U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission file number:333-61424
US WIRELESS ONLINE, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 82-0505220
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
500 West Jefferson Street, Suite 2350
Louisville, Kentucky 40202
(Address of principal executive offices)
(502) 213-3700
(Issuer’s telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under plan confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS
The aggregate number of shares issued and outstanding of the issuer’s common stock as of March 31, 2005 was 51,338,575 shares of $0.001par value.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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FORM 10-QSB
U.S. WIRELESS ONLINE, INC.
INDEX
Page | ||
PART I. | Financial Information | |
Item 1. Financial Statements Consolidated Balance Sheets (Assets) – March 13, 2005 (Unaudited) Consolidated Balance Sheets (Liabilities and Stockholders’ Equity) – March 31, 2005 (Unaudited) Consolidated Statements of Operations (Unaudited) - Three months ended March 31, 2005 and March 31, 2004 Consolidated Statements of Cash Flows (Unaudited) - Three months ended March 31, 2005 and March 31, 2004 Notes to financial statements (Unaudited) Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation Item 3. Controls and Procedures | 3 4 5 6 7 8 10 15 | |
PART II. | Other Information Item 1. Legal Proceedings Item 2. Changes in Securities Item 6. Exhibits and Reports on Form 8-K | 15 16 17 |
Signatures | 18 |
(Inapplicable items have been omitted)
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PART I- FINANCIAL INFORMATION
ITEM 1. Financial Statements
In the opinion of management, the accompanying unaudited financial statements included in this Form 10-QSB reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
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U.S. Wireless Online, Inc.
Consolidated Balance Sheets
ASSETS
March 31, | ||
2005 | ||
(unaudited) | ||
Current Assets | ||
Cash | $ 85,332 | |
Accounts Receivables | 562,921 | |
Inventory | 34,527 | |
Undeposited Funds | 14,816 | |
Prepaid Expenses | 30,378 | |
Total Current Assets | 727,974 | |
Property & Equipment (Net) | 4,890,280 | |
Other Assets | ||
Client Base (Net) | 105,000 | |
Deposits | 83,623 | |
Goodwill | 7,650,684 | |
Total Other Assets | 7,839,307 | |
Total Assets | $13,457,561 |
The accompanying notes are an integral part of these financial statements
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U.S. Wireless Online, Inc.
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS’ EQUITY
March 31, | |
2005 | |
(unaudited) | |
Current Liabilities | |
Accounts Payable | $ 2,052,079 |
Accrued Expenses | 79,123 |
Deffered Revenue | 20,567 |
Current Portion of Long term debt | 477,187 |
Total Current Liabilities | 2,628,956 |
Long-Term Debt | |
Convertible Debentures | 316,844 |
Credit Line | 100,000 |
Notes Payable | 3,858,118 |
Current Portion of Long Term Debt | (477,187) |
Total Long Term Debt | 3,797,775 |
Total Liabilities | 6,426,731 |
Stockholders' Equity | |
Common Stock, Authorized 100,000,000 Shares, $.001 Par Value, | |
Issued and Outstanding 51,338,575 shares | 51,338 |
Preferred Stock, Authorized 5,000,000 Shares, $.001 Par Value, | 5,000 |
Issued and Outstanding 5,000,000 shares | |
Additional Paid in Capital | 14,101,518 |
Retained Earnings (Deficit) | (7,127,026) |
Total Stockholders' Equity | 7,030,830 |
Total Liabilities and Stockholders' Equity | $ 13,457,561 |
The accompanying notes are an integral part of these financial statements
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U.S. Wireless Online, Inc.
