996 and other similar federal and state legislation and the federal and state rules and regulations enacted pursuant to that legislation; regulatory limitations on the Partnership’s ability to compete in the telecommunications services industry; and continuing consolidation in the telecommunications services industry. In addition to these factors, actual future performance, outcomes and results may differ materially because of other, more general, factors including, without limitation, general industry and market conditions and growth rates, domestic and international economic conditions, governmental and public policy changes and the continued availability of financing in the amounts, at the terms and on the conditions necessary to support the Partnership’s future business.

ITEM 1. BUSINESS

General

ClearComm, L.P., a Delaware limited partnership (the “Partnership” or “ClearComm”), was formed on January 24, 1995 under the name PCS 2000, L.P., to own and operate broadband personal communications services (“PCS”) licenses to be acquired in auctions conducted by the Federal Communications Commission (the “FCC”). The Partnership competed for PCS licenses in frequency Block C, set aside for “designated entities” (“Entrepreneurs”) that met certain financial and equity structure requirements and that qualify for certain benefits under rules, regulations and policies of the FCC and related statutory provisions (“FCC Rules”).

The Partnership, through its majority-owned subsidiary, NewComm Wireless Services, Inc. (“NewComm”), owns and operates a state-of-the-art PCS network in Puerto Rico (the “Puerto Rico Network”). The Partnership directly or indirectly through NewComm owns two 15 MHz C-Block PCS licenses covering the entire island of Puerto Rico (the “Puerto Rico Licenses”) and owned four 15 MHz licenses in California (the “California Licenses,” which were sold in a transaction approved by the FCC).

On November 30, 2005, the Agreement of Limited Partnership of the Partnership (the “Partnership Agreement”) was amended to extend the date the Partnership will terminate to December 31, 2010. The Partnership will dissolve on such date (unless terminated earlier or unless the Partnership Agreement is amended to change such date). The Partnership Agreement also provides for a reasonable time to wind-up the affairs of the Partnership in case of termination.

NewComm

Under the Partnership’s direction, the Board of Directors of the Company terminated TEM as manager under the management agreement on October 28, 2004. TEM alleged unlawful and wrong termination of the technology and management agreement. The Partnership on behalf of the Company was proactively seeking compensation for damages caused by the mismanagement of TEM either by settlement or within the arbitration process. On April 21, 2005, the Company and its shareholders entered into a Settlement Agreement and Mutual Release with TEM in which all the parties resolved all outstanding disputes. As a result Telefónica no longer provides management services to NewComm but has extended significant financial support in the form of guarantees / lines of credit (see The Settlement Agreement below).

The Puerto Rico Network

The Partnership and NewComm started building its Puerto Rico Network during the first quarter of 1999 and the system commenced commercial operations on September 24, 1999. The Partnership was the fifth entrant into the Puerto Rico wireless telecommunications market. It currently provides wireless coverage in the areas where 95% of the Puerto Rico wireless traffic occurs and expanding. The Partnership has established points of sale in all major shopping districts and has over 200 points of sale throughout Puerto Rico. The Partnership believes that it currently has approximately 8% of the Puerto Rico wireless market.

The Partnership’s Puerto Rico Network operates under the image and brand name “MoviStar.” MoviStar is the PCS brand name of the Telefónica Group in Spain and certain other countries in Latin America. As part of the Settlement Agreement, TEM entered into a License Brand Agreement with NewComm that allows the use of the MoviStar brand name free of cost for 5 years.

The Puerto Rico Network is a state-of-the-art CDMA (“Code Division Multiple Access”) network. Pursuant to a roaming agreement with Sprint PCS, MoviStar customers have mainland U.S. coverage Lucent Technologies, Inc. (“Lucent”) built the Puerto Rico Network on behalf of NewComm. The Partnership continues optimizing the network to maintain and offer better quality service to its customers.

The Puerto Rico Market

The Partnership believes that the Puerto Rico market provides many unique advantages for telecommunications companies. Puerto Rico is politically stable, as it has been a territory of the United States for over 100 years and its economy is fully integrated with that of the United States mainland. It has the Caribbean’s best-educated, most skilled labor force and the most sophisticated manufacturing and transportation infrastructure. Puerto Rico has a solid base of major manufacturers, which includes Hewlett-Packard Company, Microsoft Corporation, BASF Corporation, Colgate-Palmolive, Johnson & Johnson, Amgen, Pharmacia, and Pfizer Pharmaceutical. Along with its U.S.-linked stability, Puerto Rico offers the advantage of emerging market type growth and significant cash based economy. The Partnership believes that current per capita income and consumption in Puerto Rico, combined with continued economic growth will support continued demand for high quality telephone services, which NewComm is offering.

Competition in Puerto Rico

The continued success of the Partnership’s PCS business in Puerto Rico will depend upon its ability to compete with five other wireless operators (including Verizon, Sprint PCS, SunCom, Centennial and Cingular) and potential future wireless communications providers in the Puerto Rico market. All wireless operators compete in the optimization of their networks to provide a better service for their customers. As wireless use increases, wireless operators compete more directly with traditional landline telephone service providers and other technologies including mobile satellite systems and cable operators offering voice communications. In addition, the availability of new spectrum and resale of existing spectrum and the entry of new participants may result in increased competition in the Puerto Rico market. At the end of 2004, Puerto Rico had a wireless market penetration of approximately 51% while the United States mainland ended the same year with an approximate market penetration of 70%.

Markets

The following table sets forth, as of December 31, 2004, with respect to each Market in which the Partnership owns a PCS license, the estimated persons of population (“POPs”).

Market Name		2004 POPs*
San Juan, PR		2,364,414
Mayaguez-Aguadilla, PR		1,444,196

* Based on US Census Bureau 2004 figures.

Internet Surfing Stores of Puerto Rico, Inc

On April 16, 2002, the Partnership entered into a Shareholders’ Agreement to form a joint venture with eMilios International, L.L.C., a Florida limited liability company, to promote and establish in Puerto Rico the eMilios concept (described below). The joint venture was formed under a Puerto Rico corporation named Internet Surfing Stores of Puerto Rico, Inc. (“ISS”). The Partnership owns 49% and eMilios International owns 51% of ISS.

The eMilios concept involves internet communication galleries that are geared towards educating people in the use of computers and the internet, and acts as a communication and recreational center as well. The broadband connectivity that is offered at eMilios allows the stores to efficiently offer internet communications and also access to a great variety of interactive content, such as cyber games, as well as software and tools for free lancers and small business entities. The service is provided and collected with a proprietary smart card and software application. The Partnership is responsible for the management and day to day operations of ISS. ISS opened its first store with 48 computer stations on October 23, 2002. A second store with 40 computer stations was inaugurated on January 11, 2003 to serve the western part of Puerto Rico. The Partnership has decided to concentrate its operations on the San Juan area and decided to close the store located in Mayagüez effective December 31, 2004. As a result, the Partnership has written down its investment in the subsidiary by $165,306 to reflect the change. During 2005, the remaining portion of the Partnership investment or $217,459 was entirely written off due to the uncertainty of the San Juan store’s future profitability.

Regulation

Overview

In 1993, Congress adopted the Omnibus Budget Reconciliation Act of 1993 (the “Reconciliation Act”) which, among other things, mandated auctions for the award of certain FCC licenses, including PCS licenses. Pursuant to authority granted to the FCC by the Reconciliation Act, the FCC awarded PCS licenses through a process of competitive bidding auctions in which there were multiple applications for the same license (the “Auctions”).

PCS is a radio-based transmission technology, which, like cellular technology, uses the same frequencies repeatedly in a multiple-transmitter cell design. PCS is a digital technology, capable of numerous advanced service features, including caller-ID, voice-prompting, voice-recognition, scrambled (secure) calling, message and image delivery, intelligent call transfer and follow-me calling, single number service (the same number can be assigned to multiple PCS telephones in different locations) and auto-trace of crank callers. The Partnership has been offering E-mail and internet access from its handsets since June of 2000. The Partnership began offering wireless banking services in October of 2000. The Partnership also pioneered in the Puerto Rico market short text messaging services from its handsets in October of 2001. An average of 900,000 text messages per month is being sent by subscribers from their handsets.

Frequency Blocks

The FCC divided PCS into six frequency blocks, designated Blocks A through F, such that there are six overlapping licenses in each market in each geographic area of the country. Blocks A, B and C are 30 MHz blocks, and Blocks D, E and F are 10 MHz blocks. The FCC has created new C2 blocks of 15 MHz in certain markets including Puerto Rico.

Entrepreneur Classes and Economic Preferences

Block C and F licenses were reserved for Entrepreneurs meeting certain limiting criteria set forth in FCC Rules. Entrepreneurs were granted a set of economic preferences in the Auctions. Under FCC Rules, an “Entrepreneur” is defined as an entity that, together with its affiliates and persons or entities that holds attributable interest in such entity and their affiliates, has less than (i) $500 million of assets and (ii) $125 million of annual gross revenue over the prior two years. In addition, FCC Rules define three classes of Entrepreneurs, with each class eligible for different economic preferences in the Blocks C and F Auctions. The Partnership’s Entrepreneur qualification is as a “Small Business,” which is an entity that at the date of grant of the license had less than $40 million of aggregate annual gross revenue averaged over the last three years.

Small Businesses were entitled to make interest-only payments for the first six years and can amortize interest and principal over the remaining four years of the license term. The interest rate applicable to Small Businesses is the 10-year treasury note rate at the date of grant of the license. In addition, Small Businesses were entitled to a bidding credit of 25%. In March 1997, the FCC issued an order suspending indefinitely interest payments on all Block C licenses; however, interest continued to accrue. Ultimately, in accordance with the FCC procedures specified in the FCC’s March 24, 1998 Order on Reconsideration of the Second Report and Order (the “Reconsideration Order”), the Partnership commenced interest payments during July, 1998. The Partnership originally owed $51.3 million exclusively in connection with the Puerto Rico License. As of December 31, 2005 the Partnership owes the FCC the principal amount of $17.5 million.

During the year ended December 31, 2004, the Partnership paid the amount of $11,009,302 including interest and principal. The payment due in October 2004 was not made and was accumulated with its related interest and penalty charge of approximately $122,000. The subsequent payment due in January 2005 was not made. As a result of the Settlement Agreement entered into in April 2005, payments due to the FCC have been made and kept current. As part of the Settlement Agreement a Telefonica Group guaranteed line of credit for $40 million was established for NewComm to draw from to secure payment of the licenses to the FCC.

Build-Out Requirements

The Partnership has complied with its build out requirements for the Puerto Rico Licenses.

Employees

The Partnership, including its majority owned subsidiary NewComm, had approximately 420 employees at the end of 2005.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to these reports, and other information with the Securities and Exchange Commission (“SEC”). The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1800-SEC-0330. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We also make available, free of charge, through our Internet website (www.clearcommlp.com), our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and if available, amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

ITEM 2. PROPERTIES

The Partnership leases office space in Hato Rey and Guaynabo, Puerto Rico. In connection with the Partnership’s Puerto Rico Network, NewComm leases sites where its telephone switching equipment, relay stations and other equipment are located, as well as sites and kiosks in malls and shopping centers where it sells its services to the public.

ITEM 3. LEGAL PROCEEDINGS

The Company has entered into a formal arbitration process with TLD, a Telefonica S.A. subsidiary, to resolve a claim of $13,356,098.18. This claim is for services rendered prior to the termination of the management agreement with the Telefonica Group. The process is in an advanced stage and is expected to be concluded during the month of May 2006.

The Company is a defendant in a lawsuit brought by Atento de Puerto Rico, Inc. (Atento) alleging breach of contract, damages, and collection of amounts for services rendered. Atento is another wholly owned Telefonica, S.A. subsidiary that had a contract to provide call center services to NewComm. The plaintiff is seeking $665,540 ($934,812 of this amount was owed and accrued by NewComm as of December 31, 2005) for services already rendered to the Company and $1,760,000 for breach of contract. At this time an outcome can not be predicted.

The Company is also the defendant in several legal cases related to former employees, arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position and results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS

On September 16, 2005 the Partnership’s General Partner, SuperTel Communications Corp., initiated a consent solicitation among its partners proposing to extend the Partnership’s termination date until December 31, 2010. By November 30, 2005, the final day of the solicitation period, a total of 2,072.7 Partnership Units were voted representing 74.96% of the 2,765.20 Partnership Units outstanding and entitled to vote. Of the Partnership Units voted, 1,920.6 Partnership Units (92% of the participants) voted in favor of the extension, 129.3 Partnership Units voted against the extension and 22.8 abstained. As a result, the Partnership’s partners approved the amendment to the Partnership’s Agreement of Limited Partnership, as previously amended, to extend the latest date on which the Partnership will dissolve from December 31, 2005 to December 31, 2010.

Part II

There is no trading market for the Units, and it is unlikely that a trading market will exist at any time in the future. Any transfer of the Units is severely restricted by certain conditions outlined in the Partnership Agreement, and requires the consent of the Partnership’s General Partner, SuperTel Communications Corp., which can be withheld in the General Partner’s sole reasonable discretion.

During the months of May and June of 2004, the Partnership conducted a voluntary tender offer program to all partners holding less than 2 Units. The program was available to over 1,100 partners. The price per Unit offered was $8,500.00. A total of 130 Unit-holders tendered their Units, amounting to approximately 140 Units re-purchased and representing approximately a 5% reduction of outstanding partnership Units.

As of December 31, 2005, the General Partner holds one general partnership interest, and approximately 1,445 investors hold an aggregate of 2,768.20 Units of limited partnership interest.

There have been no cash distributions to the investors to date. The following summary of certain allocation provisions of the Partnership Agreement is entirely qualified by reference to the Partnership Agreement, which was previously attached as an Exhibit to the Partnership’s Form 10-K, filed March 31, 1997. As a general rule, the General Partner shall cause the Partnership to make distributions, if any, of cash flow received from operations of the Partnership which the General Partner, in its sole discretion, determines to distribute to investors (“Cash Flow”). All distributions will be made 75% to the investors and 25% to the General Partner. Distributions to the investors shall be made in proportion to the number of Units held by each investor on the last day of the calendar quarter to which such distribution relates.

The availability of Cash Flow for distribution to the investors is dependent upon the Partnership earning more than its expenses. No assurance can be given that income in any given year will be sufficient to generate Cash Flow for distribution to the investors or that there will not be cash deficits. Further, because operating expenses are subject to increases, and increases in revenue from Partnership operations may be subject to market limitations, income from the Partnership in any year may not be sufficient to generate Cash Flow.

Net losses from operations of the Partnership will be allocated as follows: first, to the investors to offset any profits previously allocated to the investors and second, 75% to the investors in accordance with the number of Units held by each investor and 25% to the General Partner. The gain from a financing, refinancing, sale or other disposition of the Partnership’s assets (or from similar capital transactions) (collectively, “Capital Transactions”) will be allocated 75% to the investors and 25% to the General Partner. The loss from a Capital Transaction will be allocated in the same way that net losses from the Partnership’s operations are allocated. Further adjustments to capital accounts may be required and are authorized by the Partnership Agreement to comply with the provisions of any future Internal Revenue Service regulations.

The Partnership may realize net proceeds (that is, proceeds available after the payment of certain fees and expenses including payments to the General Partner or its affiliates) from a Capital Transaction. No assurance can be given, however, as to the availability of a Capital Transaction or the amount of net cash proceeds there from. Any amounts received by the Partnership which constitute amounts derived from a Capital Transaction, will be treated as being received from operations of the Partnership and will be distributed to investors only if the General Partner determines to do so.

