Form 10-QSB
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 September 30, 2000
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 72-1346591
(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 11-17-00
Common Stock,
$.0001 par value 15,655,010
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
USURF America, Inc.
Consolidated Balance Sheets as of September 30,
2000 (unaudited), and December 31, 1999
Consolidated Statements of Operations for
the Three Months Ended September 30, 2000 and
1999 (unaudited), and the Nine Months Ended
September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2000 and
1999 (unaudited)
Notes to Consolidated Financial Statements
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
12/31/99 9/30/00
(audited) (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash
equivalents $ 75,313 $ 81,902
Accounts receivable
- net 59,098 65,830
Inventory 21,207 32,150
Prepaid expenses and
other current assets 5,500 55,154
---------- ----------
Total current
assets 161,118 202,886
PROPERTY AND EQUIPMENT,
Cost 1,501,233 1,725,239
Less: accumulated
depreciation (421,786) (620,825)
---------- ----------
1,079,447 1,104,414
---------- ----------
INVESTMENTS 68,029 68,029
---------- ----------
OTHER ASSETS
Acquired customer
base - net 11,764,650 7,816,572
Goodwill - net 5,681,992 3,843,275
Other intangibles
- net 782,580 850,479
Other assets 7,353 7,853
---------- ----------
18,236,575 12,518,179
---------- ----------
Total assets $19,545,169 $13,894,508
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable -
current portion 5,910 0
Accounts payable 363,665 782,273
Accrued payroll 118,157 231,186
Other current liabilities 216,650 201,459
Property dividends
payable 43,750 43,750
Accrued interest to
stockholder 29,741 0
Notes payable to
stockholder 356,239 0
Deferred revenue 87,538 102,026
---------- ----------
Total current
liabilities 1,221,650 1,360,694
LONG-TERM LIABILITIES
Deferred income tax 3,883,210 3,173,729
---------- ----------
Total
liabilities 5,104,860 4,533,423
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.0001
par value; Authorized:
100,000,000; Issued
and Outstanding:
12,786,116 shares at
December 31, 1999,
and 14,571,038 shares
at September 30, 2000 1,279 1,457
Additional paid-in
capital 28,918,638 32,645,830
Accumulated deficit (12,616,830) (21,687,832)
Subscriptions
receivable (860) (5,860)
Deferred consulting (1,861,918) (1,592,510)
---------- ----------
14,440,309 9,361,135
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $19,545,169 $13,894,508
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
(unaudited) (unaudited)
REVENUES
Internet
access
and web
site
devel-
opment
revenues $ 598,837 $ 781,282 $ 1,821,550 $2,047,364
Internet
access
costs and
cost of
goods sold (142,152) (216,021) (811,452) (687,895)
---------- --------- ---------- ---------
Gross
profit 456,685 565,261 1,010,098 1,359,469
---------- --------- ---------- ---------
OPERATING EXPENSES
Depre-
ciation
and amor-
tization 2,323,562 2,086,017 6,843,089 5,433,339
Profes-
sional fees 889,157 381,879 2,105,852 1,212,366
Rent 32,000 35,920 161,298 88,837
Salary
and
commis-
sions 890,334 369,276 1,701,223 979,291
Contract
services 0 64,839 0 64,839
Advertising 66,787 35,024 85,782 88,273
Other 79,612 95,718 576,527 284,929
---------- --------- ---------- ---------
Total
Oper-
ating
Expen-
ses 4,281,452 3,068,673 11,473,771 8,151,874
---------- --------- ---------- ---------
LOSS
FROM
OPERATIONS (3,824,767) (2,503,417) (10,463,673) (6,792,405)
OTHER
INCOME
(EXPENSE)
Other
income-net (6,065) 0 553 0
Interest
expense (15,350) (3,725) (36,782) (9,758)
---------- ---------- ---------- ---------
LOSS BEFORE
INCOME TAX (3,846,182) (2,507,137) (10,499,902) (6,802,163)
INCOME TAX
BENEFIT 481,673 448,347 1,434,865 1,182,718
---------- ---------- ---------- ---------
NET
LOSS (3,364,509) (2,058,790) (9,065,037) (5,619,445)
Net loss
per
common
share (0.25) (0.17) (0.68) (0.51)
Weighted
average
number of
shares
outstand-
ing 13,3674868 11,784,748 13,207,279 11,034,764
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended Nine Months Ended
9/30/00 9/30/99
(unaudited) (unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(9,065,037) $(5,619,445)
Adjustment to
reconcile net loss
to net cash used
in operating
activities
Depreciation and
amortization 6,843,089 5,433,339
Consulting fees
recognized 2,105,852 1,125,173
Compensation expense 48,000 0
Deferred income
taxes (1,434,865) (1,183,920)
Changes in operating
assets and liabilities:
Due from affiliate 0 (1,614)
Loss on disposal 0 280
Accounts receivable 65,830 (126,941)
Inventory 32,150 38,575
Other assets and
liabilities 46,601 (38,420)
Deferred revenue 14,488 9,446
Accounts payable 782,273 (91,584)
Prepaid expenses (8,553) (8,773)
Accrued payroll 231,186 0
Other current
liabilities (16,829) 0
Accrued expenses 0 35,551
Customer deposits 0 1,787
Taxes payable 0 731
---------- ----------
Net cash used
in operating
activities (355,815) (425,815)
---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds on disposal
of fixed assets 0 15,090
Cash acquired in
acquisitions 7,704 180,812
Capital expenditures (408,187) (389,822)
---------- ----------
Net cash used
in investing
activities (400,483) (193,920)
---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments on notes
payable 0 (55,673)
Payments on capital
lease obligations 0 (722)
Increase in note payable
to stockholder 0 62,000
Proceeds from note payable
to shareholder 539,890 0
Issuance of common stock
for money 240,000 395,000
Warrants exercise 0 337,321
Payment on note
payable to stockholder (11,093) (10,000)
---------- ----------
Net cash provided
by financing
activities 762,887 727,926
---------- ----------
Net increase
(decrease)
in cash and
cash equivalents (6,589) 172,804
Cash and cash equi-
valents, beginning
of period 75,313 7,232
Cash and cash equi-
valents, end of period 81,902 180,036
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND OTHER CASH FLOW INFORMATION
Nine Months Ended September 30, 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.
