Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 26, 2003
USURF America, Inc.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 1-15383 72-1482416
--------------------- ---------------- ----------------
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
6005 Delmonico Drive, Suite 140, Colorado Springs, Colorado 80919
-----------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (719) 260-6455
- --------------------------------------------------------------------------------
Form 8-K/A
USURF America, Inc.
- --------------------------------------------------------------------------------
Item 2. Acquisition or Disposition of Assets
- --------------------------------------------
Effective August 25, 2003, USURF America, Inc., a Nevada corporation, acquired
the customer base (approximately 510 customers) and related assets of Pipeline
Networks of Colorado, LLC, ("Pipeline") a privately-held Denver, Colorado-area
provider of high speed broadband Internet access service. The acquired customers
receive their broadband Internet access via traditional digital subscriber line
(DSL) service and the Pipeline acquisition included all of the assets needed to
provide broadband DSL service at each of the twelve multiple dwelling unit
properties to which we obtained rights of entry.
In the acquisition of the Pipeline customers and assets, we used $45,000 of our
cash on hand and issued a promissory note, face amount $111,300, due December
15, 2003, with interest accruing at 8% per annum. Our subsidiary, USURF
Communications, Inc., is the maker of the promissory note and we have guaranteed
payment of the note. In addition, we are to deliver to Pipeline, prior to
December 31, 2003, the cash sum of $156,300 or, in our discretion, 1,281,148
shares of our common stock, a per share value of $.122. We have not yet
determined whether we will elect to deliver cash or stock.
Item 7. Financial Statements and Exhibits
- -----------------------------------------
(a) Financial Statements
The financial statements required by this Item 7 are attached to this
Current Report on Form 8-K/A. The financial statements filed herewith are:
Pro Forma USURF America, Inc. / Pipeline Networks of Colorado, LLC
------------------------------------------------------------------
o Unaudited Pro Forma Condensed Statements of Operations for the nine
months ended September 30, 2003
o Unaudited Pro Forma Condensed Statements of Operations for the year
ended December 31, 2002
Pipeline Networks of Colorado, LLC
----------------------------------
o Independent Auditor's Report
o Balance Sheets as of December 31, 2002 and December 31, 2001
o Statements of Operations for the eight months ended August 31, 2003
(unaudited), the year ended December 31, 2002 and the period from
inception (August 23, 2001) through December 31, 2001
o Statements of Changes in Members' Equity for the eight months ended
August 31, 2003 (unaudited), the year ended December 31, 2002 and the
period from inception (August 23, 2001) through December 31, 2001
o Statements of Cash Flows for the eight months ended August 31, 2003
(unaudited), the year ended December 31, 2002 and the period from
inception (August 23, 2001) through December 31, 2001.
o Notes to the Financial Statements
(b) Exhibits
Exhibit No. Description
----------- -----------
10.1 * Asset Purchase Agreement, dated August 25, 2003, among USURF
America, Inc., USURF Communications, Inc. and Pipeline
Networks of Colorado, LLC
10.2 * Promissory Note, dated August 25, 2003, face amount
$111,300, in favor of Pipeline Networks of Colorado, LLC,
and USURF Communications, Inc. as maker
10.3 * Security Agreement, dated August 25, 2003, between USURF
Communications, Inc. and Pipeline Networks of Colorado, LLC
10.4 * Guaranty Agreement, dated August 25, 2003, executed by USURF
America, Inc.
* Incorporated by reference from Current Report on Form 8-K filed with the
Commission on September 2, 2003
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SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Dated: December 1, 2003 USURF AMERICA, INC.
By: /s/ Douglas O. McKinnon
---------------------------
Douglas O. McKinnon
President and CEO
Pro Forma USURF America, Inc. and Pipeline Networks of Colorado, LLC
- --------------------------------------------------------------------
On August 25, 2003, USURF America, Inc., through its subsidiary, USURF
Communications, Inc., acquired substantially all of the tangible and intangible
assets and rights used in connection with the Internet services business
operated by Pipeline Networks of Colorado, LLC ("Pipeline"). The acquisition was
effected pursuant to an Asset Purchase Agreement, dated August 25, 2003 by and
between USURF America, Inc., USURF Communications, Inc. (collectively, "USURF")
and Pipeline. USURF paid the members of Pipeline $312,600, which is comprised of
the following: $45,000 in cash, a promissory note for $111,300 and $156,300 to
be paid in either USURF America, Inc. common stock or cash, at the discretion of
USURF.
