| Form 10-QSB/A |
| SECURITIES AND EXCHANGE COMMISSION |
| Washington, D.C. |
| [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended March 31, 2001 |
| OR |
| [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from _______ to _______. |
| Commission File No. 1-15383 |
| USURF America, Inc. |
| (Exact Name of Small Business Issuer as Specified in its Charter) |
| NEVADA | 91-2117796 |
| (State or Other Jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification Number) |
| 8748 Quarters Lake Road, Baton Rouge, Louisiana 70809 |
| (Address of Principal Executive Offices, including Zip Code) |
| (225) 922-7744 |
| (Issuer's telephone number, including area code) |
Indicate by check mark whether 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 Registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date:
| Class | Outstanding as of 5-11-01 |
| Common Stock, $.0001 par value | 19,824,770 |
| PART I - FINANCIAL INFORMATION |
Item 1. Financial Statements.
| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
| USURF America, Inc. |
| Consolidated Balance Sheets as of March 31, 2001 (unaudited), and December 31, 2000 |
| Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 (unaudited) |
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000(unaudited) |
| Notes to Consolidated Financial Statements |
| USURF AMERICA, INC. AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| 12/31/00 | 3/31/01 |
| (audited) | (unaudited) |
| ASSETS | | |
| CURRENT ASSETS | | |
| Cash and cash equivalents | $1,088 | $125,494 |
| Accounts receivable - net | 0 | 384 |
| Inventory | 246,721 | 246,721 |
| ---------- | ---------- |
| Total current assets | 247,809 | 372,599 |
| ---------- | ---------- |
| PROPERTY AND EQUIPMENT, | | |
| Cost | 138,954 | 138,954 |
| Less: accumulated depreciation | (69,476) | (81,056) |
| ---------- | ---------- |
| 69,478 | 57,898 |
| ---------- | ---------- |
| INVESTMENTS | 68,029 | 68,029 |
| ---------- | ---------- |
| OTHER ASSETS | 25,000 | 25,000 |
| ---------- | ---------- |
| 25,000 | 25,000 |
| ---------- | ---------- |
| Total assets | $410,316 | $523,526 |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | |
| CURRENT LIABILITIES | | |
| Disbursements in excess of cash balances | 42,469 | 42,469 |
| Accounts payable | 1,472,030 | 1,473,817 |
| Accrued payroll | 158,262 | 200,155 |
| Other current liabilities | 41,824 | 51,824 |
| Property dividends payable | 43,750 | 43,750 |
| Notes payable to stockholder | 6,638 | 32,728 |
| ---------- | ---------- |
| Total current liabilities | 1,764,973 | 1,844,743 |
| ---------- | ---------- |
| LONG-TERM LIABILITIES | | |
| Deferred income tax | 0 | 0 |
| ---------- | ---------- |
| Total liabilities | 1,764,973 | 1,844,743 |
| REDEEMABLE COMMON STOCK | | |
| Common stock subject to rescission, $.0001 par value, Outstanding: 2,767,823 shares at December 31, 2000 and 4,261,985 at March 31, 2001 | 3,897,552 | 4,842,855 |
| Deferred consulting | (574,000) | 0 |
| ---------- | ---------- |
| 3,323,552 | 4,842,855 |
| ---------- | ---------- |
| STOCKHOLDERS' EQUITY | | |
| Common stock, $.0001 par value; Authorized: 100,000,000; Issued and Outstanding: 13,920,985 shares at December 31, 2000, and 13,790,785 shares at March 31, 2001 | 1,392 | 1,379 |
| Additional paid-in capital | 30,286,687 | 30,288,910 |
| Accumulated deficit | (34,502,160) | (35,403,419) |
| Subscriptions receivable | 933,514 | 313,000 |
| Deferred consulting | (1,397,642) | (1,363,942) |
| ---------- | ---------- |
| (4,678,209) | (6,164,072) |
| ---------- | ---------- |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $410,316 | $523,526 |
| USURF AMERICA, INC. AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| Three Months Ended March 31, | Three Months Ended March 31, |
| 2001 | 2000 |
| (unaudited) | (unaudited) |
| REVENUES | | |
| Internet access revenues | $384 | $597,392 |
| Internet access costs and cost of goods sold | 0 | (269,136) |
| ---------- | ---------- |
| Gross profit | 384 | 328,256 |
| ---------- | ---------- |
| OPERATING EXPENSES | | |
| Depreciation and amortization | 11,580 | 2,238,544 |
| Professional fees | 707,288 | 390,038 |
| Rent | 5,361 | 61,570 |
| Salary and commissions | 160,746 | 399,358 |
| Advertising | 0 | 15,179 |
| Other | 16,668 | 249,530 |
| ---------- | ---------- |
| Total Operating Expenses | 901,643 | 3,354,219 |
| ---------- | ---------- |
| LOSS FROM OPERATIONS | (901,259) | (3,025,963) |
| OTHER INCOME(EXPENSE) | | |
| Other income | 0 | 6,618 |
| Interest expense | 0 | (9,770) |
| ---------- | ---------- |
| LOSS BEFORE INCOME TAX | (901,259) | (3,029,115) |
| INCOME TAX BENEFIT | 0 | 471,519 |
| ---------- | ---------- |
| NET LOSS | (901,259) | (2,557,596) |
| Net loss per common share | (.06) | (0.20) |
| Weighted average number of shares outstanding | 13,934,118 | 12,937,499 |
| USURF AMERICA, INC. AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Three Months Ended | Three Months Ended |
| 3/31/01 | 3/31/00 |
| (unaudited) | (unaudited) |
| CASH FLOWS FROM OPERATING ACTIVITIES | | |
| Net loss | $( 901,259) | $(2,557,596) |
| Adjustment to reconcile net loss to net cash used in operating activities | | |
| Depreciation and amortization | 11,580 | 2,238,544 |
| Consulting fees recognized | 670,400 | 311,750 |
| Compensation expense | 3,300 | 24,000 |
| Deferred income taxes | 0 | (471,519) |
| Accounts receivable | (384) | 633 |
| Inventory | 0 | 6,301 |
| Other current liabilities | 10,000 | (16,823) |
| Other assets and liabilities | 0 | 9,276 |
| Deferred revenue | 0 | 68,051 |
| Accounts payable | 1,786 | 49,464 |
| Prepaid expenses and other current assets | 0 | (3,381) |
| Accrued payroll | 41,893 | 35,521 |
| ---------- | ---------- |
| Net cash used in operating activities | (162,684) | (305,779) |
| ---------- | ---------- |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| Cash acquired in acquisitions | 0 | 7,704 |
| Capital expenditures | 0 | (102,612) |
| ---------- | ---------- |
| Net cash used in investing activities | 0 | (94,908) |
| ---------- | ---------- |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| Payments on notes payable and capital lease obligations | 0 | (5,910) |
| Proceeds from subscriptions receivable | 261,000 | 115,000 |
| Proceeds from note payable to stockholder | 26,090 | 286,400 |
| Issuance of common stock for cash | 0 | 0 |
| Payment on note payable to stockholder | 0 | (11,093) |
| ---------- | ---------- |
| Net cash provided by financing activities | 287,090 | 384,397 |
| ---------- | ---------- |
| Net increase (decrease) in cash and cash equivalents | 124,406 | (16,290) |
| Cash and cash equivalents, beginning of period | 1,088 | 75,313 |
| Cash and cash equivalents, end of period | 125,494 | 59,023 |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND OTHER CASH FLOW INFORMATION |
Three Months March 31, 2001:
- In January 2001, the Company entered into a one-year consulting agreement, by issuing 200,000 shares of stock valued at $62,000.