- In April 2000, the Company issued a total of 60,000 shares
of stock under two separate consulting agreements, which
shares were valued at $210,000.
- In April 2000, the Company issued 100,000 shares of stock
under a consulting agreement, which shares were valued
at $725,000.
- In July 2000, the Company issued 250,000 shares of stock
under an investment banking agreement, which shares were
valued at $375,000.
- In August 2000, the Company issued 774,162 shares of stock
in payment of indebtedness in the amount of $967,703.
Nine Months Ended September 30, 1999:
- In January 1999, the Company acquired all of the stock
of CyberHighway, Inc. by issuing 2,000,000 shares of
stock valued at approximately $16,000,000. In
addition, 325,000 shares were issued in payment of a
finder's fee arising out of this acquisition, which
shares were valued at approximately $2,600,000. This
acquisition was accounted for as a purchase business
combination.
- In June 1999, the Company acquired all of the stock of
Santa Fe Trail Internet Plus, Inc. by issuing 100,000
shares of stock valued at $400,000. This acquisition
was accounted for as a purchase business combination.
USURF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2000
(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 operates as an internet service provider
(ISP), in the inter-mountain west region of the United States, with primary
operations in Boise, Idaho. 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, USURF was in the development stage. In 1998,
USURF changed its focus to concentrate in the wireless Internet
communications industry. USURF 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, USURF 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, USURF 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 fundamentally altered USURF's outlook, providing USURF
with an extensive dial-up customer base, as well as
technologically-advanced operations facilities and immediate access to
customers in internet services markets dominated by CyberHighway-owned or
affiliate Internet service providers. 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. ("Trail"), 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. ("PISI"), 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 August 1999, USURF acquired the www.usurf.com domain by issuing 150,000
shares of stock valued at approximately $863,000. This acquisition was
accounted for as a purchase business combination.
In November 1999, USURF acquired the customer base of Cyber Mountain, Inc.
("CMI"), a Denver, Colorado-based ISP, by issuing 25,000 shares of stock
valued at approximately $100,000. This acquisition was accounted for as a
purchase business combination.
In December 1999, USURF acquired a portion of the ISP-related equipment and
customer base of Cyber Highway of North Georgia, Inc. ("CHGA"), a Demorest,
Georgia-based ISP, by issuing 53,000 shares of stock valued at
approximately $212,000. This acquisition was accounted for as a purchase
business combination.
In February 2000, USURF acquired all of the stock of The Spinning Wheel,
Inc. ("Wheel"), an Idaho-based ISP, by issuing 81,63 shares of stock valued
at approximately $324,252. This acquisition was accounted for as a
purchase business combination.
In February 2000, USURF acquired all of the ownership interests of Internet
Innovations, L.L.C. ("IILLC"), a Louisiana-based Internet design firm, by
issuing 50,000 shares of stock valued at approximately $437,500. This
acquisition was 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. Intercompany 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.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets, primarily acquired customer bases,
are stated on the basis of cost and are amortized, principally on a
straight-line basis, over the estimated future periods to be benefited
(generally 3 years). Goodwill and other intangible assets are periodically
reviewed for impairment to ensure they are appropriately valued. Conditions
which may indicate an impairment issue exists include a negative economic
downturn or a change in the assessment of future operations. In the event
that a condition is identified which may indicate an impairment issue
exists, an assessment is performed using a variety of methodologies,
including cash flow analysis, estimates of sales proceeds and independent
appraisals. Where applicable, an appropriate interest rate is utilized,
based on location specific economic factors.
Note 2. Interim Consolidated Financial Statements
In the opinion of management, the accompanying consolidated financial
statements for the nine months ended September 30, 2000 and 1999, 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 for the year ended
December 31, 1999, 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 2000
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. Net 1, Inc. Acquisition; Subsequent Rescission
On August 23, 1999, the Company acquired Net 1, Inc. (Net 1) in a business
combination accounted for as a purchase. Net 1 is primarily engaged as an
ISP in Alabama. In September, 1999 the Company tendered the shares of
capital stock obtained in the acquisition of Net 1 for rescission of the
transaction (see Note 7). The Net 1 transaction was rescinded subsequent
to September 30, 2000, in October 2000. However, legally, at December 31,
1999, and September 30, 2000, USURF was still the owner of the outstanding
shares of Net 1 and is required by generally accepted accounting principles
to record Net 1 as a wholly-owned subsidiary from the date of acquisition.
The financial statements of Net 1 were not available to USURF from
September 1, 1999, through September 30, 2000; therefore, the revenues and
expenses of Net 1 are not included in the accompanying statement of
operations for the nine months ended September 30, 2000, nor were they
included in USURF's statement of operations for the year ended December 31,
1999. This is considered a departure from generally accepted accounting
principles, of which the effects on USURF have not been determined.
However, in the future, because of the rescission of the Net 1 transaction,
the Net 1 transaction will be omitted from the Company's financial
statement presentation.