The transaction will be accounted for as a purchase. The purchase price will be
allocated to the acquired assets and assumed liabilities based upon fair market
values on the date of acquisition.
The following table summarized the assets acquired and liabilities assumed by
USURF in the transaction and the amount attributable to cost in excess of assets
acquired:
Property and Equipment $207,177
Intangibles (Customer Base,
Non-compete and Right-of
Entry Agreements 119,613
Customer Deposits (14,190)
The preliminary estimate of assets represents management's best estimate based
on currently available information; however, such estimate may be revised within
the one-year period following the acquisition date.
No unaudited proforma condensed balance sheet of USURF and Pipeline as of
September 30, 2003 is presented herein. Such balances are reflected and
contained in the Company's Form 10-QSB for the quarterly period ended September
30, 2003.
The following unaudited proforma condensed statements of operations assumes the
Pipeline acquisition occurred on January 1, 2002 and presents proforma financial
information for the year ended December 31, 2002. In the opinion of management,
all adjustments necessary to present fairly such unaudited proforma condensed
statements of operations have been made.
Historical
Proforma Proforma
USURF Pipeline Adjustments Adjustments
------------ ------------ ------------ ------------
Revenues $ 0 $ 98,276 $ 98,276
Expenses
Internet Access Cost 0 107,995 107,995
Inventory Write Down 132,031 0 132,031
Depreciation and
Amortization 7,336 57,979 (1) $ 21,495 86,810
General and
Administrative 116,143 150,506 266,649
Other Operating Expenses 3,714,038 106,029 3,820,067
------------ ------------ ------------
Total Operating Expenses 3,969,548 422,509 21,495 4,413,552
------------ ------------ ------------
Operating Loss (3,969,548) (324,233) (21,495) (4,315,276)
Other Income (Expense) (190,874) 1,654 (189,220)
------------ ------------ ------------
Loss Before Taxes (4,160,422) (322,579) (21,495) (4,504,496)
Income Tax Benefit 0 0 0
------------ ------------ ------------
Net Loss ($ 4,160,422) ($ 322,579) (21,495) ($ 4,504,496)
============ ============
Net Loss Per Common Share ($ 0.09) ($ 0.10)
Weighted Average Number
of Shares Outstanding 45,008,651 45,008,651
The following unaudited proforma condensed statements of operations assumes the
Pipeline acquisition occurred on January 1, 2003 and presents proforma financial
information for the nine months ended September 30, 2003. In the opinion of
management, all adjustments necessary to present fairly such unaudited proforma
condensed statements of operations have been made.