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended | |||
March 31, | |||
2005 | 2004 | ||
Revenues | $ 585,483 | $ 377,094 | |
Cost of Sales | 222,460 | 245,729 | |
Gross Profit (Loss) | 363,023 | 131,365 | |
Operating Expenses | |||
General & Administrative | 712,905 | 364,230 | |
Total Operating Expenses | 712,905 | 364,230 | |
Net Operating Income (Loss) | (349,882) | (232,865) | |
Other Income(Expense) | |||
Interest Expense | (22,060) | (14,897) | |
Total Other Income(Expense) | (22,060) | (14,897) | |
Net Income (Loss) | $ (371,941) | $ (247,762) | |
Net Income (Loss) Per Share | $ (0.01) | $ (0.02) | |
Weighted Average Shares Outstanding | 39,129,047 | 15,485,806 | |
The accompanying notes are an integral part of these financial statements
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U.S. Wireless Online, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended | |||
March 31, | |||
2005 | 2004 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Net Income (Loss) | $ (371,941) | $ (247,762) | |
Adjustments to Reconcile Net Loss to Net Cash | |||
Provided by Operations: | |||
Depreciation & Amortization | 93,275 | 96,677 | |
Change in Assets and Liabilities (Net of Acquisitions) | |||
Increase (Decrease) in Bank Overdraft | (16,820) | (28,438) | |
(Increase) Decrease in Accounts Receivable | 164,248 | 96,535 | |
(Increase) Decrease in Deferred Revenue | - | ||
(Increase) Decrease in Deposits and Prepaids | - | (15,637) | |
Increase (Decrease) in Accounts Payable/ Accrued Expenses | (241,678) | 17,337 | |
Net Cash Provided(Used) by Operating Activities | (372,916) | (81,288) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Purchases of Property and Equipment | (167,666) | (6,497) | |
Net Cash Provided (Used) by Investing Activities | (167,666) | (6,497) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Payment on Long Term Debt | (1,078,886) | (33,182) | |
Proceeds from Long Term Debt | 1,704,800 | 123,800 | |
Net Cash Provided(Used) by Financing Activities | 625,914 | 90,618 | |
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS | 85,332 | 2,833 | |
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | - | - | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ 85,332 | $ 2,833 | |
Cash Paid For: | |||
Interest | $ - | $ - | |
Income Taxes | $ - | $ - | |
The accompanying notes are an integral part of these financial statements
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U.S. Wireless Online, Inc.
Notes to the Consolidated Financial Statements
March 31, 2005
GENERAL
U.S. Wireless Online, Inc. (the Company) has elected to omit substantially all footnotes to the financial statements for the three months ended March 31, 2005 since there have been no material changes (other than indicated in other footnotes) to the information previously reported by the Company in their Annual Report filed on Form 10-KSB for the fiscal year ended December 31, 2004.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the Company without audit. However, such information reflects all adjustments which are, in the opinion of management, necessary to properly reflect the results of the interim period presented. The information presented is not necessarily indicative of the results from operations expected for the full fiscal year.
ACQUISITIONS
The Company completed four acquisitions during the three months ended March 31, 2005. The acquisitions and transaction values are summarized below and described in more detail in the Company’s periodic reports filed on Form 8-K during period.
On January 10, 2005, in an arms length transaction not involving any affiliates or related parties, the Company completed the acquisition of all the issued and outstanding stock of MJS Holdings, Inc., (“MJS”), an Ohio Corporation, in exchange for 6,110,906 restricted shares of the Company’s restricted common stock, par value $0.001 per share and a promissory note in the amount of $916,636.
On January 17, 2005, in an arms length transaction not involving any affiliates or related parties, the Company completed the acquisition of all outstanding membership interests of United Broadband Networks, LLC (“UBN”), a Kentucky limited liability company, in exchange for 2,266,667 restricted shares of the Company’s restricted common stock, par value $0.001 per share and a promissory note in the amount of $63,000.
On February 1, 2005, in an arms length transaction not involving any affiliates or related parties, the Company completed the asset acquisition of Yireless1.NET, LLC, (“YYireless1”) a Pennsylvania limited liability company (“YY1”), in exchange for 1,527,759 restricted shares of the Company’s restricted common stock, par value $0.001 per share along with a demand promissory note in the amount of $22,760 without interest, cash in the amount of $34,080 and the assumption and payment of certain YY1 liabilities.
On March 2, 2005, in an arms length transaction not involving any affiliates or related parties, the Company completed the acquisition of the assets and business of Air2Lan, Inc. (“A2L”) a Delaware Corporation, in exchange for 5,000,000 restricted shares of the Company’s Class A Preferred Stock, par value $0.001 per share. The Class A Preferred Stock has 10 votes per share and has 10 to one conversion rights for shares of restricted common stock of the Company.
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U.S. Wireless Online, Inc.