The total cost of the Net 1 acquisition was $1,164,561, which exceeded fair
value of the net assets of Net 1 by $1,164,561. The excess was deemed to
be impaired at September 30, 2000, and at December 31, 1999, due to the
change in the operating environment and was recorded in the accompanying
financial statements as an impairment loss. Again, because of the
rescission of this transaction, the Company will, in the future, no longer
include the Net 1 transaction in its financial statement presentation.
Note 4. Acquisitions
Effective December 31, 1996, USURF acquired WEI and MCTV by issuing
2,157,239 shares of common stock in exchange for all the common stock of
each company. The majority shareholder of USURF was also the sole
shareholder of WEI and the majority shareholder of MCTV. Therefore, the
acquisitions have been accounted for at historical cost in a manner similar
to a pooling of interests. The consolidated statement of operations
includes USURF and its predecessors WEI and MCTV from inception of WEI.
Effective January 29, 1999, USURF acquired CyberHighway, which acquisition
has been accounted for as a purchase and not as a pooling of interests.
Effective June 2, 1999, USURF acquired Trail, which acquisition has been
accounted for as a purchase and not as a pooling of interests.
Effective August 14, 1999, USURF acquired usurf.com, which acquisition has
been accounted for as a purchase and not as a pooling of interests.
Effective August 20, 1999, USURF acquired Net 1, which, subsequent to
September 30, 2000, was rescinded. As described in Note 3, none of the
operating data or balance sheet data associated with Net 1 is presented.
(See Note 7).
Effective August 30, 1999, USURF acquired PISI, which acquisition has been
accounted for as a purchase and not as a pooling of interests.
Effective November 2, 1999, the Company acquired the customer base of CMI,
which acquisition has been accounted for as a purchase and not as a pooling
of interests.
Effective December 20, 1999, USURF acquired a portion of the ISP-related
equipment and customer base of CHGA, which acquisition has been accounted
for as a purchase and not as a pooling of interests.
Effective February 1, 2000, USURF acquired all of the stock of Wheel, which
acquisition has been accounted for as a purchase and not as a pooling of
interests.
Effective February 16, 2000, USURF acquired all of the ownership interests
of IILLC, which acquisition has been accounted for as a purchase and not as
a pooling of interests.
Note 5. Note Repayment to Stockholder
On August 21, 2000, the Company's president agreed to convert all $967,703
owed to him into shares of common stock at the rate of one share for each
$1.25 of indebtedness cancelled.
Note 6. Stock Issuances
During the three months ended September 30, 2000, USURF issued shares of
common stock, as follows:
A. In July 2000, 250,000 shares were issued pursuant to an investment
banking agreement, which shares were valued at a price of $1.50 per share,
or $375,000 in the aggregate.
B. In September 2000, 774,162 shares were issued in payment of
indebtedness owed to the Company's president, which shares were valued at a
price of $1.25 per share, or $967,703 in the aggregate.
Note 7. Commitments and Contingencies
In September l999, USURF tendered the shares of capital stock obtained in
the acquisition of Net 1 (see Note 2) for rescission of the transaction.
USURF had intended to commence arbitration to pursue its rescission claim.
However, one of the former owners of Net 1, instituted arbitration, through
the American Arbitration Association, and sought to enforce certain
registration rights associated with a portion of the shares of USURF's
common stock received by him in the acquisition transaction.
USURF asserted the rescission claim as a counterclaim in the pending
arbitration proceeding. The counterclaim was made against Net 1 and its
former owners, wherein USURF sought to rescind the acquisition transaction
that occurred in August 1999, and recover the 250,000 shares of common
stock issued.
The Net 1 acquisition transaction was, in fact, rescinded in October 2000.
Note 8. CyberHighway Subsidiary Involuntary Bankruptcy
Proceeding
On September 29, 2000, the Company's CyberHighway subsidiary suffered the
filing of an involuntary bankruptcy petition by three alleged creditors.
The Company believes the filing to have been made erroneously and in bad
faith. The Company expects that this bankruptcy proceeding will dismissed
in the near future, based on a settlement agreement with the petitioning
parties. No assurance in this regard can be made.
The business of CyberHighway has not been affected adversely by this
proceeding.
Note 9. Subsequent Events
A. In October 2000, the Company entered into a $10 million common stock
purchase agreement with Fusion Capital Fund II, LLC. The Company can begin
to sell stock under this agreement at such time as it has completed a
registration statement with respect thereto. This registration statement
has been filed with the SEC. No prediction can be made as to when the
registration statement will be declared effective.
B. In October 2000, the Company issued 450,000 shares under a consulting
agreement. These shares were valued at approximately $.80 per share, or
approximately $360,000.
C. In November 2000, the Company issued 100,000 shares under a consulting
agreement. These shares were valued at approximately $.50 per share, or
approximately $50,000. Also under this consulting agreement, the Company
issued a warrant to purchase up to 35,000 shares of stock at an exercise
price of $1.00 per share.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Business Focus and Recent Developments
In October 1999, our management determined to commit, for the foreseeable
future, all available capital to the commercial exploitation of our
Quick-Cell wireless Internet access products. We intend to continue to
pursue acquisitions of businesses complimentary to our core Internet access
business.
In May 2000, in connection with our hiring of Robert A. Hart IV as vice
president of technology, we began marketing our turn-key Quick-Cell
wireless Internet access systems to the thousands of Competitive Local
Exchange Carriers (CLECs), independent and other telcos, DSL providers and
Internet service providers. This strategy was designed to serve two
purposes: (1) to get our Quick-Cell wireless Internet access products in
the hands of consumers, so as to begin to establish product name
recognition; and (2) to provide needed funding with which we would be able
to establish and operate our own Quick-Cell systems. To date, we have sold
three Quick-Cell systems and have indications of interests from many other
telecommunications firms. We cannot assure you that these Quick-Cell
system sales will be at a level that will provide capital sufficient to
allow us to establish our own Quick-Cell systems.