- In January 2001, the Company issued 800,000 shares of stock valued at $248,000, in payment of a commitment fee under a common stock purchase agreement.
- In January 2001, 774,162 shares were issued to the Company's president, pursuant to a debt conversion agreement, which shares were not issued in 2000, due to an administrative error.
Three Months March 31, 2000:
- In January 2000, the Company entered into a one-year legal and business consulting services agreement, by issuing 100,000 shares of stock valued at $300,000.
- In January 2000, the Company entered into a one-year business and communications consulting services agreement, by issuing 60,000 shares of stock valued at $180,000.
- In February 2000, the Company acquired all of the stock of The Spinning Wheel, Inc., by issuing 81,063 shares of stock valued at $324,252. This acquisition was accounted for as a purchase business combination.
- In February 2000, the Company acquired all of the ownership interests of Internet Innovations, L.L.C., by issuing 50,000 shares of stock valued at $437,500. This acquisition was accounted for as a purchase business combination.
| USURF AMERICA, INC. |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
| Three Months Ended March 31, 2001 |
| (Unaudited) |
Note 1. Nature of Business, Organization and Basis of Presentation
Basis of Presentation
USURF America, Inc. (USURF), formerly Internet Media Corporation, was incorporated as Media Entertainment, Inc. in the State of Nevada on November 1, 1996. USURF currently provides wireless Internet access services to a small number of customers in Santa Fe, New Mexico. USURF's original purpose was to operate as a holding company in the wireless cable television and community (low power) television industries, as well as other segments of the communications industry. Until January 1999, the Company was in the development stage. In 1998 the Company changed its focus to concentrate its efforts in the wireless internet communications industry. The Company later ceased efforts to develop the wireless cable and low power television business areas and assigned all of its assets from the low power television activities to New Wave Media Corp. in exchange for a 15% ownership interest in New Wave Media Corp.
Effective December 31, 1996, USURF acquired all of the outstanding common stock of Winter Entertainment, Inc., a Delaware corporation incorporated on December 28, 1995 (WEI), and Missouri Cable TV Corp., a Louisiana corporation incorporated on October 9, 1996 (MCTV). WEI operates a community television station in Baton Rouge, Louisiana; MCTV owns wireless cable television channels in Poplar Bluff, Missouri, which system has been constructed and is ready for operation, and Lebanon, Missouri. Effective October 8, 1998, the Company formed Santa Fe Wireless Internet, Inc. (Santa Fe), a New Mexico corporation, to hold the assets acquired from Desert Rain Internet Services. Santa Fe was organized to provide wireless internet access. The acquisition of WEI and MCTV by USURF was accounted for as a reorganization of companies under common control. The assets and liabilities acquired were recorded at historical cost in a manner similar to a pooling of interests. The acquisition of Santa Fe was accounted for as a purchase whereby cost is allocated to the assets acquired.
On January 29, 1999, the Company acquired all the stock of CyberHighway, Inc., a Boise, Idaho-based ISP, by issuing 2,000,000 shares of stock valued at approximately $15,940,000. In addition, 325,000 shares of common stock were issued in payment of a finder's fee arising out of this acquisition. This acquisition was accounted for as a purchase business combination.
In June 1999, USURF acquired all the stock of Santa Fe Trail Internet Plus, Inc., a Santa Fe, New Mexico-based ISP, by issuing 100,000 shares of stock valued at approximately $400,000. This acquisition was accounted for as a purchase business combination.
In July 1999, USURF acquired all of the stock of Premier Internet Services, Inc., an Idaho-based ISP, by issuing 127,000 shares of stock valued at approximately $508,000. This acquisition was accounted for as a purchase business combination.
In November 1999, the Company acquired the customer base of Cyber Mountain, Inc. a Denver, Colorado-based ISP, for 25,000 shares of stock valued at approximately $75,000. In December 1999, USURF acquired a portion of the ISP-related equipment and customer base of Cyber Highway of North Georgia, Inc., a Demorest, Georgia-based ISP for 54,000 shares of stock valued at approximately $212,000.
In February 2000, the Company acquired Spinning Wheel, Inc., an Idaho Springs, Idaho-based ISP, for 81,063 shares of stock valued at approximately $325,000. This acquisition has been accounted for as a purchase business combination.