Notes to the Consolidated Financial Statements
March 31, 2005
|
|
|
| Closing | Total | Cash | Notes | Debts | Total |
| Shares | Closing | Stock | Stock | Paid at | Issued at | Paid at | Value | |
Company Name | Issued | Type | Date | Price ($) | Value ($) | Closing ($) | Closing ($) | Closing ($) | ($) |
MJS Holdings | 6,111,906 | Common | 10-Jan-05 | 0.21 | 1,283,500 | 916,636 | 2,200,136 | ||
United Broadband Networks | 2,266,667 | Common | 17-Jan-05 | 0.22 | 498,667 | 63,000 | 561,667 | ||
YYWireless1.NET | 1,527,759 | Common | 1-Feb-05 | 0.29 | 443,050 | 34,080 | 22,760 | 175,503 | 675,393 |
Air2Lan | 5,000,000 | Preferred | 2-Mar-05 | 0.19 | 9,500,000 | 9,500,000 |
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ITEM 2. Management’s Discussion and Analysis or Plan of Operation
Safe Harbor for Forward-Looking Statements
When used in this report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed under the ���Item 2. &nbs p;Management’s Discussion and Analysis of Financial Condition or Plan of Operations,” and also include general economic factors and conditions that may directly or indirectly impact the Company’s financial condition or results of operations.
Our History and Business
We were formed as a Nevada corporation under the name Llebpmac, Inc. on May 4, 1998. We originally incorporated to open and operate a restaurant. From 1998 through early 2000 we conducted initial research but ultimately did not open the restaurant. On October 2, 2000, our shareholders approved a two for one forward split of our outstanding common stock and we changed our purpose to be a wholesale snack food merchandiser. On October 10, 2000, we entered into a license agreement to market potato chips in Japan and other Asian markets under the Idaho Chips trademark. On November 1, 2000, we changed our name to Cach Foods, Inc. to reflect our change in purpose.
Cach Foods, Inc. became a public company on October 17, 2001. From October 2001 through April 2003, we conducted research on producing, manufacturing and distributing potato chips and other snack foods. In April of 2003, our license agreement to market Idaho Chips expired and we ceased our snack food activities.
On May 12, 2003, we entered an agreement and plan of reorganization with US Wireless Online, Inc. The agreement closed on May 19, 2003. Prior to closing, the Company effected a 0.48 to one reverse split of the then 12,152,000 currently issued and outstanding shares into 5,832,960 shares. Our former president and director then cancelled 3,820,000 post-split shares that he owned. As a result of this series of transactions, 11,492,565 post-reverse split shares of Cach Foods common stock were exchanged for all of the issued and outstanding shares of US Wireless Online, Inc. making US Wireless Online, Inc. a wholly-owned subsidiary of Cach Foods.
Pursuant to the Agreement, the former officers and directors of Cach Foods resigned and David M. Ragland, Doug Keeney, Dan Burke, Sr., and James D. Murphy became directors of the Company and the Company changed its name from Cach Foods, Inc. to US Wireless Online, Inc.
US Wireless Online incorporated in 2000 to offer high-speed, low cost Internet access to small and medium sized businesses. After six months of development and beta testing, US Wireless Online inaugurated commercial service in Atlanta, Georgia on January 1, 2001. In February 2001, US Wireless Online successfully bid for certain operating assets of SENETS, a Multiple Dwelling Unit (“MDU”) operator then undertaking reorganization under Chapter 11 of the US Bankruptcy Code. US Wireless Online used these assets to upgrade the Atlanta network. In May 2001, US Wireless Online successfully acquired the wireless operations of Darwin, Inc., a hybrid MDU/wireless operator in Kentucky then also undertaking reorganization under Chapter 11. Through the Darwin acquisition, US Wireless Online acquired markets in Kentucky and Ohio and acquired a carrier-grade Network Operations Center.
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On August 31, 2004, Mr. David Ragland and Mr. James Murphy resigned as directors of U.S. Wireless and Mr. Daniel Burke, Sr. and Mr. Douglas Keeney stepped down as officers. Rick E. Hughes was appointed to the Board of Directors and was named President, Chief Executive Officer, Chief Financial Officer and Secretary of U.S. Wireless. Mr. Hughes’ appointment reflects a new commitment by U.S.Wireless to focus its efforts on increasing revenues, generating capital and expanding its core business operations, namely the offering of wireless internet broadband access to businesses. Since his appointment, Mr. Hughes has directed the active pursuit and completion of several strategic business acquisitions outlined below.