A LACK OF CAPITAL HAS CAUSED US TO SUSPEND SALES UNDER THIS BUSINESS PLAN.
HOWEVER, CUSTOMER RESPONSE HAS BEEN EXTREMELY POSITIVE AND WE INTEND TO
RECOMMENCE THIS PROGRAM IMMEDIATELY UPON OBTAINING CAPITAL.
In July 2000, we entered into an investment banking agreement with Gruntal
& Co., L.L.C. We anticipate that Gruntal will be successful in securing
needed funding with which we would be able to establish and operate
Quick-Cell systems on a wide-scale basis. However, we cannot offer any
assurance that we will be able to obtain needed capital through the efforts
of Gruntal. Gruntal introduced us to Fusion Capital, a firm with whom we
have executed a $10,000,000 common stock purchase agreement.
The Fusion Capital Agreement
On October 9, 2000, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, pursuant to which Fusion Capital agreed to
purchase up to $10 million of our common stock. To this end, we will file a
registration statement with respect to up to 3,000,000 shares of our stock,
for sale to Fusion Capital
The term of the Fusion Capital agreement extends 750 calendar days (25
monthly periods) from the date that is five days after the effective date
of the prospectus relating to the shares to be sold to Fusion Capital. The
term may be extended for up to an additional three months by us, in our
sole discretion.
Under the Fusion Capital agreement, we have the right to sell up to
$10,000,000 of our common stock, at the time or times and at the price or
prices calculated pursuant to the formula described below.
During each 30-day period (a "monthly period") throughout the term of the
Fusion Capital agreement, Fusion will, from time to time, purchase shares
of our common stock at the applicable price (the "purchase price") up to an
aggregate amount of $400,000 (the "monthly base amount"). We have the right
to increase the monthly purchase amount and the right to decrease the
monthly base amount. Upon issuance of shares to Fusion Capital, Fusion
Capital will pay the appropriate cash purchase price of such shares.
The purchase price for the shares of our common stock under the Fusion
Capital agreement will be equal to the lesser of the variable purchase
price and the fixed purchase price. The "fixed purchase price" means $20.00
per share, subject to customary anti-dilution adjustments. The "variable
purchase price" means the lesser of (A) the lowest sale price of our common
stock during the day of submission of a purchase notice by Fusion Capital
or (B) the average of any three closing bid prices of our common stock,
selected by Fusion Capital, during the fifteen trading days prior to the
submission of a purchase notice by Fusion Capital.
Under the Fusion Capital agreement, Fusion Capital is to receive a
commitment fee as follows:
800,000 shares of our common stock (the "commitment shares"): under the
Fusion Capital agreement, Fusion Capital generally may not transfer or sell
the commitment shares until the earlier of (A) 750 calendar days from the
commencement date and (B) the termination of the Fusion Capital agreement.
645,000 Warrants (the "Fusion Capital warrants"): each Fusion Capital
warrant entitles its holder to purchase one share of our common stock (a
"Fusion Capital warrant share" or the "Fusion Capital warrant shares"),
with the Fusion Capital warrants being exercisable for a period of five
years at the following prices:
215,000 warrants to purchase a like number of shares of our common stock
for $1.50 per share;
215,000 warrants to purchase a like number of shares of our common stock
for $2.00 per share; and
215,000 Warrants to purchase a like number of shares of our common stock
for $2.50 per share.
Effect of Performance of Fusion Capital Agreement
on USURF America and our Shareholders
All shares registered in connection with the Fusion Agreement will be
freely tradable. It is anticipated that these shares will be sold over a
period ranging between three and 25 months. The sale of a significant
amount of shares of the Fusion Capital stock at any given time could cause
the trading price of our common stock to decline and to be highly volatile.
Fusion Capital may ultimately purchase all of the shares of common stock
issuable under the Fusion Capital agreement and it may sell all of the
shares of our common stock it acquires upon purchase. Therefore, the
purchases of shares of Fusion Capital stock may result in substantial
dilution to the interests of other holders of our common stock. However,
we have the right to suspend purchases under the Fusion Capital agreement.
The results of operations discussed below reflect, on the whole, our
operating results based on our old business model. Our new business model
focuses primarily on the exploitation of our Quick-Cell products. Because
our Quick-Cell wireless Internet access business permits us to operate on
significantly improved margins, as compared to operating margins in the
dial-up Internet access business, we expect our operating results, during
the latter half of the first quarter of Fiscal 2001, to show significant
improvement. The level of improved operating results cannot be predicted,
however, and will not improve significantly unless and until needed capital
is obtained. We remain in need of expansion capital to achieve our
aggressive growth strategy. Our $10 million funding agreement with Fusion
Capital is expected to provide adequate capital for the first phase of our
business plan.
Background
In July 1999, we changed our name to "USURF America, Inc.", from "Internet
Media Corporation". We were incorporated on November 1, 1996, under the
name "Media Entertainment, Inc.", to act as a holding company in the
wireless cable and community (low power) television industries. Our
initial capitalization transaction included the purchase of Winter
Entertainment, Inc. and Missouri Cable TV Corp. Because USURF America,
Winter Entertainment and Missouri Cable TV were combined in a
reorganization of entities under common control, the presentation contained
in our consolidated financial statements, as they relate to Winter
Entertainment and Missouri Cable TV, have been prepared in a manner similar
to the pooling-of-interests method.
Due to existing market conditions in the wireless cable industry, we have
abandoned our efforts to develop these wireless cable properties.
