AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 2004.
REGISTRATION NO. 333-__________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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USURF AMERICA, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 4813 91-2117796
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
390 INTERLOCKEN CRESCENT, SUITE 900, BROOMFIELD, COLORADO 80021
(303) 789-7100
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
DOUGLAS O. MCKINNON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
USURF AMERICA, INC.
390 INTERLOCKEN CRESCENT, SUITE 900
BROOMFIELD, COLORADO 80021
(303) 789-7100
(Name, Address and Telephone Number of Agent for Service)
COPIES TO:
CHRISTOPHER K. BRENNER, ESQ.
CHRISTOPHER K. BRENNER, P.C.
14 N. SIERRA MADRE
COLORADO SPRINGS, COLORADO 80903
(719) 471-7026
FAX: (719) 471-7036
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after
this registration statement is declared effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]____________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $.0001 par value per share.............. 13,953,870 shares $0.0925(3) $1,290,733(3) $151.92
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Common Stock, $.0001 par value per share(5)........... 20,000,000 shares $0.075(4) $1,500,000(4) $176.55
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Common Stock, $.0001 par value per share(5)........... 53,400,000 shares $0.050(5) $2,670,000(4) $314.26
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Common Stock, $.0001 par value per share(5)........... 11,903,420 shares $0.101(6) $1,196,535(4) $140.83
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Total(7)........................................... 99,257,290 shares $6,657,268 $783.56
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(1) All shares of common stock registered pursuant to this registration
statement are being offered by the selling shareholders.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Computed in accordance with Rule 457(c) under the Securities Act, using
the average of the high and low prices reported on the Over-The-Counter
Bulletin Board on December 21, 2004.
(4) Computed in accordance with Rule 457 (g) under the Securities Act, using
the maximum conversion price of the preferred stock.
(5) Computed in accordance with Rule 457 (g) under the Securities Act, using
the weighted average conversion price of the debentures.
(6) Computed in accordance with Rule 457 (g) under the Securities Act, using
the weighted average exercise price of the warrants.
(7) Represents shares of common stock issuable upon the exercise of warrants,
conversion of preferred stock and conversion of convertible debentures
held by the selling shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
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SUBJECT TO COMPLETION, DATED DECEMBER 23, 2004
PROSPECTUS
USURF AMERICA, INC.
UP TO 99,257,290 SHARES
OF COMMON STOCK
This prospectus relates to the sale of up to 99,257,290 shares of our
common stock by the selling shareholders identified on page 27 of this
prospectus. Of these shares, 13,953,870 shares were issued and outstanding as of
December 21, 2004, and 85,303,420 shares are issuable upon the exercise of
warrants, conversion of preferred stock AND THE CONVERSION OF CONVERTIBLE NOTES
that we have issued to the selling shareholders.
The selling shareholders may sell the shares of common stock from time to
time at the prevailing market price for the shares or in negotiated
transactions. We will not receive proceeds from the sale of shares of common
stock by selling shareholders. We may, however, receive total proceeds of up to
$ 1,196,535 upon the exercise of the warrants held by the selling shareholders.
Our common stock is quoted on the Over-The-Counter Bulletin Board under
the symbol "USUR". On December 21, 2004, the last reported sale price per share
of our common stock, as reported on the OTC Bulletin Board, was $0.090 per
share.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 2 BEFORE PURCHASING OUR COMMON STOCK.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus
is December 23, 2004.
TABLE OF CONTENTS
PAGE
FORWARD-LOOKING STATEMENTS....................................................ii
PROSPECTUS SUMMARY.............................................................1
RISK FACTORS...................................................................2
USE OF PROCEEDS................................................................5
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................5
DIVIDEND POLICY................................................................6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................6
BUSINESS......................................................................11
MANAGEMENT....................................................................19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................23
LEGAL PROCEEDINGS.............................................................25
PLAN OF DISTRIBUTION..........................................................26
SELLING SHAREHOLDERS..........................................................27
DESCRIPTION OF SECURITIES.....................................................28
LEGAL MATTERS.................................................................29
EXPERTS.......................................................................29
AVAILABLE INFORMATION.........................................................29
INDEX TO FINANCIAL STATEMENTS................................................F-1
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL OUR COMMON STOCK IN ANY STATE OR OTHER JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE
CHANGED SINCE THE DATE OF THIS PROSPECTUS.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Such forward-looking
statements include statements regarding, among other things, (a) our projected
sales and profitability, (b) our growth strategies, (c) anticipated trends in
our industry, (d) our future financing plans and (e) our anticipated needs for
working capital. Forward-looking statements, which involve assumptions and
describe our future plans, strategies, and expectations, are generally
identifiable by use of the words "may", "will", "should", "expect",
"anticipate", "estimate", "believe", "intend" or "project" or the negative of
these words or other variations on these words or comparable terminology. This
information may involve known and unknown risks, uncertainties, and other
factors that may cause our actual results, performance, or achievements to be
materially different from the future results, performance, or achievements
expressed or implied by any forward-looking statements. These statements may be
found under the sections titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," and elsewhere in
this prospectus. Actual events or results may differ materially from those
discussed in forward-looking statements as a result of various factors,
including, without limitation, the risks outlined under "Risk Factors" and
matters described in this prospectus generally. In light of these risks and
uncertainties, the inclusion of forward-looking statements in this prospectus
should not be regarded as a representation by us or any other person that the
results or conditions described in such statements or our objectives and plans
will be achieved.
Any forward-looking statement speaks only as of the date on which it is
made. Except to fulfill our obligations under the United States securities laws,
we undertake no obligation to update any such statement to reflect events or
circumstances after the date on which the statement is made.
ii
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PROSPECTUS SUMMARY
USURF AMERICA, INC.
USURF America, Inc. is a facilities-based provider of high-speed "last
mile" connectivity, delivering Internet access and interactive broadband
services to underserved markets. We operate as a provider of video (cable
television) and data (Internet) services to business as well as residential
customers, and we offer telecommunications services including local, long
distance and enhanced telephone (voice) services. We currently provide services
to customers in Colorado, Texas and Arizona. We also market and sell
telecommunications-related hardware and software.
Our current business plan involves obtaining, as many voice, video and
data customers as possible by offering various combinations of bundled packages
and communications services. Our growth strategy also includes acquisitions of
telecommunications-related businesses and/or properties which would provide an
immediate or potential customer base for our services.
In April 2004, we acquired all of the issued and outstanding common stock
of Connect Paging, Inc., doing business as Get-A-Phone ("GAP"). GAP is a
Texas-based communications company operating as a local exchange carrier in
areas currently served by SBC and Verizon Southwest. At the time of the
acquisition, GAP had more than 11,000 customers and annual revenues of
approximately $9,600,000.
FINANCIAL CONDITION
We have incurred substantial losses since our inception in 1996. At
September 30, 2004, our accumulated deficit was $56.31 million, our net loss for
the nine months ended September 30, 2004 was $13.30 million, and our operating
activities used $3.2 million in cash for the nine months ended September 30,
2004. Our net loss for the year ended December 31, 2003 was $3.7 million and our
operating activities used $1.1 million in cash for 2003.
In its opinion on our financial statements for the year ended December 31,
2003, our independent auditor, Hein & Associates LLP, expressed substantial
doubt about our ability to continue as a going concern.
CORPORATE INFORMATION
We were incorporated under the laws of the State of Nevada on November 1,
1996, under the name "Media Entertainment, Inc." In July 1999, we changed our
corporate name to "USURF America, Inc."
Our principal executive offices are located at 390 Interlocken Crescent,
Suite 900, Broomfield, Colorado 80021. Our telephone number is (719) 260-6455
and our fax number is (719) 260-6456. Our web site is located at www.usurf.com.
The reference to our web site does not constitute incorporation by reference of
the information contained at the site and you should not consider it a part of
this prospectus.
1
RISK FACTORS
Investing in our common stock involves risks. You should carefully
consider the risks described below before purchasing our common stock. If any of
the following risks occur, our business, financial condition and results or
operations could be materially adversely affected, the trading of our common
stock could decline, and you may lose all or part of your investment. You should
acquire shares of our common stock only if you can afford to lose your entire
investment.
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXPRESSED IN THEIR AUDIT
REPORT RELATED TO OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003,
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
In its opinion on our financial statements for the year ended December 31,
2003, our independent auditor, Hein + Associates LLP, expressed substantial
doubt about our ability to continue as a going concern because of our recurring
losses and negative working capital.
WE HAVE A HISTORY OF SIGNIFICANT LOSSES AND WE MAY NEVER ACHIEVE OR SUSTAIN
PROFITABILITY. IF WE ARE UNABLE TO BECOME PROFITABLE, OUR OPERATIONS WILL BE
ADVERSELY EFFECTED.
We have incurred annual operating losses since our inception. As a result,
at September 30, 2004, we had an accumulated deficit of $56,310,384. Our gross
revenues for the year ended December 31, 2003, were $403,764, with a loss from
operations of $3,583,460 and a net loss of $3,654,356. Our gross revenues for
the years ended December 31, 2002 and 2001, were $0 and $7,446, respectively,
with losses from operations of $3,969,548 and $2,954,189, respectively, and net
losses of $4,160,422 and $2,498,468 respectively.
As we pursue our business plan, we expect our operating expenses to
increase significantly, especially in the areas of sales and marketing. As a
result of these expected cost increases, we will need to generate increased
revenues to become profitable. Accordingly, we cannot assure you that we will
ever become or remain profitable. If our revenues fail to grow at anticipated
rates or our operating expenses increase without a commensurate increase in our
revenues, our financial condition will be adversely affected. Our inability to
become profitable on a quarterly or annual basis would have a materially adverse
effect on our business and financial condition. Also, the market price for our
stock could fall.
WE ARE DEPENDENT UPON LONG-TERM FINANCING. IF WE ARE UNABLE TO RAISE CAPITAL AS
WE NEED IT, OUR OPERATIONS COULD BE JEOPARDIZED
Our ability to implement our business plan and grow is dependent on
raising a significant amount of capital. We have sustained our operations in
large part from sales of our equity. We may not be able to successfully generate
revenues or raise additional funds sufficient to finance our continued
operations. In the long term, failure to generate sufficient revenues or obtain
financing would have a material adverse effect on our business and would
jeopardize our ability to continue our operations.
WE HAVE IN THE PAST AND MAY IN THE FUTURE ENGAGE IN ACQUISITIONS, WHICH WILL
CAUSE US TO INCUR A VARIETY OF COSTS AND WHICH MAY NOT ACHIEVE ANTICIPATED OR
DESIRED RESULTS.
From time to time we engage in discussions with third parties concerning
potential acquisitions of businesses, products, technologies and other assets.
Acquisitions may require us to make considerable cash outlays and can entail the
need for us to issue equity securities, incur debt and contingent liabilities,
incur amortization expenses related to intangible assets, and can result in the
impairment of goodwill, which could harm our profitability. Acquisitions involve
a number of additional risks, including:
o difficulties in and costs associated with the assimilation of the
operations, technologies, personnel and products of the acquired
companies,
o assumption of known or unknown liabilities or other unanticipated
events or circumstances,
2
o risks of entering markets in which we have limited or no experience,
and
o potential loss of key employees.