Historical
Proforma Proforma
USURF Pipeline Adjustments Adjustments
------------ ------------ ------------ ------------
Revenues $ 236,448 $ 154,091 $ 390,539
Expenses
Internet Access Cost 131,070 106,985 238,055
Depreciation and
Amortization 67,902 54,410 (1) $ 12,073 134,385
General and
Administrative 601,475 128,111 729,586
Other Operating Expenses 1,418,069 90,145 1,508,214
------------ ------------ ------------
Total Operating Expenses 2,218,516 379,651 12,073 2,610,240
------------ ------------ ------------
Operating Loss (1,982,068) (225,560) (12,073) (2,219,701)
Other Income (Expense) 8 24,281 24,289
------------ ------------ ------------
Loss Before Taxes (1,982,060) (201,279) (12,073) (2,195,412)
Income Tax Benefit 0 0 0
------------ ------------ ------------
Net Loss ($ 1,982,060) ($ 201,279) (12,073) ($ 2,195,412)
============ ============ ============
Net Loss Per Common Share ($ 0.024) ($ 0.026)
Weighted Average Number
of Shares Outstanding 83,109,557 83,109,557
(1) To record amortization of intangible assets
Pipeline Networks of Colorado, LLC
----------------------------------
Financial Statements
June 30, 2003 (unaudited) and
December 31, 2002 and 2001
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report..............................................................................2
Balance Sheets - December 31, 2002 and 2001...............................................................3
Statements of Operations - For the Eight Months Ended August 31, 2003 (unaudited), the Year Ended
December 31, 2002 and the Period from Inception (August 23, 2001) through December 31, 2001..........4
Statements of Changes in Members' Equity - For the Eight Months Ended August 31, 2003 (unaudited),
the Year Ended December 31, 2002 and the Period from Inception (August 23, 2001) through
December 31, 2001....................................................................................5
Statements of Cash Flows - For the Eight Months Ended August 31, 2003 (unaudited), the Year Ended
December 31, 2002 and the Period from Inception (August 23, 2001) through December 31, 2001..........6
Notes to the Financial Statements.........................................................................7
-1-
INDEPENDENT AUDITOR'S REPORT
Members and Owners
Pipeline Networks of Colorado, LLC
Castle Rock, Colorado
We have audited the accompanying balance sheets of Pipeline Networks of
Colorado, LLC as of December 31, 2002 and 2001 and the related statements of
operations, changes in members' equity, and cash flows for the year ended
December 31, 2002 and the period from inception (August 23, 2001) through
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pipeline Networks of Colorado,
LLC as of December 31, 2002 and 2001, and the results of its operations and its
cash flows for the year ended December 31, 2002 and the period from inception
(August 23, 2001) through December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ HEIN + ASSOCIATES LLP
- -------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
October 6, 2003
-2-
PIPELINE NETWORKS OF COLORADO, LLC
BALANCE SHEETS
DECEMBER 31,
----------------------
2002 2001
--------- ---------
ASSETS
------
CURRENT ASSETS:
Cash and equivalents $ 66,800 $ 29,322
Accounts receivable 440 1,084
Accounts receivable, member 15,300
--------- ---------
Total current assets 67,240 45,706
PROPERTY AND EQUIPMENT, at cost 390,510 179,813
Less accumulated depreciation (62,637) (4,658)
--------- ---------
Property and equipment, net 327,873 175,155
Offering costs 17,000 --
--------- ---------
TOTAL ASSETS $ 412,113 $ 220,861
========= =========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
CURRENT LIABILITIES:
Bank overdraft $ -- $ --
Current portion of notes payable 3,587 --
Accounts payable 1,833 9,777
Accounts payable related party 11,513 --
Accrued payroll -- --
Customer deposits 8,970 300
Deferred revenue 16,757 --
--------- ---------
Total current liabilities 42,660 10,077
LONG-TERM OBLIGATIONS, net of current portion 15,678 --
--------- ---------
TOTAL LIABILITIES 58,338 10,077
COMMITMENTS AND CONTINGENCIES (Notes 1, 4, 5 and 7)
MEMBERS' EQUITY:
Class A units, 116,279 and 0 shares, respectively 250,000 --
Class B units, 874,103 and 634,578 shares, respectively 548,550 332,980
Additional paid in capital -- --
Accumulated deficit (444,775) (122,196)
--------- ---------
Total members' equity 353,775 210,784
--------- ---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 412,113 $ 220,861
========= =========
See accompanying notes to these financial statements.