Nevertheless, in the opinion of our management, the licenses relating to
the various wireless cable frequencies continue to be of substantial future
value for use in our wireless Internet access business. We will be able to
utilize these frequencies at such time as the FCC approves two-way
communication on the wireless cable frequencies. Our management believes
this FCC approval of two-way communication to be imminent. However, our
wireless cable assets will become impaired, should the expected FCC
approval not be forthcoming. We can make no prediction with respect to the
FCC's actions in this regard.
In furtherance of our plan to focus on the exploitation of our Quick-Cell
wireless Internet access products and expansion of our other Internet
services, effective July 1, 1999, we assigned all of our community (low
power) television properties to New Wave Media Corp., in exchange for a 15%
ownership interest in New Wave common stock. Our board of directors has
declared a dividend with respect to all of the New Wave shares. These
shares of New Wave will be distributed to our shareholders, upon New Wave's
completion of a Securities Act registration of the distribution
transaction. This discussion includes the operations of our community
television segment for the first two quarters of 1999.
Since our initial capitalization transactions, we have made the
acquisitions described below. Each of these acquisitions has been
accounted for as a purchase, not as a pooling of interests, with their
respective operating results being included in this discussion from the
various dates of acquisition:
- September 1998: we acquired the assets and going business of Desert Rain
Internet Services, a Santa Fe, New Mexico-based ISP, for $25,000 in cash.
- January 1999: we acquired CyberHighway, Inc., a Boise, Idaho-based ISP
for 2,000,000 shares of our common stock.
- June 1999: we acquired Santa Fe Trail Internet Plus, Inc., another Santa
Fe, New Mexico-based ISP, for 100,000 shares of our common stock.
- August 1999: we acquired the going business known as www.usurf.com, for
150,000 shares of our common stock.
- August 1999: we acquired Premier Internet Services, Inc., an Idaho-based
ISP, for 127,000 shares of our common stock.
- August 1999: we acquired Net 1, Inc., an Alabama-based ISP, which
acquisition has been rescinded. The financial statements of Net 1 were not
available to us since September 1, 1999; therefore, the revenues and
expenses of Net 1 are not included in this discussion, nor are they
included in our statement of operations for the three months ended March
31, 2000. Please refer to Notes 3 and 7 to our financial statements
appearing elsewhere in this Quarterly Report. Also, please see the
discussion below under "Item 1. Legal Proceedings" of "Part II Other
Information".
- November 1999: we acquired the customer base of Cyber Mountain, Inc., a
Denver, Colorado-based ISP, for 25,000 shares of our common stock.
- December 1999: we acquired a portion of the ISP-related equipment and
customer base of CyberHighway of North Georgia, Inc., a Demorest,
Georgia-based ISP, for 53,000 shares of our common stock.
- February 2000: we acquired The Spinning Wheel, Inc., an Idaho-based ISP,
for 81,063 shares of our common stock.
- February 2000: we acquired Internet Innovations, L.L.C., a Baton Rouge,
Louisiana-based web design firm, for 50,000 shares of our common stock.
The acquisition of CyberHighway fundamentally altered our outlook. With
the acquisition of CyberHighway, not only did we acquire approximately
27,000 dial-up customers and a state-of-the-art network operations center,
we also gained immediate visibility as a large regional ISP.
Shareholder Loans - Conversion to Equity
Since our inception, our president, David M. Loflin, has made numerous
loans to us. At December 31, 1999, we owed Mr. Loflin a total of $356,239.
Through August 2000, Mr. Loflin loaned us an additional $559,806. On
August 21, 2000, Mr. Loflin agreed to convert the entire amount 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. Mr. Loflin received one share for each $1.25 of indebtedness
converted by him - $1.25 was the low sale price for our common stock on the
American Stock Exchange on August 18, 2000. Until converted, all of the
loans from Mr. Loflin were payable on demand, with interest accruing at 8%
per annum. The funds loaned to us during 2000 were used primarily for
operating expenses, as well as for the purchase of network equipment.
Unless we secure substantial capital from an outside source, it is probable
that Mr. Loflin will loan us additional funds during the third and fourth
quarters of 2000, although the amount and timing of any such loans cannot
be predicted. Since August 2000, Mr. Loflin has made small loans to us to
ease periods of restricted cash flow.
Without Mr. Loflin's loans, we would have become substantially insolvent.
Restructuring and Personnel Reductions
Recently, our CyberHighway subsidiary contracted with Dialup USA to
provide all necessary Internet service provider operations services on our
behalf. This move coupled with our recent sale of our affiliate-ISP
customers has allowed CyberHighway to reduce its workforce dramatically,
down to about three people. The cost savings have been significant and
CyberHighway now operates profitably. These changes will manifest
themselves during the fourth quarter of 2000. These personnel reductions
were taken after a similar reduction in personnel occurred near the end of
June 2000. Together, these actions have resulted in monthly savings of
approximately $75,000.
Settlement Agreement
On November 30, 1999, we entered into a settlement agreement and mutual
release, which settled certain legal proceedings in which USURF America and
CyberHighway had been involved. The parties to the settlement agreement
were: USURF America, CyberHighway, Julius W. Basham, II, our former chief
operating officer and a current director, William Kim Stimpson and David W.
Brown. Messrs. Stimpson and Brown are former owner-employees of CyberHighway.
Pursuant to this settlement agreement, certain legal proceedings were
settled in full and we delivered to Messrs. Basham, Stimpson and Brown a
total of 340,000 shares of our common stock. During the first half of
2000, we finished paying a total sum of $43,325 for reimbursement of
attorneys' fees paid by Messrs. Basham, Stimpson and Brown. However, these
attorneys' fees, as well as the value of the shares issued in the
settlement ($913,750), were charged against our 1999 earnings.