In February 2000, the Company acquired Internet Innovations, LLC, a Baton Rouge, Louisiana based web design company, for 50,000 shares of common stock valued at approximately $437,000. This acquisition has been accounted for as a purchase business combination.
Principles of Consolidation
The accompanying consolidated financial statements include all the accounts of USURF and all wholly owned subsidiaries. Inter-company transactions and balances have been eliminated in the consolidation.
Loss Per Common Share
Basic loss per common share has been computed by dividing the net loss by the weighted average number of shares of common stock outstanding throughout the period.
Note 2. Interim Consolidated Financial Statements
In the opinion of management, the accompanying consolidated financial statements for the three months ended March 31, 2001 and 2000, reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial condition, results of operations and cash flows of USURF, including subsidiaries, and include the accounts of USURF and all of its subsidiaries. All material inter-company transactions and balances are eliminated.
The financial statements included herein have been prepared by USURF, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that these unaudited financial statements be read in conjunction with the financial statements and notes thereto included in USURF's Annual Report on Form 10-KSB/A for the year ended December 31, 2000, as filed with the SEC. Certain reclassifications and adjustments may have been made to the financial statements for the comparative period of the prior fiscal year to conform with the 2001 presentation. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for the entire year.
Note 3. Notes Payable to Shareholder
| March 31, 2001 |
| (Unaudited) |
| Notes payable to majority stockholder, interest accrues at 8%, due on demand and unsecured | $32,728 |
Note 4. Stock Sales
In February 2001, the Company sold, pursuant to a Securities Purchase Agreement, 840,000 shares of common stock and 840,000 warrants with an exercise price of $.15, exercisable for a period of three years from issuance. These securities were sold for $126,000 in cash, with no portion of the purchase price having been allocated to these warrants. In connection with this transaction, the Company issued, as a finder's fee, 84,000 shares of common stock and 336,000 warrants with an exercise price of $.15 per share, exercisable for a period of three years from issuance.
In March 2001, the Company sold, pursuant a Securities Purchase Agreement, 500,000 shares of common stock and 500,000 warrants with an exercise price of $.25, exercisable for a period of three years from issuance. These securities were sold for $125,000 in cash, with no portion of the purchase price having been allocated to the warrants. In connection with this transaction, the Company issued, as a finder's fee, 50,000 shares of common stock and 200,000 warrants with an exercise price of $.25 per share, exercisable for a period of three years from issuance.
Note 5. Other Material Stock Issuances
In January 2000, the Company issued 800,000 shares of its common stock as a commitment fee under a common stock purchase agreement to an unrelated company. See Note 7.
Note 6. Contingencies
A. Bankruptcy
On September 29, 2000, three creditors of CyberHighway filed an involuntary petition in the Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454. In December 2000, CyberHighway and the petitioning creditors filed a joint motion to dismiss this proceeding. The joint motion to dismiss requires the approval of CyberHighway's creditors. However, some of CyberHighway's creditors objected to the dismissal of the proceeding. The basis of the creditors' objection is their belief that CyberHighway's as-yet unasserted damage claims against the original petitioning creditors and their law firm and a claim against Dialup USA, Inc. represent CyberHighway's most valuable assets. These as-yet unasserted claims include claims for bad faith filing of the original bankruptcy petition as to the original petitioning creditors and their law firm, as well as claim for tortious interference with beneficial business relationships as to Dialup USA, Inc. The objecting creditors desire that all claims be adjudicated in the bankruptcy court. The Company believes it is likely that, at some time in the future, a final order of bankruptcy will be entered with respect to CyberHighway.
Subsequent to the involuntary bankruptcy, CyberHighway lost nearly all of its customers. Due to this loss of customer base, the Company's intangible assets relating to those customers were determined to be worthless. The write-off of the intangible assets reflected on the Company's December 31, 2000 balance sheet was $4,814,272 (net of deferred taxes). Due to this change in operating environment, the Company's revenues have decreased substantially as well as a decrease in expenses associated with the elimination of personnel previously required to operate the Company's network operations center, and accordingly goodwill has been impaired. The write-down of goodwill reflected on the Company's December 31, 2000, balance sheet was $4,425,037.
B. Potential Rescission Claims
Since January 2000, a total of 4,881,985 shares of the common stock of the Company may have been issued in violation of Section 5 of the Securities Act of 1933, as amended. The aggregate value assigned to these shares upon their issuance totaled $5,081,255. It is possible that each of the issues of these shares has a potential claim for rescission of their respective issuance transactions.
The Company believes that it is unlikely that any of these potential rescission claims will be asserted against the Company.
Note 7. Financing Transaction
On October 9, 2000, the Company signed a common stock purchase agreement with an unrelated company to sell up to $10,000,000 of its common stock. This agreement was replaced by a similar agreement on April 25, 2001, as amended May 9, 2001. The purchase price of the shares under this agreement will vary, based on future market prices of the Company's common stock. The agreement calls for the Company to meet certain requirements and maintain certain criteria with respect to its common stock in order to avoid an event of default. Upon the occurrence of the event of default, the buyer would no longer obligated to purchase any additional shares of stock. The agreement will expire on June 30, 2001, if all of the circumstances necessary to effect the transaction have not occurred by that date, including completion of a registration statement with respect thereto. This registration statement is to be filed in the near future.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Background
Our management has determined to commit all of our available resources to the exploitation of our Quick-Cell wireless Internet access products. We currently lack the capital necessary to do so.
We were organized to operate in the wireless cable and community (low power) television industries. Due to existing market conditions, we have abandoned our wireless cable business. Because our Quick-Cell wireless Internet access system can be adapted for use on the wireless cable frequencies, we believe our frequencies possess future value. However, these frequencies will not be of value to us, unless and until the FCC approves two-way communications on them. Due to this circumstance, our wireless-cable-related assets were determined to be impaired and their $188,091 book value written off in December 2000.