-3-
PIPELINE NETWORKS OF COLORADO, LLC
STATEMENTS OF OPERATIONS
FOR THE PERIOD
FROM INCEPTION
FOR THE EIGHT FOR THE YEAR (AUGUST 23, 2001)
MONTHS ENDED ENDED THROUGH
AUGUST 31, 2003 DECEMBER 31, 2002 DECEMBER 31, 2001
--------------- ----------------- -----------------
(unaudited)
REVENUE:
Service revenue $ 119,674 $ 69,569 $ 659
Equipment sales 4,064 4,154 --
Installation revenue 15,616 14,859 170
Modem revenue 14,737 9,694 --
Other revenue 24,281 1,654 54
--------- --------- ---------
Total revenue 178,372 99,930 883
COST OF GOODS SOLD 106,985 (107,995) (46,545)
--------- --------- ---------
Gross margin 71,387 (8,065) (45,662)
OPERATING EXPENSES:
Marketing expense 11,313 21,665 4,806
Operating expense 78,832 84,364 34,500
Depreciation and amortization 54,410 57,979 4,658
General and administrative expense 128,111 150,506 32,570
--------- --------- ---------
Total operating expenses 272,666 314,514 76,534
--------- --------- ---------
NET LOSS $(201,279) $(322,579) $(122,196)
========= ========= =========
See accompanying notes to these financial statements.
-4-
PIPELINE NETWORKS OF COLORADO, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
FOR THE EIGHT MONTHS ENDED AUGUST 31, 2003 (unaudited),
THE YEAR ENDED DECEMBER 31, 2002 AND THE PERIOD FROM
INCEPTION (AUGUST 23, 2001) THROUGH DECEMBER 31, 2001
ADDITIONAL
CLASS A CLASS A CLASS B CLASS B PAID-IN ACCUMULATED
UNITS VALUE UNITS VALUE CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- --------- --------- ---------
BALANCES, August 23, 2001 -- $ -- -- $ -- $ -- $ -- $ --
Cash contributions -- -- 144,231 75,000 -- -- 75,000
Fixed asset contributions -- -- 331,260 175,255 -- -- 175,255
Contributed expenses -- -- 159,087 82,725 -- -- 82,725
Net loss -- -- -- -- -- (122,196) (122,196)
--------- --------- --------- --------- --------- --------- ---------
BALANCES, December 31, 2001 -- -- 634,578 332,980 -- (122,196) 210,784
Cash contributions -- -- 126,923 66,000 -- -- 66,000
Contributed expenses -- -- 48,499 24,570 -- -- 24,570
Subscription sales of units
Class A 116,279 250,000 -- -- -- -- 250,000
Class B -- -- 64,103 125,000 -- -- 125,000
Net loss -- -- -- -- -- (322,579) (322,579)
--------- --------- --------- --------- --------- --------- ---------
BALANCES, December 31, 2002 116,279 250,000 874,103 548,550 -- (444,775) 353,775
Subscription sales of units:
Class B (unaudited) -- -- 12,820 25,000 -- -- 25,000
Offering costs (unaudited) -- -- -- -- (17,000) -- (17,000)
Repurchase of Class A units
(unaudited) (116,279) (250,000) -- -- 250,000 -- --
Net loss (unaudited) -- -- -- -- -- (201,279) (201,279)
--------- --------- --------- --------- --------- --------- ---------
BALANCES, August 31, 2003
(unaudited) -- $ -- 886,923 $ 573,550 $ 233,000 $(646,054) $ 160,496
========= ========= ========= ========= ========= ========= =========
See accompanying notes to these financial statements.
-5-
PIPELINE NETWORKS OF COLORADO, LLC
STATEMENTS OF CASH FLOWS
FOR THE
PERIOD FROM
INCEPTION
FOR THE EIGHT FOR THE YEAR (AUGUST 23, 2001)
MONTHS ENDED ENDED THROUGH
AUGUST 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
--------- --------- ---------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(201,279) $(322,579) $(122,196)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 54,410 57,979 4,658
Member contribution of expenses -- 24,570 82,725
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables (343) 644 (1,084)
Increase (decrease) in:
Due to related party (6,889) 11,513 --
Accounts payable, trade (1,318) 3,568 9,777
Customer deposits 3,810 8,670 300
Deferred revenue 8,258 16,757 --
Other -- 3,788 --
--------- --------- ---------
Net cash used in operating activities (143,351) (195,090) (25,820)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (29,075) (190,152) (4,558)
Loan to member -- -- (15,300)
--------- --------- ---------
Net cash used in investing activities (29,075) (190,152) (19,858)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from members -- 66,000 75,000
Proceeds from sale of members' equity 25,000 375,000 --
Offering costs -- (17,000)
Notes to members 89,833 -- --
Payments on notes (1,943) (1,280) --
Overdraw of bank account 4,870 -- --
--------- --------- ---------
Net cash provided by financing activities 117,760 422,720 75,000
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (54,666) 37,478 29,322
--------- --------- ---------
CASH AND EQUIVALENTS, beginning of year 66,800 29,322 --
--------- --------- ---------
CASH AND EQUIVALENTS, end of year or end of period $ 12,134 $ 66,800 $ 29,322
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid for interest $ 309 $ 194 $ --
========= ========= =========
NON-CASH TRANSACTIONS:
Purchase of property with debt $ -- $ 20,525 $ --
========= ========= =========
Contribution of fixed assets by member $ -- $ -- $ 175,255
========= ========= =========
See accompanying notes to these financial statements.