Any of these risks could harm our ability to achieve profitability of
acquired operations or to realize other anticipated benefits of an acquisition.
WE HAVE SENIOR SECURED CONVERTIBLE DEBENTURES TOTALING $4,420,000 DUE IN 2005
AND 2006, COLLATERALIZED BY ALL OUR ASSETS. WE DO NOT HAVE THE FUNDS AVAILABLE
TO PAY THESE DEBENTURES IF NOT CONVERTED INTO COMMON STOCK. IF THE DEBENTURES
ARE NOT PAID OR CONVERTED, THE DEBENTURE HOLDERS COULD FORECLOSE ON OUR ASSETS.
During 2004, we entered into a series of private placements totaling
$4,420,000 in senior secured debentures, convertible into common stock at $0.05
per share. If not converted, we will owe $2,095,000 to the debenture holders on
September 15, 2005 and $2,325,000 to the debenture holders on June 15, 2006. The
debentures bear interest at rates from six percent (6%) to twelve percent (12%)
and are collateralized by our assets. We do not currently have the funds to pay
these debentures and we cannot assure you that we will have the funds to pay
them on the due dates. If the debentures are not paid or converted, the
debenture holders could foreclose on our assets.
WE RELY ON LOCAL TELEPHONE COMPANIES AND OTHER COMPANIES TO PROVIDE CERTAIN
TELECOMMUNICATIONS SERVICES. A DISRUPTION OF THESE SERVICES COULD HAVE AN
ADVERSE EFFECT ON OPERATIONS.
Our wholly owned subsidiary, Connect Paging, Inc. d/b/a Get-A-Phone is a
Texas-based communications company operating as a local exchange carrier in
areas currently served by SBC and Verizon Southwest We buy certain
telecommunications from SBC and Verizon and resell these to our customers. If we
were not able to buy these services or if we experienced a disruption of these
services, it would adversely effect our ability to operate in these areas.
WE HAVE THE ABILITY, WITHOUT SHAREHOLDER APPROVAL, TO ISSUE PREFERRED STOCK AND
DESIGNATE THE RIGHTS, PREFERENCES AND PRIVILEGES THAT MAY BE SENIOR TO COMMON
STOCK.
In November 2004, we issued 10,000 shares of Series A Convertible
Preferred Stock ("Series A Stock") at $100.00 per share, for a total
consideration of $1,000,000. The Series A Stock is convertible into our common
stock at a conversion price ranging from $0.05 to $0.075 as calculated in
accordance with the Certificate of Designation. The Series A Stock has a
liquidation preference ahead of the common shares in the event of any
dissolution or winding up of our company and is entitled to any dividends that
may be declared from time to time by the Board of Directors.
We have a total of 100,000,000 authorized shares of preferred stock. The
Board of Directors may determine, without shareholder approval, the rights,
preferences and privileges of the preferred stock. Depending on the rights,
preferences and privileges granted when the preferred stock is issued, it may
have the effect of delaying, deferring or preventing a change in control without
further action by the shareholders, may discourage bids for our common stock at
a premium over the market price of the common stock and may adversely affect the
market price of and the voting and other rights of the holders of our common
stock.
WE CAN ISSUE COMMON STOCK WITHOUT SHAREHOLDER APPROVAL THAT MAY CAUSE DILUTION
TO EXISTING SHAREHOLDERS.
We have 400,000,000 authorized shares of common stock that can be issued
by the Board of Directors. At December 20, 2004, we had available for issue
198,039,912 shares of common stock. Under most circumstances the Board of
Directors has the right to issue these shares. If all of these shares were
issued, it would substantially dilute the existing shareholders.
3
OUR COMMON STOCK HAS EXPERIENCED SIGNIFICANT PRICE VOLATILITY IN THE PAST AND WE
EXPECT IT TO EXPERIENCE HIGH VOLATILITY IN THE FUTURE. THIS HIGH VOLATILITY
SUBSTANTIALLY INCREASES THE RISK OF LOSS TO PERSONS OWNING OUR COMMON STOCK.
The trading price for our common stock has been, and we expect it to
continue to be, highly volatile. For example, the closing bid price of our stock
has fluctuated between $0.04 and $0.35 per share since January 1, 2002. The
price at which our common stock trades depends upon a number of factors,
including our historical and anticipated operating results and general market
and economic conditions, which are beyond our control. In addition, the stock
market has, from time to time, experienced extreme price and volume
fluctuations. These broad market fluctuations may lower the market price of our
common stock. Moreover, during periods of stock market price volatility, share
prices of many telecommunications companies have often fluctuated in a manner
not necessarily related to their operating performance. Accordingly, our common
stock may be subject to greater price volatility than the stock market as a
whole.
FUTURE SALES OF COMMON STOCK MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
Future sales of substantial amounts of common stock pursuant to Rule 144
under the Securities Act of 1933 or otherwise by certain shareholders could have
a material adverse impact on the market price for the common stock at the time.
As of the date of this prospectus, there are 87,515,688 outstanding shares of
our common stock held by shareholders which are deemed "restricted securities"
as defined by Rule 144 under the Securities Act. Under certain circumstances,
these shares may be sold without registration pursuant to the provisions of Rule
144. In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of restricted
securities which does not exceed the greater of one (1%) percent of the shares
outstanding or the average weekly trading volume during the four calendar weeks
preceding the notice of sale required by Rule 144. In addition, Rule 144
permits, under certain circumstances, the sale of restricted securities without
any quantity limitations by a person who is not an affiliate of ours and has
satisfied a two-year holding period. Any sales of shares by shareholders
pursuant to Rule 144 may cause the price of our common stock to decline.
In addition, future sales of shares of common stock by shareholders and
us, including sales by the selling shareholders pursuant to this prospectus and
subsequent sale of common stock by the holders of warrants, could have an
adverse effect on the trading price of our securities. The sale of a significant
amount of these shares at any given time could cause the trading price of our
common stock to decline.
OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES WHICH MAY BE DETRIMENTAL TO
INVESTORS.
Our common stock has traded at a price substantially below $5.00 per
share, subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions, commonly referred to as a "penny stock." Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and institutional or wealthy investors.
For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to the sale. The broker-dealer also
must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could discourage broker-dealers from
effecting transactions in our common stock. These disclosure requirements may
have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules.
4
OUR COMMON STOCK WAS DE-LISTED FROM THE AMERICAN STOCK EXCHANGE AND IS NOW
TRADED ON THE OTC BULLETIN BOARD, WHICH MAY BE DETRIMENTAL TO INVESTORS.
Our stock common stock was de-listed from the American Stock Exchange
effective March 9, 2004 because we failed to maintain the continued listing
standards of AMEX. As a result, effective March 22, 2004 our common stock is
traded on the OTC Bulletin Board. Stocks traded on the OTC Bulletin Board
generally have limited trading volume and exhibit a wide spread between the
bid/ask quotation.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY AGAINST ESTABLISHED COMPETITORS WITH GREATER FINANCIAL RESOURCES AND
MORE DIVERSE STRATEGIC PLANS.
We face competition from many communications providers with significantly
greater financial, technical and marketing resources, longer operating
histories, well-established brand names, larger customer bases and diverse
strategic plans and technologies. Intense competition has led to declining
prices and margins for many communications services. We expect this trend to
continue as competition intensifies in the future. We expect significant
competition from traditional and new communications companies, including local,
long distance, cable modem, Internet, digital subscriber line, fixed and mobile
wireless and satellite data service providers, some of which are described in
more detail below. If these potential competitors successfully focus on our
market, we may face intense competition which could harm our business. In
addition, we may also face severe price competition for building access rights,
which could result in higher sales and marketing expenses and lower profit
margins.
REGULATION OF THE INTERNET.
Due to the increasing popularity and use of the Internet by broad segments
of the population, it is possible that laws and regulations may be adopted with
respect to the Internet pertaining to content of Web sites, privacy, pricing,
encryption standards, consumer protection, electronic commerce, taxation, and
copyright infringement and other intellectual property issues. No one is able to
predict the effect, if any, that any future regulatory changes or developments
may have on the demand for our Internet access or other Internet-related
services. Changes in the regulatory environment relating to the Internet access
industry, including the enactment of laws or promulgation of regulations that
directly or indirectly affect the costs of telecommunications access or that
increase the likelihood or scope of competition from national or regional
telephone companies, could materially and adversely affect our business,
operating results and financial condition.
WE WILL INCUR CERTAIN EXPENSES IN CONNECTION WITH THIS REGISTRATION.
We are required to pay the fees and expenses incurred by us in connection
with the registration of the shares under this registration statement. We have
also agreed to indemnify certain of the selling shareholders against losses,
claims, damages and liabilities arising out of relating to any misstatements or
omissions in this registration statement or prospectus, including liabilities
under the Securities Act.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling shareholders identified in this
prospectus. We will receive no proceeds from the sale of shares of common stock
in this offering. However, we may receive up to $1,196,535 in proceeds upon the
exercise of warrants held by the selling shareholders. Any proceeds we receive
upon the exercise of warrants will be used for working capital and general
corporate purposes.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Until March 9, 2004, our common stock traded on the American Stock
Exchange under the symbol "UAX." Effective March 22, 2004, our common stock
began trading on the OTC Bulletin Board under the symbol "USUR" The market
represented by the OTC Bulletin Board is extremely limited and the price for our
common stock quoted on the OTC Bulletin Board is not necessarily a reliable
indication of the value of our common stock. The following table sets forth the
high and low closing sales prices for our common stock as reported by AMEX
through the first quarter of 2004, and the high and low bid prices for our
shares of common stock as reported on the OTC Bulletin Board for the period
beginning in the first quarter of 2004. Quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
5
YEAR PERIOD HIGH LOW
- ---- ----------------------------------------------------- ----- ------
2004 Fourth Quarter (through December 20, 2004) $0.13 $0.06
Third Quarter 0.09 0.05
Second Quarter 0.19 0.06
First Quarter (OTC Bulletin Board beginning March 22)
First Quarter (AMEX through March 8) 0.24 0.20
2003 Fourth Quarter 0.35 0.15
Third Quarter 0.24 0.13
Second Quarter 0.29 0.04
First Quarter 0.09 0.05
2002 Fourth Quarter 0.13 0.04
Third Quarter 0.11 0.04
Second Quarter 0.12 0.04
First Quarter 0.25 0.08
Our common stock is subject to Rule 15g-1 through 15g-9 under the
Securities Exchange Act of 1934, which imposes certain sales practice
requirements on broker-dealers who sell our common stock to persons other than
established customers and "accredited investors" (generally, individuals with a
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 together with their spouses). For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
the sale.
As of December 20, 2004, we had approximately 201,960,088 shares of common
stock issued and outstanding, which shares were held by approximately 1,235
holders of record. Certain shares of common stock are held in "street" name and
may, therefore, be held by numerous beneficial owners.