Effective July 1, 1999, we assigned all of our television-related assets to New Wave Media Corp., in exchange for a 15% ownership interest in New Wave common stock. This business segment was discontinued as of that date and, since then, has not, and will not, generate any revenues. Our board of directors has declared a dividend with respect to all of the New Wave shares. These shares will be distributed to our shareholders, upon New Wave's completion of a Securities Act registration of the distribution transaction. This registration proceeding has not been commenced by New Wave, due to a lack of funds necessary to pay related professional expenses. New Wave has advised us that it is making its best efforts to obtain capital for this purpose, but cannot provide an exact time by which this will occur.
Since 1998, we have acquired seven dial-up Internet service providers, including CyberHighway, the business of www.e-tail.com and a web design firm, none of which was an affiliated company nor were any acquired from an affiliate. All but one of these acquisitions were made for shares of our stock. In making these acquisitions, we issued a total of 2,587,063 shares, which were valued at $18,759,500, in the aggregate. All of these acquisitions were accounted for as a purchase, which means that we did not include past operations of the acquired businesses in our historical statements of operations. Also in connection with these acquisitions, we recorded large amounts of amortizable customer base and goodwill values, approximately $25,764,000, as a result of the acquisitions' valuations exceeding the values of the tangible net assets. At December 31, 2000, all of these values were written off, due to the demise of CyberHighway's business. Please see the discussion under "CyberHighway Bankruptcy" below.
All of the customers of the acquired Internet access providers were assimilated into the dial-up operations of our CyberHighway subsidiary, which has few remaining customers - please see the discussion under "CyberHighway Bankruptcy" below.
Current Overview
Our management has committed all available current and future capital and other resources to the commercial exploitation of our Quick-Cell wireless Internet access products. It is these products upon which our future is based.
As CyberHighway's business has become defunct while in bankruptcy, we have determined not to attempt to revive our dial-up Internet access business and, for the foreseeable future, we have abandoned development of our e-commerce business.
In May 2001, we entered into an amended and restated common stock purchase agreement with Fusion Capital Fund II, LLC, which replaced a similar agreement entered into in October 2000. Pursuant to the agreement, Fusion Capital may purchase up to $10 million of our common stock. We intend to file, in the very near future, a registration statement with respect to the shares issued and to be issued pursuant to the Fusion Capital agreement. Please see the discussion under the heading "Management's Plans Relating to Future Liquidity", for a more thorough explanation of the impact this agreement could have on our business. Should we obtain this funding, we would be able to begin to pursue our wireless Internet business plan. We provide wireless Internet access in one market and we have commenced marketing of our Quick-Cell service through a reseller. We will need more capital thereafter, as we continue to expand our wireless Internet business. We may never possess enough capital to permit us to earn a profit.
CyberHighway Bankruptcy
On September 29, 2000, an involuntary bankruptcy petition was filed against CyberHighway in the Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454, by ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith. In December 2000, CyberHighway and the petitioning creditors filed a joint motion to dismiss this proceeding. The joint motion to dismiss requires the approval of CyberHighway's creditors. However, some of CyberHighway's creditors have objected to the dismissal of the proceeding. The basis of the creditors' objection is their belief that CyberHighway's as-yet unasserted damage claims against the original petitioning creditors and their law firm and a claim against Dialup USA, Inc. represent CyberHighway's most valuable assets. These as-yet unasserted claims include claims for bad faith filing of the original bankruptcy petition as to the original petitioning creditors and their law firm, as well as a claim for tortious interference with beneficial business relationships as to Dialup USA, Inc. The objecting creditors desire that these claims be adjudicated in the bankruptcy court. It is likely that, at some time in the future, a final order of bankruptcy will be entered with respect to CyberHighway. No prediction of the timing of such an order can be made, although we believe that such an order would come only after the final adjudication of the claims described above.
The January 1999 acquisition of CyberHighway fundamentally altered our company. Our annual revenues went from nearly zero to about $2.5 million. Throughout 2000, operating losses at CyberHighway, primarily personnel costs and leased telephone-line charges, steadily increased, while revenues began to decrease slightly each quarter. This trend continued until September 2000.
As a means to achieve immediate cost savings at CyberHighway, in September 2000, the following actions were taken:
- CyberHighway sold its affiliate-ISP business for $40,500, in cash; and
- CyberHighway contracted with Dialup USA for all "backroom" and customer support services, which took effect at the end of October 2000.
These actions did reduce monthly operating costs by approximately $50,000.
However, the involuntary bankruptcy proceeding started the demise of CyberHighway's business, in effect rendering our September 2000 actions meaningless. Since that time, CyberHighway's company-owned dial-up customer base has gone from approximately 8,500 to none. The filing of the involuntary bankruptcy and CyberHighway's switch-over to the network of Dialup USA were the primary causes of CyberHighway's customer base demise. We will not apply any available future capital to the revitalization of our dial-up Internet access business.
This sudden and permanent demise of CyberHighway's customer base has rendered our intangible assets relating to those customers to become worthless. The write-off of these intangible assets totalled $4,814,272, net of deferred taxes, as reflected in our December 31, 2000, financial statements. Due to this change in operating environment, monthly revenues have decreased substantially, and, accordingly, goodwill has been impaired. The write-down of goodwill totalled $4,425,037, as reflected in our December 31, 2000, balance sheet.
Shareholder Loans - Conversion to Equity
In August 2000, our president, David M. Loflin, converted all loan amounts owed to him, including accrued interest, into a total of 774,162 shares of our common stock. The total amount of indebtedness converted to common stock was $967,703. Since August 2000, Mr. Loflin has made small loans to us to ease periods of restricted cash flow. At March 31, 2001, we owed Mr. Loflin $32,728.
Results of Operations
General. By the end of February 2001, CyberHighway had lost all of its dial-up Internet access customers and we do not foresee the revitalization of CyberHighway's business. You should not purchase our common stock expecting that CyberHighway's business will assist in making us profitable.
Our revenues for the first quarter of 2000 were derived from CyberHighway's business. During the first quarter of 2001, we derived no revenue from CyberHighway's business.