-6-
PIPELINE NETWORKS OF COLORADO, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Information for the period subsequent to December 31, 2002 is unaudited.)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------
Nature of Operations - Pipeline Networks of Colorado, LLC, a Colorado
Limited Liability Company, doing business as Pipeline Broadband ("PLBB" or
the "Company"), was formed in August 2001 to provide high-speed Internet
access and other Internet Protocol (IP) services to multi-dwelling units
(MDUs) in the Colorado Front Range.
Cash and Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.
Property and Equipment - Purchased goods and services are recorded at cost.
Depreciation and amortization are calculated by using the straight-line
method with estimated useful lives from 5 to 10 years.
Revenue Recognition - The Company bills all customers one month in advance
of services. Pre-billed amounts are recorded as deferred revenue and
recognized in the actual month of service. Rental of equipment necessary
for services by customers is treated in the same manner. The Company
receives a deposit on all equipment boxes and modems, which are refunded
upon return of the equipment.
Financial Instruments - The estimated fair value of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximate their carrying amounts in the financial statements due to the
short-term nature of these instruments.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term debt
approximates its carrying value.
Interim Financial Information - The accompanying interim financial
information as of June 30, 2003 and for the eight months ended August 31,
2003, has been taken from the Company's books and records without audit.
However, in the opinion of management, such information includes all
adjustments (consisting only of normal recurring accruals) necessary to
fairly present the results of operations of the Company for the eight
months then ended.
Going Concern - The Company has suffered recurring losses from operations,
which have been funded through capital contributions of the members and the
sale of additional equity. This factor indicates that the Company may not
be able to continue as a going concern. Management also believes capital
raised through equity transactions (Note 4) will provide the Company
capital it needs to continue as a going concern. Management also believes
that the continued addition of agreements to provide services to additional
MDUs, as well as other IP services, will provide revenues sufficient for
the Company to continue as a going concern for the coming year, and to
ultimately achieve profitable operations.
-7-
PIPELINE NETWORKS OF COLORADO, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Information for the period subsequent to December 31, 2002 is unaudited.)
2. PROPERTY, PLANT AND EQUIPMENT:
------------------------------
Property, plant and equipment consists of the following:
December 31,
----------------------
2002 2001
--------- ---------
Furniture and equipment $ 1,409 $ 518
Machinery, equipment and field equipment 344,428 164,733
Vehicles 22,035 --
Computer software 3,687 672
Computer hardware 18,951 13,890
--------- ---------
Total 390,510 179,813
Less accumulated depreciation (62,637) (4,658)
--------- ---------
Property, plant and equipment, net $ 327,873 $ 175,155
========= =========
Total depreciation expense related to property, plant and equipment
amounted to $39,803 for the six months ended and $57,979 and $4,658 for the
periods ended December 31, 2002 and 2001, respectively.
3. NOTES PAYABLE:
--------------
December 31,
--------------------
2002 2001
-------- --------
Note payable to Ford Credit, dated September
19, 2002, due September 19, 2007 with interest
at 2.90%. Principal and interest are due
monthly. The note is collateralized by a
vehicle of the Company. $ 19,265 $ --
Less current maturities (3,587) --
-------- --------
Notes payable, less current maturities $ 15,678 $ --
======== ========
-8-
PIPELINE NETWORKS OF COLORADO, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Information for the period subsequent to December 31, 2002 is unaudited.)