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes selected consolidated financial data of the Partnership from the period from January 1, 2001 to December 31, 2001, from January 1, 2002 to December 31, 2002, from January 1, 2003 to December 31, 2003, from January 1, 2004 to December 31, 2004 and from January 1, 2005 to December 31, 2005. This information should be read in conjunction with the Partnership’s audited consolidated financial statements and related notes thereto and management discussion contained herein.

Statements of Operations Data

December 31,

2005

2004

2003

2002

2001

(Restated)

(Restated and
Unaudited)

Revenues:

Service revenues

84,041,902

100,336,047

101,557,423

99,779,656

112,025,407

Handsets and accessories sales

4,882,359

4,665,889

7,336,689

8,177,441

11,710,520

Total Revenues

88,924,261

105,001,936

108,894,112

107,957,097

123,735,927

Expenses:

Operating expenses

98,750,982

127,160,343

117,358,908

117,905,555

136,940,300

Income (loss) from operations

(9,826,721

)

(22,158,407

)

(8,464,796

)

(9,948,458

)

(13,204,373

)

Interest expense

(14,340,849

)

(9,470,793

)

(13,312,468

)

(16,212,644

)

(20,172,216

)

Loss before other income (expense)

(24,167,570

)

(31,629,200

)

(21,777,264

)

(26,161,102

)

(33,376,589

)

Other Income (expense)

Gain on sale of California Licenses

—

4,168

—

Gain on sale of investment in stock of subsidiary

—

13,000,000

—

Equity in net loss of subsidiary

(30,000

)

(115,382

)

(140,608

)

(114,746

)

—

Interest income

675,473

126,827

213,369

249,661

548,002

Gain on sale of Visalia-Porterville license

—

4,814,337

Other

—

1,292

337

1,113

—

Write-down of investment in subsidiary

(217,959

)

(165,306

)

—

Realized loss on sale of investment in securities

—

(56,518

)

—

Write-off of discount on note payable to FCC

(3,913,661

)

Net loss

(23,740,056

)

(31,834,119

)

(25,617,827

)

(13,025,074

)

(28,014,250

)

Net loss attributable to General Partner

(23,740,056

)

(31,834,119

)

(25,617,827

)

(13,025,074

)

(28,014,250

)

Net loss attributable to Limited Partners

—

Net loss per unit attributable to Limited Partners

—

(9,035

)

(5,725

)

Balance Sheets Data

	December 31,			December 31,			December 31,			December 31,			December 31,
	2005			2004			2003			2002			2001
													(unaudited
				(restated)			(restated)						and restated)
ASSETS:
Cash and cash equivalents	$	6,609,074		$	10,612,430		$	1,007,353		$	22,709,786		$	10,241,902
Cash in escrow account	—			—			1,500,000			—			—
Accounts receivable, net	6,127,025			7,909,573			12,297,162			11,594,949			19,099,986
Accounts receivable, other	1,851,278			4,204,524			7,457,028			6,483,255			—
Insurance claim receivable	—			403,657			—			270,002			1,496,324
Interest receivable	—			20,000			14,000			8,000			2,000
Inventories	2,953,707			4,341,975			8,651,295			10,461,112			10,305,254
Prepaid expenses	1,389,516			841,750			672,406			625,610			652,279
Investment in Securities	—			—			7,338,288			10,000,000			—
Leasehold rights, net	3,465,685			3,314,144			—			—			—
Investment in Subsidiary	—			247,959			397,980			277,254			—
PCS licenses, net	46,750,449			46,750,449			57,517,974			57,517,974			57,517,974
Deferred financing costs	658,660			635,824			774,363			901,235			906,731
Note receivable from officer	—			100,000			100,000			100,000			100,000
Property and equipment, net	68,676,259			80,546,773			90,753,422			101,931,922			102,095,953

	$	138,481,653		$	159,929,058		$	188,481,271		$	222,881,099		$	202,418,403

LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT):
Accounts payable and accrued Liabilities	$	37,256,948		$	48,810,130		$	40,224,333		$	47,022,094		$	41,642,052
Notes payable — short-term	14,162,119			136,836,780			113,816,305			82,647,544			133,321,837
Notes payable — long-term	143,705,806			90,226,258			117,390,809			150,505,987			81,723,962

Unitholders’ capital (deficit)
2768.2 in 2005, 2765.2 in 2004, 2906.1 in 2003, 2002 and 2001, and 1 General Partnership interest	(56,643,220		)	(115,944,108		)	(82,950,176		)	(57,294,526		)	(54,269,448		)

	$	138,481,653		$	159,929,058		$	188,481,271		$	222,881,099		$	202,418,403

BOOK VALUE PER UNIT	$	(50,026	)	$	(41,930	)	$	(28,534	)	$	(19,708	)	$	(18,668	)

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The Partnership was formed in January 1995 and is managed by its General Partner, SuperTel Communications Corp. The Partnership was organized to acquire, own, consult and operate personal communication services (PCS) licenses in the Block C band and to take advantage of the benefits that the FCC has set aside for Entrepreneurs. The Partnership is the controlling entity of NewComm, which in turn owns and operates two 15 MHz PCS licenses covering Puerto Rico (“the Puerto Rico Licenses”).

NewComm and the Partnership entered into agreements with the Telefónica Group, whereby TEM would design and operate a state-of-the-art PCS network (constructed by Lucent) in Puerto Rico; manage the Company for a fee; provide its MoviStar brand name; design the network; and provide long distance services.

The Company commenced operations in September 1999 and grew rapidly. By 2003, the Company had 175,000 subscribers with $109 million in revenues. From this peak, the Company started to lose subscribers, revenue and cash flow. Concerned about the declining results, the Board canceled the management and operating agreements with TEM in October 2004 and installed the current management team.

Current management took steps to reduce expenses including bringing core functions in-house: Customer Call Service (formerly with Atento, a subsidiary of Telefónica); Logistics (formerly with BrightStar); and Collections (NCO and Dun & Bradstreet); and migrated all data center operations to a location other than TLD. In addition, management undertook an audit of the customer base which resulted in the disconnection of several thousand lower-quality customers; reestablished and tightened credit policies to reduce bad debt and customer fraud; and enhanced cash management systems.

Management believes that these corrective measures have better positioned the Company in the market place. Telefónica no longer provides management services to the Company but has extended significant financial support in the form of guarantees / lines of credit.

NewComm’s Settlement Agreement

On April 21, 2005, the Company and its shareholders entered into a Settlement Agreement and Mutual Release with TEM in which all the parties resolved all outstanding disputes. The parties agreed to the following:

• A mutual waiver and release between all parties.

• Payment of $4,392,978.55 in full satisfaction of the technology transfer fee due to TEM under the technology transfer agreement through issuance of a convertible promissory note (subsequently converted to capital).

• Payment of $2,239,492.21 in full satisfaction of the management fee due to TEM under the management agreement through issuance of a convertible promissory note (subsequently converted to capital).

• Payment to ClearComm and TEM of $11,447,758.28 and $11,396,338.88 respectively in full satisfaction of the loans granted for purposes of meeting the matured portion of the FCC debt through issuance of a convertible promissory note (subsequently converted to capital).

• In addition, $62.4 million in other notes and interest payable to TEM were converted to capital, for a total $80.5 million. Upon conversion of all convertible promissory notes, TEM Puerto Rico Inc. received an aggregate amount of shares of the Company equal to 49.9% and the other stockholders hold an aggregate amount of shares of the Company equal to 50.1%.

• Forgiveness by TEM of $1,859,068.97 corresponding to all amounts outstanding with TMmas (a TEM affiliate) under the SCL agreements.

• Agreement on premium to be paid by TEM/TEM Puerto Rico Inc. to the other shareholders upon a potential liquidation or a change in control. TEM and/or TEM Puerto Rico Inc. shall pay a premium from the liquidation/sale proceeds that in any event will not exceed 16.6% of the equity valuation.

• In the event that as of September 30, 2006, NewComm’s net income, as determined in accordance with U.S. generally accepted accounting principles and measured on the basis of EBITDA for the twelve-month period then ended, is less than $10,970,000, TEM may require that the Partnership, and NewComm’s shareholders, together with TEM Puerto Rico, sell their respective interest in NewComm to a third party.

• Amend the Stock Purchase Agreement in order to extend by 3 ½ years, to approximately October 2008, TEM Puerto Rico’s option to buy a majority interest in NewComm and to clarify the procedures that would apply upon the sale of NewComm to a third-party purchaser in the event that neither TEM Puerto Rico, nor the Partnership exercised its rights under the Sale Agreement to purchase NewComm.

• As part of the Settlement Agreement, TEM entered into a License Brand Agreement with NewComm that allows the use of the MoviStar brand name free of cost for 5 years.

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

• TEM Puerto Rico becoming the holder of 49.9% of NewComm’s common capital stock;

• the termination of the Joint Venture Agreement, the Management Agreement, and the Technology Transfer Agreement, each of which involved NewComm and included TEM as a party;

• the amendment of the Stock Purchase Agreement, the Sale Agreement, dated March 12, 2002 (the “Sale Agreement”), among NewComm, TEM Puerto Rico, the Partnership, and the other shareholders of NewComm, and the Shareholders Agreement, dated March 12, 2002 (the “Shareholders Agreement”), among the Partnership, NewComm, TEM Puerto Rico, and the other shareholders of NewComm; and

• TEM’s entry into a line of credit to be used to pay the balance of NewComm’s indebtedness to the FCC; and an extension or refinancing of NewComm’s bridge loan from ABN Amro Bank, N.V.

Project Finance Facility

During June 2003, NewComm and Lucent entered into a Senior Credit Agreement which refinanced the existing promissory note balance due under the CDMA network construction payable. The interest rate was set at 8% per annum and the maturity date was extended to September 2009. The note payable is guaranteed by a security agreement covering most of the Company’s assets, as defined.

On July 1, 2005, Lucent assigned and transferred to D.B Zwirn Special Opportunities Fund, LTD (“D.B Zwirn”) 100% of Lucent’s rights and obligations under the original credit agreement. On July 14, the Company signed a Forbearance Agreement with D.B Zwirn. On August 25, 2005 NewComm and D.B Zwirn entered into a Senior Credit Agreement with an outstanding principal balance on the closing date due on the note amounting $54,480,486.02 including some accrued and unpaid interest and $4,000,000.00 in additional principal made available at the time of closing. The facility bears interest at a rate per annum equal to LIBOR + 700 basis points. Additionally, the facility will accrue pay-in-kind (PIK) interest on the aggregate principal amount, payable upon maturity, acceleration or repayment. The PIK interest is based on a grid that ranges from 2% to 4%, depending on quarterly EBITDA results. The maturity date on the facility was January 31, 2006.

The Senior Credit Agreement with D.B Zwirn included various affirmative, negative and financial covenants. As of December 31, 2005, the Company was in compliance with all the requirements under such covenants except the failure to comply with the cumulative end of period subscribers under section 6.04 of the credit agreement. D.B Zwirn accepted to forbear the exercise of remedies to cure the non-compliance under the mentioned covenant.

On February 16, 2006, NewComm and D.B Zwirn amended and restated the Senior Credit Agreement. The new outstanding principal balance is $60,539,828, including some accrued and unpaid interest, and $5,000,000.00 in additional principal made available at the time of closing. The maturity date is March 31, 2007.

Critical Accounting Policies and Off-Balance Sheet Arrangements

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (US GAAP), which require the Partnership to make estimates and assumptions. The Partnership has no off-balance sheet arrangements and believes that of its significant accounting policies (see Note 4 to the consolidated financial statements), the following may involve a higher degree of judgment and complexity.

We rely on the use of estimates and make assumptions that impact our financial condition and results. These estimates and assumptions are based on historical results and trends as well as our forecasts as to how these might change in the future. Some of the most critical accounting policies that might materially impact our results include:

Valuation of Accounts Receivable, Inventories, Long-lived Assets and Intangibles

Allowance for Doubtful Accounts - Estimates used in determining our provision for doubtful accounts are based on our historical collection experience, current trends, credit policy and a percentage of our accounts receivable by aging category. In determining these percentages, we look at historical write-offs of our receivables and our history is limited. We also look at current trends in the credit quality of our customer base as well as changes in the credit policies. Under NewComm’s credit policy, customers who do not meet certain credit criteria are required to make a deposit ranging from $70 to $250 that could be credited against future billings, to control credit exposure. If the estimates are insufficient for any reason, our operating income, earnings before interest, taxes, depreciation and amortization (“EBITDA”) and available cash would be reduced.

Write-down of Refurbished and Excess or Obsolete Inventories - We currently have written-down refurbished handset inventories to the lower of cost or market value (which approximates cost to refurbish or replace the handsets). We currently have written-down excess or obsolete handset accessories to net realizable value. As an inducement to obtain new customers, the Partnership may sell handsets to customers for a price that is less than cost. Until December 31, 2002, the loss on such sales was recognized at the time of sale. We continue to monitor the depletion of our current inventory levels.

Long-lived Assets - We continually evaluate long-lived assets to determine whether current events and circumstances warrant adjustment to the carrying values or amortization periods. The Partnership measures impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, an estimate of the future cash flows expected to result from the use of the asset and its eventual disposition must be made. If the sum of the future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. The impairment loss, if any, is determined based on projected discounted future operating cash flows using a discount rate reflecting the Partnership’s average cost of funds. No impairment loss was recognized during 2005, 2004 and 2003. If the estimates used to measure impairment are insufficient for any reason, our net income or loss would be reduced or increased, respectively.

Valuation of Intangibles (PCS Licenses) – Because of the adoption by the Partnership of SFAS 142 (Goodwill and other Intangible assets) imposed by the FASB for calendar years commencing after December 31, 2001, PCS Licenses are no longer amortized and instead they are subject to periodic impairment testing. Based on analysis of future cash flows and other related variables, we determined that no impairment adjustment was necessary for the years ended December 31, 2005, 2004 and 2003. We will perform the impairment test at least every quarter or as soon as anything comes to our attention that could cause us to believe that the recorded balance of the PCS Licenses may be affected. If the estimates used to measure impairment are insufficient for any reason, our net income or loss would be reduced or increased, respectively.

Revenue Recognition

We recognize post-paid PCS service revenue from our customers as they use the service. Prepaid PCS service revenue is recognized based on estimates of usage. Additionally, we provide a reduction of recorded revenue for billing adjustments and billing corrections. We record equipment revenue for the sale of handsets and accessories to customers in our retail stores and through our third party dealers. If the estimate used to recognize prepaid PCS service revenue usage varies from actual results or if the estimate of certain revenue adjustments is inaccurate, our revenues would be adjusted accordingly.

Restatement of Financial Statements

Management restated the Partnership’s financial statements for 2001, as described in Note 2 to the audited consolidated financial statements included as part of the 2003 Annual Report on Form 10-K. Our prior independent accountants are not able to reissue their report relating to the Partnership’s financial statements for 2001 or to audit the restatement adjustments described in Note 2 because they ceased operations in 2002. Our successor independent accountants, Kevane Soto Pasarell Grant Thornton LLP, have not audited such year and do not issue an opinion on the financial statements for the calendar year ended December 31, 2001. Our successor independent accountants have only audited our financial statements for the calendar years ended December 31, 2005, 2004, 2003 and 2002 and have issued the Independent Auditor’s report included herein.

