Pro Forma Usurf America, Inc. / Connect Paging, Inc. d/b/a Get A Phone
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Effective April 20, 2004, USURF America, Inc., a Nevada corporation,("Usurf")
signed a definitive agreement to acquire all of the issued and outstanding
common stock of Connect Paging, Inc., a Texas Corporation ("CPI"), doing
business as Get A Phone. This acquisition was effected pursuant to a Stock
Purchase Agreement dated April 20, 2004 by and between Usurf, and Brandon Young,
Brian Young and Byron Young the shareholders of all the outstanding shares of
the capital stock of CPI. Usurf paid the shareholders of CPI a total of
$2,000,000 in cash and a total of 14,250,000 shares of USURF $.0001 par-value
common stock.
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 summarizes 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 $ 45,000
Intangibles (Customer List) $1,566,686
Intangibles (Goodwill) $1,955,814
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.
The following unaudited proforma condensed statements of operations assumes the
CPI 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.
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2002
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Proforma Proforma
USURF CPI Adjustments Combined
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Revenues - 1,188,703 1,188,703
Expenses
Cost of Sales 1,474,018 1,474,018
Inventory write down 132,031 - 132,031
Depreciation and amortization 7,336 (1) 328,337 335,673
General and administrative 3,830,181 493,877 4,324,058
Other operating expenses 34,407 34,407
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Total Operating Expenses 3,969,548 2,002,302 328,337 6,300,188
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Operating loss (3,969,548) (813,599) (328,337) (5,111,485)
Other Income (expense) (190,874) (6,978) (2) (80,000) (277,852)
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Net loss (4,160,422) (820,577) (408,337) (5,389,337)
======================================================================
Net loss per common share (0.09) (0.12)
Weighted average shares outstanding 45,008,651 45,008,651
================ ================
(1) To record Depreciation for equipment and amortization of intangible assets.
(2) To record interest on loan to acquire CPI.
The following unaudited proforma condensed statements of operations assumes the
CPI acquisition occurred on January 1, 2002 and presents proforma financial
information for the year ended December 31, 2003. In the opinion of management,
all adjustments necessary to present fairly such unaudited proforma condensed
statements of operations have been made.
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2003
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Proforma Proforma
USURF CPI Adjustments Combined
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Revenues 403,764 6,266,744 6,670,508
Expenses
Internet access cost 493,504 493,504
Cost of Sales 5,409,966 5,409,966
Depreciation and amortization 130,384 (1) 328,337 458,721
General and administrative 3,363,336 1,745,179 5,108,515
Other operating expenses 86,353 86,353
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Total Operating Expenses 3,987,224 7,241,498 328,337 11,557,059
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Operating loss (3,583,460) (974,754) (328,337) (4,886,551)
Other Income (expense) (70,896) (907) (1) (80,000) (151,803)
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Net loss (3,654,356) (975,661) (408,337) (5,038,354)
=====================================================================
Net loss per common share (0.04) (0.06)
Weighted average shares outstanding 89,186,106 89,186,106
================ ===============
(1) To record Depreciation for equipment and amortization of intangible assets.
(2) To record interest on loan to acquire CPI.
INDEX TO FINANCIAL STATEMENTS
0 Independent Auditor's Report
0 Balance Sheets as of December 31, 2003 and December 31, 2002
0 Statements of Operations for years ended December 31, 2003; December 31,
2002 and December 31, 2001
0 Statements of Stockholder's Equity for the years ended December 31, 2003;
December 31, 2002 and December 31, 2001
0 Statements of Cash Flows for the years ended December 31, 2003; December
31, 2002 and December 31, 2001
0 Notes to the Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Extel Enterprises, Inc.
Fort Worth, TX 76115
I have audited the accompanying balance sheets of Extel Enterprises, Inc., as of
December 31, 2003 and 2002, the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 2003, 2002, and 2001.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I conducted my audit in accordance with auditing standards generally accepted in
the United States. Those standards require that I plan and perform the audit 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. I believe that my audits provide a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Extel Enterprises, Inc. as of
December 31, 2003 and 2002, and the results of their operations and their cash
flows for the years ended December 31, 2003, 2002, and 2001, in conformity with
accounting principles generally accepted in the United States.