DIVIDEND POLICY
Our board of directors determines any payment of dividends. We have never
declared or paid cash dividends on our common stock. We currently intend to
retain all available funds for use in the operations of our business and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future. Any determination to pay dividends in the future will be dependent on
our results of operations, our financial condition, restrictions imposed by
applicable law and other factors deemed relevant by our board of directors.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the financial
statements and the related notes contained elsewhere in this prospectus. This
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth the
sections titled under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
During 2003 and the first half of 2004, we continued to implement and
expand our business plan beyond solely offering wireless Internet access
service. We currently operate as a provider of video (cable television) and data
(Internet) services to business and residential customers. In addition, with the
acquisition of Connect Paging, Inc., doing business as Get-A-Phone, we offer
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additional telecommunications services including local, long distance and
enhanced telephone (voice) services. We also market and sell
telecommunications-related hardware and software. Our current business plan
involves obtaining, through internal growth, as many voice, video and data
customers as possible offering various combinations of bundled packages of
communications services. Our growth strategy also includes acquisitions of
telecommunications-related businesses and/or properties which would provide an
immediate or potential customer base for our services.
GOING CONCERN
Our auditor stated in its report on our financial statements for the
period ended December 31, 2003 and 2002 that we have experienced recurring
losses and operated with negative working capital and, as a result, there exists
substantial doubt about our ability to continue as a going concern. For the nine
months ended September 30, 2004 and 2003, we incurred a net loss of $13,298,539
and $1,990,795, respectively. As of September 30, 2004, we had an accumulated
deficit of $56,310,384. Management is actively seeking customers for its
services. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event we cannot
continue in existence. These factors raise substantial doubt about our ability
to continue as a going concern.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are those having the most impact on the
reporting of our financial condition and results and those requiring significant
judgments and estimates. These policies include those related to (1) accounts
receivable, (2) inventory valuation, (3) amortization and recoverability of
long-lived assets, including goodwill, (4) litigation accruals and (5) revenue
recognition. Management bases its estimates and judgments on its historical
experience and other relevant factors, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.
While management believes that the historical experience and other factors
considered provide a meaningful basis for the accounting policies applied in the
preparation of our consolidated financial statements, management cannot
guarantee that its estimates and assumptions will be accurate. If such estimates
and assumptions prove to be inaccurate, we may be required to make adjustments
to these estimates in future periods.
There have been no material changes to our critical accounting policies
during the nine months ended September 30, 2004. There were no material changes
to our critical accounting policies during the fiscal year ended December 31,
2003, except for the adoption of Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets."
REVENUE RECOGNITION
We charge our customers monthly service fees and recognize the revenue in
the month the services are provided or equipment is sold. Allowances for
estimated returns and discounts are recognized when sales are recorded and are
based on our experience. Significant management judgments and estimates must be
made and used in connection with establishing these allowances in any accounting
period. Material differences may result in the amount and timing of revenues for
any period if management makes different judgments or utilizes different
estimates.
ASSET IMPAIRMENT - GOODWILL
In assessing the recoverability of our fixed assets, goodwill and other
non-current assets, we consider changes in economic conditions and make
assumptions regarding estimated future cash flows and other factors. If these
estimates or their related assumptions change in the future, we may be required
to record impairment charges.
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LITIGATION
We have been involved in lawsuits and other claims. We assess the
likelihood of any adverse judgments or outcomes to these matters, as well as the
potential range of probable losses. A determination of the amount of accrual
required, if any, for these contingencies is made after careful analysis of each
matter. The required accrual may change in the future due to new developments in
any matter or changes in approach (such as a change in settlement strategy) in
dealing with these matters.
INVENTORIES
Our inventories are valued at the lower of cost or market value. We also
identify obsolete items of inventory that are not forecasted to be used in our
future operations and record an allowance for those items. To date, we have
performed full physical inventory counts on an annual basis. In the future, if
we expand our operations, it is possible that we may instead rely on cycle
counts at warehouses and distribution centers to measure inventory. Currently,
however, inventories do not represent a material item on our balance sheet and
are generally not a significant factor in our operations.
ACCOUNTS RECEIVABLE
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We
provide a general allowance for customer accounts based on historical collection
and write-off experience from our operations and the telecommunications
industry, and a specific allowance for any individually significant customers
who are known to be experiencing financial difficulties. Judgment is critical
because some customers may experience financial difficulties. If the financial
condition of any such customer were to worsen, additional allowances might be
required.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
REVENUES
For the nine months ended September 30, 2004 and 2003, USURF had
$5,098,714 and $236,448, respectively in revenue, an increase of $4,862,266.
This increase is primarily due to the acquisition of Connect Paging, Inc. d/b/a
Get-A-Phone in April 2004. During the nine months ended September 30, 2004,
USURF's revenues were derived primarily from the sale of telecommunication
services, Internet access services, telecommunications-related hardware and
services and satellite-based CATV access services. These revenues are recognized
and recorded as services are performed.
OPERATING EXPENSES
For the nine months ended September 30, 2004 and 2003, operating expenses
were $9,120,309 and $2,087,446, respectively. During the nine months ended
September 30, 2004, operating expenses consisted primarily of professional and
consulting fees of $4,283,727, of which $4,249,931 was paid in stock, salaries
and commissions of $1,030,871, and other general and administrative expenses of
$2,993,418 consisting primarily of bad debt related to Get-A-Phone accounts
receivable ($1,516,788), right of entry expense ($336,278), software expense
($127,054) and insurance expense ($122,516).
NET LOSS
For the nine months ended September 30, 2004, we had a net loss of
$12,448,539. In the comparable period of the prior year, we had a net loss of
$1,990,795.
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LIQUIDITY
At September 30, 2004, USURF had a net working capital deficit of
$1,711,155, compared to a net working capital deficit of $757,040 at December 31
2003. A net working capital deficit means that current liabilities exceeded
current assets. Current assets are generally assets that can be converted into
cash within one year and can be used to pay current liabilities.
In January 2004, we entered into an agreement with Atlas Capital Services,
LLC ("Atlas") to provide financing directly or indirectly to us. Under the terms
of the agreement, we will pay to Atlas a fee equal to 10% of the principal
amount of the transaction amount to be paid as proceeds are received by us from
each transaction.
Prior to the arrangement with Atlas, we issued $1,200,000 in common stock
in private placements. During the nine months ended September 30, 2004, Atlas
arranged for the private placement of debt and equity securities through which
we raised $5,420,000 in gross proceeds. We received $1,000,000 from Evergreen
Venture Partners, LLC for the sale of common stock and $4,420,000 from Crestview
Capital Master LLC for secured convertible debentures.. The debentures are
convertible into common stock at a conversion price of $0.05 per share.. At
September 30, 2004, we had cash on hand of $260,795.
Subsequent to September 30, 2004, we executed a Subscription Agreement
whereby we agreed to issue and sell to the Monarch Pointe Fund, Ltd. and
Mercator Advisory Group, LLC, referred to in this discussion as the
"Purchasers", 10,000 shares of Series A Convertible Preferred Stock ("Series A
Stock") at $100.00 per share, for gross proceeds of $1,000,000. In connection
with the purchase and sale of the Series A Stock, the Purchasers will receive
Warrants to purchase up to an aggregate of 7,000,000 shares of our common stock,
at an exercise price of $0.075 per share subject to certain adjustment.
Currently, we believe we have sufficient cash from the sale of our
securities to continue current business operations through the end of the first
quarter, 2005. We anticipate that our capital needs will be met through
financing transactions arranged by Atlas or Mercator Advisory Group, LLC. We
will also seek other sources of financing to fund operations, although we may
not be successful in such efforts. We may not be able to secure adequate capital
as we need it. Without additional capital, we would be forced to curtail or
cease our operations.
CASH USED IN OPERATING ACTIVITIES
During the nine months ended September 30, 2004, our operations used cash
of $3,190,063 compared to $663,843 used during the same period in 2003. In each
period reported, the use of cash was a direct result of the increase in net
loss. During the nine months ended September 30, 2004, $990,036 of accreted
interest expense and $1,568,688 loss on debt modification was recorded in
relation to our notes payable with beneficial conversion features; during the
same period in 2003 we did not incur any accreted interest expense or debt
modification expense.
CASH USED IN INVESTING ACTIVITIES
During the first three quarters of 2004, we engaged in a significant
amount of capital investment activity, primarily through the acquisition of
business assets from other companies. The total value of capital investments for
the period was $3,073,000 compared to only $413,149 for the same period in 2003.
During the 2004 period, capital assets were also acquired through the issuance
of stock valued at $2,656,998.
CASH PROVIDED BY FINANCING ACTIVITIES
During the first three quarters of 2004, the total value of our financing
activities was $6,451,700 compared to a value of $1,225,733 provided during the
same period in 2003. During the 2004 period, $1,600,000 of cash was provided
through the sale of stock and $4,963,000 (presented as $4,059,685 net of
unamortized discount of $360,315) was provided through debt issuance.
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OFF-BALANCE SHEET FINANCING ACTIVITIES
We do not have any off-balance sheet arrangements that have, or are
reasonably likely to have a current or future material effect on our financial
condition, changes in financial condition, revenue or expenses, results of
operations, liquidity, capital expenditures or capital resources.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002
REVENUES
For the year ended December 31, 2003 we had $403,764 in revenue and for
the year ended December 31, 2002 we had no revenues. During the year ended
December 31, 2003, our revenues were derived primarily from the sale of Internet
access services, telecommunications-related hardware and services,
satellite-based CATV access services and software licensing. These revenues are
recognized and recorded on an accrual basis.
OPERATING EXPENSES
For the year ended December 31, 2003 and 2002, operating expenses were
$3,493,720 and $3,837,517, respectively. During the year ended December 31, 2003
and 2002, operating expenses consisted primarily of professional and consulting
fees of $1,709,556 and $2,794,020, respectively, all of which were paid in
stock, salaries and commissions of $1,028,246 and $899,967, respectively, most
of which was paid in stock, and other general and administrative expenses of
$755,918 and $143,530, respectively, consisting primarily of $130,384 and $7,336
in depreciation and $113,517 and $20,051 in rent.
NET LOSS
For the year ended December 31, 2003, we had a net loss of $3,654,356, or
$0.04 net loss per share. For the year ended December 31, 2002, we had a net
loss of $4,160,422 or $0.09 net loss per share.
CASH USED IN OPERATING ACTIVITIES
During the year ended December 31, 2003, our operations used cash of
$1,056,395 compared to $646,837 used during the year ended December 31, 2002.
For the year ended December 31, 2003, our net loss of $3,654,356 is offset by
various non-cash expenses of $2,379,769. For each year reported, the use of cash
was a direct result of the lack of revenues compared to operating expenses.
CASH USED IN INVESTING ACTIVITIES
The total value of our capital expenditures for the year ended December
31, 2003 was $1,326,009 compared to $73,359 for the year ended December 31,
2002. For the year ended December 31, 2003, this primarily consisted of cash for
acquisitions and future acquisitions.
CASH PROVIDED BY FINANCING ACTIVITIES
During the year ended December 31, 2003, the total amount of our financing
activities was $2,343,433 compared to $831,754 for the year ended December 31,
2002. During the year ended December 31, 2003, $2,286,433 of cash was provided
through the sale of stock and the exercise of common stock warrants.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had positive working capital of $1,203,061
compared to a net working capital deficit of ($757,040) at December 31, 2003. A
net working capital deficit means that current liabilities exceeded current
assets. Current assets are generally assets that can be converted into cash
within one year and can be used to pay current liabilities.
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Currently, we believe that we have sufficient cash from the sale of
securities and commitments from Atlas Capital financing transactions to continue
our current business operations through the end of the first quarter, 2005.