As of December 31, 2002, aggregate maturities of notes payables are as
follows:
2003 $ 3,587
2004 4,023
2005 4,141
2006 4,624
2007 2,890
--------
Total payment $ 19,265
========
4. MEMBERS' EQUITY:
----------------
The Company is organized as a Limited Liability Corporation (LLC) which
states the member's individual liability is limited. The Company also has a
finite life, which will terminate on August 23, 2046.
In 2001, one member contributed cash of $75,000, paid expenses of $3,746,
and did not take a salary of $20,000 in exchange for 189,896 Class B units.
Also during 2001, another member contributed assets of $175,255 and paid
expenses of $58,979 in exchange for 444,682 Class B units.
In 2002, one member contributed cash of $66,000, paid expenses of $18,686
and did not take a salary of $18,380 in exchange for 175,422 Class B units.
In 2002, one member's equity was reduced by $12,496 and the receivable from
the member to the Company was written off.
During 2002, a Private Offering Memorandum, dated February 20, 2002 was
issued and would only close upon the option of the Company or when the
desired capital has been raised. This offering allowed the purchase of
either Class A Units for $2.15 per unit or Class B Units for $1.95 per
unit. Class A Units provide for a 9% priority distribution annually based
on the Initial Capital Contribution made. Class B Units do not have such
provision. Holders of the Units will not become members of the LLC. As of
December 31, 2002 116,279 shares of Class A Units were issued for a total
value of $250,000. As of December 31, 2002 64,103 shares of Class B Units
were issued for a total value of $125,000. Legal and other offering costs
related to this offering totaling $17,000, as of December 31, 2002, have
been capitalized and deferred until the offering closes. Subsequent to year
end, these deferred costs of $17,000 were written off as a reduction to
equity as the offering was closed on June 30, 2003.
During 2003 an additional 12,820 shares of Class B Units were issued for a
value of $25,000. No additional Class A Units have been issued. Also during
2003, the holder of the Class A Units sold his units to the Company for
$1.00.
-9-
PIPELINE NETWORKS OF COLORADO, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Information for the period subsequent to December 31, 2002 is unaudited.)
5. EMPLOYMENT AGREEMENTS:
----------------------
The Company has entered into employment agreements with the three
individuals of management. In the event of the termination of employee's
employment with the Company by either party for cause, the Company shall
pay employee, as soon as practicable following the date of termination, his
base salary and reimbursable expenses through date of termination. In the
event of employee's termination is without cause, the Company shall pay
employee one year's base salary as severance. The aggregate commitment as
of December 31, 2002 for future salaries, excluding bonuses, is
approximately $270,000 per year subject to a yearly 5% increase. If
employee is terminated under other circumstances, other amounts may be
owed.
The Company has also entered into an equity incentive agreement with an
employee during 2001, in which the employee has the right to 1% equity per
year for five years (5% maximum ownership). This award can be exercised at
the end of the five years or after a significant event to the Company. The
subsequent event of the purchase of the Company's assets (Note 7) qualifies
as a significant event. As of December 31, 2002, this incentive remains
outstanding.
6. RELATED PARTY:
--------------
In 2001, the Company had a receivable from a member of $15,300. During
fiscal 2002, this balance was settled against equity (Note 4).
The Company has accounts payable balances as of December 31, 2002 to
members of management which total $11,513, related to expense
reimbursements incurred through normal operations.
7. SUBSEQUENT EVENT:
-----------------
On August 25, 2003, the Company entered into an agreement to essentially
sell all its Right of Entry Agreements in various MDUs, and the related
assets, liabilities and customers that directly relate these agreements and
are needed to provide services outlined in such Agreements. The agreed upon
price is $600 per customer, or approximately $292,800 to be paid in cash,
stock and a promissory note.
-10-