As of the first of the year, as a result of several acquisitions, US Wireless supplemented its management team:
Name Jai P. Bhagat Rick E. Hughes Mark E. Rogers Thomas J. Busic Michael D. Marlowe David B. Latham | Age 58 36 42 28 33 42 | Positions Executive Chairman CEO, CFO and Director President and Director COO, Sr. Vice President Engineering and Director Chief Development Officer, Sr. Vice President Marketing and Director Director |
On January 10, 2005 U.S. Wireless completed the acquisition of all the issued and outstanding stock of MJS Holdings, Inc., (“MJS”), an Ohio Corporation. MJS is now a wholly owned subsidiary of U.S. Wireless. As part of this transaction, the two sole shareholders of MJS were appointed officers of U.S. Wireless. Thomas J. Busic was appointed Chief Operating Officer and Sr. Vice President, Engineering and Michael Marlowe was appointed Chief Development Officer and Sr. Vice President, Marketing. MJS consists of two divisions. The first division, Bluemile Wireless (http://www.bluemilewireless.com) provides wireless internet broadband service to an area of approximately 700 square miles including Cincinnati, Columbus, Dayton, and surrounding areas. The second division, Instant Workplace (http://www.instantworkplace.com) is an Application Service Provider (ASP) with offices in Cleveland and Columbus.
On January 10, 2005, U.S. Wireless completed the acquisition of all outstanding membership interests of United Broadband Networks, LLC (“UBN”), a Kentucky limited liability company. UBN provides business class connectivity with high capacity data connections over a fixed wireless communications network and currently delivers service to over 500 square miles in Jefferson County, Kentucky and Southern Indiana.
On February 1, 2005, U.S. Wireless completed the acquisition of YYireless1.NET, LLC, (“YY1”), a Pennsylvania limited liability company. Consideration was paid to Digerati.biz, Inc., the sole member of YY1, which is owned and controlled by Mr. Timothy Pisula. As a result of the acquisition, Mr. Pisula, CEO of YY1, has joined the management team at U.S. Wireless as Executive Vice President of Broadband Technology. YY1 operates a state-of-the-art wireless broadband network in and around the Pittsburgh metropolitan area using three radio spectrums -- 900 MHz & 2.4 GHz for suburban applications and 5.3-5.8 GHz for high-density, commercial applications. Additionally, U.S.Wireless offers customer-engineered bandwidth and Metropolitan Area Network (MAN) solutions from 256 Kbps to 500 Mbps.
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On March 2, 2005, U.S. Wireless completed the acquisition of the assets and business of Air2Lan, Inc. (“A2L”) a Delaware Corporation. A2L provides broadband Internet access, wireless local area networks (WLAN), Wi-Fi roaming services, point-to-point connectivity, and value-added Internet services to businesses, residential complexes, hotels, and municipal governments. A2L currently offers its services in Jackson, Mississippi; Memphis, Tennessee; Montgomery, Alabama; New Orleans and Monroe, Louisiana; and Houston, Texas. Satellite markets include Vicksburg, Yazoo City, Greenville, Greenwood and Clarksdale in Mississippi; and West Memphis in Arkansas. A2L’s broadband solutions include VoIP, wireless video and security systems, and broadband mobility offerings. More information can be found at www.air2lan.com.
Subsequent to the date of this report, U.S. Wireless Online has also made the following acquisitions and/or entered into material agreements:
On April 15, 2005, US Wireless completed the acquisition of VoIPWorks, LLC, (“VPW”) an Ohio limited liability company, as a wholly-owned subsidiary. VPW specializes in implementing voice and data technology solutions by utilizing strategic partners to provide its clientele with optimal equipment and service upgrades. Its experienced data and telecommunications professionals assist clients in evaluating the cost effectiveness, security, and reliability of their current telecom and data networks with available alternatives within their respective industries and/or markets. VPW has been instrumental in the introduction of hosted VoIP solutions throughout the Midwest. VPW’s services include: VoIPWorks Data & Telecommunications Audits, LAN Readiness Assessments, IPPBX, and IP VPN services that replace existing VPN or Frame Relay Networks.
On April 29, 2005, US Wireless completed the acquisition of all the assets of Verge Wireless Networks, Inc., a Louisiana corporation (“Verge”). Verge assets include all tangible property, prepaid items, warranties, books, records and supplier information, customer lists and files, contracts, leases and various other assets. Verge is a provider of broadband connectivity and solutions to municipalities, businesses, academic and medical institutions, convention centers, and the hospitality industry. Verge provides municipal Wi-Fi “hot zones” in parts of Los Angeles, New Orleans and Baton Rouge. It is also the wireless contractor for one of the largest broadband video security systems in the country, which allows the police department of a major municipality to coordinate video feeds from approximately 200 broadband-enabled wireless cameras.