During the six months ended September 30, 2004, we received approximately
$2,200,000 from the sale of securities and $3,670,000 in debt from the Atlas
Capital financing transaction. At September 30, 2004, we had cash on hand of
$280,048.
We anticipate that our capital needs will be met through financing
transactions arranged by Atlas Capital. We will also seek other sources of
financing to fund our operations, although we may not be successful in such
efforts. We may not be able to secure adequate capital as we need it. Without
additional capital, we would be forced to curtail or cease our operations.
BUSINESS
GENERAL
We are a facilities-based provider of high-speed "last mile" connectivity,
delivering Internet access and interactive broadband services to underserved
markets. We operate as a provider of video (cable television) and data
(Internet) services to business as well as residential customers, and with the
recent acquisition of Get A Phone, sometimes referred to in this prospectus as
GAP, we now offer telecommunications services including local, long distance and
enhanced telephone (voice) services. We currently provide services to customers
in Colorado, Texas and Arizona. We also market and sell
telecommunications-related hardware and software.
Our current business plan involves obtaining, through internal growth, as
many voice, video and data customers as possible offering various combinations
of bundled packages and communications services. Our growth strategy also
includes acquisitions of telecommunications-related businesses and/or properties
which would provide an immediate or potential customer base for our services.
2004 TRANSACTIONS
CONNECT PAGING, INC.
On April 20, 2004, we acquired all of the issued and outstanding common
stock of Connect Paging, Inc., or GAP, doing business as Get-A-Phone. As
consideration for this transaction we paid a total of $2,000,000 in cash and
issued a total of 14,250,000 shares of our common stock to the shareholders of
GAP. Using the average of the high and low prices of the stock on April 20,
2004, as reported by the OTC Bulletin Board, the total value of the common stock
we issued in this transaction was $1,567,500. The total consideration we paid in
the transaction is approximately $3,567,500.
SOVEREIGN COMPANIES
In February 2004, we signed five separate agreements to acquire certain
assets of Sovereign Companies, LLC. The first agreement was for $199,698 for
various equipment and subscribers. The second agreement was for $142,764 for
various equipment and subscribers. The third agreement was for $47,381 for
equipment. The fourth agreement was for $6,854 for equipment and the fifth
agreement was for $83,073 for equipment.
CRESTVIEW CAPITAL TRANSACTIONS
In March 2004, Atlas Capital Services, LLC arranged for us to complete a
private placement to Crestview Capital totaling $2,095,000 in debentures
convertible into 20,950,000 shares of common stock at $0.10 per share, with
warrants attached representing 13,782,895 shares of common stock. The warrants
have an exercise price of $0.12 per share. The debentures, if not converted, are
due to be paid on September 15, 2005 and bear interest at six percent (6%)
payable quarterly. Under the terms of the private placement, the investors have
the right to purchase up to an amount equal to $3,000,000 in principal amount of
additional debentures. Any additional investment will be on terms identical to
those of the original offering.
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In April 2004, we completed an additional private placement with Crestview
Capital totaling $1,575,000 in debentures convertible into 19,687,500 shares of
common stock at $0.08 per share, with warrants attached representing 7,579,403
shares of common stock. The warrants have an exercise price of $0.12 per share.
The debentures, if not converted, are due in June 2006 and bear interest at
eight percent (8%) payable quarterly. Under the terms of the private placement,
the investors have the right to purchase up to an amount equal to $1,500,000 in
principal amount of additional debentures. Any additional investment will be on
terms identical to those of the original offering.
In July 2004, we completed two additional private placements to Crestview
Capital totaling $750,000 in debentures convertible into 15,000,000 shares of
common stock at $0.05 per share. The convertible debentures, if not converted,
are due in June, 2006 and bear interest at twelve percent (12%) payable
quarterly. Under the terms of the private placement, the investors have the
right to purchase up to an amount equal to $750,000 principal amount of
additional debentures. Any additional investment will be on terms identical to
those of the original offering.
Additionally in July 2004, we repriced the purchase price and conversion
price of the above first and second quarter transactions to $0.05 per share. As
a result, we have reserved an additional 32,762,500 shares to be issued upon
conversion of the outstanding convertible debentures. $2,000,000 of the proceeds
from the above transactions has been used for the acquisition of Connect Paging.
Inc. d/b/a/ Get-A-Phone and the remaining amount has and will be used for
general working capital.
TELEPHONE (VOICE) SERVICES
With the acquisition of GAP, we now provide local, long distance and
enhanced communication services to Texas customers. GAP is a Texas-based
communications company operating in areas currently served by SBC and Verizon
Southwest. At the time of the acquisition, GAP had more than 11,000 customers
and annual revenues of approximately $9,600,000. GAP currently has approximately
14,000 customers GAP is a competitive local exchange carrier, or CLEC, and is
subject to regulation by the Texas Public Utilities Commission.
CABLE TELEVISION (VIDEO) SERVICES
We currently operate as a private cable operator, or PCO, whereby we are
not subject to franchise regulations. However, through our subsidiary, Usurf TV,
Inc., we have applied for a franchise in Elbert County, Colorado.
We deliver our cable television services by re-transmitting programming
signals via antenna and principal head-end electronic equipment that receive and
process signals from satellites, via both analog and digital transmissions.
Currently, we obtain our programming through program access agreements with the
National Cable Television Cooperative (NCTC), DirecTV, Headend in the Sky
(HITS), Dish Network and direct contracts with other content providers. We also
process and distribute off-air transmission signals from local network
affiliates and independent television stations. For analog services, our system
architecture generally eliminates the need for set-top converter boxes when it
is connected to cable-ready television sets, and enables us to activate service
for subscribers without entering into an apartment. For digital services, a
set-top converter box is required. In the future, we plan to employ the
technology that provides the most attractive return on invested capital without
compromising service.
We offer our subscribers a complete array of popular cable television
programming at competitive prices. Our expanded basic retail prices generally
approximate the rates charged by the incumbent franchise CATV operators, and
includes uninterrupted full-length motion pictures, regional sports channels,
sporting events, concerts and other entertainment programming. Premium channels,
including HBO(TM), Cinemax(TM) and Showtime(TM) are generally offered
individually or in discounted packages with basic or other services. Digital
service can be added and includes additional expanded basic channels, music
channels, multiplex premium channels, pay-per-view availability and an
interactive programming guide.
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INTERNET (DATA) SERVICES
WIRELESS ACCESS
"Wireless Internet" is a relatively new type of communications spectrum
designated by the FCC. Wireless Internet access requires a transmission facility
maintained by an ISP employing a wireless system and the user's modem (a
transmitter/receiver modem) equipped with an antenna. We use a combination of
"off-the-shelf" components and company's new proprietary IP based software
technology in constructing a wireless Internet system and delivering our
wireless Internet services to customers. This change in equipment strategy is
based on our management's belief that the off-the-shelf components coupled with
its new proprietary IP technology, offer greater reliability and greater
certainty of supply. Our services support all equipment meeting Wi-Fi (wireless
fidelity) 802.11(x) standards operating in the unlicensed 2.4, 5.2 and 5.8GHz
802.11(x) spectra, and can be deployed far less expensively than other wireline
and cable technologies.
CURRENT MARKETS
We are currently developing a network backbone and support infrastructure
that will serve the front range of Colorado, from Greeley to Pueblo including
the large municipalities of Denver and Colorado Springs. Our progress has been
slowed due to our need to create the required network and systems to provide a
quality service. We currently provide video (cable TV) and high-speed, broadband
Internet access to multiple MDUs and MTUs in Denver and Colorado Springs. We
have begun to market these services aggressively to office building owners and
property managers who may be interested in providing our Internet access service
to their tenants on a building-wide basis.
In addition to our Denver and Colorado Springs operations, we have entered
into agreements with developers to provide video, voice and data services to
properties in northern Colorado.
In the fourth quarter 2003, we began deployment of high speed data access
to high-end, recreational vehicle, resort communities in the Phoenix, Arizona
area.
In each of our markets, our progress in developing our business has been
impaired by a lack of capital. Unless we obtain needed capital, the growth of
the business will continue to be slow.
CABLE ACCESS
We are able to offer high-speed Internet dedicated service via cable
modems using the existing cable infrastructure at certain MDU properties. The
properties are connected to the Internet via T-1 telephone lines leased from
bandwidth providers.
TELECOMMUNICATIONS EQUIPMENT AND SOFTWARE SALES
In February 2003, we acquired assets from a telecommunications company
that have enabled us to begin to operate as a seller of
telecommunications-related services, hardware and software. We offer a broad
array of products and the start to this part of our business has shown some
success. For the year ended December 31, 2003, revenues from the sale of
services, hardware and software totaled approximately $219,000.
INTELLECTUAL PROPERTY SALES
In October 2003, we acquired all the assets of Children's Technology
Group, or CTG, a Golden, Colorado-based Internet portal providing a
content-protected online environment for children. CTG's flagship product is
Garfield Island(TM), available via download at www.GarfieldIsland.com , and
features the world-famous cartoon cat. This acquisition was completed with a
combination of cash and common stock.
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In October 2003, we also entered into an agreement to license certain
software acquired in the CTG purchase to ZKid Network Company. We provide ZKid
Network Company's product with an additional layer of security and greater
empowerment to parents for the soon-to-be released KidsKeep Safe Internet
Software Program. The terms of the agreement called for a license fee payment of
$485,000 paid with a combination of $25,000 cash and two million shares of
stock. The agreement also calls for a monthly fee, based upon sales, with a
minimum of $4,000 per month. The license fee has been recorded as deferred
revenue and is being amortized over the two year term of the agreement using the
straight line method. The balance of deferred revenue at December 31, 2003 was
$403,333. At December 31, 2003, the value of the stock had declined and
accordingly, we recorded an unrealized comprehensive loss of $160,000 and
reduced the carrying value of the stock by $160,000. We recognized approximately
$62,000 of revenue relating to this agreement during 2003.
Effective May 2004, we sold Children's Technology Group, Inc., dba
MomsandDads, to ZKID Network Company (OTCBB: ZKID). The terms of the sale
provided for ZKID to pay us $600,000 in stock consideration (the "Purchase
Price'). At closing we received 4,000,000 shares of ZKID common stock valued at
$0.15 per share. The terms of the purchase and sale agreement provide that if
the shares issued to us do not have a market value of at least $600,000, then
ZKID would issue additional shares to us for the difference. At September 30,
2004 the market value of the shares was $240,000 less than the Purchase Price
and accordingly, we recorded securities receivable in that amount.
OUR SALES AND MARKETING STRATEGY
For our bundled (voice, video and/or data) telecommunications services, we
target MDU properties and planned community developments and the residents
living there. Our selling cycle for obtaining "right-of-entry" (ROE) agreements
that will permit us to offer our services to MDU tenants includes proposal
presentation, contract negotiations and service implementation, a cycle that can
require up to nine months. While we plan to bolster our growth through
acquisitions, securing new ROE agreements through direct marketing efforts is an
integral part of our strategy to grow and achieve operating efficiencies and
positive cash flow.