Accordingly, our financial statements for the calendar year ended December 31, 2001 is restated and unaudited.

As explained in detail on Note 2 to the Consolidated Financial Statements, the Partnership’s management restated its financial statements for the years ended December 31, 2004 and 2003 to reflect a change in the inventory pricing methodology after consultation with staff accountants from the SEC and its Independent Auditors. The change results in the elimination of an inventory reserve for the loss inherent to the sale of the handsets under its cost and establishes the recognition of such loss at the time of sale to its customers.

Impact of Unaudited Financial Statements

As explained above and in Note 2 to the audited consolidated financial statements for the calendar years ended December 31, 2003 and 2002, our consolidated financial statements for the calendar year ended December 31, 2001 have been restated. Our prior independent accountants are not able to reissue their report relating to the Partnership’s financial statements for 2001 or to audit the restatement adjustments described in Note 2 because they ceased operations in 2002. We believe that the effect of the adjustments made in the re-stated financial statements, and the nature of the accounting issues addressed by those adjustments, do not have a material effect on the Partnership’s financial position as a whole or on the Partnership’s investors, creditors, suppliers, employees or customers. Therefore, we believe that a re-audit of the Partnership’s 2001 consolidated financial statements is unnecessary. Accordingly, our consolidated financial statements for the calendar year ended December 31, 2001 is restated and unaudited. Our audited consolidated financial statements for the calendar years ended December 31, 2005, 2004 and 2003 are included as part of this Annual Report on Form 10-K.

Results of Operations - 2005 Compared to 2004

The Partnership’s Consolidated revenues for the year ended December 31, 2005, which amounted to $88,924,261 ($105,001,936 in 2004), included $84,041,902 ($100,336,047 in 2004) in service revenues and $4,882,359 ($4,665,889 in 2004) in handset and accessories sales generated from NewComm’s wireless operations. The 5% decrease in handsets and accessories revenues is mainly due to handset unit pricing adjustments. The 16% decrease in service revenues is related to a reduction of the subscriber base and to a shifting of the customer base from prepaid customers to contract customers. The Partnership’s operations are not materially affected by inflationary increases. Any inflationary impact on the cost of products and services offered by the Partnership’s subsidiary, NewComm, is offset by pricing adjustments to the retail prices of handsets, accessories, and various offers available to the customers.

Expenses

Consolidated Operating expenses for the year ended December 31, 2005 totaled $98,750,982 as compared to $127,160,343 for the same period in 2004.

	2005		2004		Variances
Cost of handsets and accessories sold	$	15,317,082	$	26,057,050	-41	%
Salaries and benefits	15,160,520		15,642,745		-3	%
Provision for doubtful accounts	11,754,279		14,762,108		-20	%
Salesmen and dealers commissions	5,863,377		11,652,417		-50	%
Depreciation	18,046,423		17,811,034		1	%
Advertising expense	3,213,290		6,936,679		-54	%
Rent expense	7,640,309		6,922,312		10	%
Network operation and maintenance expense	7,270,016		4,479,139		62	%
Taxes, other than income	3,593,236		3,952,175		-9	%
Interconnection expense	617,990		2,798,991		-78	%
Services rendered by related parties	3,255,318		4,930,413		-34	%
Legal and consulting fees rendered by related parties	302,743		536,213		-44	%
Legal and professional services	1,924,729		2,700,917		-29	%
Other expenses	4,791,670		7,978,150		-40	%

Total operating expenses	$	98,750,982	$	127,160,343	-22	%

The 22% reduction in expenses during 2005 as compared to 2004 is directly related to efficiencies obtained under the new administration and the reversal of various accrued expenses forgiven under the settlement agreement. The decrease in cost of handsets and accessories sold of 41% in 2005 as compared to the same period in 2004 is due to an overall reduction in the subscriber base and to handset pricing adjustments which resulted in $5.5 million reduction in that account. In addition, the reduction in cost of handsets was due to additional efficiencies in logistics operations and inventory handling. The 54% reduction in advertising expense during 2005 as compared to 2004 resulted from a shift in the marketing strategy focusing on a specific target market and customer service. The decrease in salesmen and dealers commissions resulted from a change in the utilization of direct channels instead of indirect channels to distribute products and services. Direct channels include commissions in salaries and benefits rather than commissions paid to dealers. The reduction in 2005 related to the interconnection expense account, which resulted in a 78% decrease in such account is mainly due to adjustments to settlement charges among other carriers. The 62% increase in network operations and maintenance expense in 2005 when compared to the same period in 2004 is related to the implementation of additional cell sites which provide added coverage throughout the Island and additional electricity charges as well as rent for the recently added cell sites. The overall decrease in legal expenses in 2005 compared to 2004 is related to accomplishments made on the settlement agreement that was executed during the first few days of the Partnership’s second quarter operations.

Net losses of $23,740,056 for 2005 and $31,834,119 for 2004 reflect the costs of competing in the Puerto Rico market against existing and new cellular and PCS operators in order to continue to develop and maintain a strong subscriber base. Such losses include certain non recurring other income and expense items. For instance, the loss before other income and expenses for 2005 totaled $21.3 million compared to $31.6 million in 2004. The 30% decrease in losses is directly proportional to the 25% reduction overall expenses.

Interest expense for the year ended December 31, 2005 totaled $14,340,849 as compared to $9,470,793 for the same period in 2004. The increase in interest expense during 2005 is primarily attributable to the restructuring of the Partnership’s Notes Payable (refer to Notes 13, 14 and 15 to the accompanying consolidated financial statements). In 2005, the Partnership had interest income of $675,473, as compared to $126,827 in 2004.

Liquidity and Capital Resources

As of December 31, 2005, the Partnership had cash and cash equivalents amounting to $6,609,074, which resulted from the sale of the California Licenses to an independent group of investors as described in Item 7.

As part of the agreement with TEM, NewComm entered into a contract with Lucent Technologies, Inc. (“Lucent”) that required Lucent to build a network that uses Code Division Multiple Access (“CDMA”) protocol. The total cost was approximately $125 million. On June 4, 2003, Lucent’s outstanding debt was restructured for a six-year term with an interest rate of eight percent (8%) annually and due in September 2009. As of December 31, 2004, $48,470,205 was outstanding under this financing agreement (refer to Note 15(b) to the accompanying consolidated financial statements). During 2004 a total of $3 million were paid as principal payments.

Alcatel USA International Marketing, Inc. (“Alcatel”) was contracted to build part of the CDMA network. On June 20, 2003, NewComm and Alcatel entered into Amendment No. 2 to Promissory Agreement and Note dated as of December 28, 2001. The final maturity date on the 6.5% annual interest rate note is December 20, 2005. During 2004, $2,075,000 was paid in principal payments and $2,461,029 is outstanding as of December 31, 2004.

In addition, at December 31, 2005, the Partnership owes the United States Federal government approximately $17.5 million plus accrued interest at 6.5% in connection with the acquisition of its Puerto Rico PCS licenses. In accordance to industry practices the note payable was recorded net of a discount that has been amortized in prior years. The discount balance of $3,913,661 as of December 31, 2003 was written off and reflected as interest expense in the other expenses section of the accompanying statement of operations. (Refer to Note 15(d) to the accompanying consolidated financial statements). During the current year, the Partnership paid $9,073,831 in principal and interest related to this note. Quarterly interest and principal payments due at the subsidiary level total $3.7 million and are funded through contributions made by the Partnership and amounts loaned by TEM.

The Partnership has a secured promissory note payable to TLD (now TEM), which bears interest at the floating rate of 90-day LIBOR plus 1.5% and was originally due in March 2004. On January 1, 2004, this secured promissory note was amended to be due in December 2004, and to bear interest at 1%. In addition, in January 2000 the joint venture agreement with TLD was amended to provide NewComm a revolving line of credit of approximately $30 million for working capital from TLD. This loan was paid-off in December 2000 by means of a $60 million bridge loan (the “Bridge Loan Facility”) to NewComm from ABN-AMRO and BBVA (the “Banks”). The original Bridge Loan Facility bore interest at 1.5% over 90-day LIBOR, which was originally supposed to expire on March 15, 2001, and was then extended until March 17, 2002, with an interest rate of .75% over 90-day LIBOR. The Bridge Loan is now guaranteed by Telefónica Internacional, S.A. (“TISA”) and was extended again until April 30, 2008.

The Partnership, by means of Syncom, and TLD, each contributed $15 million of additional capital. Syncom now has ownership of 8.02% of NewComm after having contributed a total of $25 million of capital. On March 2, 2002, the Partnership sold a portion of its equity interest equal to 4.08% (on a fully diluted basis) in NewComm to a group of investors led by Fleet Development Ventures for $13 million. The Partnership believes it has obtained sufficient funds, together with TLD, to provide NewComm with the capital necessary for the Project Finance Facility and to fully fund NewComm’s operations.

On August 4, 2005 NewComm executed a Series A Convertible Participating Preferred Stock between itself and its investors in which it raised additional capital of $4,445,000 to fund cash flow. (See Note 1 to the consolidated financial statements).

The Partnership anticipates that earnings and cash distributions derived from its Puerto Rico Network once it matures, interim and permanent financing and, if necessary, additional capital calls from its investors or accessing the public capital markets, should provide it with the liquidity to meet its obligations.

Results of Operations - 2004 Compared to 2003

The Partnership’s Consolidated revenues for the year ended December 31, 2004, which amounted to $105,001,936 ($108,894,112 in 2003), included $100,336,047 ($101,557,423 in 2003) in service revenues and $4,665,889 ($7,336,689 in 2003) in handset and accessories sales generated from NewComm’s wireless operations. The 36% decrease in handsets and accessories revenues is mainly due to handset unit pricing adjustments. The 1% decrease in service revenues is related to a reduction of the subscriber base which was mostly offset by airtime consumption of existing customers and to a shifting of the customer base from prepaid customers to contract customers. The Partnership’s operations are not materially affected by inflationary increases. Any inflationary impact on the cost of products and services offered by the Partnership’s subsidiary, NewComm, is offset by pricing adjustments to the retail prices of handsets, accessories, and various offers available to the customers.

Expenses

Consolidated Operating expenses for the year ended December 31, 2004 totaled $127,160,343 as compared to $117,358,908 for the same period in 2003, as shown on the following table:

	2004		2003		Variances
Cost of handsets and accessories sold	$	26,057,050	$	22,523,576	16	%
Salaries and benefits	15,642,745		15,169,673		3	%
Provision for doubtful accounts	14,762,108		8,907,241		66	%
Salesmen and dealers commissions	11,652,417		8,375,695		39	%
Depreciation	17,811,034		17,272,191		3	%
Advertising expense	6,936,679		7,353,590		-6	%
Rent expense	6,922,312		6,755,926		2	%
Network operation and maintenance expense	4,479,139		5,559,349		-19	%
Taxes, other than income	3,952,175		4,945,218		-20	%
Interconnection expense	2,798,991		4,245,415		-34	%
Services rendered by related parties	4,930,413		3,621,826		36	%
Legal and consulting fees rendered by related parties	536,213		469,000		14	%
Legal and professional services	2,700,917		2,682,232		1	%
Other expenses	7,978,150		9,477,976		-16	%

Total operating expenses	$	127,160,343	$	117,358,908	8	%

The increase in expenses of 8% during 2004, as compared to 2003, is mainly due to the increase in the provision for doubtful accounts which resulted in additional $6 million reserves and is directly related to the full implementation of the new billings and collections software migration. The increase in salesmen and dealers commissions is related to the shifting during the year from prepaid customer accounts to contract customers that triggers higher commissions. The 19% decrease in network operation and maintenance expense is related to operational efficiencies obtain at the subsidiary level and to the sale of 12 network towers to a third party during the fourth quarter of 2004 as explained in Note 12 of the combined financial statements.

Net losses of $31,834,119 for 2004 and $25,617,827 for 2003 reflect the costs of competing in the Puerto Rico market against existing and new cellular and PCS operators in order to continue to develop and maintain a strong subscriber base. Such losses include certain non recurring other income and expense items. For instance, the loss before other income and expenses for 2004 totaled $31.6 million compared to $21.8 million in 2003. The 45% increase in said losses is primarily attributed to the $6 million increase in the provision for doubtful accounts and the $3.8 million decrease in total revenues netted by a 29% reduction in the interest expense account.

Interest expense for the year ended December 31, 2004, totaled $9,470,793 as compared to $13,312,468 for the same period in 2003. The decrease in interest expense during 2004 is primarily attributable to the restructuring of the Partnership’s Notes Payable (refer to Notes 13, 14 and 15 to the accompanying consolidated financial statements) and to downward trends of interest rates in the markets. In 2004, the Partnership had interest income of $126,827, as compared to $213,369 in 2003.

Results of Operations - 2003 Compared to 2002

The Partnership’s Consolidated revenues for the year ended December 31, 2003, which amounted to $108,894,112 ($107,957,097 in 2002), included $101,557,423 ($99,799,656 in 2002) in service revenues and $7,336,689 ($8,177,441 in 2002) in handset and accessories sales generated from NewComm’s wireless operations. The increase in service revenues is primarily due to an increase during 2003 of the subscriber base. The decrease in handset and accessories revenues is related to a reduction in the retail pricing of handsets.

Expenses

Consolidated Operating expenses for the year ended December 31, 2003 totaled $117,358,908 as compared to $117,905,555 for the same period in 2002. During 2003, the Partnership’s expenses included $ 22,523,576 ($20,297,712 for 2002) in costs of handset and accessories, $ 15,169,673 ($15,662,484 for 2002) in salaries and benefits, $ 2,682,232 ($9,915,770 for 2002) for legal and professional services, $17,272,191 ($14,171,258 for 2002) in depreciation and amortization, $8,907,241 ($9,854,591 for 2002) in provision for doubtful accounts, $46,713,169 ($41,933,902 for 2002) in interconnection, network maintenance, sales commissions, advertising, rent, taxes and other expenses, $4,165,826 ($5,808,374 for 2002) for services rendered by related parties and $ 282,280 ($262,164 for 2002) for management fees paid to the general partner. Variances in expenses such as legal and professional and services rendered by related parties are due to reclassification of accounts at the subsidiary level and are not related to actual variations in such accounts. The decrease in expenses during 2003, as compared to 2002, is primarily associated with an overall decrease in operating expenses (excluding depreciation expense) of $3.6 million resulting from cost control management implemented at the Partnership and subsidiary level. The increase in salaries and benefits was offset by a decrease in legal and professional services and a reduction in the provision for doubtful accounts, due to better collection efforts and tighter credit policy.

Net losses of $25,617,827 for 2003 and $13,025,074 for 2002, reflect the costs of competing in the Puerto Rico market against existing and new cellular and PCS operators in order to continue to develop and maintain a strong subscriber base. The increase of the net loss as compared to the prior year is primarily due to the fact that the 2002 loss was reduced by a $13 million gain on the sale of stock. Accordingly, the operational loss for 2002 was $26 million. The net loss for 2003 includes nonrecurring losses such as the $3,913,661 write-off of the discount on note payable to the FCC which resulted from the debt restructuring which should be finalized during 2004. Therefore, the adjusted net loss for 2003 would be $21.8 million compared to the adjusted $26 million in 2002. Therefore, the net loss for 2003 shows a reduction of approximately $4 million which is directly proportional to the reduction in operating expenses as described above.