For the first three months of 2001, our small amount of revenues were dervied from our Quick-Cell wireless Internet access system in Santa Fe, New Mexico. With the demise of CyberHighway, any future revenues will be derived from sales of our Quick-Cell wireless Internet access service. We currently lack the capital necessary to pursue our Quick-Cell business plan, and we may never possess enough capital with which to exploit fully our Quick-Cell products. In this circumstance, it is likely that we would never earn a profit.
Before the demise of CyberHighway, our revenues were derived primarily from monthly customer payments for dial-up access and from per-customer royalty payments from our CyberHighway affiliate-ISPs.
Beginning in March 2000, we began initial Quick-Cell wireless Internet access operations in Santa Fe, New Mexico. Currently, we have approximately 120 Quick-Cell customers. Throughout 2000, these customers were in their one-year "free-use" period. Beginning in March 2001, we began to bill the customers who had completed their one-year of free use. The lack of growth of our wireless Internet access business during 2000 is due to the fact that our available monies were applied to CyberHighway expenses and corporate overhead. We had no available capital to apply to the expansion of the Santa Fe market.
In the middle of 2000, we began marketing our Quick-Cell systems to local exchange telephone companies, independent telephone companies, digital subscriber line resellers and Internet service providers. We sold three Quick-Cell systems in a short time, and received approximately 200 additional indications of interest via e-mail and telephone from other telecommunications companies and others, 25% of which our management considered to be of a serious nature. Due to a lack of capital, however, this marketing effort was suspended before we investigated the nature of the other inquiring companies. No paying customers use these systems, due to circumstances involving these companies that are beyond our control. During 2001, we do not expect to derive significant revenues from customer modem sales to these Quick-Cell purchasers.
In cities in which we construct company-owned Quick-Cell systems, we intend to employ telephone marketing as the initial means for acquiring customers and, later, mass media. We will employ a sales force that will focus primarily on potential business customers. This focus on business customers is based on our management's informal study of Internet usage by businesses versus home users that revealed businesses' higher demand for high-speed Internet access. Our management's decision may prove to have been incorrect, which would significantly impair our ability to earn a profit. Our management believes, based on its collective business experience, that effective marketing techniques can overcome Quick-Cell's lack of name recognition, although this belief may also prove to be incorrect. Our Quick-Cell business will not be able to succeed without additional capital.
In cities where a Quick-Cell reseller operates, we will not have final approval of the reseller's marketing strategies. Our resellers will be permitted to market our Quick-Cell service in any commercially reasonable manner. We cannot, therefore, assure you that any of our resellers will ever achieve high enough sales levels that would permit us to earn a profit.
Under our Quick-Cell reseller agreement with Wireless WebConnect!, Inc., we expect to derive revenues as follows:
- WebConnect's purchase of each Quick-Cell cell site;
- WebConnect's purchase of all customer modems;
- Charges for installation services on behalf of every customer acquired by WebConnect; and
- Monthly per-Quick-Cell-customer royalties - while we anticipate that this monthly per-customer royalty will average approximately $12.00, we cannot assure you that the monthly per-customer will be that high; in any event, given the number of customers that can use a single Quick-Cell cell site, approximately 2,000, the lowest monthly per-customer royalty to be paid by WebConnect will be about $9.00.
We expect our revenues for all of 2001 to be significantly below those of 2000, since we no longer will derive revenues from the operations of CyberHighway. In 2001, we will produce significant revenues only if:
- our Quick-Cell reseller is as successful selling our wireless Internet access products as it has been in the past in reselling a competing wireless Internet access service; or
- we are able to obtain at least $2,500,000 under the Fusion Capital agreement.
Our reseller may not be successful enough for us to make a profit, nor can we assure you that funding under the Fusion Capital agreement will permit us to make a profit.
Potential Rescission Claims. Since January 2000, a total of 4,881,985 shares of our common stock may have been issued in violation of Section 5 of the Securities Act. The aggregate value assigned to these shares upon their issuance totalled $5,081,255. 4,751,985 of these shares, with an assigned value of $4,756,255, were issued in payment of services or as bonuses to employees and 130,000 of these shares were issued for cash or underlie currently exercisable warrants, which were sold or will be sold for at total of $650,000 in cash. It is possible that each of the issuees of these shares has a potential claim for rescission of their respective issuance transactions. We do not possess capital with which to pay any such claims, if asserted.
However, we do not expect that any of these potential rescission claims will be asserted against us and, thus, are not expected to have any impact on our future operating results.
Three Months Ended March 31, 2001, versus Three Months Ended March 31, 2000. During the 2000 period, all of our revenues were generated by CyberHighway's dial-up Internet access operations. We derived our revenues from monthly customer payments for dial-up Internet access, which averaged approximately $18.00 per customer. We also derived revenue from per-customer royalty payments from our CyberHighway affiliate-ISPs, which averaged approximately $1.75 per customer. This affiliate-ISP business was sold in September 2000.
During the 2001 period, we had only small revenues from our wireless Internet access business. We derived no revenues from CyberHighway's operations. Whether or not we obtain capital, our existing operations in Santa Fe will increase slightly from month to month, as our customers end their free-use periods and begin to pay for our wireless Internet access services.
Our revenues for all of 2001 can be expected to be significantly below our revenue levels of 2000. However, due to uncertainties relating to the timing of receipt of expected funds under the Fusion Capital agreement, we can make no prediction of our actual revenues.
Our operating results for the first quarters of 2001 and 2000 are summarized in the following table:
| First Quarter 2001 | First Quarter 2000 |
| Revenues | $384 | $597,392 |
| Internet access costs and cost of goods sold | 0 | 269,136 |
| Gross Profit | 384 | 328,256 |
| Operating Expenses | 901,643 | 3,354,219 |
| Loss from Operations | 901,259 | 3,025,963 |
| Net Loss | 901,259 | 2,557,596 |
Our net loss of $901,259 for the first quarter of 2001 was significantly less than our net loss for the 2000 period of $2,557,596. This reduced net loss is attributable primarily to:
- Depreciation and amortization decreasing from $2,238,544 for the 2000 period to $11,580 for the 2001 period. This reduction is due to the demise of CyberHighway's business and the write-off of all of our intangible assets associated with that business, which occurred during December 2000. We no longer amortize those intangible assets.