The accompanying Financial Statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 8 to the Financial
Statements, the Company's recurring losses from operations and limited capital
resources raise substantial doubt about the Company's ability to continue as a
going concern.
Louis B. Fox
Certified Public Accountant
Monsey, New York
February 23, 2004
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
----------- -----------
CURRENT ASSETS
Cash $ 14,306 $ --
Inventory 9,449 6,814
Other current assets -- --
Loan stockholders' 57,599 --
----------- -----------
Total Current Assets 81,354 6,814
----------- -----------
Property and Equipment, net of accumulated
Depreciation of $11,778 and $5,088 45,387 21,957
Deposits 3,202 3,202
----------- -----------
Total Assets $ 129,943 $ 31,973
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank note payable $ 45,000 $ 35,000
Cash overdraft -- 36,449
Accounts payable 1,396,213 475,351
Accrued expenses and other current liabilities 99,027 37,962
Loan stockholder's -- 14,591
Deferred income 368,102 235,357
----------- -----------
Total Current Liabilities 1,908,342 834,710
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 1,000,000
Shares authorized, 1,000 and 1,000
Shares issued and outstanding 1,000 1,000
Paid in capital 1,000 1,000
Retained earnings (deficit) (1,780,399) (804,737)
----------- -----------
Total Stockholders' Equity (1,778,399) (802,737)
----------- -----------
Total Liabilities and Stockholders' Equity $ 129,943 $ 31,973
=========== ===========
See Accompanying Auditor' Report and Notes to Financial Statements.
EXTEL ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
----------- ----------- -----------
Revenues $ 6,266,744 $ 1,188,703 $ 174,298
Cost of Sales 5,409,966 1,474,018 55,460
----------- ----------- -----------
Gross Profit 856,778 (285,315) 118,838
Operating Expenses
Selling 86,353 34,407 22,080
General and administrative 1,745,179 493,877 78,346
----------- ----------- -----------
Total Operating Expenses 1,831,532 528,284 100,426
----------- ----------- -----------
Income (loss) from operations (974,754) (813,599) 18,412
----------- ----------- -----------
Other Income (Expenses)
Interest income 867 509 --
Interest expense (1,775) (4,914) --
----------- ----------- -----------
Total Other Income (Expense) (908) (4,405) --
Net Income (Loss)before
provision for income taxes (975,661) (818,004) 18,412
Provision for (recovery) of
income tax -- (2,573) 2,573
----------- ----------- -----------
Net Income (Loss) $ (975,661) $ (820,577) $ 15,839
=========== =========== ===========
See Accompanying Auditors' Report and Notes to Financial Statements.
EXTEL ENTERPRISES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Totals
----------- ----------- ----------- ----------- -----------
December 1, 2001 -- $ -- $ -- $ -- $ --
Issuance of Common Stock 1,000 1,000 1,000 2,000
Net income for the year ended
December 31, 2001 15,839 15,839
----------- ----------- ----------- ----------- -----------
Balances,
December 31, 2001 1,000 1,000 1,000 15,839 17,839
Net (loss) for the year ended
December 31, 2002 -- (820,577) (820,577)
----------- ----------- ----------- ----------- -----------
Balances
December 31, 2002 1,000 1,000 1,000 (804,738) (802,738)
Net (Loss) for the year ended
December 31, 2003 (975,661) (975,661)
----------- ----------- ----------- ----------- -----------
Balance
December 31, 2003 1,000 $ 1,000 $ 1,000 $(1,780,399) $(1,778,399)
=========== =========== =========== =========== ===========
See Accompanying Auditors' Report and Notes to Financial Statements.