On May 2, 2005, US Wireless entered a definitive agreement with Lightyear Network Solutions, LLC (“Lightyear”). In exchange for preferred wholesale pricing and performance based equity participation, Lightyear will exclusively promote and sell US Wireless broadband connectivity service to its Business Class customers in US Wireless Online’s expanding network coverage area. Under the terms of the agreement Lightyear has agreed to sell a minimum of 1,000 Business Class wireless broadband circuits during the first year of the contract, a minimum of 2,500 during the second year and a minimum of 4,000 during the third year.
Lightyear (www.lightyearcom.com) was founded in 1993 by J. Sherman Henderson, III as a national sales and marketing organization providing telecommunication services and solutions to both commercial and residential customers. In the course of normal business, Lightyear serves more than 200,000 customers nationwide generating annual revenue of approximately $100 million through an independent national sales force of Lightyear Agent Partners.
On May 9, 2005, US Wireless completed the acquisition of iSkywire, LLC, and its related entities including iSkywire, Jeffersontown, Kentucky I, LLC; iSkywire, New Albany, Indiana I, LLC; iSkywire, Charlestown, Indiana I, LLC, (collectively “iSkywire”). ISkywire is a wireless broadband internet company that owns and operates state-of-the-art broadband wireless networks in Louisville, KY and southern Indiana and has provided cost-effective, reliable high-speed internet access to commercial customers since January 2002.
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By leveraging its carrier-grade Network Operations Center (NOC) and existing wireless broadband infrastructure, U.S. Wireless Online intends to expand the geographic scope of its wireless service offerings, along with its revenue base, by providing premium broadband service options and broadband-dependent applications and services (such as VoIP, security systems and video services) through direct sales, channel sales partnerships and acquisitions within the emerging and highly fragmented wireless broadband industry. U.S.Wireless is currently engaged in discussions with multiple potential channel sales partners and acquisition candidates.
Management believes these acquisitions will help U.S. Wireless leverage increased economies of scale and be positioned to accelerate growth organically in existing markets by expanding its wireless broadband Internet footprint. U.S. Wireless also intends to leverage its prominence in the broadband wireless industry to pursue additional strategic acquisitions.
Products
U.S. Wireless, core service is high-speed, wireless Internet access for business. During the fiscal year ended December 31, 2004 and before the subsequent acquisitions outlined above, U.S. Wireless’ services were provided to businesses in, Kentucky, Ohio, Georgia and Indiana. As of March 11, 2005, U.S. Wireless provides services to expanded areas in Alabama, Arkansas, Kentucky, Louisiana, Ohio, Pennsylvania, Tennessee, Texas, Indiana, Mississippi and Georgia.
Spanning approximately 3,000 square miles across an eleven state region, the Company owns and operates one of the largest broadband wireless Internet networks in the world. The Company's carrier-grade Network Operations Center (NOC), comprehensive network architecture, and quality of service has resulted in thousands of corporate, municipal, institutional, and multi-tenant residential customers.
U.S. Wireless utilizes advanced wireless technology in the license exempt spectrum bands to provide high speed, high quality Internet connectivity to its customers. Utilization of this spectrum provides the Company with a significant cost advantage over service providers that utilize licensed spectrum. The Federal Communications Commission has allocated over 900 MHz of license exempt spectrum for broadband wireless Internet services, providing abundant bandwidth for very high capacity and interference free Internet services. In addition, license-exempt radio frequency (RF) equipment now incorporates "smart radio" technologies which mitigate interference.
Along with providing broadband wireless Internet connectivity, the Company is also leading the development and implementation of a comprehensive array of broadband Internet solutions. These solutions include voice over Internet protocol (VoIP), wireless video monitoring and security system, local and metropolitan area mobility, virtual private networking, and network design and installation. This comprehensive Internet solutions set provides high margin revenues, solidifies customer relationships and increases customer retention. Further, each of these solutions drives demand for the Company's core broadband wireless Internet service.
U.S. Wireless has developed and is implementing a two pronged strategic business model. First, U.S. Wireless is focused on organic growth and operating profitability in the current markets it serves. We believe the implementation of disciplined business processes will allow us to realize significant economies of scale and expense reductions resulting from our recent acquisitions. Additionally, we expect revenue growth in each market through product launches of our Internet solutions, bundling services and solutions, implementation of vertical market sales, and reinforcement of the U.S. Wireless Online brand.