Interest expense for the year ended December 31, 2003, totaled $13,312,468 as compared to $16,212,644 for the same period in 2002. The decrease in interest expense during 2003 is primarily attributable to the restructuring of the Partnership’s Notes Payable (refer to Notes 13, 14 and 15 to the accompanying consolidated financial statements) and to downward trends of interest rates in the markets. In 2003, the Partnership had interest income of $213,369, as compared to $249,661 in 2002.

Contractual Obligations

As of December 31, 2005 the Partnership’s contractual obligations including payments due by period, are as follows:

	Payments due by Periods
			Less than		1-3		3-5		More than
	Total		1 yr		years		years		5 years

Operating Lease Agreement (1)	$	38,797,833	$	8,696,145	$	16,446,081	$	6,798,601	$	6,857,006
Sales-Leaseback (2)	4,068,548		895,395		1,560,609		1,341,600		2,612,700
Notes Payable (3)
Lucent/DB Zwirn	54,480,486		54,480,486		—		—		—
Alcatel	286,029		286,029		—		—		—
FCC	17,487,178		13,876,090		3,611,088		—		—
TEM	224,203		224,203		—		—		—

Total Contractual Obligations	$	115,344,277	$	78,458,348	$	21,617,778	$	8,140,201	$	9,469,706

(1) Operating Lease Agreement is related to the minimal annual rental commitments of the Partnership’s subsidiary at Guaynabo and at various stores and site locations.

(2) Sales-Leaseback includes the principal and imputed interest payments on the lease agreement with Mountain Union for the lease of certain space on 12 towers. Under the lease agreement, NewComm was granted a license to install, maintain and operate its wireless communications equipment and accessories on the towers for a 10 year period.

(3) Notes payable include the principal installments due by period on D.B. Zwirn, Alcatel, FCC and TEM Notes.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership’s exposure to market risk through derivative financial instruments and other financial instruments is not material because the Partnership does not use derivative financial instruments and does not have foreign currency exchange risks. The Partnership invests cash balances in excess of operating requirements in short-term money market funds. As of December 31, 2005, the Partnership had cash equivalents and short-term investments of $6,609,074 consisting of cash and highly liquid, short-term investments in money market funds.

The Partnership’s cash and cash equivalents will increase or decrease by an immaterial amount if market interest rates increase or decrease, and therefore, its exposure to interest rate changes has been immaterial. The Partnership’s loans payable to the FCC have a fixed interest rate of 6.5% and therefore are not exposed to interest rate risks. The TLD Note relating to indebtedness of NewComm bears interest at the floating rate of the 90-day LIBOR plus 1% and is due six months from date of issuance but can be extended for periods of six months, thereafter. On July 1, 2005, Lucent assigned and transferred to D.B Zwirn Special Opportunities Fund, LTD (“D.B Zwirn”) 100% of Lucent’s rights and obligations under the original credit agreement. On July 14, the Company signed a Forbearance Agreement with D.B Zwirn. On August 25, 2005 NewComm and D.B Zwirn entered into a Senior Credit Agreement with an outstanding principal balance on the closing date due on the note amounting $54,480,486.02 including some accrued and unpaid interest and $4,000,000.00 in additional principal made available at the time of closing. The facility bears interest at a rate per annum equal to LIBOR + 700 basis points. Additionally, the facility will accrue pay-in-kind (PIK) interest on the aggregate principal amount, payable upon maturity, acceleration or repayment. The PIK interest is based on a grid that ranges from 2% to 4%, depending on quarterly EBITDA results. The maturity date on the facility was extended to March 2007. The Bridge Loan bears an interest rate of 0.75% over 90-day LIBOR and is now guaranteed by TISA. As part of this arrangement the Partnership agreed to pay an annual fee of 2% over half of this guarantee (or $30 million), or provide an equivalent cash collateral to the Banks. This loan guarantee fee is not due until the sale of the Partnership’s interest in NewComm. The Bridge Loan Facility has been extended again to April 30, 2008, with the option to extend by one or more additional periods of 30 days with the lender’s prior consent. The Telefonica Guarantee can be extended at the sole discretion of NewComm for another 2 year period until 2010.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ClearComm, L.P.

Report of Independent Public Accountants — December 31, 2005, December 31, 2004 (Restated), and 2003 (Restated)

Consolidated Balance Sheets – December 31, 2005, December 31, 2004 (Restated), and 2003 (Restated)

Consolidated Statements of Operations for the years ended –December 31, 2005, December 31, 2004 (Restated), and 2003 (Restated)

Consolidated Statements of Changes in Partners’ Deficit for the years ended – December 31, 2005, December 31, 2004 (Restated), and 2003 (Restated)

Consolidated Statements of Cash Flows for the years ended – December 31, 2005. December 31, 2004 (Restated), and 2003 (Restated)

Notes to Consolidated Financial Statements

SuperTel Communications Corp.

Report of Independent Public Accountants – December 31, 2005, 2004, and 2003

Balance Sheets - December 31, 2005, 2004, and 2003

Statements of Income and Accumulated Deficit for the years ended December 31, 2005, 2004, and 2003

Statements of Cash Flows for the years ended December 31, 2005, 2004, and 2003

Notes to Financial Statements

All financial schedules have been omitted because they are not applicable or because the information required is included in the financial statements or notes thereto.

Report of Independent Public Accountants

To the Partners of

CLEARCOMM L.P. AND SUBSIDIARY:

We have audited the accompanying consolidated balance sheets of CLEARCOMM, L.P. (a Delaware Limited Partnership) AND SUBSIDIARY (“the Company”) as of December 31, 2005, 2004 and 2003, and the related consolidated statements of operations, changes in partners’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ClearComm, L.P. and Subsidiary as of December 31, 2005, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring operating losses, has a working capital deficit and a partners’ capital deficit, and has not yet obtained permanent financing for the cost of its network and its working capital needs which matters raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the accompanying consolidated financial statements, the Partnership has restated its consolidated financial statements as of and for the years ended December 31, 2004 and 2003 (presented herein as restated).

/s/ Kevane Soto Pasarell Grant Thornton LLP

San Juan, Puerto Rico,
February 3, 2006, except for Notes 1(b)
and 15(b), for which the date is February 16, 2006.

ClearComm, L.P.

Consolidated Balance Sheets

December 31, 2005, 2004 (Restated), and 2003(Restated)

	2005			2004			2003
				(restated)			(restated)
CURRENT ASSETS:
Cash and cash equivalents	$	6,609,074		$	10,612,430		$	1,007,353
Cash in escrow account	—			—			1,500,000
Accounts receivable, net of allowance for doubtful accounts of $7,761,062, $9,429,779 and $15,032,114, respectively	6,127,025			7,909,573			12,297,162
Accounts receivable, other	1,851,278			4,204,524			7,457,028
Insurance claims receivable	—			403,657			—
Interest receivable	—			20,000			14,000
Inventories, net	2,953,707			4,341,975			8,651,295
Prepaid expenses	1,389,516			841,750			672,406

Total current assets	18,930,600			28,333,909			31,599,244
INVESTMENT IN SECURITIES	—			—			7,338,288

INVESTMENT IN 49% SUBSIDIARY, AT EQUITY, net	—			247,959			397,980

PCS LICENSES	46,750,449			46,750,449			57,517,974

LEASEHOLD RIGHTS, net	3,465,685			3,314,144			—

DEFERRED FINANCING COSTS	658,660			635,824			774,363

NOTE RECEIVABLE FROM OFFICER	—			100,000			100,000

PROPERTY AND EQUIPMENT, net	68,676,259			80,546,773			90,753,422

Total assets	$	138,481,653		$	159,929,058		$	188,481,271

LIABILITIES AND PARTNERS’ DEFICIT
CURRENT LIABILITIES:
Current portion of notes payable	$	14,162,119		$	61,363,389		$	42,510,010
Bridge Loan Facility	—			61,000,000			61,000,000
Capital lease obligation - current portion	447,700			185,164			—
Accounts payable and accrued liabilities	18,962,981			27,838,987			23,631,877
Accounts payable to related parties	14,280,617			20,785,979			16,592,457
Option deposit - PCS Licenses	—			—			1,500,000
Accrued interest	1,913,880			1,579,002			921,902
Deferred income	1,651,770			1,907,103			2,390,750

Total current liabilities	51,419,067			174,659,624			148,546,996

LONG-TERM NOTES PAYABLE, net of current portion	138,174,365			96,273,304			122,884,451
CAPITAL LEASE OBLIGATIONS, net of current portion	3,620,848			3,150,590			—
DEFERRED INCOME, net of current portion	1,910,593			1,789,648			—

Total liabilities	195,124,873			275,873,166			271,431,447

PARTNERS’ DEFICIT:
Limited partners’ capital (2,768.2, 2,765.2, 2906.1 units issued and outstanding, respectively)	71,916,986			71,841,976			73,039,616
General partner’s capital (1 unit issued and outstanding)	100,000			100,000			100,000
Other comprehensive loss	—			—			(37,827		)
Accumulated losses	(128,660,206		)	(187,886,084		)	(156,051,965		)

Total partners’ deficit	(56,643,220		)	(115,944,108		)	(82,950,176		)

Total liabilities and partners’ deficit	$	138,481,653		$	159,929,058		$	188,481,271

The accompanying notes are an integral part of these consolidated statements.

ClearComm, L.P.

Consolidated Statements of Operations for the years ended

December 31, 2005, 2004 (Restated), and 2003 (Restated)

	2005			2004			2003
				(restated)			(restated)
REVENUES:
Service revenues	$	84,041,902		$	100,336,047		$	101,557,423
Handset and accessories sales	4,882,359			4,665,889			7,336,689

Total revenue	88,924,261			105,001,936			108,894,112

OPERATING EXPENSES:
Cost of handsets and accessories sold	15,317,082			26,057,050			22,523,576
Depreciation and amortization	18,046,423			17,811,034			17,272,191
Salaries and benefits	15,160,520			15,642,745			15,169,673
Provision for doubtful accounts	11,754,279			14,762,108			8,907,241
Salesmen and dealers commissions	5,863,377			11,652,417			8,375,695
Advertising expense	3,213,290			6,936,679			7,353,590
Rent expense	7,640,309			6,922,312			6,755,926
Network operation and maintenance expense	7,270,016			4,479,139			5,559,349
Taxes, other than income	3,593,236			3,952,175			4,945,218
Interconnection expense	617,990			2,798,991			4,245,415
Services rendered by related parties	3,558,061			5,466,626			4,090,826
Legal and professional services	1,924,729			2,700,917			2,682,232
Other expenses	4,791,670			7,978,150			9,477,976

Total operating expenses	98,750,982			127,160,343			117,358,908

INCOME FROM OPERATIONS	(9,826,721		)	(22,158,407		)	(8,464,796		)

INTEREST EXPENSE	(14,340,849		)	(9,470,793		)	(13,312,468		)

LOSS BEFORE OTHER INCOME (EXPENSE)	(24,167,570		)	(31,629,200		)	(21,777,264		)

OTHER INCOME (EXPENSE):
Gain on sale of California License	—			4,168			—
Realized loss on sale of investment in securities	—			(56,518		)	—
Equity in net loss of 49% owned subsidiary	(30,000		)	(115,382		)	(140,608		)
Interest income	675,473			126,827			213,369
Write-down of investment in subsidiary	(217,959		)	(165,306		)	—
Write-off of discount on note payable to FCC	—			—			(3,913,661		)
Other	—			1,292			337

NET LOSS	$	(23,740,056	)	$	(31,834,119	)	$	(25,617,827	)

NET LOSS ATTRIBUTABLE TO GENERAL PARTNER	$	(23,740,056	)	$	(31,834,119	)	$	(25,617,827	)

NET LOSS ATTRIBUTABLE TO LIMITED PARTNERS	$	—		$	—		$	—

NET LOSS PER UNIT ATTRIBUTABLE TO LIMITED PARTNERS	$	—		$	—		$	—

The accompanying notes are an integral part of these consolidated statements.

ClearComm, L.P.

Consolidated Statements of Changes in Partners’ (Deficit) for the years ended

December 31, 2005, 2004 (Restated), and 2003 (Restated)

									Accumulated
									Other
	Limited Partners					General			Comprehensive
	Units		Amount			Partner			Loss			Total

BALANCES, December 31, 2002	2,906.10		$	—		$	(57,294,522	)	$	—		$	(57,294,522	)

COMPREHENSIVE LOSS:

Net loss for the year	—		—			(25,617,827		)	—			(25,617,827		)

Unrealized holding loss in investment securities	—		—			—			(37,827		)	(37,827		)

Net comprehensive loss	—		—			(25,617,827		)	(37,827		)	(25,655,654		)

BALANCES, December 31, 2003 (Restated)	2,906.10		—			(82,912,349		)	(37,827		)	(82,950,176		)

Net loss for the year	—		—			(31,834,119		)	—			(31,834,119		)

Realized holding loss in investment securities	—		—			—			37,827			37,827

Reacquired partners’ units	(140.90	)				(1,197,640		)				(1,197,640		)

BALANCES, December 31, 2004 (Restated)	2,765.20		—			(115,944,108.00		)	—			(115,944,108.00		)

SETTLEMENT AGREEMENT AND MUTUAL RELEASE TRANSACTION	—		—			80,515,944			—			80,515,944

DILUTION GAIN	—		—			2,450,000			—			2,450,000

Reissuance of partners’ units	3.00		75,000			—			—			75,000

NET LOSS - 2005	—		(75,000		)	(23,665,056		)	—		`	(23,740,056		)

BALANCES, December 31, 2005	2,768.20		$	—		$	(56,643,220	)	$	—		$	(56,643,220	)

The accompanying notes are an integral part of these consolidated statements.

ClearComm, L.P.