While royalty arrangements encourage property owners to enter into ROE
agreements with us, we believe that delivery of competitive products and
superior customer service that are targeted to our MDU niche market are the key
to obtaining ROE agreements. We use a marketing strategy whereby we concentrate
on entering into ROE agreements with the large national owners of high-quality
MDU properties that own properties in our markets, in conjunction with marketing
our services to smaller owners whose properties typically lie within a single
geographic market.
We offer property owners and management companies a great amenity that
promotes increased occupancy, as well as an attractive new revenue source in the
form of royalties. Under the ROE agreements, property owners generally are paid
a percentage of net monthly receipts collected for services delivered to
subscribers on a property. The percentage paid to property owners under this
arrangement typically varies, depending upon the total number of subscribers to
our services in relation to the total number of dwelling units on a property. We
attempt to focus our efforts on negotiating long-term ROE agreements with owners
of MDU portfolios, because we believe that strategic relationships with these
owners are critical to market penetration and long-term success. These ROE
agreements, to date, generally provide for a term of seven to 20 years and give
us the right to be the preferred provider of voice, video and/or data services
on the subject property. The property owner typically agrees to market and
promote our services on a property.
Once we have obtained the ROE agreement and services have been activated
on the property, we utilize the on-site leasing personnel to market the services
to the residents, which typically takes place at the time the residents sign
their leases. The services are packaged at competitive prices, with discounts
for signing-up for two or more services. For the resident, this easy sign-up
process eliminates the need for them to contact several different service
providers, and saves them money and time. In addition, we attempt to schedule
service installations prior to the move-in date of the resident. This eliminates
the inconvenience for the resident of having to meet the installation
technicians, as is the case with the competition. All of our services are billed
on a single invoice, and the resident only has one company to contact for any
questions or concerns. We believe that the combination of convenience, savings,
and quality service presented to the resident at the time of move-in is a very
powerful marketing advantage. Additionally, the leasing agents are given an
incentive to sell the services, since we pay them commissions (directly or
through the property owner's management company) for signing up residents. The
leasing agents are trained by us and are provided with marketing and other
support literature to facilitate sales of the products and services.
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Our acquisition strategy is to pursue properties that we can acquire for
costs comparable to or below those of a standard build-out. These generally tend
to be ROE agreements held by small private telecommunications providers.
KEY SUPPLIERS
We currently have agreements with Redline Performance Management Group and
DirecTV for cable television programming. While alternative suppliers do exist
for analog and digital cable programming, these alternatives are either not as
robust and/or are not as economically advantageous as the product(s) offered by
these programming suppliers. As a result, if we were required to replace Redline
and DirecTV for any reason, it is likely we would not be able to offer our
current programming packages to tenants or that the cost of providing these
packages would significantly increase.
CUSTOMER SERVICE AND SUPPORT
We are committed to the highest levels of customer satisfaction. We
believe that maintaining high levels of customer satisfaction will remain as a
key competitive factor. Currently, we provide customer support during normal
business hours and after hours support through a third party, ensuring that our
customers will always be able to reach support services. Our customer support
operations can be expected to expand, if and when we obtain needed capital.
COMPETITION
The market for cable television, Internet and telephony services is
extremely competitive. Under the terms of our ROE agreements, we generally are
required to provide products and services that are competitive with those
offered by other providers. We compete for customers on the basis of price,
services offered and customer service. Local franchised cable television
providers, such as Comcast and Adelphia, represent our principal competition.
These competitors are typically very large companies with significantly greater
resources than ours.
While technology and regulatory changes have allowed companies like us to
compete more effectively with the incumbents, there is no assurance that we will
be able to develop and execute upon financially viable business models. As is
the case with us, telecommunications service providers like us have greater
flexibility to customize their products and services than their competition, but
they typically pay higher programming costs than the local franchise cable
television providers and do not have the scale of those businesses to absorb
fixed administrative, customer service and field operations costs. Additionally,
companies like us that serve MDUs incur the higher churn associated with these
residents (the average life cycle of an apartment resident is 18 months versus
seven years for a single-family housing resident), which results in a greater
percentage of marketing costs and customer service calls than those of the
incumbent providers.
We believe that the primary competitive factors determining success as an
Internet access provider are: a reputation for reliability and high-quality
service; effective customer support; access speed; pricing; effective marketing
techniques for customer acquisition; ease of use; and scope of geographic
coverage. We believe that we will be able to address adequately all of these
factors, except that we will not be able to offer scope of geographic coverage
for the foreseeable future. It is also possible that we will not address any of
these competitive factors successfully. If we fail to do so, our business would
likely never earn a profit. We currently lack capital necessary to compete
effectively.
We face competition from other Internet access providers, as well as
large, national providers of telecommunications service providers who are
beginning to enter this market.
The market for Internet access services, in which our Internet access
service will compete, is extremely competitive and highly fragmented. Current
and prospective competitors include many large, nationally-known companies that
possess substantially greater resources, financial and otherwise, market
presence and brand name recognition than do we. We currently compete, or expect
to compete, for the foreseeable future, with the following: national Internet
service providers, numerous regional and local Internet service providers, most
of which have significant market share in their markets; established on-line
15
information service providers, such as America Online, which provide basic
Internet access, as well as proprietary information not available through public
Internet access; providers of web hosting, co-location and other Internet-based
business services; computer hardware and software and other technology companies
that provide Internet connectivity with their products; telecommunications
companies, including global long distance carriers, regional Bell operating
companies and local telephone companies; operators that provide Internet access
through television cable lines; electric utility companies; communications
companies; companies that provide television or telecommunications through
participation in satellite systems; and, to a lesser extent, non-profit or
educational Internet access providers.
With respect to potential competitors, we expect that manufacturers of
computer hardware and software products, as well as media and telecommunications
companies will continue to enter the Internet services market, which will serve
to intensify competition. In addition, as more consumers and businesses increase
their Internet usage, we expect existing competitors to increase further their
emphasis on Internet access and electronic commerce initiatives, resulting in
even greater competition. The ability of competitors or others to enter into
business combinations, strategic alliances or joint ventures, or to bundle their
services and products with Internet access, could place us at a significant
competitive disadvantage. We currently lack capital necessary to compete
effectively and we may never obtain enough capital to permit us to compete
effectively in our markets.
Moreover, we expect to face competition in the future from companies that
provide connections to consumers' homes, such as telecommunications providers,
cable companies and electrical utility companies. For example, recent advances
in technology have enabled cable television operators to offer Internet access
through their cable facilities at significantly higher speeds than existing
analog modem speeds. These types of companies could include Internet access in
their basic bundle of services or offer such access for a nominal additional
charge. Any such developments could reduce our market share, thereby impairing
our ability to earn a profit.
INDUSTRY
In recent years the United States cable television industry has changed
from a provider of a single product, analog CATV, into a competitive provider of
multiple entertainment, information and telecommunications services. Cable's new
broadband infrastructure has allowed companies to expand into services such as
telephony, high-speed Internet access and digital CATV.
As a result of technological and regulatory changes that have occurred
over the past few years, smaller companies have been able to compete more
effectively in the CATV and telephony markets traditionally dominated by larger
companies. This shift has enabled companies like ours to become effective
competitors to the franchised local cable television operators in the cable
television and telephony markets. In particular, the potential market for
servicing MDU properties remains largely undeveloped, creating significant
opportunities for alternative providers, like us, with the technological,
operational, marketing and administrative ability to manage growth effectively.
Based on our industry experience, our management has determined that there is a
growing opportunity for alternative providers of communications services to
market voice, video and data services to MDU property owners.
The Internet is a collection of connected computer systems and networks
that link millions of public and private computers to form, essentially, the
largest computer network in the world. The Internet has experienced rapid growth
in recent years and is expected to continue its growth, which is why we continue
to develop our wireless high-speed, broadband Internet access service business.
GOVERNMENT REGULATION
GENERAL
The telecommunications business is subject to regulations under both state
and federal telecommunications laws which are fluid and rapidly changing. On the
state level, rules and policies are set by each state's public utility
commission or public service commission, or PUC. At the federal level, the
Federal Communication Commission, or FCC, among other agencies, dictates the
rules and policies which govern interstate communications providers. The FCC is
also the main agency in charge of creating rules and regulations to implement
the 1996 Telecommunications Act, referred to in this prospectus as the 1996 Act.
The PUC reviews and must approve all CLEC transfers, which may impact any
potential CLEC acquisitions.
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Telephony Regulation
The 1996 Act opened the local telecommunications markets to competition by
mandating the elimination of many legal, regulatory, economic and operational
barriers to competitive entry. These changes provided us with new opportunities
to provide local telephone services on a more cost-effective basis.
CABLE TELEVISION REGULATION
REGULATORY STATUS AND REGULATION OF PRIVATE CABLE OPERATORS
Franchise cable operators are subject to a wide range of FCC regulations
regarding such matters as the rates charged for certain services, transmission
of local television broadcast signals, customer service standards/procedures,
performance standards and system testing requirements. In addition, the
operator's franchise, which can be issued at the municipal, county or state
level, typically imposes additional requirements for operation. These relate to
such matters as construction, provision of channel capacity and production
facilities for public educational and government use, and the payment of
franchise fees and the provision of other "in kind" benefits to the city.
The operator of a video distribution system that serves subscribers
without using any public right-of-way, as we do, referred to generally as a PCO,
is exempt from the majority of FCC regulations applicable to franchised systems
which do use public rights-of-way. Moreover, a state or local government cannot
impose a franchise requirement on such operators.
ACCESS TO PROPERTY
Federal law provides franchise cable operators access to public
rights-of-way and certain private easements. These provisions generally have
been limited by the courts to apply only to external easements and franchise
operators have not been able to use these rights to access the interior of MDUs
without owner consent. In some jurisdictions, franchise operators have been able
to use state or local access laws to gain access to property over the owner's
objection and in derogation of a competing provider's exclusive contractual
right to serve the property. These "mandatory access" statutes typically empower
only franchise cable operators to force access to an MDU and provide residential
service regardless of the owner's objections. Thus, in jurisdictions where a
mandatory access provision has been enacted, a franchise operator would be able
to access an MDU and provide service in competition with us regardless of
whether we have an exclusive ROE with the owner. The ability of franchise
operators to force access to an MDU and take a portion of the subscriber base
could negatively affect our operating margin at a particular property. It is
often the case, particularly at the local level, that the mandatory access
provision is suspect under constitutional principles because, for example, it
does not provide the MDU owner compensation for the "taking" of its property.
The FCC has granted direct broadcast satellite, or DBS, and multi-channel,
multi-point distribution service, or MMDS, operators rights on a national basis
similar to the mandatory access provided to franchise cable operators in some
state and local jurisdictions. The FCC has adopted rules prohibiting homeowners
associations, manufactured housing parks and state and local governments from
imposing any restriction on a property owner that impairs the owner's
installation, maintenance or use of DBS and MMDS antennas one meter or less in
diameter or diagonal measurement. We do not believe our business will be
significantly impacted by these rights.
INSIDE WIRING
In 1998, the FCC issued rules governing the disposition of inside wiring
by incumbent operators in MDUs upon termination of service when the incumbent
operator owns the wiring. In some instances, a provider, such as us, faces
difficulty in taking over a property because the ownership of the wiring is
uncertain or contested and the property owner is hesitant to allow installation
of additional wiring. These rules, in general, were designed to foster
competition from new providers, require the incumbent operator to choose between
sale, removal or abandonment of the wiring within certain time constraints.