The second strategic thrust will be a continued aggressive pursuit of complimentary and accretive acquisitions. The wireless Internet service provider industry remains highly fragmented, and at current valuations, acquisitions provide an economical vehicle for growth.
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Results of Operations for the Three Month Period Ended March 13, 2005 and 2004
Revenues for the three month period ended March 31, 2005 were $585,483 with a cost of sales of $222,460, resulting in a gross profit of $363,023 compared to revenues of $377,094 for the same period in 2004 with a cost of sales of $245,729 and a gross profit of $131,365.
Operating expenses for the three month period ended March 31, 2005 were $712,905 compared to $364,230 for the same period in 2004. Interest expense for the three month period ended March 31, 2005 was $22,060 compared to $14,897 for the same period in 2004. Total net loss for the three month period ended March 31, 2005 was $371,941 compared to $247,762 for the same period in 2004.
Although our revenues increased and cost of sales decreased for the three month period ended March 31, 2005 compared to the same period in 2004, our operating expenses increased significantly. The increase in operating expenses for the three months ended March 31, 2005 is, in part, attributed to increased legal, accounting and consulting fees related to our recent acquisitions and fees involved with our recent financing activities.
Results of Operations for the Three-Month Period Ended March 31, 2004 and 2003
Revenues for US Wireless for the three-month period ended March 31, 2004 were $377,094 with a cost of sales of $245,729 resulting in a gross profit of $131,365. Revenues for the three-month period ended March 31, 2003 were $411,982 with a cost of sales of $215,182 and a resulting gross profit of $196,800.
Operating expenses and general and administrative expenses during the three-month period ended March 31, 2004 were $364,230 resulting in a net operating loss of $232,865. Interest expense during this period was $14,897. As a result of the foregoing, we realized a net loss of $247,762 during the three-month period ended March 31, 2004. Operating expenses and general and administrative expenses during the three-month period ended March 31, 2003 were $297,787 and resulted in a net operating loss for the period of $100,987. Interest expense during the three-month period ended March 31, 2003 was $12,253. As a result, our net loss for the period was $113,240.
All revenues during the three-month period ended March 31, 2004 derived from US Wireless’ Internet service activities. Our predecessor, Cach Foods, did not generate any revenue from inception through May of 2003. Pursuant to the May 19, 2003 Agreement and Plan of Reorganization, U.S. Wireless became a wholly-owned subsidiary of Cach Foods, Inc. and the Company’s name was changed to U.S. Wireless Online, Inc. The financial figures reported for the three-month period ended March 31, 2003 in this report’s financial statements reflect operations conducted by US Wireless Online, the privately held company prior to the reorganization with Cach Foods. The majority of expenses during the three-month period ended March 31, 2004 consisted of salaries, office rentals, legal, accounting and other professional fees.
Liquidity and Capital Resources
At March 31, 2005, total assets were $13,457,561. Total current assets of $727,974 consisted of $85,332 in cash, $562,921 in accounts receivable, $34,527 in inventory, $14,816 in undeposited funds and $30,378 of prepaid expenses. We also had property and equipment valued at $4,890,280. Total other assets of $7,839,307, consisted of our client base valued at $105,000, deposits of $83,623 and goodwill valued at $7,650,684.
Total liabilities at March 31, 2005 were $6,426,731 and consisted of $2,628,956 in current liabilities and $3,797,775 in long term debt. Our current liabilities include $2,052,079 in accounts payable, $79,123 in accrued expenses, $20,567 in deferred revenue and $477,187 current portion of long term debt. Long term debt included $316,844 in convertible debentures, $100,000 and notes payable of $3,858,118.
At December 31, 2004, total assets were $642,548. Total current assets were $195,958 consisting of $0 in cash, $135,958 in accounts receivable and $60,000 in other receivables. We also had property and equipment valued at $408,501. Other assets consisted of our client base valued at $12,000 and deposits of $26,089.
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Total liabilities at December 31, 2004 were $2,993,136. Current liabilities were $2,883,513 consisting of $16,820 in bank overdrafts, $942,358 in accounts payable, $141,415 in accrued expenses, $4,955 in deferred revenue and $1,777,965 current portion of long term debt. Long term debt consisted of $316,844 in convertible debentures, $1,265,881 in notes payable, $298,947 in related party notes payable and $5,916 in lease obligations.
Some of our notes payable and the convertible debenture are in default. We have suffered recurring losses with negative working capital. In August, 2004, we had a significant change in management. Our current management has been working vigorously to reduce debt by stock conversion, increase operations by acquisition of complementary businesses in order to generate revenue, and obtaining funding commitments.