Consolidated Statements of Cash Flows for the years ended

December 31, 2005, 2004 (Restated), and 2003 (Restated)

	2005			2004			2003
				(restated)			(restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(23,740,056	)	$	(31,834,119	)	$	(25,617,827	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities-
Depreciation and amortization	18,046,423			17,811,034			17,050,319
Equity in losses of unconsolidated subsidiary	30,000			115,382			140,608
Amortization of deferred financing costs	1,317,523
Amortization of loan origination fees	—			—			221,872
Amortization of discount on note payable to FCC	—			—			2,404,215
Write-off on discount of note payable to FCC	—			—			3,913,661
Write-off on note receivable from officer	100,000			—			—
Write-off on interest receivable from officer	20,000
Write-off of accrued interest balance	(452,900		)	—			—
Realized loss on sale of investment in securities	—			56,518
Bad debt expense	11,754,279			14,762,108			8,907,241
Write-down of investment in subsidiary	217,959			165,306			—
Gain on sale of property and equipment and California License	(833,067		)	(10,666		)	—
Forgiveness of debt due to affiliate	(1,240,520		)
Capitalized interest	389,195
Other non-cash transactions	8,120
Changes in operating assets and liabilities-
Increase in interest receivable	—			(288,067		)	(4,000		)
Increase in accounts receivable, before write-offs	(7,160,440		)	(7,197,016		)	(10,660,227		)
Decrease (increase) in insurance claims receivable	403,657			(403,657		)	270,002
Decrease (increase) in inventories	1,016,027			4,309,320			1,809,817
Decrease (increase) in prepaid expenses	(690,451		)	(169,341		)	(46,796		)
Decrease (increase) accounts payable and accrued liabilities	(5,828,633		)	1,860,195			201,443
Increase (decrease) in accounts payable to related parties	(7,262		)	4,268,522			(32,986		)
(Decrease) increase in accrued interest	5,466,084			1,836,597			(978,843		)
Decrease in checks drawn in excess of bank balance	—			(82,469		)	—
(Decrease) increase in deferred income	(295,230		)	(682,098		)	477,236
Total adjustments	22,260,764			36,351,668			23,673,562
Net cash provided by (used in) operating activities	(1,479,292		)	4,517,549			(1,944,265		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of investment securities	—			7,319,598			2,616,584
Acquisition of property and equipment	(5,565,364		)	(5,876,171		)	(5,864,516		)
Proceeds from the sale of property and equipment and California License	497,906			13,651,421			—
Payment for the investment in subsidiary	—			(130,667		)	(261,334		)
Net cash provided by (used in) investing activities	(5,067,458		)	14,964,181			(3,509,266		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable to Telefonica Moviles	—			5,493,642			5,493,642
Principal payments of capital lease obligations	(295,033		)	(23,813		)	—
Payments for deferred financing costs	(1,241,573		)	—			(95,000		)
Payments made to reacquire partner’s units	—			(1,197,650		)	—
Proceeds from extension of note payable to ABN/AMRO	—			—			1,000,000
Proceeds from issuance of notes payable to D.B. Zwirn	4,000,000
Proceeds from issuance of preferred stock	2,255,000
Payment of note payable to Lucent	—			(3,000,000		)	(11,102,065		)
Payment of note payable to Alcatel	(2,175,000		)	(2,075,000		)	(2,900,000		)
Payment of notes payable to FCC	—			(9,073,832		)	(8,645,479		)
Net cash provided by (used in) financing activities	2,543,394			(9,876,653		)	(16,248,902		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	(4,003,356		)	9,605,077			(21,702,433		)
CASH AND CASH EQUIVALENTS, beginning of year	10,612,430			1,007,353			22,709,786
CASH AND CASH EQUIVALENTS, end of year	$	6,609,074		$	10,612,430		$	1,007,353

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
INTEREST PAID	$	7,168,049		$	7,916,260		$	11,887,096

The accompanying notes are an integral part of these consolidated statements.

ClearComm, L.P. and Subsidiary

Notes to Consolidated Financial Statements

December 31, 2005, 2004 (Restated) and 2003 (Restated)

(1) Reporting entity:

(a) The reporting entity for purposes of these financial statements is ClearComm, L.P., a Delaware limited partnership (the “Partnership”), together with its subsidiary NewComm Wireless Services, Inc., a Puerto Rico corporation (“NewComm” and, together with the Partnership, the “Company”). The Partnership was organized on January 24, 1995, under the laws of the state of Delaware. The Partnership was created 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. The Partnership successfully completed a consent solicitation process whereby it extended its termination date to December 31, 2010.

SuperTel Communications Corp. (SuperTel), a Puerto Rico corporation, is the Partnership’s General Partner and its share of the income and losses of the Partnership is 25% in accordance with the Partnership Agreement. Approximately 1,600 limited partners also invested in the Partnership through a private placement. On January 22, 1997, the Partnership was granted the PCS Block C licenses for Puerto Rico and certain cities in California.

On February 4, 1999, the Partnership entered into a joint venture agreement (the “Joint Venture Agreement”) with Telefónica Larga Distancia de Puerto Rico, Inc. (“TLD”) to jointly develop and operate the Puerto Rico licenses. Consequently, the parties organized the Company in order to consummate the Joint Venture Agreement. The Company commenced commercial operations in September 1999, providing communications services to its customers. Prior to that date, the Company was in the development stage.

Among the most important subsequent events are the following:

• The Partnership transferred all of its Puerto Rico PCS licenses including its related debt with the FCC to NewComm, a newly organized Puerto Rico corporation, in exchange for all of NewComm’s issued and outstanding common stock. The Company recorded the Partnership’s contribution of the licenses at the Partnership’s basis in the licenses, in accordance with Generally Accepted Accounting Principles in the United States.

• TLD loaned approximately $20 million to the Company by means of a secured convertible promissory note payable (the “Promissory Note”). The Promissory Note is subject to an agreement pursuant to which a security interest is imposed upon the Company’s assets, and a pledge and guaranty agreement issued by the Partnership. Once certain regulatory and other requirements were met, the Promissory Note was converted to NewComm’s common stock corresponding to approximately 49.9% of NewComm’s ownership at the time of the conversion. On March 12, 2002, the Partnership agreed to sell 0.2% of its shares in NewComm to TLD to bring TLD’s ownership to 50.1%; this transaction will be consummated after a third party valuation of NewComm’s common stock and is subject to the approval of the FCC. During 2004, the Company and TLD received approval from the FCC, but the conversion and related sale of participation has not yet been consummated.

• The Company and TLD entered into certain management and technology transfer agreements.

• The Partnership and TLD entered into a Shareholders and a Sale Agreement. The Shareholders’ agreement provides for general and specific protections and rights for the Partnership as a minority shareholder in NewComm. The Sale agreement provides for an exit of the Partnership from NewComm at any time after May 12, 2003. At the closing of the sale, the management and technology transfer agreements between the Company and several related entities (TEM and TISA) will terminate.

• Under the Partnership’s direction, the Board of Directors of the Company terminated TEM as manager under relevant provisions of the management agreement executed on October 28, 2004. TEM has alleged unlawful and wrongful termination of the technology and management agreement. The Partnership on behalf of the Company was proactively seeking compensation for damages caused by the mismanagement of TEM either by settlement or through an arbitration process.

• A mutual waiver and release between all parties.

• Payment of $4,392,978 in full satisfaction of the technology transfer fee due to TEM under the technology transfer agreement through issuance of a convertible promissory note (subsequently converted to capital).

• Payment of $2,239,492 in full satisfaction of the management fee due to TEM under the management agreement through issuance of a convertible promissory note (subsequently converted to capital).

• Payment to ClearComm and TEM of $11,447,758 and $11,396,338 respectively in full satisfaction of the loans granted for purposes of meeting the matured portion of the FCC debt through issuance of a convertible promissory note (subsequently converted to capital). See Notes (11) and (12).

• In addition, $62.4 million in other notes and interest payable to TEM were converted to capital, for a total capital conversion of $80.5 million. Upon conversion of all convertible promissory notes, TEM Puerto Rico Inc. received an aggregate amount of shares of the Company equal to 49.9% and the other stockholders hold an aggregate amount of shares of the Company equal to 50.1%.

• Forgiveness by TEM of $1,859,068 corresponding to all amounts outstanding with TMmas (a TEM affiliate) under the SCL agreements.

• In the event that as of September 30, 2006, NewComm’s net income, as determined in accordance with generally accepted accounting principles in the United States and measured on the basis of EBITDA for the twelve-month period then ended, is less than $10,970,000, TEM may require that the Partnership, and NewComm’s shareholders, together with TEM Puerto Rico, sell their respective interest in NewComm to a third party.

• As part of the Settlement Agreement , TEM entered into a License Brand Agreement with NewComm that allows the use of the MoviStar brand name free of cost for five years.

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

• TEM Puerto Rico becoming the holder of 49.9% of NewComm’s capital stock;

• the termination of the Joint Venture Agreement, the Management Agreement, and the Technology Transfer Agreement, each of which involved NewComm and included TEM as a party;

• TEM’s entry into a line of credit to be used to pay the balance of NewComm’s indebtedness to the FCC; and an extension or refinancing of NewComm’s bridge loan from ABN Amro Bank, N.V.(See Note 13.d).

On August 28, 2000, the Partnership entered into a Purchase and Sale Agreement with Leap Wireless International (Leap Wireless), pursuant to which the Partnership sold the Visalia, California license to Leap Wireless in exchange for a $9,500,000 cash payment. The transaction closed on June 8, 2001.

NewComm received an aggregate equity investment of $25,000,000 ($10 million in 2000, $5 million in 2001 and $10 million in 2002) from Syndicated Communications Venture Partners IV, L.P. (“Syncom”), a third party, in exchange for a 15.39% ownership.

On March 2, 2002, the Partnership sold approximately 4.08% of its investment in NewComm to a group of investors led by Fleet Development Ventures for $13 million.

During 2004, the Partnership sold it California PCS licenses to a third party. (See Note 9.)

(b) On April 21, 2005 the NewComm reorganized its capital structure by collapsing its many classes of common stock into a single class of common stock.

As of December 31, 2005, NewComm’s common stockholders (Class A) and their percentage of ownership were:

	Shares	%		Shares Fully Diluted	%
ClearComm, L.P.	793.063	39.27	%	804.147	39.34	%
SynComm Venture Partners IV, L.P.	145.68	7.21	%	149.847	7.33	%
Fleet Development Ventures, LLC	28.077	1.39	%	30.299	1.48	%
Opportunity Capital Partners IV, L.P.	28.077	1.39	%	34.251	1.68	%
Power Equities, Inc.	16.846	0.83	%	17.895	0.88	%
TEM Puerto Rico Inc.	1007.704	49.90	%	1007.704	49.30	%

	2,019.447	100.00	%	2,044.143	100.00	%

On August 5, 2005, NewComm executed a Series A Convertible Participating Preferred Stock purchase agreement between itself and its investors to fund cash flow deficiencies. The Company raised $4,445,000 in exchange for an aggregate of (i) 12.371 shares of the Company’s series A-1 convertible participating preferred stock and (ii) 12.323 shares of the Company’s series A-2 convertible participating preferred stock. Both series A-1 and A-2 will generate a contingent dividend rate yield of 9% in case of a voluntary or involuntary liquidation, dissolution, sale, transfer or merger of NewComm.

On February 16 2006, NewComm executed another Series A Convertible Participating Preferred Stock purchase agreement between itself and its investors to fund cash flow deficiencies. The Company raised $5,000,000.00 in exchange for an aggregate of (i) 25,645.165 shares of the Company’s series A-3 convertible participating preferred stock and (ii) 24,354.835 shares of the Company’s series A-4 convertible participating preferred stock. Both series A-3 and A-4 will generate a contingent dividend rate equal to a yield of 9% in case of a voluntary or involuntary liquidation, dissolution, sale, transfer or merger of NewComm.

Upon the occurrence of a liquidation event (voluntary or involuntary liquidation, dissolution, sale, transfer, merger), the investors holding Series:

(a) A-4 Convertible preferred stock shall be entitled to receive out of the assets of the corporation or other proceeds from the liquidation an amount per share equal to the sum of four (4) times the original cost of such share plus any accumulated and unpaid dividend on such share to the date of payment. If the assets of the corporation or any other proceed is insufficient to pay the holders of shares series A-4, the holders of series A-4 shall share ratably in any distribution.

(b) A-3 Convertible preferred stock shall be entitled to receive (after payment of the Series A-4) out of the assets of the corporation or other proceeds from the liquidation an amount per share equal to the sum of six (6) times the original cost of such share plus any accumulated and unpaid dividend on such share to the date of payment. If the assets of the corporation or any other proceed is insufficient to pay the holders of shares series A-3, the holders of series A-3 shall share ratably in any distribution.

(c) A-2 Convertible preferred stock shall be entitled to receive (after payment of the Series A-3) out of the assets of the corporation or other proceeds from the liquidation an amount per share equal to the sum of three (3) times the original cost of such share plus any accumulated and unpaid dividend on such share to the date of payment. If the assets of the corporation or any other proceed is insufficient to pay the holders of shares series A-2, the holders of series A-2 shall share ratably in any distribution.

(d) A-1 Convertible preferred stock shall be entitled to receive (after payment of the Series A-2) out of the assets of the corporation or other proceeds from the liquidation an amount per share equal to the sum of two (2) times the original cost of such share plus any accumulated and unpaid dividend on such share to the date of payment. If the assets of the corporation or any other proceed is insufficient to pay the holders of shares series A-1, the holders of series A-1 shall share ratably in any distribution.

Immediately after the closing of the February 16, 2006 transaction, the authorized capital of the NewComm is:

1. 50,024.695 shares of preferred convertible stock of which:

• 12.372 shares, designated as Series A-1 convertible participating preferred stock

• 12.323 shares, designated as Series A-2 convertible participating preferred stock

• 25,645.165 shares, designated as Series A-3 convertible participating preferred stock

• 24,354.835 shares, designated as Series A-4 convertible participating preferred stock

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

As of December 31, 2005, preferred dividends in arrears amounted to approximately $164,465 or $6,660 on a per share basis, on the 9% cumulative preferred stock.

(2) Restatement of prior year’s financial statements:

The Partnership’s previously issued financial statements as of and for the years ended December 31, 2004 and 2003 have been restated to correct the accounting for the method used to record the amount of loss incurred on the sale of handsets to customers. Effective January 1, 2003, the Partnership changed its method of accounting for the loss on the sale of handsets to customers, from the recognition of such anticipated future loss at the time of sale, to the establishment of an inventory reserve account for that loss at the end of each accounting period. Management believed that this method was consistent with the stipulations of Accounting Research Bulletin (ARB) No. 43 “Inventory Pricing” as to the requirements of recognizing identifiable future losses on the disposal of inventories as a loss provision in the current period.

After discussions with staff members from the Securities and Exchange Commission (SEC), the Partnership’s management has decided to re-establish the previous method for inventory pricing. Under the re-established method, the loss on handset sales is recognized at the time of sale.

The effect of this change on the Partnership’s consolidated financial statements as of and for the years ended December 31, 2004 and 2003, is summarized as follows:

	As of December 31, 2004						As of December 31, 2003
	As originally presented			As restated			As originally presented			As restated

Balance Sheets:
Inventory	$	1,304,392		$	4,341,975		$	3,908,736		$	8,651,295

Accumulated losses	$	(190,923,667	)	$	(187,886,084	)	$	(160,794,524	)	$	(156,051,965

Partners’ deficit	$	(118,981,691	)	$	(115,944,108	)	$	(87,692,735	)	$	(82,950,1760	)

	As of December 31, 2004						As of December 31, 2003
	As originally presented			As restated			As originally presented			As restated

Statements of Operations:
Cost of handsets and accessories sold	$	24,352,074		$	26,057,050		$	22,523,576		$	22,523,576

Loss on write-off of inventories	$	—.		$	—.		$	(4,742,559	)	$	—.

Net loss (all attributable to general partner)	$	(30,129,143	)	$	(31,834,118	)	$	(30,360,386	)	$	(25,617,827	)

(3) Going concern issues and financing arrangements:

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company commenced operations in September 1999 and has incurred net losses of approximately $23.7 million in 2005, $31.8 million in 2004, and $25.6 million in 2003. It also has a working capital deficiency and a stockholders’ deficit of $32.5 million, and $56.6 million, respectively, as of December 31, 2005. The Company is likely to continue incurring losses until such time as its subscriber base generates revenue in excess of the Company’s expenses. The Company’s management believes that it has taken actions which should ensure that operating expenses before depreciation and amortization do not exceed revenues generated from operations. However, if earnings from regular operations do not generate sufficient cash flow for the Company to meet its network investment strategies, the Company must finance its capital investments necessities by means other than from its revenues until the time when revenues generated from regular operations generate sufficient cash flow to fund them.

Management believes that cash and cash equivalents on hand, anticipated growth in revenues, capital contributions and the proceeds from the additional indebtedness incurred with D.B. Zwirn (See Note 15(b)) will be adequate to fund its operations, at a minimum, through the end of 2006. However, in the absence of improved operating results and cash flows, the Company may face significant liquidity problems to fund its operations and meet its obligations. Because of the existence of these matters, substantial doubt exists as to the Company’s ability to continue operating as a going concern. The accompanying financial statements do not include any adjustments that might result should the Company face liquidity issues to fund its operations and meet its obligations.