CyberHighway Involuntary Bankruptcy Proceeding
On September 29, 2000, CyberHighway suffered the filing of an involuntary
petition in the Idaho Federal Bankruptcy Court. The petition was brought
by three purported creditors. The filing has had no adverse impact on the
day-to-day operations of CyberHighway or USURF America. CyberHighway
believes the petition was filed in bad faith and expects that the petition
will be dismissed in the very near future. Negotiations to this end are
currently under way. While we expect these negotiations to have a
beneficial outcome, no assurance in this regard can be given.
Results of Operations
General. Prior to 1999, substantially all of our revenues were generated
by our now-defunct community television segment. During the first half of
1999 and the first half of 2000, all of our revenues were generated by our
Internet segment. Our revenues are derived primarily from monthly customer
payments for dial-up access, which average approximately $18.00 per
customer. Also, we derive revenue from per-customer royalty payments from
our CyberHighway affiliate-ISPs, which average approximately $1.75 per
customer. Minimal revenues are derived from web hosting and other
Internet-related valued-added services.
Beginning toward the end of March 2000, we began operating our Quick-Cell
wireless Internet access operations. These initial operations are
occurring in Santa Fe, New Mexico. As of the date of this report, we had
approximately 100 Quick-Cell customers, substantially all of whom are
within their "free-use" period. The growth of our wireless Internet access
business will continue at a slow rate, unless and until we obtain
significant capital at least $1,000,000.
At the end of May 2000, we began marketing our turn-key Quick-Cell
wireless Internet access 1system to the thousands of Competitive Local
Exchange Carriers (CLECs), independent and other telcos, DSL providers and
Internet service providers. To date, we have sold three Quick-Cell
systems, and have indications of interests from numerous other
telecommunications firms. We expect Quick-Cell system sales to continue
and to increase going forward. With the development of our wireless
Internet access business, in our future periodic reports, we expect to
provide dial-up and wireless Internet access segment information.
This strategy was successful immediately. However, due to our lack of
capital with which to operate on a full-scale basis, we determined to
suspend this plan of marketing unless and until we obtain significant capital.
Nine Months Ended September 30, 2000, versus Nine Months Ended September
30, 1999. Our operating results for the nine months ended September 30,
2000 and 1999, are summarized in the following table:
Nine Months Ended September 30,
2000 1999
(unaudited) (unaudited)
Revenues $1,821,550 $2,047,364
Internet access costs
and cost of goods sold 811,452 687,895
Gross Profit 1,100,098 1,359,469
Operating Expenses 11,473,771 8,151,874
Loss from Operations 10,463,673 6,792,405
Net Loss 9,065,037 5,619,445
Our net loss for the nine months ended September 30, 2000 nearly doubled
compared to our net loss for the same period of 1999. The greater net loss
during the 2000 period is primarily attributable to an increase in internet
access costs and costs of goods sold, a large increase in professional
fees, a doubling in salary and commissions, nearly all of which is
attributable to a signing bonus of 250,000 shares of our stock issued to
our vice president of technology, and a $1.4 million increase in
depreciation and amortization of acquired customer bases, goodwill and
other intangibles. Also, "other" operating expenses doubled in the current
period. Due to our lack of capital, substantially all of the professional
fees paid during the current period we paid with shares of our common stock.
We expect that our operating results for the year to end December 31,
2000, will be similar to those of the first nine months of 2000. However,
due to recent restructuring at CyberHighway, we expect to derive slightly
lower per customer revenues, which will be more than set off by the drastic
reductions in personnel that occurred during the current period, as well as
during October 2000.
During the nine months ended September 30, 2000, we issued 320,000 shares
of common stock under two separate consulting agreements; these shares have
been valued for financial accounting purposes at $660,000, in the
aggregate. This amount will be expensed in equal monthly amounts during
2000. Also during the current period, we issued an additional 160,000
shares under three separate consulting agreements; these shares have been
valued for financial accounting purposes at $625,000, in the aggregate, and
will be expenses in monthly amounts over the respective terms of the
agreements pursuant to which they were issued two are four-month
agreements and one is a six-month agreement.
In August 2000, we issued 250,000 shares to Gruntal, under our investment
banking agreement, which were valued at $375,000 by our board of directors,
which is to be expensed over the two-year term of that agreement. Also, we
issued 250,000 shares to our new vice president of technology, as a bonus
under his employment agreement. These shares were valued at approximately
$750,000 and will represent a one-time charge against our earnings.
For the nine months ended September 30, 2000 and 1999, our statements of
operations reflect an income tax benefit resulting from the difference in
the bases of our acquired customer bases for book versus tax purposes.
Subsequent to September 30, 2000, we issued 450,000 shares of our stock to
a consultant, which shares were valued at $.8125 per share, or $365,625, in
the aggregate. Also, in November 2000, we issued 100,000 shares of our
stock to a consultant, which shares were value at $.50 per share, or
$50,000, in the aggregate.
Internet Segment. Our Internet segment generated all of our revenues
during the current and prior period. During 1999 period, this segment
operated at a modest loss, while during the 2000 period, this segment
suffered a loss of approximately $700,000. This segment's increased
operating loss is due to higher operating costs, particularly telephone
line charges under contracts negotiated by CyberHighway's former
management, as well as other network related costs.
To stem our losses, we (1) sold all of our affiliate-ISP contracts to a
third party, because we operated at a substantial loss under these
contracts, (2) transferred all of our company-owned customers on the
Dialup-USA Internet network, by which Dialup-USA serves as our virtual
network operations center, and (3) reduced the number of employees at
CyberHighway to approximately three. Our remaining CyberHighway staff has
been able to continue to provide the necessary customer and other services
at acceptable levels. These actions have permitted CyberHighway to begin
to generate positive cash flow.