- Professional fees increased from $390,038 in the 2000 period to $707,288 in the 2001 period. This increase is due to the issuance of 800,000 shares as a commitment fee under a common stock purchase agreement, which shares were valued at $248,000, as well as the monthly amortization of various consulting agreements under which we issued stock for services during 2000 and 2001.
- Salary and commissions fell from $399,358 in 2000 to $160,746 in 2001. Our lower salary and commissions during 2001 is attributable to CyberHighway's demise, its personnel having been reduced from about 30 during the first quarter of 2000 to none, now.
- Rent expense decreased from $61,570 during the first quarter of 2000 to $5,361 during the 2001 period. This large decrease is the result of our abandoning all leased premises of CyberHighway, following the filing of the involuntary bankruptcy proceeding. Our monthly lease expense for the remainder of 2001 will be higher, due to our recent leasing of a small assembly facility in Baton Rouge, Louisiana.
- Other expenses fell from $249,530 in 2000 to $16,668 in 2001. The reduction in this line item is attributable to the demise of CyberHighway's business, as well as our severe lack of capital during the last half of 2000 and most of the first quarter of 2001.
Our statements of operations reflect an income tax benefit of $471,519 for the 2000 period and no such benefit for the 2001 period. This income tax benefit was attributable to the difference in the bases of our acquired customer bases for book versus tax purposes. Since our intangible assets were completely written-off as of December 31, 2000, we no longer derive any similar income tax benefit.
We expect that our results of operations for the second quarter of 2001 will be similar to those of the first quarter of 2001.
During the first quarter of 2001, we issued 320,000 shares of common stock under two consulting agreements; these shares were valued for financial accounting purposes at $99,200, in the aggregate. This amount will be expensed in equal monthly amounts during 2001. Subsequent to March 31, 2001, we issued 300,000 shares under a consulting agreement; these shares have been valued for financial accounting purposes at $150,000, in the aggregate, and will be expensed in equal monthly amounts during the remainder of 2001 and the first quarter of 2002.
During the first quarter of 2000, we issued 160,000 shares of common stock under two separate consulting agreements; these shares were valued for financial accounting purposes at $480,000, in the aggregate. This amount was expensed in equal monthly amounts during 2000.
Liquidity and Capital Resources
General. Since our inception, we have had a significant working capital deficit. Following the CyberHighway acquisition and until the recent demise of CyberHighway's business, we generated significant monthly revenues, yet continued to have a working capital deficit. Currently, we are substantially illiquid, although we do possess approximately $100,000 in cash, the result of recent securities sales to private investors. Without additional capital, it is possible that we would be forced to cease operations.
Our Capital Needs. To sustain our current level of operations for the next twelve months, we will require additional capital of approximately $300,000. To accomplish our goals of expanding our Quick-Cell business, we will require at least $2.5 million. If we are unable to obtain this needed capital, we could be forced to cease our operations.
Currently we do not possess enough capital to accomplish our goals for our Quick-Cell wireless Internet access business, including the construction of Quick-Cell systems. When we refer to the construction of a Quick-Cell system in any city, that process requires the following expenditures:
- A single Quick-Cell cell site, including a Quick-Cell server modem, parts and configuration - projected average cost: $25,000;
- Tower lease site - projected average cost: $500 per month;
- Direct T1 telephone line connection to the Internet - projected average cost: $1,200 per month; and
- Initial inventory of customer modems - approximate cost: $70,000.
Each Quick-Cell cell site added to an existing system will cost approximately $25,000 for the server modem, parts and configuration, plus tower lease costs and, if customer usage requires, the cost of a direct T1 telephone line connection to the Internet.
Should we be able to obtain the minimum of $400,000 per month pursuant to the Fusion Capital agreement, we would have enough money to pay for the construction of the initial Quick-Cell cell site in at least three markets per month. We cannot assure you that we will be able to construct Quick-Cell cell sites at that rate.
In light of the relatively small amount of capital required to construct each Quick-Cell cell site, we believe that the expected funding under the Fusion Capital agreement would provide us with enough capital to construct the initial Quick-Cell cell site and commence marketing activities in approximately 60 markets. With the Quick-Cell construction permitted by this amount of capital, we will be able to determine whether our Quick-Cell wireless Internet access business is a viable business, as presently offered. However, the funds expected under the Fusion Capital agreement will not be adequate for us to pursue our complete Quick-Cell business plan, and we cannot assure you that we will be able to obtain capital when needed. Our inability to obtain further capital when needed would lessen our chance of earning a profit, as we would become illiquid.
Expected Proceeds from the Fusion Capital Agreement. Beginning near the end of the second quarter of 2001, we expect to begin to receive the first funds of up to $10 million under our agreement with Fusion Capital. Assuming we receive the entire $10 million under that agreement, of which there is no assurance, we anticipate that we will apply these funds as follows:
| Purchase of Quick-Cell Equipment | $6,000,000 |
| Construction of Quick-Cell Systems | 1,300,000 |
| Marketing | 1,000,000 |
| General and Administrative Expenses | 200,000 |
| Finder's Fee | 800,000 |
| Working Capital | 700,000 |
| ----------- |
| Total | $10,000,000 |
You should note, however, that we may not realize $10 million under the Fusion Capital agreement, due to the current low market price of our common stock. In this regard, you should review the "Risk Factors" section above.
Should all of our outstanding warrants, including all of the warrants to be issued in connection with the Fusion Capital agreement, be exercised, we would receive cash proceeds of approximately $2,540,000. Funds received from the exercise of warrants would be used to purchase Quick-Cell equipment, to construct Quick-Cell systems, to market our Quick-Cell wireless Internet access service and for working capital.
You should note that we may never receive any of the funds discussed above. Our failure to obtain capital from these sources could cause us to cease our operations.