(4) Summary of significant accounting policies:

The following summarizes the most significant accounting policies followed in the preparation of the accompanying financial statements:

(a) Principles of consolidation –

The accompanying consolidated financial statements include the accounts of the Partnership and of its subsidiary, NewComm. All significant intercompany accounts and transactions have been eliminated in consolidation. The Partnership has determined that the consolidation principles will be followed even though its interest in NewComm’s common stock is only 39% due to the fact that the Partnership’s Chief Executive Officer is also the Chairman of the Board of NewComm and exercises substantial control over NewComm’s operations as a whole.

(b) Investment in securities –

The Company classifies its securities as available-for-sale. The securities consist of income funds, which are stated at fair value, with net unrealized gains or losses on the securities recorded as accumulated other comprehensive income (loss) in partners’ capital. Realized gains and losses are included in earnings and are calculated using the specific identification method for determining the cost of the securities.

(c) Investment in subsidiary at equity –

The Partnership’s investment in Internet Surfing Store of Puerto Rico, Inc. (“ISS”) is accounted for under the equity method of accounting whereby the investment is carried at the cost of acquisition adjusted for the Partnership’s share of ISS’s earnings or losses since the date of acquisition.

(d) Comprehensive income –

The Company follows the provisions of Statement of Financial Accounting Standards (SFAS) No. 130 Reporting Comprehensive Income. Comprehensive income represents operational net income plus all other changes in net assets from non-owner sources. SFAS No. 130 requires presentation of comprehensive income and its components in the financial statements.

During the year ended December 31, 2003, the Company’s comprehensive loss was limited to its investment in available-for-sale securities. This loss was realized during the year ended December 31, 2004, when the securities were redeemed.

(e) Cash and cash equivalents –

For the purpose of the statement of cash flows, the Company considers all highly liquid investment instruments purchased with maturity at acquisition of three months or less to be cash equivalents.

(f) Accounts receivable –

Accounts receivable consist principally of trade accounts receivable from customers and are generally unsecured and due within 30 days. Credit losses relating to these receivables consistently have been within management’s expectations. Expected credit losses are recorded as an allowance for doubtful accounts.

(g) Allowance for doubtful accounts –

Allowance for doubtful accounts provides for estimated losses on accounts receivable. The allowance is established based upon a review of the aggregate accounts, historical write-off experience, economic condition, aging of the accounts receivable balances, and other pertinent factors. Account losses are charged and recoveries are credited to the allowance for doubtful accounts. The collection policies and procedures of the Partnership vary by credit class and prior payment history of subscribers.

(h) Inventories –

The Company maintains inventories of wireless handsets and accessories held for sale to customers. Inventories are recorded at the original purchase price plus fees for excise tax, freight and marine insurance (which approximates replacement cost from suppliers). As inducement to obtain new customers the Company may sell handsets to customers for a price that is less than cost. The loss on such sales are recognized at the time of sale in accordance with practice in the industry.

(i) Deferred financing costs –

Represents debt financing costs capitalized and amortized as interest expense over the terms of the underlying obligations.

(j) PCS licenses –

This amount represents costs primarily incurred to acquire Federal Communications Commission (FCC) licenses to provide wireless services. The licenses expire in January 2007 unless renewed. However, FCC rules provide for renewal expectancy provisions. The Company expects to exercise the renewal provisions.

Originally, the Puerto Rico licenses were being amortized over a time period of twenty years. The Company capitalized the interest related to the debt pertaining to the Puerto Rico licenses during the development stage, which amounted to $12,174,000. However, such capitalization was discontinued in September 1999 when the commercial operations started.

(k) Adoption of Statement of Financial Accounting Standard (SFAS) No. 142 –

Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” which established new standards related to how acquired goodwill and other intangible assets are to be recorded upon their acquisition, as well as how they are to be accounted for after they have been initially recognized in the financial statements.

Effective with the adoption of this standard, the Company reassessed the useful lives of previously recognized intangible assets, which consist primarily of FCC licenses that provide the Company with exclusive rights to utilize a certain radio frequency spectrum to provide wireless communications services. While FCC licenses are issued for only a fixed period of time, generally ten years, such licenses are subject to renewal by the FCC. Renewals of FCC licenses have occurred routinely and at a nominal cost. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of its FCC licenses. As a result, the FCC licenses will be treated as an indefinite-lived intangible asset under the provisions of SFAS No. 142 and will not be amortized but rather will be tested for impairment annually or when events and circumstances warrant.

The Company has elected to test for the FCC license impairment as of December 31^st of each year. The Company utilized in previous years a fair value approach, incorporating discounted cash flows, to complete the test. The discounted cash flow model estimates the required resources and eventual returns from the build-out of an operational network and acquisition of customers, starting with only FCC licenses. In this regard, the cash flows are isolated as specifically pertaining to the FCC licenses (present value of free cash flow attributable to the licenses). In 2005 the Company hired an independent appraisal consulting firm to estimate the fair market value of the Company’s existing licenses. Based on data and analysis, the independent appraisal concluded that the combined fair market value of the Company’s licenses would exceed the carrying value on NewComm’s books in an asset sale, as going concern, as of October 1, 2005.

Based on this valuation, the Company considers it has completed its 2005 testing and has determined that there has been no impairment of the value of its licenses.

(l) Property and equipment –

Property and equipment are recorded at cost. Major replacements and improvements are capitalized while general repairs and maintenance are charged to expense as incurred.

Depreciation is computed using the straight-line method over the estimated useful life of the asset commencing from the time it is placed into service or the term of the lease, if shorter, for leasehold improvements. Upon retirement or sale, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income.

(m) Software capitalization –

The Company capitalizes certain direct development costs associated with internal use software, including external direct cost of materials and services, and internal payroll costs for employees devoting time to software development. These costs are included in property and equipment and are amortized beginning when the software is substantially ready for use. Costs incurred during the preliminary project stage, as well as maintenance and training costs are expensed as incurred. The Company also capitalizes initial operating-system software costs and amortizes them over its useful life.

(n) Accounting for impairment of long-lived assets –

The Company continually evaluates its long-lived assets, based on the requirements of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to determine whether current events and circumstances warrant adjustment of the carrying values or amortization periods. The Company measures impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, an estimate of the future cash flows expected to result from the use of the asset and its eventual disposition must be made. If the carrying amount of a long-lived asset is not recoverable from its projected future undiscounted cash flows, an impairment loss is recognized. The impairment loss, if any, is determined as the difference between the carrying amount and fair value of the asset. No impairment loss was recognized during the years ended December 31, 2005, 2004 and 2003.

(o) Revenue recognition –

The Company earns service revenues by providing access to its wireless network (access revenue) and for usage of its wireless system (airtime revenue). Airtime revenue, including roaming revenue and long-distance revenue, for postpaid customers is billed in arrears based on minutes used and is recognized when the service is rendered. Prepaid airtime sold to customers is recorded as deferred revenues prior to the commencement of services, and revenue is recognized when airtime is used or expires. Access and airtime provided are billed throughout the month according to the billing cycle in which a particular subscriber is placed. As a result of billing cycle cut-off times, the Company is required to make estimates for service revenues earned but not yet billed at the end of each month.

These estimates are based primarily upon actual and historical minutes of use multiplied by the actual/historical Average Revenue Per Minute (ARPM). The Company defers revenue based on an estimate of the portion of minutes expected to be utilized prior to expiration. The Company’s estimate of expected future revenue is primarily based on historical minutes of use, and historical ARPM.

Roaming revenues include revenues from certain customers who roam outside their selected home coverage area, referred to as “incollect” roaming revenues, and revenues from other wireless carriers for roaming by their customers on the Company’s network, referred to as “outcollect” roaming revenues.

The Company offers enhanced services including caller ID, call waiting, call forwarding, three-way calling, no answer/busy transfer, text messaging and voice mail. Generally, these enhanced features generate additional revenues through monthly subscription fees or increased wireless usage through utilization of these features. Other optional services, such as unlimited mobile-to mobile calling, roadside assistance and handset insurance, may also be provided for a monthly fee. These enhanced features and optional services may be bundled with package rate plans or sold separately. Revenue for enhanced services and optional features is recognized as earned.

Equipment sales consist principally of revenues from the sale of wireless mobile telephone handsets and accessories to new and existing customers and to agents and other third-party distributors. The revenue and related expenses associated with the sale of wireless handsets and accessories are recognized when the products are delivered and accepted by the customer, at this is considered to be a separate earnings process from the sale of wireless services.

(p) Loyalty points program –

In October 2003, the Company commenced a Loyalty Points Program (the “Program”) for its customers. The Company determined a redemption percentage of 15% to compute the end-of-year estimated liability for awards redemption. This percentage of redemption was re-evaluated during the year and remained the same. The Company charges the cost of operating the program to selling expenses and the estimated cost of award redemption to the cost of products available for redemption.

Effective December 31, 2004, the loyalty points program was eliminated and as a consequence, management has determined that all accumulated points have to be redeemed over a period of 24 months or, otherwise, will be lost.

On December 31, 2005, the estimated percentage for awards redemption was set at 3%. At the same date, the accrued loyalty points reserve was $37,446.

(q) Advertising costs –

The Company expenses production costs of print, radio and television advertisements and other advertising costs as such costs are incurred.

(r) Income taxes –

Under U.S. tax rules the Partnership is not subject to income tax; however, and only for Puerto Rico tax purposes, the Partnership and NewComm account for income taxes in accordance with the asset and liability method of accounting for income taxes prescribed by the Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and liability method of Statement No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry-forwards.

(s) Fair value of financial instruments –

The carrying amount of the Company’s financial instruments (excluding notes payable and the Bridge Loan Facility), cash, accounts receivable, accounts payable and accrued liabilities, are considered reasonable estimates of fair value due to the short period to maturity.

Management believes, based on current interest rates, that the fair value of its notes and the Bridge Loan Facility approximates the carrying amount.

(t) Concentration of credit risk –

Financial instruments that potentially expose the Company to concentration of credit risk include cash and accounts receivable. The Company maintains its deposit accounts with several high quality financial institutions. The funds deposited in these institutions are insured by the Federal Deposit Insurance Corporation for aggregate customer balances up to $100,000. While the Company attempts to limit any financial exposure, its deposit balances may, at times, exceed federally insured limits. The Company has not experienced any losses on such accounts.

The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral for accounts receivable arising during the normal course of doing business. Concentration of credit risk is limited due to the large number of customers comprising the Company’s customer base, but is highly dependent on the strong competition among the companies who provide personal communication services in Puerto Rico. No customer accounted for more than 10% of revenues in the years ended December 31, 2005, 2004 and 2003.

The Company relies on local and long-distance telephone companies and other companies to provide certain communication services. Although management believes alternative telecommunications facilities could be found in a timely manner, any disruption of these services could potentially have an adverse impact on operating results.

The Company relies on roaming agreements with other wireless carriers to permit the Company’s customers to use their networks in areas not covered by the Company’s networks. If these providers decide not to continue those agreements due to a change in ownership or other circumstances, this could cause a loss of service in certain areas and possible loss of customers.

The Company’s inventories are currently acquired from only a few sources. If the suppliers are unable to meet the Company’s needs as it continues to sell service and handsets, delays and increased costs or losses of potential customers could result, which would adversely affect operating results.

(u) Use of estimates –

In preparing financial statements in conformity with accounting US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets, 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 periods. The most significant estimates relate to allowance for uncollectible accounts receivable, depreciation, and intangible asset valuation and useful lives. These estimates may be adjusted as more current information becomes available, and any adjustment could be significant. Actual results could differ from those amounts.

(v) Sale and leaseback transactions –

The Company follows the provisions of SFAS No. 13 and SFAS 98, “Accounting for Leases” to account for the sale and leaseback of equipment during the year. Based on the provisions of this statement, any profit or loss resulting from the sale of the equipment is deferred and amortized over the lease term. On the other hand, since the leaseback was considered to be a capital lease, the related equipment is capitalized and amortized over its estimated life. See Note 12.

(w) Leasehold rights –

The network communication transmission space acquired during 2004, as part of the sale and leaseback transaction of 12 towers, has been capitalized as leasehold rights and amortized over the 10-year period of the lease contract, using the straight-line method. See Note 12.

(x) Deferred revenue –

Deferred revenue represents up-front payments on a portion of the airtime usage charged to customers recorded as revenue when earned. It also includes the profit resulting from the sale and leaseback transaction that is being amortized over the 10-year period of the lease contract, under the straight-line method.

(y) Reclassifications –

Certain amounts in the 2003 and 2002 financial statements have been reclassified to conform to the 2004 and 2003 financial statement presentation.

(5) Recent accounting pronouncements:

In May 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (an interpretation of FASB Statement No. 143) (FIN 47). This Interpretation clarifies that the term conditional asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty may exist about the timing and (or) method of settlement. Accordingly, an entity is required to recognize the fair value of a liability for the conditional asset retirement obligation when incurred and the uncertainty about the timing and (or method) of settlement should be factored into the measurement of the liability when sufficient information exists. This Interpretation is effective no later than December 31, 2005. Retrospective application of interim financial information is permitted but is not required. Additionally, companies shall recognize the cumulative effect of initially applying this Interpretation as a change in accounting principle. The Company adopted this new pronouncement effective December 31, 2005. The impact of the Company’s financial statements as a result of adopting this new statement is not material.

(6) Allowance for doubtful accounts:

(a) Accounts receivable customers - allowance for doubtful accounts -

The activity in the accounts receivable customers’ allowance for doubtful accounts during the years ended December 31, was as follows:

	2005			2004			2003
Beginning balance	$	9,429,779		$	15,032,114		$	18,627,970

Provision for doubtful accounts	11,754,279			14,485,467			8,540,283

Accounts receivable written off, net	(13,462,996		)	(20,087,802		)	(12,136,139		)

Ending balance	$	7,721,062		$	9,429,779		$	15,032,114

(b) Accounts receivable other –

Accounts receivable, other represent mainly balances due from other communication providers with which the Company has interconnection agreements and to balances due from external dealers for either cellular units sold or deposits received from customers. At year-end, the Company established an allowance for doubtful accounts for accounts receivable, others amounting to $568,503, $276,641 and $366,958 in 2005, 2004 and 2003, respectively, that was included as part of the provision for doubtful accounts in the accompanying statements of operations.

(7) Inventories:

Inventories at December 31, consist of:

	2005		2004		2003
Handsets	$	2,929,095	$	4,341,975	$	8,386,968
Accessories and other	24,612		—		264,327
Total inventories	$	2,953,707	$	4,341,975	$	8,651,295

(8) Investments in securities:

As of December 31, 2003, the Company had invested in mutual funds with a cost of $7,376,116. The fair value of such funds as of December 31, 2003 amounted to $7,338,288; therefore, the Company recognized a comprehensive loss resulting from the unrealized holding loss on investments of $37,827. The investments were redeemed during 2004.

(9) Investment in subsidiary:

During the year ended December 31, 2002, the Partnership acquired a 49% interest in Internet Surfing Stores of Puerto Rico, Inc. (ISS), a company which is engaged in the development of internet surfing galleries, targeted to the segment of population that does not own computers. Total amount invested during the years ended December 31, 2004, 2003 and 2002 amounted to $130,667, $261,334 and $392,000, respectively. The Partnership’s investment in this company is accounted for on the equity method of accounting. Equity in losses for the years ended December 31, 2005, 2004 and 2003 amounted to $30,000, $115,382, and $140,608, respectively.