Community Television Segment. This segment had no revenues during the
1999 period. As discussed above, effective July 1, 1999, we assigned all
of our community television properties to New Wave Media Corp. Thus, our
2000 operations do not include this segment.
Wireless Cable Segment. As described above, we have ceased, for the
foreseeable future, our wireless cable activities.
Liquidity and Capital Resources
September 30, 2000. Historically, we have had a significant working
capital deficit. At September 30, 2000, our working capital deficit was
approximately $1.1 million, which is about the same as our deficit at
December 31, 1999. Our deficit remained constant, due to our president's
converting $967,000 of loans into shares of our stock. This reduction in
current liabilities was substantially set off by an increase in accounts
payable, accrued salary and other current liabilities.
The increase in our accounts payable is attributable to our increasing
operating costs, primarily telephone line charges and other network-related
expenses, coupled with our determination to defer payment of nearly all of
our accounts payable for a short, as-yet undetermined, period of time, due
our lack of working capital. To date, we have not suffered, and do not
expect to suffer, any adverse consequences from our vendors.
Our accrued payroll at September 30, 2000, as well as at December 31,
1999, is attributable to accrued salary of our president and two of our
vice presidents.
On August 18, 2000, our president, David Loflin, agreed to convert the
entire amount 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. Mr. Loflin received one share for
each $1.25 owed him - $1.25 was the low sale price for our common stock on
the American Stock Exchange on August 18, 2000. Until converted, all of
the loans from Mr. Loflin were payable on demand, with interest accruing at
8% per annum. The funds loaned during 2000 were used primarily for
operating expenses and the roll-out of our Quick-Cell wireless Internet
access products, particularly in Santa Fe, New Mexico. Without outside
funding, it is probable that Mr. Loflin will continue to 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 half of 2000, we
obtained funds from private sales of our securities. In March and April
2000, we received cash of $325,000 from this private offering.
We remain in need of more capital to provide full funding of our
aggressive growth plan. We cannot assure you that we will obtain this
level of capital. Our failure to do so would, more likely than not,
prevent us from improving our future operating results.
Without substantial additional investment, we will continue to experience
a working capital deficit and be unable to implement our aggressive growth
plan. We expect that our agreement with Fusion Capital will provide the
needed capital, but we cannot assure you that we will be successful in our
efforts.
Commitment to Wireless Internet Business. In October 1999, our management
determined to apply, for the foreseeable future, all available capital to
the exploitation of our Quick-Cell wireless Internet access products.
However, we cannot assure you that we will obtain sufficient capital with
which to implement fully our growth plan.
We have abandoned our growth-through-acquisition strategy, due to market
conditions and other factors.
Quick-Cell Wireless Internet Strategy. We are attempting to implement a
plan designed to establish our Quick-Cell wireless Internet access products
in as many U.S. cities as possible, as quickly as possible. We have
reached an tentative agreement with Qwest (formerly US West) that would
provide us with an extremely cost-effective connection to the Internet in
our chosen markets, into which our Quick-Cell wireless Internet access
systems would connect. We lack the capital needed to implement completely
our growth plan and we cannot assure you that we will be successful in
obtaining any capital.
As a result of lack of capital and in connection with the hiring of a new
vice president of technology, in May 2000, we implemented a strategy
whereby we are marketing our turn-key Quick-Cell wireless Internet access
systems to the thousands of Competitive Local Exchange Carriers (CLECs),
independent and other telcos, DSL providers and Internet service providers.
This strategy is designed to serve two purposes: (1) to get our Quick-Cell
wireless Internet access products in the hands of consumers, so as to begin
to establish product name recognition; and (2) to provide needed funding
with which we would be able to establish and operate our own Quick-Cell
systems. To date, we have sold three Quick-Cell systems, and have
indications of interests from many other telecommunications firms. Again,
a lack of capital has forced us to curtail these efforts, until capital is
obtained by us. We cannot assure you that these Quick-Cell system sales
will be at a level that will allow us to establish our own Quick-Cell systems.
USURF America National Reseller Program. During the last quarter of 1999,
we announced and launched our "USURF America" high-quality dial-up Internet
access service. The marketing of this dial-up access service was to be
accomplished by resellers, through our national reseller program. This
program was never implemented on a full-scale basis, due to our lack of
capital. During the second quarter of 2000, we determined to abandon this
program, in favor of our wireless Internet access business.
Community Television Stations. In furtherance of our plan to focus on the
exploitation of our Quick-Cell wireless Internet access products, we
assigned all of our community (low power) television properties to New Wave
Media Corp., in exchange for 1,500,000 shares of New Wave common stock.
Our board of directors declared a dividend with respect to all 1,500,000
New Wave shares.
Cash Flows from Operating Activities. During the nine months ended
September 30, 2000, our operations used $355,000 in cash compared to cash
used of $425,815 during the same period of 1999. In both periods, the use
of cash in operations was a direct result of the lack of revenues compared
to our operating expenses, particularly our Internet access costs and
salary and commissions. We believe our recent personnel reductions will be
sufficient to bring our operations close to a break-even level, for cash
flow purposes. The effects of these actions will not be realized until the
third quarter of 2000. However, we cannot predict the actual results of
these personnel reductions.
For the nine months ended September 30, 2000, our operations would have
used approximately $300,000 more in cash, had we not determined to defer
payment of nearly all of our accounts payable for a short, as-yet
undetermined, period of time, due our lack of working capital. To date, we
have not suffered, and do not expect to suffer, any adverse consequences
from our vendors.
Cash Flows from Investing Activities. During the nine months ended
September 30, 2000, our investing activities used cash of $400,000 compared
to $193,920 in the same period of 1999. During the 2000 period, in our
investing activities, purchases of equipment used cash; however, in the
1999 period, our equipment purchases were offset, to some degree, by cash
acquired in acquisitions of $180,817. Because we lack working capital, we
cannot predict our cash flows from investing activities for the remainder
of 2000.