EXTEL ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001
2003 2002 2001
--------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $(975,662) $(820,577) $ 15,839
Adjustments to reconcile net income to net cash
flows from operating activities
Depreciation and amortization 6,690 4,159 929
Changes in:
Inventory (2,635) (4,081) (2,733)
Other current assets -- 1,752 (1,752)
Security deposit -- (1,752) (1,450)
Accounts payable 920,863 475,351 --
Cash overdraft (36,449) 36,449 --
Accrued expenses 61,064 33,649 4,313
Deferred Income 132,745 235,357 --
--------- --------- ---------
Cash Flows provided by (used in)
Operating Activities 106,617 (39,693) 15,146
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (30,120) (15,623) (11,422)
--------- --------- ---------
Cash Flows (used in) Investing Activities (30,120) (15,623) (11,422)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from officer, net (72,191) 14,662 (70)
Proceeds from bank notes payable, net 10,000 35,000 --
Proceeds from sale of stock -- 2,000
--------- --------- ---------
Cash Flows provided by
(used in) Financing Activities (62,191) 49,662 1,930
--------- --------- ---------
Net increase (decrease) in cash 14,306 (5,654) 5,654
--------- --------- ---------
Cash Balances
Beginning of Period -- 5,654 --
--------- --------- ---------
End of Period $ 14,306 $ 0 $ 5,654
========= ========= =========
Supplemental Cash Flow Information
2003 2002 2001
--------- --------- ---------
Cash paid during the year for:
Interest $ 1,775 $ 4,914
Income taxes $ 1,793
See Accompanying Auditors' Report and Notes to Financing
EXTEL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of business and basis. Extel Enterprises, Inc. (the "Company") was
incorporated under the laws of the state of Texas on May 20, 2001. The Company
began to do business as a telemarketing firm which was discontinued during the
first quarter of 2002. On May 20, 2001, the Company received approval for a
service provider certificate of operating authority (SPCOA) to provide
resale-only telecommunication service within the geographic area of Texas
comprising the Dallas and San Antonio local access transport areas. On August
29, 2002, the Company received approval to amend its service provider
certificate of operating authority to remove the resale-only restriction.
Cash and cash equivalents. For purposes of the statements of cash flows, cash
equivalents include all highly liquid investments with original maturities of
three month or less.
Revenue recognition occurs as the services are provided. All service is billed
15 days in advance. If payment for the service is not received within 5 days
after the date service begins, the customers service is cut off. When a new
customer's service commences the customer receives 15 days free service before
he receives the first invoice.
Merchandise inventory is stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and equipment is stated at cost. Depreciation is provided for on the
straight-line method over the useful estimated life. The cost of maintenance and
repairs is expensed as incurred.
The Company follows Statement of Financial Accounting Standards No. 144,
Impairment of Long-lived Assets, by reviewing such assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.
Income taxes are computed using the tax liability method of accounting, whereby
deferred income taxes are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates that will be in effect when the differences reverse.
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses at the balance sheet date and for the period then ended. Actual
results could differ from these estimates.
NOTE 2 - BANK NOTE PAYABLE
On September 5, 2002, the Company entered in to a financing agreement with the
Bank of America for a credit line in the amount of $50,000. The line of credit
is for a period of three years. After the three-year period the balance is
converted into a term loan and any remaining balance will be amortized in equal
monthly installments of principal and interest over the remaining life of the
agreement which expires on September 5, 2009. The initial interest rate on the
loan was 8.0% and may be adjusted over the term of the loan with a maximum of
3.25% over the interest rate published from time to time in the Wall Street
Journal listing of "Money Rates" as the Prime Rate.
The line of credit is guaranteed by the three stockholders and officers of the
Company.
NOTE 3 - INCOME TAXES
The Company prepares its corporate tax returns on the cash basis. These
financial statements and the tax accruals have been prepared on the accrual
method.
Income taxes (benefits) consist of the following:
2003 2002 2001
--------- --------- ---------
Current $ 0 $ (2,573) $ 2,573
--------- --------- ---------
A reconciliation of income tax at the federal statutory income tax rate to total
income taxes is as follows:
2003 2002 2001
--------- --------- ---------
Computed at federal statutory rate of 34% $ -- $ -- $ 6,260
State income tax (benefit) -- -- 594
Other adjustments -- -- (4,281)
--------- --------- ---------
Total $ -- $ -- $ 2,573
--------- --------- ---------
The Company has not provided for deferred taxes since it has sustained
significant operating losses and it cannot be determined more likely than not
whether the Company will be able to use such net operating loss carryover.