During the year ended December 31, 2005 and 2004, the Partnership wrote-down $217,959 and $165,306, respectively of its investment in eMilios due to unfavorable market conditions and uncertainty regarding future profitability in the stores located in San Juan and Mayagüez, which resulted in the closing of such stores. The write-off during December 31, 2005 constitutes the entire interest in the investment.

The unaudited financial position and results of operations of the Partnership’s equity investment are summarized below:

Condensed balance sheets information (as of December 31, 2005, 2004 and 2003):

	2005		2004			2003
Current assets	$	34,907	$	36,832		$	14,367

Non-current assets	246,664		312,475			480,087

Total assets	$	281,571	$	349,307		$	494,454

Liabilities	$	42,997	$		63,153	$	9,679

Equity	238,574		286,154			484,775

Total liabilities and equity	$	281,571	$	349,307		$		494,454

Condensed statements of operations information (for the years ended December 31, 2005, 2004 and 2003):

	2005			2004				2003
Net revenues	$	187,546		$		221,729		$	170,757

Net loss	$	(3,331	)	$	(235,473		)	$		(286,955	)

(10) Investment in PCS licenses:

PCS licenses at December 31, consist of:

	2005			2004			2003

PCS licenses in use (Puerto Rico)	$	52,696,295		$	52,696,295		$	52,696,295
Accumulated amortization	(5,945,846		)	(5,945,846		)	(5,945,846		)

Net	46,750,449			46,750,449			46,750,449
PCS licenses not in use (California)	—			—			10,767,525

Total	$	46,750,449		$	46,750,449		$	57,517,974

Each of the Company’s C-Block licenses is subject to an FCC requirement that the Company constructs network facilities that offer coverage to at least one-third of the population in the market covered by such license, within five years following the grant of the applicable license and to at least two-thirds of the population within ten years following the grant. Although the Company’s build-out plan calls for it to exceed these minimum requirements, failure to comply with these requirements could result in the revocation of the related licenses of the imposition of fines on the Company by the FCC.

On November 26, 2003, the Partnership entered into an Agreement for Purchase and Sale of Licenses with MetroPCS California/Florida, Inc. for the sale of the licenses. The adjusted selling price was $10,934,414, of which the Partnership received $1,500,000 as an option deposit during the year ended December 31, 2003. The licenses were sold during the year ended December 31, 2004, together with its related network infrastructure, with a book value at the sale date of $162,721. Net gain in the sale of the California licenses amounted to $4,168.

(11) Property and equipment:

Property and equipment at December 31, consist of:

	Estimated
	Useful Lives
	(In Years)	2005			2004			2003

Network infrastructure equipment	10	$	126,577,191		$	120,874,321		$	119,201,947
Leasehold improvements	5	5,564,175			5,651,228			5,126,022
Furniture and fixtures	5	24,499			24,499			24,499
Computer and office equipment	5	17,248,735			16,435,869			18,373,984
Vehicles	5	346,488			375,499			665,682
Network infrastructure equipment located in California, not yet placed in service		—			—			—
California equipment	10	—			—			185,967

Total		149,761,088			143,361,416			143,578,101

Less: accumulated depreciation and amortization		(83,142,698		)	(66,290,076		)	(52,908,766		)

Total		66,618,390			77,071,340			90,669,335

Network under construction		2,057,869			3,475,433			84,087

Property and equipment, net		$	68,676,259		$	80,546,773		$	90,753,422

It is the company’s policy to periodically review the estimated useful life of its fixed assets. This review during 2005 indicated that actual lives for certain assets categories were shorter than the useful lives used for depreciation purposes on the Company’s financial statements. As a result, the Company revised the estimated useful lives of certain categories, of property, principally SMS and Prepaid platforms retroactive to January 1, 2005. The effect of this change in estimate was to increase 2005 depreciation expense by $739,814 and reduce net income by $739,814.

(12) Sale and leaseback:

During the year ended December 31, 2004, the Company sold 12 towers to Mountain Union and leased back certain tower space, at a fixed monthly fee. Following the provisions of SFAS No. 13 and 98, the Company accounted for this transaction as a “sales and leaseback”. In addition, during the year ended December 31, 2005 the Company sold 3 network towers to the same third party with the same terms and conditions. Accordingly, the leased interest in the towers was capitalized as a leasehold right for a total amount in 2005 of $536,694 and in 2004 of $3,359,566, which represents the present value of the lease payments the Company will have to make throughout the term of the agreements, at an imputed interest rate of 12%. The income generated from the sale, which amounted to $398,963 in 2005 and $2,015,498 in 2004 was deferred and will be amortized over a 10-year period, which is the term of the lease. Deferred income recognized during the year ended December 31, 2005 amounted to $238,120 and $27,397 for the year ended December 31, 2004. The leasehold amortization amounted to $380,681 for the year ended December 31, 2005 and $445,422 for the year ended December 31, 2004. See related Note (19)(a)(ii).

(13) Accounts payable and accrued liabilities:

Accounts payable and accrued liabilities at December 31, consist of:

	2005		2004		2003
Trade	$	14,282,739	$	19,431,945	$	16,456,872
Network construction costs	107,500		2,370,676		59,339
Other accounts payable and accrued liabilities	4,572,742		6,036,366		7,115,666

Total	$	18,962,981	$	27,838,987	$	23,631,877

(14) Notes payable to Telefónica Móviles, S.A.:

During 2003, NewComm received the principal sum of $5,493,642 from Telefónica Móviles, S.A., (TEM) a Spanish corporation and affiliated company through common management. During January, April and July 2004, NewComm received additional advances from Telefónica Móviles, S.A. in the amount of $1,831,214 each, with the same terms and conditions. These funds have been used to pay the quarterly principal and interest payments of the FCC debt.

The agreement provided for the principal amount to bear interest at a floating rate of one percent (1.00%) per annum over the 90 day LIBOR rate. Accrued interest would be payable in arrears every six months. Principal and interest on these notes, which are unsecured, shall be payable in full within six months from the date of issuance; however, such maturity date can be automatically extended for periods of six months, thereafter.

Under the settlement agreement dated April 21, 2005, these notes payable amounting to $11,396,338 were paid in full through the issuance of a convertible promissory note subsequently converted to capital.

(15) Long-term notes payable:

(a) Bridge loan facility

During November 2000, NewComm entered into a $60 million bridge loan agreement (the “Bridge Loan Facility”) with ABN-AMRO and BBVA (the “Bank”) with interest at 1.5% over 90-day LIBOR, which expired on March 15, 2001. The parties have amended, modified or supplemented the mentioned facility for the purpose of extending its maturity and modifying its pricing. The Bridge Loan Facility is guaranteed by TISA and since 2002 ABN-AMRO remained as its sole arranger. During 2003, the Company received an additional $1 million advance under the terms of this facility. On December 18, 2003, the applicable interest margin was reduced to LIBOR plus 0.40%, for the period commencing January 2004. On April 21, 2005 ABN AMRO extended the maturity date to April 30, 2008. The Company has itself an option to extend for two additional years the maturity date of this loan, up to April 30, 2010.

(b) Lucent Technologies / D.B Zwirn

On July 1, 2005, Lucent assigned and transferred to D.B. Zwirn Special Opportunities Fund, LTD (“D.B Zwirn”) 100% of Lucent’s rights and obligations under the original credit agreement. On July 14, the Company signed a Forbearance Agreement with D.B Zwirn. On August 25, 2005 NewComm and D.B. Zwirn entered into a Senior Credit Agreement with an outstanding principal balance on the closing date due on the note of $54,480,486 including some accrued and unpaid interest and $4,000,000 in additional principal made available at the time of closing. The facility bears interest at a rate per annum equal to LIBOR + 700 basis points. Additionally, the facility will accrue pay-in-kind (PIK) interest on the aggregate principal amount, payable upon maturity, acceleration or repayment. The PIK interest is based on a grid that ranges from 2% to 4%, depending on quarterly EBITDA results. The maturity date on the facility was January 31, 2006.

The Senior Credit Agreement with D.B. Zwirn included various affirmative, negative and financial covenants. As of December 31, 2005, the Company was in compliance with all the requirements under such covenants except the failure to comply with the cumulative end of- period subscribers under section 6.04 of the credit agreement. D.B Zwirn accepted to forbear the exercise of remedies to cure the non-compliance under the mentioned covenant.

On February 16, 2006, NewComm and D.B. Zwirn amended and restated the Senior Credit Agreement. The new outstanding principal balance is $60,539,828 including some accrued and unpaid interest and $5,000,000 in additional principal made available at the time of closing. The new maturity date is March 31, 2007.

(c) Note payable to Alcatel and Promissory Agreement

Alcatel USA International Marketing, Inc. (“Alcatel”) was contracted to build part of the CDMA network. On December 18, 2001, NewComm and Alcatel entered into a Promissory Agreement and Note totaling $14,361,732. This Promissory Agreement and Note was successively amended to provide for the orderly repayment of the new outstanding principal and accrued interest on the Note, extending its maturity to December 20, 2005 and decreasing the interest rate to 6.5%. During 2004, the Company repaid $2,075,000 million of principal and $234,439 of accrued interest owed.

On December 31, 2005, the Company had $286,028 outstanding balance with Alcatel and expects to pay it in full during the first quarter of 2006.

(d) FCC notes – SLA ABN AMRO Facility

Originally the Company had approximately $51,340,000 in long-term debt related to the PCS licenses granted to the Company by the FCC which debt consisted of notes payable bearing interest at 6.5% and guaranteed by the PCS licenses obtained. In accordance with industry practice, the Company recorded the PCS licenses and the related debt at their net present value, based on the Company’s estimate of borrowing costs for debt similar to that issued by the FCC. The discount rate used by the Company was 12.82%. These notes are payable to the FCC as follows:

• Quarterly interest payments of $834,268 through April 2003.

• Quarterly principal and interest payments of $3,669,768 from April 2003 through January 2007. (These quarterly payments have been made from funds loaned by TEM and ClearComm).

During the year ended December 31, 2004, the Company paid the amount of $11,009,302 including interest and principal. The payment due in October 2004 was not made and was accumulated with its related interest and penalty charge of approximately $122,000. The payment scheduled for January 2005 was not made.

On April 21, 2005, the Company and ABN Amro Bank N.V entered into a $40,000,000 Subordinated Loan Facility Agreement, unsecured and guaranteed by Telefonica Móviles S.A. The facility will provide financing to completely repay the remaining obligations within the FCC in connection with the Company’s acquisition of the FCC license. The interest rate set on this facility is LIBOR + 70 basis points and the maturity date was set at April 30, 2010. As of December 31, 2005, the Company drew from this facility the amount of $19,082,791 in principal and $467,445 in interest.

As of December 31, 2005, future principal installments (after renegotiated terms) on these notes payables were as follows:

Year ending
December 31,	ABN BL		ABN SLA		D B Zwirn		FCC			Alcatel			Total

2006	$	—	$	—	$	54,480,486	$	13,876,090		$	286,029		$	68,642,605
2007	—		—		—		3,611,088			—			3,611,088
2008	61,000,000		—		—		—			—			61,000,000
2009	—		—		—		—			—			—
2010	—		19,082,791		—		—			—			19,082,791

Total	61,000,000		19,082,791		54,480,486		17,487,178			286,029			152,336,484

Less Current Portion	—		—		—		(13,876,090		)	(286,029		)	(14,162,119		)

Long Term Portion	$	61,000,000	$	19,082,791	$	54,480,486	$	3,611,088		$	—		$	138,174,365

(16) Related party transactions:

(a) NewComm entered in 1999 into a management agreement with TLD (transferred to TEM with retroactive effect in January 1, 2002) whereby TLD/TEM have agreed to combine its experience, know-how, synergies and resources in the development, preparation and implementation of NewComm’s business policies and organization in all major areas of operations. This management agreement required the Company to pay an annual fee (payable quarterly in arrears) based on the highest of 9% of Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) as of the end of the previous year or $750,000. The Management agreement was terminated by the Board of Directors of NewComm as of October 28, 2004. As a consequence of this, no amounts were accrued in 2005 for this item.

(b) Also, NewComm entered into a services agreement with TLD, whereby TLD agreed to provide support to the Company in the areas of legal consultation, management information systems and general services. This services agreement was on a year-to-year basis and required annual payment to TLD of approximately $200,000. During 2004, the service agreement was amended to eliminate the legal consultation services provided by TLD to the Company. During 2005, the Company discontinued all provisions for services provided by TLD under this agreement. As a consequence of this, no amounts were accrued in 2005 for this item.

(c) In addition, NewComm entered in 1999 into technology transfer agreement with TISA (transferred to TEM with retroactive effect in January 31, 2000) whereby TISA/TEM granted the Company the right to use, during the term of this agreement, all patents, trademarks, processes, planning resources, designs and, in general, all other intellectual property belonging to TISA/TEM (collectively, the “Technology”), which is deemed necessary for the efficient operation and development of the business of the Company. In consideration for the right to use the Technology, the Company had to pay an annual fee (payable quarterly in arrears) equal to one percent (1%) of the Company’s gross revenues as of the end of the previous year. The Technology Transfer Agreement was terminated by the Board of Directors of NewComm effectively October 28, 2004. As a consequence of this, no amounts were accrued in 2005 for this item.

(d) Atento de Puerto Rico, Inc., a Telefonica S.A related entity, provided the Company call center, collection and retention services based on arranged rates up to the month of February 2005. Please refer to note (19)(b) for note on cancellation of agreement and related legal proceeding. The Company accrued $280,257 in 2005 for this item.

Total amounts charged by Telefonica S.A related entities during the year ended December 31, 2005 and 2004 for the above agreements and other charges amounted to approximately $2,900,000 and $2,515,899, respectively.

(e) The Partnership agreement, as amended, provides for payment of a management fee to its General Partner (SuperTel), 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 incurred by officers, directors, and employees in the performance of their duties. In connection with this agreement, the General Partner billed the partnership approximately $500,408, $288,000, and $282,280 during the years ended December 31, 2005, 2004 and 2003, respectively, in connection with these services. As of December 31, 2005, 2004 and 2003, the Partnership owes its General Partner approximately $223,163, $185,000, and $155,000, respectively related to management fees.

(f) The note receivable from officer represents a loan made to the Partnership’s President. This loan in unsecured, bears interest at 6% and is due on August 30, 2005. Interest receivable related to this note receivable amounted to $20,000, $14,000 and $8,000 at December 31, 2004, 2003 and 2002, respectively. The loan and its corresponding accrued interest ($120,000) was written off as of December 31, 2005 and was charged to professional services with the consent of the Partnership’s board of directors.

(g) The Partnership has incurred legal and consulting expenses paid to members of the Board of Directors and shareholders of the General Partner amounting to approximately $302,743, $536,213, and $469,000 during the years ended December 31, 2005, 2004 and 2003, respectively.

Total amounts charged by related parties during the years ended December 31, 2005, 2004 and 2003 for the above agreements and other charges amounted to $3,983,408, $5,466,626, and $4,090,826, respectively.