Subsequent to the date of the report and during the first quarter, 2005, U.S. Wireless has completed the acquisition of several business interests, expanding to its core service of high-speed, wireless internet access for business. Management believes that these acquisitions improve U.S. Wireless’ competitive position in the wireless internet market and will significantly add to revenues.
On February 2, 2005, U.S. Wireless received a $3 million institutional funding commitment. U.S. Wireless has already received the first disbursement of $1.5 million. The capital is being provided through a series of convertible convertible notes that are secured by company assets. Under the terms of the agreement two installments of $750,000 each will be paid by the purchasers; one upon filing of the mandatory registration statement as outlined in the Registration Rights Agreement dated January 28, 2005, and the balance when the registration statement is declared effective by the Commission.
Management believes that we have sufficient accounts receivable, cash from operations and our recent funding on hand to meet our immediate operating expenses. However, we may require additional funding to reduce our liabilities. Our recent acquisitions have greatly improved our cash flow and management anticipates revenues to increase in fiscal 2005. If we require additional capital, we may seek advances from officers or shareholders, sell shares of our stock or explore other debt financing strategies.
ITEM 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer/Chief Financial Officer has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.
(b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
On July 2, 2003, Enterasys Networks, Inc. filed a complaint against U.S. Wireless in the United States District Court for the Western District of Kentucky, Louisville Division. The case is Enterasys Networks, Inc. v. U.S. Wireless Online, Inc., Civil Action No. 3:03CV-405-H. Enterasys is seeking $181,844.40 plus interest at 8% from November 30, 2001, along with court costs and attorney’s fees. The claim arises from a dispute concerning a convertible note payable. In September of 2003, U.S. Wireless filed an answer and counterclaim, denying all allegations and seeking damages. Enterasys has filed a motion to dismiss the U.S. Wireless counterclaim. The dispute has not been resolved. U.S. Wireless intends to continue vigorously defending itself in this action and anticipates that it will either settle the litigation or prevail in court.
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In the fourth quarter of 2004, three “non-material” lawsuits were filed against the Company representing two tower management companies and one equipment installation firm resulting from certain amounts invoiced that are strongly disputed by the Company. Collectively these suits seek less than $100,000 in damages. We are in the process of negotiating a settlement of each of these cases. U.S. Wireless intends to continue to vigorously defending itself in these actions and anticipates that it will either settle the litigation or prevail in court.
ITEM 2. Changes in Securities
Pursuant to the May 19, 2003 Agreement and Plan of Reorganization between U.S. Wireless, Inc. and Cach Foods, Inc., Cach issued 13,472,846 shares of common stock in exchange for 49,442,170 shares of U.S. Wireless common stock representing all of the issued and outstanding shares of U.S. Wireless. The shares were issued in a private transaction without registration in reliance of the exemption provided by Section 4(2) of the Securities Act. No broker was involved and no commissions were paid on the transactions.
During 2004, U.S.Wireless issued 10,285,714 shares of common stock to settle $230,500 of notes payable and accrued interest. The shares were issued in a private transaction without registration in reliance of the exemption provided by Section 4(2) of the Securities Act. No broker was involved and no commissions were paid on the transactions.