Cash Flows from Financing Activities. For the 2000 period, our financing
activities provided $762,887 in cash. Of this amount, $539,000 is
attributable to loans from our president and the balance is attributable to
private sales of securities. For the 1999 period, our financing activities
provided $657,930 in cash, all of which is attributable to private sales of
our securities. We continue to seek capital and cannot, therefore, predict
future levels of cash flows from financing activities.
In March and April 2000, we received $325,000 in private sales of our
securities. 65,000 units of securities consisting of one share of our
common stock and one common stock purchase warrant [exercisable at $7.50
per share] were sold for $5.00 per unit.
Non-Cash Investing and Financing Activities. During the nine months
ended September 30, 2000, we issued a total of 480,000 shares of common
stock under consulting agreements; these shares have been valued at
approximately $1,400,000, in the aggregate. Also during the first three
quarters of 2000, we issued a total of 131,063 shares of common stock in
acquisitions, which shares were valued at $524,252, in the aggregate.
In July 2000, we we entered into an investment banking agreement with
Gruntal & Co., L.L.C., under which we issued 250,000 shares of our common
stock.
Subsequent to September 30, 2000, we have issued 550,000 shares of our
common stock to two consultants.
During the 1999 period, non-cash investing and financing activities
included the issuance of 2,350,000 shares of our common stock issued in the
acquisition of CyberHighway.
Management's Plans Relating to Future Liquidity
We believe our agreement with Fusion Capital, once implemented
(anticipated to be during January or February of 2001)will allow us to
operate from a relatively liquid position and to pursue aggressively the
installation and marketing of our Quick-Cell wireless Internet access systems.
Our current operations will not be sufficient, on their own, to provide
operating capital and to provide capital with which to pursue our growth
strategy.
Capital Expenditures
During the first three quarters of 2000, we made $400,000 in equipment
purchases, approximately 15% for wireless Internet equipment and
approximately 85% for needed equipment in our network operations center.
Currently, we lack capital to make any significant capital expenditures.
However, during the remainder of 2000 and the first half of 2001, we expect
to apply substantially all of our available capital, if any, to (1) the
purchase of Quick-Cell wireless Internet equipment and the construction of
local Quick-Cell wireless Internet access systems and/or (2) the
acquisition of one or more businesses that compliment our core business.
We anticipate that our agreement with Fusion Capital will provide us with
needed funding.
Year 2000 Issues
We experienced no problems related to Year 2000 issues. During our
efforts to become completely Year 2000 compliant, we incurred expenses of
approximately $75,000.
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.
Net 1 Acquisition Transaction
In September 1999, we tendered the acquired shares of capital stock of Net
1, Inc. for rescission. We had intended to commence arbitration to pursue
our rescission claim. However, one of the former owners of Net 1, Knud
Nielsen, III, instituted arbitration, through the American Arbitration
Association, and sought to enforce certain registration rights associated
with a portion of the shares of our common stock received by him in the
acquisition transaction. We presented the rescission claim as a
counterclaim in the arbitration proceeding. In October 2000, this
litigation was settled, with the acquisition being rescinded in its
entirety. We issued 250,000 shares of our common stock to the former
owners of Net 1 in settlement of certain claims.
CyberHighway Involuntary Bankruptcy
On September 29, 2000, CyberHighway suffered the filing of an involuntary
petition in the Idaho Federal Bankruptcy Court. The filing has had no
effect on its business. CyberHighway believes this petition was filed in
bad faith and that it will be successful in having it rejected by the
court. Settlement negotiations to that end have commenced.
Temporary Injunction
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 stolen
customers from us. We expect that a hearing for our motion for a permanent
injunction will occur in the very near future. 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.
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. We do not believe Commonwealth is entitled to any shares
and will vigorously defend our position in arbitration. We cannot predict
the outcome of this arbitration proceeding.
Item 2. Changes in Securities.
During the three months ended June 30, 2000, we issued securities as follows:
1.(a) Securities Sold. In July 2000, we issued 250,000 shares of
Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Gruntal & Co., L.L.C.
(c) Consideration. Such shares were issued under an investment
banking letter agreement, and were valued by our board of directors at
$1.50 per share.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
2.(a) Securities Sold. In August 2000, we issued 250,000 shares of
Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Robert A. Hart IV.
(c) Consideration. Such shares were issued under an employment
agreement, and were valued at $2.00 per share.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
3.(a) Securities Sold. In August 2000, we issued 5,880 shares of
Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Ryan D. Thibodeaux.
(c) Consideration. Such shares were issued under an employment
agreement, and were valued at prices ranging from $2.06 per share to $9.44
per share.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
4.(a) Securities Sold. In August 2000, we issued 5,880 shares of
Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Ryan G. Campanile.
(c) Consideration. Such shares were issued under an employment
agreement, and were valued at prices ranging from $2.06 per share to $9.44
per share.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
5.(a) Securities Sold. In September 2000, we issued 774,162 shares of
Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
David M. Loflin.
(c) Consideration. Such shares were issued pursuant to a debt
cancellation letter agreement, and were valued at $1.25 per share.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote
of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on From 8-K.
During the three months ended September 30,
2000, we filed no Current Reports on Form 8-K.
Subsequent thereto, on or about October 14,
2000, we filed a Current Report on Form 8-K,
wherein we reported the execution of a common
stock purchase agreement with Fusion Capital.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 22, 2000.
USURF AMERICA, INC.
By: /s/ David M. Loflin
David M. Loflin
President and
Acting Principal
Financial Officer