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REGULATION OF FRANCHISE CABLE TELEVISION RATES
The FCC, through local governments, regulates the rates that franchised
cable systems can charge for basic monthly service and certain customer premises
equipment, unless "effective competition" exists in a local market. This general
requirement does not apply to charges for pay services. Further, the regulations
allow certain bulk discounts to MDU customers, enabling franchised cable systems
to be more competitive with private cable operators such as us.
COPYRIGHT
The broadcast programming to be distributed by us contains copyrighted
material. Accordingly, we pay copyright fees for use of that material (copyright
liability for satellite-delivered programming is typically assumed by the
supplier). The U.S. Copyright Office has ruled that private systems located in
"contiguous communities" (or operating from one head-end) will be treated as one
system and that the revenue for such systems must be combined in the calculation
of copyright fees. If the combined revenue figure is high enough, it results in
more complicated fee calculations and higher fees. We intend to structure our
programming to minimize the revenue associated with retransmission of television
and radio broadcasts in an effort to maintain a simplified filing status and to
reduce our copyright liability in the event we must file under the more
complicated formula.
WIRELESS INTERNET REGULATION
Our wireless Internet access products operate in unregulated spectra, the
2400 MHz, 5200 MHz and 5800 MHz being the primary frequencies, and we expect
that such spectra will remain unregulated.
REGULATION OF INTERNET ACCESS SERVICES
We provide Internet access, in part, using telecommunications services
provided by third-party carriers. Terms, conditions and prices for
telecommunications services are subject to economic regulation by state and
federal agencies. As an Internet access provider, we are not currently subject
to direct economic regulation by the FCC or any state regulatory body, other
than the type and scope of regulation that is applicable to businesses
generally. In April 1998, the FCC reaffirmed that Internet access providers
should be classified as unregulated "information service providers" rather than
regulated "telecommunications providers" under the terms of the 1996 Act. As a
result, we are not subject to federal regulations applicable to telephone
companies and similar carriers merely because we provide our services using
telecommunications services provided by third-party carriers. As of the date of
this prospectus, no state has attempted to exercise economic regulation over
Internet access providers.
Governmental regulatory approaches and policies to Internet access
providers and others that use the Internet to facilitate data and communication
transmissions are continuing to develop and, in the future, we could be exposed
to regulation by the FCC or other federal agencies or by state regulatory
agencies or bodies. In this regard, the FCC has expressed an intention to
consider whether to regulate providers of voice and fax services that employ the
Internet switching as "telecommunications providers," even though Internet
access itself would not be regulated. The FCC is also considering whether
providers of Internet-based telephone services should be required to contribute
to the universal service fund, which subsidizes telephone service for rural and
low income consumers, or should pay carrier access charges on the same basis as
applicable to regulated telecommunications providers. To the extent that we
engage in the provision of Internet or Internet protocol-based telephony or fax
services, we may become subject to regulations promulgated by the FCC or states
with respect to such activities. These regulations, if adopted, may adversely
affect our ability to offer certain enhanced business services in the future.
PROPERTIES
We own equipment, including office equipment, necessary to conduct our
business. Our headquarters are located in Broomfield, Colorado and are leased
through December 31, 2005.
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We own the rights to wireless cable channels in Poplar Bluff, Missouri,
Lebanon, Missouri, Port Angeles, Washington, The Dallas, Oregon, Sand Point,
Idaho, Fallon, Nevada, and Astoria, Oregon. We have abandoned our efforts to
develop these wireless cable properties, due to current market conditions.
Rather, we intend to develop these properties into operating wireless Internet
systems, at such time as two-way data transmission on these frequencies is
permitted. We cannot predict when this permission will be granted, if ever.
EMPLOYEES
As of December 10, 2004, we have twenty-two full-time employees, including
three officers. One of our officers has entered into an employment agreement
with us. In addition, we contract for the services of consultants for
engineering and installation services.
None of our employees are covered by any collective bargaining agreement,
nor have we ever experienced a work stoppage. Our management believes employee
relations to be good. Much of our future success will depend, in large measure,
upon our ability to continue to attract and retain highly skilled technical,
sales, marketing and customer support personnel.
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding each of our
directors and executive officers as of December 20, 2004.
NAME AGE TITLE(S)
- -------------------------- --- -----------------------------------------------
David A. Weisman(1) (2)(4) 42 Director, Chairman of the Board of Directors
Douglas O. McKinnon (1)(3) 54 Director, President and Chief Executive Officer
Richard E. Wilson (1)(2)(5) 62 Director
Byron Young(1) 31 Director
Ed Garneau(2) (5) 43 Director
Ronald S. Bass(3) 38 Principal Accounting Officer
Craig A. Cook(3) 58 Executive Vice President Corporate Development
- ----------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Disclosure Committee of the Board of Directors.
(4) Member of the Nominating Committee of the Board of Directors.
(5) Member of the Compensation Committee of the Board of Directors.
Our officers serve at the discretion of our board of directors. Our
directors serve until the next annual meeting of shareholders or until their
respective successors are elected and qualified. There exists no family
relationship between our officers and directors. Certain information regarding
the backgrounds of each of our officers and directors is set forth below.
DAVE WEISMAN. Mr. Weisman joined us in October 2004 as the Chairman of
Usurf America's Board of Directors. Mr. Weisman also currently serves as
Chairman and CEO of a broadband and communications technology and services
company, Eagle Broadband, where he has led a highly successful corporate
restructuring and turnaround that has established us as a broadband market
leader and created more than $200 Million in shareholder value. Before Eagle
Broadband, he was: Vice President, Sales & Marketing for IP Dynamics; co-founder
and Vice President, Sales and Marketing for Canyon Networks; Vice President,
Marketing and Customer Service for ACT Networks; co-founder and Vice President,
Sales & Marketing for Thomson Enterprise Networks. Mr. Weisman also served as a
pilot with the United States Air Force Reserve and saw active combat duty in
Central America and Operation Desert Storm. He holds a B.A. in Economics and
International Relations from U.C.L.A.
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DOUGLAS O. MCKINNON. Mr. McKinnon joined us in April 2002 as a director
and our president and chief executive officer. Prior to joining us, he served as
chief executive officer of IP Services, Inc., a next-generation communications
services provider using broadband Internet Protocol (IP) and Asynchronous
Transfer Mode (ATM) based networks, from April 1999 to April 2002. From February
1998 to March 1999 he served as executive vice president and chief financial
officer of AVIRNEX Communications Group, Inc., a provider of retail
telecommunications service including domestic and international long distance
and enhanced services to small and medium-sized business customers. From
November 1994 to January 1998, Mr. McKinnon served as vice president of ICG
Communications, Inc, one of the country's largest competitive local exchange
carriers offering local, long distance, ATM and frame relay services with a
nationwide fiber optic infrastructure. Mr. McKinnon is a former practicing CPA
with the SEC practice section of Coopers & Lybrand.
RICHARD E. WILSON. Mr. Wilson has served as a member of our board of
directors since March 2003. Since 2002, Mr. Wilson has served as a principal and
executive vice president of business development of NetPort-Datacom, Inc., a
privately held Mukilteo, Washington-based provider of international voice
service. Mr. Wilson was co-founder of The Association of Communications
Enterprises (ASCENT) (formerly the Telecommunications Resellers Association), a
leading trade group representing entrepreneurial and small business
communications companies. He served on that organization's board of directors in
1992 and 1993 and is currently Chairman Emeritus of ASCENT. During 2001 and
2002, Mr. Wilson was a principal in SigBioUSA, LLC, a Mulkiteo, Washington-based
telecommunications consulting firm with expertise in both wireline and wireless
telecommunications applications. From May 2000 to April 2001, Mr. Wilson was
president and chief executive officer of Open Telecommunications North America,
a wholly owned subsidiary of Open Telecommunications Australia, a publicly
traded company in Australia that provides
telecommunications-network-infrastructure related products and services. Also,
from 2000 through January 2002, Mr. Wilson served as a director of GlobalNet
International Telecommunications, Inc., an Illinois-based provider of global
telecommunications services. GlobalNet was publicly traded under the symbol
GBNE, until acquired by Titan Corporation in 2002.
ED GARNEAU. Mr. Garneau joined our board of directors December 20, 2004.
Mr. Garneau will also serve as a member of our audit committee. Mr. Garneau is
the founder and, since 1994, has been the Chief Executive Officer of Sovereign
Companies, a diversified real estate development company with broadband
telecommunications installation and operations in 4 states currently
representing 10 major developments or approximately 1100 homes. Prior to
founding Sovereign, Mr. Garneau served eight years in the US Air Force as a
fighter pilot.
BYRON YOUNG. Mr. Young joined us as a member of our board of directors in
August 2004. Concurrently, Mr. Young will remain active as President of USURF's
newly acquired Texas subsidiary, Connect Paging Inc. d/b/a/ Get-A-Phone ("GAP").
Mr. Young purchased GAP in 2000, sold off all paging assets and refocused the
company on dial tone. GAP has grown to over 14,000 customers to date and
revenues exceeding $9 million annually. Prior to Connect Paging, Young founded
Phone America in 1997 which was merged with Trans National Telecommunications,
Inc. in 1999 and prior to Phone America, founded Paging Express, Inc. in 1994.
RONALD S. BASS. Mr. Bass joined us as principal accounting officer in
November 2003. Prior to joining us, Mr. Bass served as chief financial officer
of Phantom Group from January 2002 to October 2003, chief financial officer of
Knovada from May 2001 to October 2003, director of finance and operations at
Vista Travel Ventures from March 1999 to May 2001, and manager administration at
Group Voyagers from July 1993 to March 1999.. Mr. Bass brings more than 13 years
of executive finance and operations experience including experience in equity
funding, treasury management, financial analysis, tax planning, accounting
system design and implementation, process engineering and risk management.
CRAIG A. COOK. Mr. Cook joined us as Vice President of Operations starting
in December 2004. He comes to Usurf from Sovereign Companies, having served as
the Chief Operating Officer from 2001 to 2004. Concurrently, Mr. Cook will act
as President of Usurf Communications, Inc. Previously, he was the Chief
Operating Officer for Denver Public Schools from 1994 to 2001 and the Assistant
Superintendent of Kansas City Public Schools, Kansas City, Missouri from 1988 to
1994. A retired Lieutenant Colonel in the U.S. Army, Cook served in various
accounting and finance positions during his military service. He brings the
discipline of an MBA from the University of Nevada, Reno, combined with a BSBA
from the University of Idaho to his job.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation received during
each of the last three completed fiscal years by our chief executive officer and
each executive officer who received total salary and bonus exceeding $100,000
during the 2003 fiscal year. Neither of the executive officers named below was
employed by us in 2001.