NOTE 4 - COMMON STOCK ISSUANCES
In the certificate of incorporation the Company is authorized to issue 1,000,000
share of common stock par value $1.00. In 2001, the Company issued 1,000 shares
of common stock to the three founders of the Company for a total consideration
of $2,000.
NOTE 5 - LEASES
The Company leases office space in Fort Worth, Texas under a lease dated
December 1, 2002 through November 30, 2004. The Company has an option to renew
the lease for three additional one-year periods through November 30, 2007. In
addition, the Company leases retail space in Fort Worth, Texas under a lease
dated July 1, 2001 through July 1, 2004. The future minimum lease payments are
$28,368 in 2004.
NOTE 6 - 401(K) PLAN
In 2003, the Company instituted a 401(k) plan for all eligible employees. The
amount contributed or accrued by the Company for the year ended was $77,487.
NOTE 7 LITIGATION
The Company is currently involved in a case, Basicphone, Inc: Diamond Telco,
Inc. d/b/a Diamond Telco-your Home Telephone Store; Extel Enterprises, Inc.; and
R-Tex Communication Group, Inc. (collectively CLEC) v. Southwestern Bell
Telephone, L.P. (SBC) Docket No. 26581 before the Public Utility Commission of
Texas. Each of the petitioners in this case have generic interconnection
agreements with SBC known in the industry as the T2A. The agreement does not
specify the amount that the CLEC will be charged for electronically connecting
new resale customers to the network,nor the amount the CLEC will be charged for
electronically suspending or restoring resale customers.
SBC has been taking the position that it may charge the retail tariffed rate for
manual new service orders, less a wholesale discount, for the electronic new
service orders (approximately $14.96) and the full retail rate for the
electronic suspend/ restore orders ($25.00). In contrast, the petitioners claim
that these functions must be offered at the UNE TELRIC rate of no more than
$2.58.
The Texas Commission decided a similar case on May 16, 2002 that stated:
a. generally that electronic OSS functions associated with resold
services were not services offered at retail to the public and
therefore not covered by the Tariff
b. that these electronic ordering provisioning functions were UNEs
c. that their price should be TELTIC based , and
d. specifically, that electronic service order charge for processing of
simple residential resold services for new connects and suspended
customers is and should be $2.58.
EXTEL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
The Texas Commission's holding in Docket 24547 was upheld in federal court on
July 9, 2003.
In Docket 26581, the complainants, including Extel Enterprises, Inc. seek to
have the Commission either reproduce its reasoning in Docket 24547: or allow
petitioners to take as their own the results reached in Docket 24547, that is
being charged no more than $2.58 for these electronic orders in the resale
context.
The Company has recorded in its liabilities the full amount owed to SBC which
includes approximately $850,000 in disputed fees which is the difference between
the Company's calculation and the prices alleged by SBC.
NOTE 8 -GOING CONCERN
As of December 31, 2003, the Company has generated operating losses of
$1,780,399 and its liabilities exceed its assets by approximately $1,778,399.
Included in the operating losses are disputed charges in excess of $850,000 as
described in note 7 .If the Company were to win the arbitration, its liabilities
would be reduced by that amount. As a result of the recurring operating losses
the ability of the Company to continue as a going concern is in question.
The Company has discussed the reasons for the recurring losses and believes that
they can institute changes in operating procedures that will allow them to
reduce the losses incurred when a customer cuts off service including mandating
a minimum service period. In addition, the Company has entered into negotiations
to sell its customer base and with the proceeds reduce its liabilities
significantly. There is no assurance that the Company will be able to institute
all the remedies noted above and even if the Company is successful there is no
assurance that it will be sufficient for the Company to be able to continue as a
going concern.
NOTE 9 - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at financial institutions. At times such
balances exceed the insured limits of the financial institution. The Company has
not experienced any losses in such accounts and does not believe it is exposed
to any significant credit risk on cash balances. As of December 31, 2003, the
Company had $50,484 on deposit, in excess of the $100,000, which is insured
under federal law.
The Company is 100% dependent on Southwestern Bell Telephone Company to provide
telephone service to its customers.