On August 26, 2004, U.S. Wireless issued warrants to purchase 2,250,000 shares of the Company’s restricted common stock at an exercise price of $0.35 per share and expires August 26, 2007. The warrants were issued in consideration of forgiving default on an outstanding note and agreement to negotiate a stock settlement. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
On September 26, 2004, U.S. Wireless issued warrants to purchase 2,250,000 shares of the Company’s restricted common stock at an exercise price of $0.35 per share and expires September 26, 2007. The warrants were issued in consideration of forgiving default on an outstanding note and agreement to negotiate a stock settlement. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
During 2004, the U.S. Wireless issued warrants in conjunction with an amended promissory note to purchase 275,000 shares of the Company’s restricted common stock at an exercise price of $0.50 per share. The warrants are for a ten year period. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
U.S. Wireless issued warrants to purchase 500,000 shares of the Company’s restricted common stock at an exercise price of $0.35 per share and expires August 26, 2007. The warrants were issued in consideration of forgiving default on an outstanding note and agreement to negotiate a stock settlement. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
On January 10, 2005, in an arms length transaction not involving any affiliates or related parties, U.S. Wireless completed the acquisition of all the issued and outstanding stock of MJS Holdings, Inc., (“MJS”), an Ohio Corporation, in exchange for 6,110,906 restricted shares of U.S. Wireless restricted common stock, par value $0.001 per share. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
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On January 17, 2005, in an arms length transaction not involving any affiliates or related parties, U.S. Wireless completed the acquisition of all outstanding membership interests of United Broadband Networks, LLC (“UBN”), a Kentucky limited liability company, in exchange for 2,266,667 restricted shares of U.S. Wireless restricted common stock, par value $0.001 per share. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
On February 1, 2005, in an arms length transaction not involving any affiliates or related parties, U.S. Wireless completed the asset acquisition of Yireless1.NET, LLC, (“YYireless1”) a Pennsylvania limited liability company (“YY1”), in exchange for 1,527,759 restricted shares of U.S. Wireless restricted common stock, par value $0.001 per share. U.S. Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
On February 2, 2005, U.S. Wireless sold an aggregate of $1,500,000 in 8% callable secured convertible notes representing the principal on up to $3,000,000 in notes due January 25, 2008. The notes are convertible into shares of Common Stock, pursuant to a Securities Purchase Agreement. Warrants to purchase an aggregate of 3,000,000 shares of common stock issued pursuant to the Securities Purchase Agreement for the 8% callable secured convertible notes were also issued on February 2, 2005. The Notes and Warrants were issued to a limited number of accredited investors and therefore the transactions were exempt from registration under Section 4(2) of the Securities Act, as transactions not involving any public offering and no commissions were paid.
On March 2, 2005, in an arms length transaction not involving any affiliates or related parties, U.S. Wireless completed the acquisition of the assets and business of Air2Lan, Inc. (“A2L”) a Delaware Corporation, in exchange for 5,000,000 restricted shares of U.S. Wireless Class A Preferred Stock, par value $0.001 per share. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction and no commissions were paid.
On March 7, 2005, U.S.Wireless converted $159,657 of debt into 11,914,727 shares of restricted common stock. The shares were issued to three accredited investors for cancellation of the debt. U.S.Wireless relied on an exemption from registration pursuant to Section 4(2) of the Securities Act and Regulation D, Rule 506 to effect the transaction. There were no commissions paid.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit #
Title
Location
Exhibit 31
Certification of Chief Executive Officer and Chief Financial
Attached
Officer pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
Exhibit 32
Certification of Chief Executive Officer and Chief Financial
Attached
Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002*
*The Exhibit attached to this Form 10-KSB shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
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(b) Reports on Form 8-K:
The following reports were filed on Form 8-K for the quarter for which this report is filed.
Form
Date
Description
8-K
Jan 19, 2005
Item 2.01, Completion of Acquisition of Assets (MJS)
Item 9.01, Financial Statements and Exhibits
8-K
Jan 25, 2005
Item 2.01, Completion of Acquisition of Assets (UBN)
Item 9.01, Financial Statements and Exhibits
8-K
Feb 7, 2005
Item 1.01, Entry into a Material Definitive Agreement (NIR)
Item 2.01, Completion of Acquisition of Assets (Yyireless)
Item 2.03, Creation of a Direct Financial Obligation or an Obligation
Under an Off-Balance Sheet Arrangement of a Registrant
Item 3.02, Unregistered Sales of Equities and Securities
Item 9.01, Financial Statements and Exhibits
8-K
Mar 10, 2005
Item 2.01, Completion of Acquisition of Assets (Air2Lan)
Item 3.02, Unregistered Sales of Equities and Securities
Item 5.02, Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers
Item 9.01, Financial Statements and Exhibits
Subsequent to the date of this report, the following reports on Form 8-K were filed:
8-K
April 22, 2005
Item 1.01 Entry into a Material Definitive Agreement (VoiP)
Item 8.01 Other Events
Item 9.01 Financial Statements and Exhibits
8-K
May 3, 2005
Item 2.01 Completion of Acquisition of Assets (Verge)
Item 9.01 Financial Statements and Exhibits
8-K
May 5, 2005
Item 1.01 Entry into a Material Definitive Agreement (Lightyear)
8-K
May 16, 2005
Item 2.01 Completion of Acquisition of Assets (iSkywire)
Item 9.01 Financial Statements and Exhibits
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
US WIRELESS ONLINE, INC.
Date: May 23, 2005
/s/ Rick E. Hughes
Rick E. Hughes
President, CEO and CFO
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