Potential Rescission Claims. Because we lack the capital to pay any potential claims for rescission that may be asserted by some of our shareholders, any such claim made against us could negatively impact our ability to continue in business. At December 31, 2000, a total of 2,767,823 of these shares valued at $3,897,552 had been issued, with an additional 2,114,162 additional shares valued at $1,183,703 having been issued since December 31, 2000. However, we do not expect that any of these potential rescission claims will be asserted against us and, thus, we do not expect that these potential claims will have any affect on our future liquidity and capital resources.
Nevertheless, all of the shares that may be subject to these claims have been reclassified on our balance sheet, that is, at December 31, 2000, and March 31,2001, these shares were removed from our "permanent" equity and reclassified as "Redeemable Common Stock". This reclassification caused us to have large shareholders' deficits at December 31, 2000, and March 31, 2001. These shares and their associated values will return to our "permanent" equity either by passage of time for the timely assertion of the rescission claims or at such time as these shares are sold by their holders, which ever occurs earlier.
March 31, 2001. Historically, we have had a significant working capital deficit. At March 31, 2001, our working capital deficit was $1,472,144, which is slightly lower than our $1,517,164 deficit at December 31, 2000. Although we had slightly higher accounts payable, accrued payroll and notes payable to a shareholder at March 31, 2001, compared to December 31, 2000, these increases were offset by our receipt of cash pursuant to private sales of securities of $251,000 during the first quarter of 2001. Most of our accounts payable are accounts payable of CyberHighway. Without additional capital, our working capital deficit can be expected to become larger each quarter.
The following table sets forth our current assets and current liabilities at March 31, 2001, and December 31, 2000:
| | 3/31/01 | 12/31/00 |
| Current Assets | Cash | $125,494 | $1,088 |
| Accounts Receivable | 384 | 0 |
| Inventory | 246,721 | 246,721 |
| | | |
| Current Liabilities | Disbursements in excess of cash balances | $ 42,469 | $42,469 |
| Accounts payable | 1,473,817 | 1,472,030 |
| Accrued payroll | 200,155 | 158,262 |
| Other current liabilities | 51,824 | 41,824 |
| Property dividends payable | 43,750 | 43,750 |
| Notes payable to stockholder | 32,728 | 6,638 |
Our accrued payroll at March 31, 2001, as well as at December 31, 2000, is attributable to accrued salary of our president and two of our vice presidents.
The increase in notes payable to stockholder, from $6,638 at December 31, 2000, to $32,728 at March 31, 2001, represents loans made to us by our president, David M. Loflin. All of this indebtedness is due on demand and bears interest at 8% per annum. The funds loaned during 1Q 2000 were used primarily for operating expenses. Mr. Loflin has advised us that he does not intend to demand payment of his loans, until their repayment would not adversely affect our financial position. Without outside funding, it is possible that Mr. Loflin may loan us additional funds, though no assurance or prediction can be made in this regard.
In addition to Mr. Loflin's loans, during the first quarter of 2001, we obtained a total of $261,000 in cash from private sales of our securities.
- In February 2001, we sold 840,000 units of securities, each unit being comprised of one share of our stock and one warrant with an exercise price of $.15 per share, to a private investor for $126,000 in cash. The warrants are exercisable for a period of three years. In connection with this sale of securities, we issued to a finder 84,000 shares of our common stock and a warrant to purchase 336,000 shares of our common stock at an exercise price of $.15 per share. These warrants are exercisable for a period of three years. The 84,000 shares issued to the finder were valued at $.15 per share, a total value of $12,600. No value was placed on the warrants issued.
- In March 2001, we sold 500,000 units of securities, each unit being comprised of one share of our stock and one warrant with an exercise price of $.25 per share, to a private investor for $125,000 in cash. The warrants are exercisable for a period of three years. In connection with this sale of securities, we issued to a finder 50,000 shares of our common stock and a warrant to purchase 200,000 shares of our common stock at an exercise price of $.25 per share. These warrants are exercisable for a period of three years. The 50,000 shares issued to the finder were valued at $.25 per share, a total value of $12,500. No value was placed on the warrants issued.
The funds received were used for working capital and for the initial costs associated with the establishment of a new company-owned Quick-Cell wireless Internet access system.
Without obtaining at least $1,000,000 in new capital, we will continue to have a significant working capital deficit and will not be able to operate from a position of liquidity. This will impair our ability to pursue our Quick-Cell business plan and, thus, our ability ever to earn a profit.
If we are unable to obtain significant additional capital, it is possible that we would be forced to cease operations.
Cash Flows from Operating Activities. During the first quarter of 2001, our operations used $162,684 in cash compared to cash used of $305,779 during the first quarter of 2000. In both periods, the use of cash in operations was a direct result of the lack of revenues compared to our operating expenses, particularly salary and commissions.
Cash Flows from Investing Activities. During the first quarter of 2001, our investing activities neither provided nor used cash. In the first quarter of 2000, we used cash of $94,908 in our investing activities, where our equipment purchases were offset, in part, by cash acquired in acquisitions. Because we lack working capital, we cannot predict our cash flows from investing activities for the remainder of 2001.
Cash Flows from Financing Activities. For the first quarter of 2001, our financing activities provided $287,090 in cash. Of this amount, $26,090 is attributable to loans from our president and $261,000 is attributable to private sales of securities. For the first quarter of 2000, our financing activities provided $384,397 in cash, $115,000 of which is attributable to private sales of our securities and $286,400 of which is attributable to loans from our president. We continue to seek capital and cannot, therefore, predict future levels of cash flows from financing activities.
Management's Plans Relating to Future Liquidity
To sustain our current level of operations for the next twelve months, we will require additional capital of approximately $300,000. To accomplish our goals of expanding our Quick-Cell business, we will require at least $2.5 million.