ANNUAL COMPENSATION
-----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ------------------------------------- ---- -------- --------
Douglas O. McKinnon 2003 $180,000 $ 0
President and Chief Executive Officer 2002 $127,500(1) $310,456(1)
2001 $ 0 $ 0
Kenneth J. Upcraft 2003 $150,000 $ 0
Executive Vice President 2002 $ 62,500(2) $ 58,220(2)
2001 $ 0 $ 0
DAVID M. LOFLIN $
2003 $ 0 0
(FORMER PRESIDENT) 2002 $150,000(3) $200,000(3)
2001 $150,000(3) $133,000(3)
WADDELL D. LOFLIN 2003 $ 0 $ 0
(FORMER VICE PRESIDENT AND 2002 $ 79,167 $200,000(4)
SECRETARY) 2001 $100,000 $ 0
JAMES KAUFMAN 2003
(FORMER VICE PRESIDENT) 2002 $ 95,000 $200,000(5)
2001 $120,000 $ 72,000(5)
- ----------
(1) A total of $91,044 of Mr. McKinnon's salary amount and $10,456 of his
bonus amount were paid by the issuance of 1,450,000 shares of our common
stock having a per share value of $.07 per share, the last closing price
of our common stock, as reported by AMEX, on the date of issuance. A total
of $300,000 of Mr. McKinnon's bonus amount was paid by the issuance of
3,000,000 shares of our common stock, upon his executing his employment
agreement, which shares were valued at $.10 per share, the last closing
price of our common stock, as reported by AMEX, on the date of issuance.
(2) A total of $47,500 of Mr. Upcraft's salary amount and $22,220 of his bonus
amount were paid by the issuance of 996,000 shares of our common stock
having a per share value of $.07 per share, the last closing price of our
common stock, as reported by AMEX, on the date of issuance. A total of
$36,000 of Mr. Upcraft's bonus amount was paid by the issuance of 600,000
shares of our common stock, upon his executing his employment agreement,
which shares were valued at $.06 per share, the last closing price of our
common stock, as reported by AMEX, on the date of his executing his
employment agreement.
(3) A total of $150,000 of Mr. Loflin's 2002 salary amount was paid by the
issuance of 618,000 shares of our common stock having a per share value of
$0.173 per share and $200,000 of his 2002 bonus amount was paid by
2,000,000 shares of our common stock having a per share value of $0.10 per
share. A total of $133,000 of Mr. Loflin's 2001 bonus amount was paid by
the issuance of 700,000 shares of our common stock having a per share
value of $.07 per share.
(4) A total of $200,000 of Mr. W. Loflin's 2002 bonus amount was paid by the
issuance of 2,000,000 shares of our common stock having a per share value
of $0.10 per share.
(5) A total of $200,000 of Mr. Kaufman's 2002 bonus amount was paid by the
issuance of 2,000,000 shares of our common stock having a per share value
of $0.10 per share. A total of $72,000 of Mr. Kaufman's 2001 bonus amount
was paid by the issuance of 3000,000 shares of our common stock having a
per share value of $0.24 per share.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
We did not grant any options or stock appreciation rights to any of the
executive officers named in the Summary Compensation Table during the fiscal
year ended December 31, 2003.
21
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTIONS/SAR VALUES
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
AGREEMENTS
The executive officer named in the table below has entered into an
employment agreement with us. The following table summarizes certain provisions
of their employment agreements.
NAME OF OFFICER POSITION(S) TERM ANNUAL SALARY DATE
- ------------------- ----------------------- ------- ------------- --------
Douglas O. McKinnon President and 3 years $180,000 04/15/02
Chief Executive Officer
Under Mr. McKinnon's employment agreement, should we (1) experience a
change in control or (2) change Mr. McKinnon's responsibilities, Mr. McKinnon
has the right, in his sole discretion, to terminate his employment with us and
we would be liable for all compensation remaining to be paid during the
then-current term of his employment agreement, plus an additional period of one
year.
COMPENSATION OF DIRECTORS
Currently, non-employee directors do not receive annual payments for their
service as directors, nor has our board established a per-meeting stipend. At
such time as our cash position improves, it is likely that the board will begin
to compensate non-employee directors. However, no determination of the amount of
any such payment amounts has been made. Directors who are also employees receive
no additional compensation for their service on the board and its committees.
In March 2003, in connection with his agreement to become a board member,
we issued Richard E. Wilson 200,000 shares of our common stock, valued at $.05
per share, the closing price on the date of award, as reported by AMEX having an
aggregate value of $10,000. In November 2003, we issued Mr. Wilson an additional
200,000 shares valued at $0.19 per share, the closing price on the date of
award, as reported by AMEX having an aggregate value of $38,000.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article X of our Articles of Incorporation provides that no director or
officer shall be personally liable to us or our shareholders for damages for
breach of fiduciary duty as a director or officer; provided, however, that such
provision shall not eliminate or limit the liability of a director or officer
for (1) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law or (2) the payment of dividends in violation of law.
Any repeal or modification of Article X shall be prospective only and shall not
adversely affect any right or protection of a director or officer of USURF
America existing at the time of such repeal or modification for any breach
covered by Article X which occurred prior to any such repeal or modification.
The effect of Article X is that directors and officers will experience no
monetary loss for damages arising out of actions taken (or not taken) in such
capacities, except for damages arising out of intentional misconduct, fraud or a
knowing violation of law, or the payment of dividends in violation of law.
As permitted by Nevada law, our bylaws provide that we will indemnify our
directors and officers against expense and liabilities they incur to defend,
settle or satisfy any civil action, including any action alleging negligence, or
criminal action brought against them on account of their being or having been
directors or officers unless, in any such action, they are judged to have acted
with gross negligence or willful misconduct. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers or control persons pursuant to the foregoing provisions, we
have been informed that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 15, 2002, we entered into a securities purchase agreement with
Evergreen Venture Partners, LLC, whereby we issued securities for cash in the
amount of $250,000. We sold Evergreen a total of 3,645,833 shares of our common
stock, 3,125,000 common stock purchase warrants to purchase a like number of
shares at an exercise price of $.15 per share and 3,125,000 common stock
purchase warrants to purchase a like number of shares at an exercise price of
$.30 per share. Under the agreement, Evergreen has the right to name two persons
to become members of our board of directors. As of the date of this prospectus,
Evergreen has exercised this right as to one person, Richard E. Wilson, but has
not yet named another person as a director. At the time of this transaction, our
president and chief executive officer, Mr. McKinnon was a manager of Evergreen.
Mr. McKinnon is no longer affiliated with Evergreen.
Pursuant to the Evergreen agreement, on April 15, 2002, the following
occurred:
o We hired Douglas O. McKinnon as our new president and chief
executive officer. Mr. McKinnon also became a member of our board of
directors. In exchange for executing his employment agreement, Mr.
McKinnon received 3,000,000 shares of our common stock. These shares
were valued at $210,000.
o Our former president, David M. Loflin, became chairman of the board,
reduced the term of his remaining term of employment from
approximately four years to six months, waived the payment of all
accrued and unpaid salary and waived the repayment of all loans made
to us by him. In exchange for executing an amendment to his
employment agreement that reflected the foregoing provisions, Mr.
Loflin received 2,000,000 shares of our common stock. These shares
were valued at $140,000.
o Our former vice president and secretary, Waddell D. Loflin, reduced
the term of his remaining term of employment from approximately four
years to six months and waived the payment of all accrued and unpaid
salary. In exchange for executing an amendment to his employment
agreement that reflected the foregoing provisions, Mr. Loflin
received 2,000,000 shares of our common stock. These shares were
valued at $140,000.
o Our former vice president of corporate development, James Kaufman,
reduced the term of his remaining term of employment from one year
to six months and waived the payment of all accrued and unpaid
salary. In exchange for executing an amendment to his employment
agreement that reflected the foregoing provisions, Mr. Kaufmann
received 2,000,000 shares of our common stock. These shares were
valued at $140,000.
As a result of these common stock issuances, we incurred an additional
charge against our earning of approximately $300,000 in 2002, pursuant to FAS
123 promulgated by the Financial Accounting Standards Board.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of December 10, 2004, by (i) each
person who is known to us to be beneficial owners of more than 5% of our common
stock, (ii) each of our directors and the executive officers named in the
Summary Compensation Table above, and (iii) our executive officers and directors
as a group. Except as otherwise noted below, the address of each persons is 390
Interlocken Crescent, Suite 900, Broomfield, Colorado 80021.
23
NUMBER OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1)
- ------------------------------------ --------------------- ---------------------
Crestview Capital Master LLC (2) 91,626,374 31.2%
Evergreen Venture Partners, LLC(3) 32,316,667 14.9%
Monarch Pointe Fund, Ltd. (4) 25,600,000 11.2%
David A. Weisman 17,500,000 8.0%
Douglas O. McKinnon 5,650,000 2.8%
Richard E. Wilson(5) 450,000 *
Ed Garneau(6) 800,000 *
Ronald S. Bass 575,000 *
Craig Cook(7) 266,666 *
All executive officers and
directors as a group
(5 persons) 25,241,666 12.5%
- ----------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to options and warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of December 20, 2004, are deemed
outstanding for computing the percentage of the person holding such option
or warrant but are not deemed outstanding for computing the percentage of
any other person. Except as pursuant to applicable community property
laws, the persons named in the table have sole voting and investment power
with respect to all shares of common stock beneficially owned. Percentages
are based on 201,960,088 shares of common stock outstanding as of December
20, 2004.
(2) Includes 85,000,000 shares issuable upon conversion of convertible
debentures and 6,626,374 shares issuable upon exercise of warrants held by
Crestview. Crestview's business address is 95 Revere Dr., Suite A,
Northbrook, Illinois, 60062.
(3) Includes 17,000,000 shares of our common stock held by Evergreen and
15,316,667 shares of common stock issuable upon exercise of warrants held
by Evergreen. Evergreen Venture Partners, LLC's business address is 1535
Grant Street, Suite 140, Denver, CO 80203.
(4) Includes 20,000,000 shares issuable upon conversion of preferred shares
and 5,600,000 shares issuable upon exercise of warrants held by Monarch.
Monarch's business address is 555 South Flower St., Suite 4500, Los
Angeles, California 90071.
(5) Mr. Wilson's address is P.O. Box 2844, Kirkland, Washington 98083.
(6) Mr. Garneau's address is 140 E. 19th Street, Suite 500, Denver, Colorado
80203.
(7) Mr. Cook's address is 140 E. 19th Street, Suite 500, Denver, Colorado
80203.
24
LEGAL PROCEEDINGS
CYBERHIGHWAY INVOLUNTARY BANKRUPTCY
On September 29, 2000, an involuntary bankruptcy petition was filed
against CyberHighway in the Idaho Federal Bankruptcy Court, styled In Re:
CyberHighway, Inc., Case No. 00-02454. The petitioning creditors were ProPeople
Staffing, CTC Telecom, Inc. and Hawkins-Smith. CyberHighway operated as an
Internet service provided but is now a non-operating subsidiary of ours. There
have been no developments in this matter since 2003. We are in the process of
obtaining a final order of bankruptcy and having this matter discharged.
USURF TELECOM, INC. LITIGATION
In June 2003, one of our subsidiaries, USURF Telecom, Inc., was named as a
defendant in a lawsuit filed by Qwest Corporation. USURF Telecom has filed its
answer, denying any liability. As of the date of this prospectus, there has been
no activity in the case involving USURF Telecom, Inc. beyond the original filing
of the lawsuit. Our management believes that Qwest's allegations are without
merit. This case is styled: Qwest Corporation vs. Maxcom, Inc. (f/k/a Mile High
Telecom, CLEC for Sale, Inc. and Mile High Telecom, Inc.), et al., District
Court, City and County of Denver, Colorado, Case No. 03 CV 1676.