Accounts payable to related parties as of December 31, consist of:

	2005		2004		2003
TLD	$	12,817,806	$	12,128,124	$	9,608,940
TEM	79,176		6,762,781		4,675,006
Atento de Puerto Rico, Inc.	934,812		654,554		567,802
Telefönica Móviles y Soluciones y Aplicaciones, S.A.	448,825		1,240,520		1,740,709

	$	14,280,617	$	20,785,979	$	16,592,457

(18) Defined contribution plan:

In October 1999, NewComm established a defined contribution retirement plan (1165e Plan) covering all employees who have at least three months of service and are at least 21 years old. Participants may contribute from one to ten percent of their compensation, as defined, up to a maximum of $8,000. NewComm contributes 66% of the aggregate participant contributions up to a maximum of six percent of the participant’s compensation. Contributions for the years ended December 31, 2005, 2004 and 2003 amounted to $209,721, $195,345, and $219,621, respectively.

(19) Commitments and contingencies:

(a) Commitments –

(i) The Company is committed under various operating lease agreements for its office space as well as various sites for communication equipment and stores under different terms and conditions. Minimum annual rental commitments at December 31, 2005 are as follows:

Year ending
December 31,	Amount

2006	$		8,696,145
2007	8,472,399
2008	7,973,682
2009	6,798,601
2010	6,857,006

Total	$	38,707,833

Rent expense for the years ended December 31, 2005, 2004 and 2003 was $7,622,000, $6,922,312, and $6,755,926, respectively.

(ii) In December 2001, ClearComm entered into two lease agreements with Tower Asset Sub, Inc. (“Licensor”) for the lease of certain space on two towers operated by Licensor in California. By means of the agreement, ClearComm was granted a license to install, maintain and operate its wireless communications equipment and accessories on the towers. Each agreement is for a five-year term, automatically renewed for four additional five-year terms. The agreements establish annual rental payments of $19,800 and $15,000, respectively, with an annual increase of 4%. These agreements were terminated during the year ended December 31, 2004, after the sale of the California licenses.

(iii) During 2005 and 2004, NewComm has entered into two lease agreements with Mountain Union for the lease of certain space on 15 towers located in Puerto Rico. By means of the agreement, NewComm was granted a license to install, maintain and operate its wireless communications equipment and accessories on the towers. Each agreement is for a ten-year period. Also, during 2005 the company has entered into various computer and software capital loan agreements.

Future installments of principal and imputed interest to be paid during the next five years and thereafter are as follows:

Year Ending
December 31,	Amount

2006	$		895,395
2007	838,509
2008	722,100
2009	670,800
2010	670,800
Thereafter	2,612,700


Total future installments of principal and imputed interest	6,410,304
Less imputed interest	(2,341,756			)

Present value of future principal installments	4,068,548
Less - current portion	(447,700			)

Long-term portion	$	3,620,848

(iv) In November 2002, the Company entered into the following agreements with Telefónica Móviles y Soluciones y Aplicaciones, S.A. (“TM-mAS”):

• Licensing agreement – for the use of the SCL software, specially designed for companies engaged in the operation of mobile communication. The total cost of the software for phase IV, capitalized during 2003, amounted to $973,735.

• Maintenance and support services – for the maintenance of the SCL software application and related consulting services. The agreement is for three years and the monthly fee is based on pre-determined rates and hours incurred.

• Design, development and programming services – the agreement is for three years and the monthly fee is based on pre-determined rates and hours incurred.

As of December 31, 2005, 2004 and 2003, the Company had an outstanding balance of $224,203, $1,240,519, and $1,740,709, respectively, related to these agreements, included as accounts payable and accrued liabilities in the accompanying balance sheets. Total expense pursuant to these agreements for the years ended December 31, 2005, 2004 and 2003 was $820,561, $1,509,283, and $1,723,820, respectively.

(v) The Company entered into an agreement with Brightstar Corp. (“Brightstar”) for the selling, distribution and administration of its inventories. The contract was terminated effective January 31, 2005, by mutual agreement. The warehousing and logistic functions are now performed under the Company’s management.

(vi) The Company entered into an Interconnection Agreement with Puerto Rico Telephone Partnership, Inc. (“PRTC”). The agreement, which is renewed on a yearly basis, provides for the delivery of local traffic to be terminated on each party’s local network so that customers of either party have the ability to reach customers of the other party. The agreement establishes that compensation shall be paid by PRTC to NewComm and NewComm to PRTC at pre-determined rates.

	(vii)	The Company entered into an Interconnection and Traffic Interexchange Agreement for Telecommunications Services with Centennial Wireless PCS Operations Corporation (“Centennial”). The agreement, which is renewed on a yearly basis, provides for the parties to physically connect their switches and interchange traffic to allow subscribers of Centennial to communicate with subscribers of NewComm and vice versa in their respective service areas. The agreement establishes a bill and keep methodology in which both parties will not invoice each other unless one party in a period longer than 3 months, exceeds by 20% the interconnection services provided by the other party.

	(viii)	In July 1999, the Company entered into an Intercarrier Roamer Service Agreement with Sprint Spectrum, LP (“Sprint”). The agreement was entered into so that the parties can provide service to each other’s customers when the service is necessary in a geographic area outside of the area served by the party with whom it is registered and within the geographic service area served by the other party. Each home carrier (NewComm and Sprint), whose customers receive service from the other serving carrier, shall pay 100% of the cost of such service (wireless services plus pass-through charges) to the other.

	(ix)	During the year ended December 31, 2003, the Company entered into a service agreement with Telecommunication Systems, Inc. (TCS), whereby TCS agreed to provide software maintenance services in the areas of “assistance request management” (ARM) and product updates and upgrades. Services include: call receipt and routing, service restoration, problem resolution of reported conditions, on-site assistance, software updates and upgrades, hardware maintenance and hardware upgrades. This service agreement is on a year-to year basis for a fixed annual fee of $299,450. As of December 31, 2005 this commitment is no longer in place.

	(x)	During the year ended December 31, 2004, the Company entered into a service agreement with Telecommunication Systems, Inc. (TCS), whereby TCS agreed to provide hosted services to NewComm in order to run the E-911 system. This system allows 911 Emergency Services to specifically pinpoint the origination point of emergency calls that are made to 911 from cellular telephones. The service agreement covers a 3 year period, and is billed monthly at $160 per active cell site, or approximately $25,000-$30,000 on a monthly basis.

	(xi)	The Company entered into an agreement with Lucent Technologies for the operation and maintenance of the CDMA Network. The agreement was signed on March 1, 2004, valid for two years and shall be automatically renewed by mutual agreement of the parties. This service agreement is for a fixed monthly fee of $125,750. The contract will expire as of February 28, 2006. The Company expects to extend the contract under renegotiated terms.

	(xii)	In addition, the Company maintains other agreements with various service providers for periods ranging from one to five years. Services covered by these agreements include electronic checks, wireless local number portability, short message, invoice processing, customer credit information and accounts receivable collections.

(b)	Legal contingencies –

	The Company has entered into a formal arbitration process with TLD, a Telefonica S.A subsidiary, to resolve a claim of $13,356,098. The claim is for services rendered prior to the termination of the management agreement with Telefónica Group. The process is in an advance stage and is expected to come to its conclusion during the month of May 2006.

	The Company is a defendant in a lawsuit brought by Atento de Puerto Rico, Inc. (Atento) alleging breach of contract, damages, and collection of amounts for services rendered. Atento is another wholly-owned subsidiary of Telefónica, S.A. that had a contract to provide call center services to NewComm. The plaintiff is seeking $665,540 ($934,812 of this amount was owed and accrued by NewComm as of December 31, 2005) for services already rendered to the Company and $1,760,000 for breach of contract. At this time an outcome cannot be predicted.

	The Company is also the defendant in several legal cases related to former employees, arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position and results of operations.

(20) Partners’ capital:

At December 31, 2005, 2004 and 2003, the limited partners’ capital consisted of 2,768.2, 2.765.2, and 2,906.1, units, respectively, distributed among approximately 1,600 limited partners.

The Partnership Agreement provides that the Partnership may sell additional limited partnership interest 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. For federal income taxes purposes, the operating losses of the Partnership 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. However, any losses that would have the effect of causing or increasing a partners’ 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.

On May 12, 2004, the Partnership announced a voluntary program for its Limited Partners who own fewer than two units of the Partnership to sell their units at a per-unit price of $8,500. Under the program, 140.9 units were re-acquired by the Partnership, for a total of $1,197,640.

(21) Income tax:

The Partnership, as a United States limited partnership, is not subject to federal income tax and the tax affect of its activities flow–through to the partners. For U.S. tax purposes the Partnership’s tax losses have been passed through to the limited partners to the extent of their investment. The Partnership is subject to Puerto Rico income tax as a regular corporation.

For Puerto Rico tax purposes the Partnership has net operating loss carryforwards totaling approximately $9.2 million, available to reduce future taxable income. The loss carryforwards expire in fiscal years 2006 through 2011.

NewComm has net operating loss carryforwards totaling approximately $201 million available to reduce future taxable income. The loss carryforwards expire in fiscal years 2006 through 2012.

At December 31, 2005, the deferred tax asset resulting from future income tax benefits of the available operating losses was approximately $50 million, at the lower tax bracket. A valuation allowance for the same amount has been established due to the uncertainty as to the realization of the tax benefit of such operating losses.

(22) Supplementary cash flow information:

During the years ended December 31, 2005, 2004 and 2003, the Company had the following non-cash investing and financing activities:

• Interest for the period from January 1, 2003 through June 4, 2003, amounting to $2,040,572, was capitalized into the Lucent Technologies long-term debt.

• Interest for the years ended December 31, 2004 and 2003 amounting to $897,421 and $1,036,383 were capitalized into the TEM long-term debt.

• During the year ended December 31, 2004, the Company entered into a sale-leaseback transaction where towers with a book value of $579,478 were sold for $2,594,975, resulting in a gain of $2,015,498. During the year ended December 31, 2005, the Company entered into a sales-leaseback agreement with identical conditions in which towers with a book value of $90,943 were sold for $489,906, resulting in a gain of $398,963. These gains were deferred and are being recognized over a 10-year period. The total deferred revenue recognized regarding these transactions was $27,397 during the year ended December 31, 2004 and $238,120 during the year ended December 31, 2005. The lease interest in the towers sold during 2004 was capitalized as a leasehold right for a total amount of $3,359,566; the lease interest in the towers sold during 2005 was capitalized as a leasehold right for a total amount of $536,694. Total amortization of the leasehold rights was $45,422 during 2004 and $380,681 during 2005.

• As part of the Settlement Agreement and Mutual Release mentioned previously in Note 1, TEM forgave an account receivable from NewComm of $1,859,068, corresponding to all amounts outstanding with TMmas (a TEM affiliate) under the SCL software agreements. NewComm carried this amount in its balance sheet as $1,240,519 payable to TMmas, the difference of $618K being amounts disputed by NewComm as not payable.

• ABN AMRO provided a new line of credit to NewComm specifically to cover the continued debt service to the FCC for the PCS license. The total line of credit is for $40 million, of which $19,082,791 was paid during the year ended December 31, 2005 by ABN AMRO directly to the FCC on behalf of NewComm Wireless Services. The $19 million was used to pay regular debt service for the PCS licenses in the amount of $16.1 million in principal repayment and $2.9 million in interest payments.

• During the year ended December 31, 2005, the Company’s debt with Lucent Technologies was assigned to D.B. Zwirn Special Opportunities Fund, LTD. As part of this agreement, principal and interest due to Lucent Technologies in the amount of $54,480,486 was transferred directly to D.B. Zwirn.

• During the year ended December 31, 2005, a total of $207,300 of legal fees that had been capitalized, and were contingently payable on closure of a permanent financing arrangement for NewComm’s debt, were written off as the permanent financing arrangement was never executed.

• During the year ended December 31, 2005, the Company reached a conclusion of an analysis executed with Centennial Lambda, regarding the Interconnection Bill and Keep Agreement. As per the agreement if the balance of traffic from one carrier to the other did not exceed by 20% the traffic in the other direction, the billed amounts would not be subject to collection. As of the year end 2004 NewComm had pending, since inception an accrued payable of $397,950 to Centennial Lamdda, which as per the conclusion of the analysis was determined to be not payable. This amount was written off against other gains and losses during the year ended December 31, 2005.

• During the year ended December 31, 2004, the Partnership sold its California licenses, with a cost of $10,767,525, and its related network infrastructure, with a book value of $162,721, for $10,934,414. This transaction resulted in a gain of $4,168.

• During the year ended December 31, 2005 and 2004, the Partnership wrote down $217,959 and $165,306, respectively of its investment in one of its subsidiaries.

• During the year ended December 31, 2004 the Partnership redeemed investment securities with a cost of $7,376,116. This transaction resulted in a realized loss of $56,518.

• During the year ended December 31, 2005, the Partnership reissued 3 treasury units among its limited partners at its original invested value for $75,000.

• The loan receivable and interest receivable from officer was written off against salaries paid for a total amount of $120,000.

• Accrued interest payable in the amount of $452,900 related to the Partnership’s share of interest in the original bridge loan secured by TMAS was eliminated as a result of the settlement agreement.

• During the year ended December 31, 2005, the Company internalized certain information systems functions as well as modernized some of its computer equipment and entered into capital leases to finance the payment of the same. The total amount of the capital leases registered in PPE with a corresponding capital lease payable was $51,785.

(23) Dilution gain and Settlement Agreement and Mutual Release:

During the year ended December 31, 2005, NewComm and its shareholders entered into a Settlement Agreement and Mutual Release in which outstanding interest and notes payable to related parties were either forgiven or converted to Additional Paid-in Capital. The following is a list of specific amounts converted to equity:

$	2,239,492	TEM Management Fee Note Payable
$	4,392,978	TEM Technology Transfer Note Payable plus Capitalized Interest
$	11,396,338	TEM Note Payable and accrued interest related to loans made to NewComm used to cover FCC Debt
$	62,487,124	TEM Notes and Interest Payable

$	80,515,932

The amount presented as dilution gain in the accompanying statements of changes in Partners’ deficit represents the effect of the capitalization of various amounts as part of the above mentioned settlement agreement for $80,515,932 and $2,450,000 raised capital as described in Note 1 above, for a total dilution gain of $82,965,944 in 2005 and investments made by an outside minority interest investor during the year 2002 ($10 million). The equity gain is the effect of the reduction of the Partnership’s participation in the stockholders’ deficit of NewComm, allocated to the limited partners and the General Partner, based on their percentage of participation, 75% and 25%, respectively.

The Partnership has decided not to record any minority interest in light of the absence of any guaranty or other contractual obligation to reimburse their share of operating losses in excess of their investment by the minority investors in NewComm.

(24) Quarterly financial information for 2005, 2004 and 2003:

Certain unaudited quarterly financial information for the years 2005, 2004 and 2003 follows:

	2005
	March			June			September			December

Revenues	$	22,615,980		$	23,856,592		$	22,452,674		$	18,999,015

Operating income (loss)	$	(2,816,157	)	$	(1,476,939	)	$	(2,756,140	)	$	260,098

Net loss	$	(5,535,069	)	$	(4,315,344	)	$	(5,767,546	)	$	(8,122,097	)

Net income (loss) attributable to General Partner	$	(5,535,069	)	$	(4,315,344	)	$	(5,767,546	)	$	(8,122,097	)

Net income (loss) attributable to Limited Partner	$	—		$	—		$	—		$	—

	2004 (Restated)
	March			June			September			December

Revenues	$	28,314,821		$	27,134,342		$	25,131,484		$

CLEARCOMM L P 10-K