Our best opportunity for obtaining needed funds is pursuant to the Fusion Capital agreement. The following summarizes the important terms under the Fusion Capital agreement:
- Fusion Capital may purchase up to $10 million of our common stock;
- The selling price to Fusion Capital will be equal to a price based upon the future market price of the common stock without any fixed discount to the market price;
- We have the right to require Fusion Capital to purchase up to $20,000 each trading day during the agreement;
- Should our stock price be $5.00 or higher for five consecutive trading days, we have the right to require Fusion Capital to purchase up to the full remaining portion of the $10 million commitment; and
- During the term of the Fusion Capital agreement, we may not issue, or agree to issue, any variable-priced equity or variable-priced "equity-like" securities, unless we have obtained Fusion Capital's prior written consent.
We may never realize proceeds under the Fusion Capital agreement.
Should we obtain at least $2.5 million under the Fusion Capital agreement, we expect that we will be able to accomplish our two primary objectives:
- Placing at least 20,000 customers on our Quick-Cell systems during the next year; and
- proving the commercial viability of our Quick-Cell wireless Internet access service.
We cannot assure you that we will accomplish these objectives.
Due to the current low market price for our common stock, it is a distinct possibility that we will not receive all $2.5 million needed to achieve the two primary objectives described above. This circumstance could make it extremely difficult for us to obtain additional capital with which to expand our business. In this regard, you should read the "Risk Factors" section above.
Currently, we have no other sources for funding on the scale of the Fusion Capital transaction.
If we do not obtain the necessary funding, we would be forced to cease operations.
Capital Expenditures
During 2000, we made approximately $195,000 in equipment purchases, approximately 40% for wireless Internet equipment and approximately 60% for needed equipment in our network operations center. We currently have no capital with which to make any significant capital expenditures. Should we obtain funding under the Fusion Capital agreement, we will be able to make major expenditures on Quick-Cell-related equipment, as described above. However, without additional capital, we will make no capital expenditures. During Fiscal 1999, we made $614,193 in equipment purchases. During the first quarter of 2001, we made no capital expenditures, due to our limited amount of capital. It is likely that we will lack capital to make capital expenditures, unless and until we begin to obtain funds under the Fusion Capital agreement.
CERTAIN STATEMENTS CONTAINED IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE, THUS, PROSPECTIVE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS IS OUR ABILITY TO OBTAIN CAPITAL IN AMOUNTS NECESSARY FOR US TO ACCOMPLISH OUR PLAN FOR THE EXPLOITATION OF OUR QUICK-CELL WIRELESS INTERNET ACCESS PRODUCTS, AS WELL AS CONSUMER ACCEPTANCE OF THESE PRODUCTS.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
CyberHighway Involuntary Bankruptcy
On September 29, 2000, an involuntary bankruptcy petition was filed against CyberHighway in the Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454. The petitioning creditors were ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith. In December 2000, CyberHighway and the petitioning creditors filed a joint motion to dismiss this proceeding. The joint motion to dismiss requires the approval of CyberHighway's creditors. However, some of CyberHighway's creditors have objected to the dismissal of the proceeding. The basis of the creditors' objection is their belief that CyberHighway's as-yet unasserted damage claims against the original petitioning creditors and their law firm and a claim against Dialup USA, Inc. represent CyberHighway's most valuable assets. These as-yet unasserted claims include claims for bad faith filing of the original bankruptcy petition as to the original petitioning creditors and their law firm, as well as claim for tortious interference with beneficial business relationships as to Dialup USA, Inc. The objecting creditors desire that these claims be adjudicated in the bankruptcy court. It is likely that, at some time in the future, a final order of bankruptcy will be entered with respect to CyberHighway, no prediction of the timing of such an order can be made, although we believe that such an order would come only after the final adjudication of the claims described above.
Other Litigation
In November 2000, CyberHighway requested and received a temporary restraining order against Darrell Davis, formerly one of our officers, and his wife, Deanna Davis. We have alleged that the Davises have diverted dial-up customers from CyberHighway to a company controlled by him, all while he was an employee of USURF America. We expect that a hearing for our motion for a permanent injunction will occur in the very near future. In addition, we are seeking monetary damages in this action. This case is in its early stages and no prediction as to its final outcome can be made. This case is styled: CyberHighway, Inc. versus Deanna Davis, individually and d/b/a Cyber-Trail, Inc., and Darrell D. Davis, 19th Judicial District Court, Parish of East Baton Rouge, State of Louisiana.
In January 2000, we instituted arbitration proceedings against Christopher L. Wiebelt, our former vice president of finance and chief financial officer. We have alleged that Mr. Wiebelt violated certain terms of his employment agreement and are seeking damages resulting from those violations. This case is in its early stages and no prediction as to its outcome can be made. This case is styled: USURF America, Inc. versus Christopher L. Wiebelt, American Arbitration Association, Case No. 71-160-00087-01.
Possible Claim
Some time in the future, it is possible that we will enter into arbitration proceedings with Commonwealth Associates. The dispute revolves around Commonwealth's claim that we owe it approximately 127,000 shares of our common stock. It is our position that Commonwealth is entitled to any shares and will vigorously defend our position in arbitration. We cannot predict the outcome of this arbitration proceeding.
Potential Legal Proceeding
In addition to CyberHighway's cause of action against Dialup USA, it is the intention of USURF America to pursue damage claims against Dialup USA for tortiously interfering with the beneficial business relationships between CyberHighway and its customers. These claims arise out of Dialup USA's actions on behalf of one of our former officers, which were designed to divert customers to a company controlled by him. Our claim against Dialup USA will be for approximately $2 million. We have not established a date by which we intend to commence this legal proceeding.
Item 2. Changes in Securities.
During the three months ended March 31, 2001, we issued securities as follows:
1.(a) Securities Sold. In January 2000, we issued 800,000 shares of Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to Fusion Capital Fund II, LLC.
(c) Consideration. Such shares were issued as a commitment fee under a common stock purchase agreement and were valued at $.31 per share.
(d) Exemption from Registration Claimed. The Company relied upon the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, +OK unique-id listing follows 1 1966 2 1967 3 1968 4 1969 5 1970 6 1971 7 1972