25
PLAN OF DISTRIBUTION
The shares of common stock offered by this prospectus are being offered by
the selling shareholders identified on page 27 of this prospectus. The common
stock may be sold or distributed from time to time by the selling shareholders
directly to one or more purchasers or through brokers, dealers, or underwriters
who may act solely as agents at market prices prevailing at the time of sale, at
prices related to the prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The selling shareholders may also sell
shares under Rule 144 under the Securities Act, if available, rather than under
this prospectus. The sale of the common stock offered by this prospectus may be
effected in one or more of the following methods:
o ordinary brokers' transactions;
o transactions involving cross or block trades;
o through brokers, dealers, or underwriters who may act solely as
agents;
o "at the market" into an existing market for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
o in privately negotiated transactions; or
o any combination of the foregoing.
To comply with the securities laws of certain states, if applicable, the
shares may be sold only through registered or licensed brokers or dealers. In
addition, in certain states, the shares may not be sold unless they have been
registered or qualified for sale in the state or an exemption from the
registration or qualification requirement is available and complied with.
Brokers, dealers, underwriters, or agents participating in the
distribution of the shares as agents may receive compensation in the form of
commissions, discounts, or concessions from the selling shareholder and/or
purchasers of the common stock for whom the broker-dealers may act as agent. The
compensation paid to a particular broker-dealer may be less than or in excess of
customary commissions.
Each selling shareholder may be deemed an "underwriter" within the meaning
of the Securities Act.
Neither we nor any selling shareholder can presently estimate the amount
of compensation that any agent will receive. We know of no existing arrangements
between any selling shareholder, any other shareholder, broker, dealer,
underwriter, or agent relating to the sale or distribution of the shares offered
by this prospectus. At the time a particular offer of shares is made, a
prospectus supplement, if required, will be distributed that will set forth the
names of any agents, underwriters, or dealers and any compensation from the
selling shareholder and any other required information.
We will pay all expenses incident to the registration, offering, and sale
of the shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents.
We have agreed to indemnify the selling shareholders against specified
liabilities, including liabilities under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore, unenforceable.
We have advised the selling shareholders that, while they are engaged in a
distribution of the shares included in this prospectus, they are required to
comply with Regulation M promulgated under the Securities Exchange Act of 1934.
With certain exceptions, Regulation M precludes the selling shareholders, any
affiliated purchasers and any broker-dealer or other person who participates in
26
the distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase, any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the shares offered hereby this
prospectus.
This offering will terminate on the date that all shares offered by this
prospectus have been sold by the selling shareholders.
SELLING SHAREHOLDERS
The following table presents information regarding the selling
shareholders. None of the selling shareholders nor any of their affiliates has
ever held any position or office with us or had any other material relationship
with us, except for: Byron Young, member of the board of directors and president
of USURF's wholly owned subsidiary, Connect Paging, Inc.; Brian Young, Vice
President of Connect Paging, Inc.; Brandon Young, Vice President of Connect
Paging, Inc.; Douglas McKinnon, former Manager of Evergreen Venture Partners
LLC; and Richard Koontz, former Vice President of USURF. We will not receive any
proceeds from the sales of stock by the selling shareholders. However, we may
receive up to $1,196,535 in proceeds upon the exercise of warrants held by the
selling stockholders.
We are registering for resale shares issued by us in private placements,
shares issuable on exercise of warrants issued by us in private placements,
SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE NOTES AND SHARES ISSUABLE UPON
CONVERSION OF PREFERRED STOCK. All such shares issued or to be issued are and
will be restricted securities as that term is defined in Rule 144 under the
Securities Act, and will remain restricted unless and until such shares are sold
pursuant to this prospectus or otherwise are sold in compliance with Rule 144.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling shareholder has sole or shared voting power or investment power and
also any shares the selling shareholder has the right to acquire within 60 days.
Percentages in the table below are based on a total of 201,960,088 shares of
common stock outstanding on December 20, 2004. Shares of common stock subject to
options, convertible notes and warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of December 20, 2004, are deemed
outstanding for computing the percentage of the selling shareholder holding such
option, warrant, or convertible note but are not deemed outstanding for
computing the percentage of any other selling shareholder.
27
CONVERTIBLE INTO COMMON SHARES TOTAL SHARES OF SHARES OF TOTAL SHARES OF
RESULTING FROM CONVERSITION OF COMMON STOCK COMMON COMMON STOCK
------------------------------------- SHARES BENEFICIALLY STOCK BENEFICIALLY OWNED
PREFERRED ISSUED AND OWNED BEFORE OFFERED AFTER OFFERING
SELLING SHAREHOLDER STOCK DEBENTURES WARRANTS OUTSTANDING OFFERING HEREBY NUMBER PERCENT
- -------------------------------- ----------- ----------- ---------- ------------ ------------ ----------- -------- --------
Monarch Pointe Fund, Ltd. 20,000,000 5,600,000 25,600,000 25,600,000 0 0
Crestview Capital Master LLC 50,000,000 50,000,000 50,000,000 0 0
Atlas Equity Group, Inc. 1,600,000 473,317 2,073,317 2,073,317 0 0
Robert Schecter 700,000 212,597 912,597 912,597 0 0
Shimon Fishman 600,000 179,702 779,702 779,702 0 0
Richard Koontz 500,000 400,307 900,307 900,307 0 0
John Pritzlaff 4,500,000 4,500,000 4,500,000 0 0
Sovereign Companies, LLC 2,150,942 2,150,942 2,150,942 0 0
Wentworth Telecom Services, LLC 1,537,707 1,537,707 1,537,707 0 0
Palmer Wells. LLC 1,250,000 1,250,000 1,250,000 0 0
Settler's Chase Development, LLC 894,777 894,777 894,777 0 0
Edwin L. Buckmaster 266,666 800,000 1,066,666 1,066,666 0 0
September Serenade, Ltd. 200,000 600,000 800,000 800,000 0 0
Kenneth F. Miller 200,000 600,000 800,000 800,000 0 0
Mountain View at T-Bone 510,343 510,343 510,343 0 0
Paul T. and Laura M. Garneau 133,333 400,000 533,333 533,333 0 0
Craig A. Cook 66,666 200,000 266,666 266,666 0 0
Jeffrey W. Fiebig 66,666 200,000 266,666 266,666 0 0
Pinnacle T-Bone, LLC 110,101 110,101 110,101 0 0
Brent E. Couch 33,333 100,000 133,333 133,333 0 0
Thomas D. Beck 33,333 100,000 133,333 133,333 0 0
Mercator Advisory Group, LLC 1,400,000 1,400,000 1,400,000 0 0
Ken & Connie Williamson 1,000,000 1,000,000 1,000,000 0 0
Kristin McDonald 312,500 312,500 312,500 0 0
Mirabel, LLC 312,500 312,500 312,500 0 0
Phil Allen 156,250 156,250 156,250 0 0
Francis B. Jackson 156,250 156,250 156,250 0 0
Joseph Decker II Trust 156,250 156,250 156,250 0 0
Nemat Sanandji 125,000 125,000 125,000 0 0
Elite Financial Communications Inc. 200,000 200,000 200,000 0 0
Ted Decker 187,500 187,500 187,500 0 0
Bradley G. Stone 31,250 31,250 31,250 0 0
-------------------------------------------------------------------------------------------------
20,000,000 53,400,000 11,903,420 13,953,870 99,257,290 99,257,290 0 0
-------------------------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of 400,000,000 shares of common
stock, $.0001 par value per share. The following description of certain
provisions of our common stock does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of the our Articles of
Incorporation, as amended.
DESCRIPTION OF COMMON STOCK
As of December 20, 2004 there are 201,960,088 shares of our common stock
outstanding. An additional 33,258,837 shares of common stock have been reserved
for issuance pursuant to various warrants. Each share of common stock is
entitled to one vote at all meetings of shareholders. All shares of common stock
are equal to each other with respect to liquidation rights and dividend rights.
There are no preemptive rights to purchase any additional shares of common
stock, nor are there any subscription, conversion or redemption rights
applicable to the common stock. Our Articles of Incorporation, as amended,
prohibit cumulative voting in the election of directors. The absence of
cumulative voting means that holders of more than 50% of the shares voting for
the election of directors can elect all directors if they choose to do so. In
such event, the holders of the remaining shares of common stock will not be
entitled to elect any director. A majority of the shares entitled to vote,
represented in person or by proxy, constitutes a quorum at a meeting of
shareholders. In the event of liquidation, dissolution or winding up, holders of
shares of common stock will be entitled to receive, on a pro rata basis, all
assets remaining after satisfaction of all liabilities.
28
TRANSFER AGENT AND REGISTRAR
Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco,
TX 75034, Frisco, Texas, is the transfer agent and registrar for our common
stock.
LEGAL MATTERS
The legality of the shares of common stock being offered by this
prospectus will be passed upon for us by Christopher K. Brenner P.C..
EXPERTS
Our financial statements for the year ended December 31, 2003 and 2002, as
indicated in the report thereon, that appear in this prospectus have been
audited by Hein + Associates LLP, independent auditor. The financial statements
audited by Hein + Associates LLP have been included in reliance on its reports
given as its authority as an expert in accounting and auditing. The financial
statements of Connect Paging Inc. (successor to Extel Enterprises, Inc.) for the
years ended December 31, 2003 and 2002, as indicated in the report thereon, that
appear in this prospectus have been audited by Lewis B. Fox, independent
auditor. The financial statements audited by Lewis B. Fox have been included in
reliance on its reports given as its authority as an expert in accounting and
auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933 relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of USURF America, Inc., filed as part of
the registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, which requires us to file reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information may be inspected at the public reference room of the SEC at
Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549. Copies of such
material can be obtained from the facility at prescribed rates. Please call the
SEC toll free at 1-800-SEC-0330 for information about its public reference room.
Because we file documents electronically with the SEC, you may also obtain this
information by visiting the SEC's Internet website at http://www.sec.gov or our
website at http://www.usurf.com. Information contained in our web site is not
part of this prospectus.
Our statements in this prospectus about the contents of any contract or
other document are not necessarily complete. You should refer to the copy of our
contract or other document we have filed as an exhibit to the registration
statement for complete information.
You should rely only on the information provided in this prospectus. We
have not authorized anyone else to provide you with different information. The
selling shareholders are not making an offer of these securities in any state
where the offer is not permitted. You should not assume that the information in
this prospectus is accurate as of any date other than the date on the front of
the document.
We furnish our shareholders with annual reports containing audited
financial statements.
29
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003 AND 2002
PAGE
Report of Registered Public Accounting Firm..................................F-2
Consolidated Balance Sheets at December 31, 2003 and 2002....................F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2003 and 2002.................................................F-5
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 2003 and 2002.............................F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003 and 2002.................................................F-7
Notes to Consolidated Financial Statements...................................F-8
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
Consolidated Balance Sheets at September 30, 2004, and
December 31, 2003 (audited)...............................................F-20
Consolidated Statements of Operations for the Nine months
ended September 30, 2004 and 2003.........................................F-22
Consolidated Statements of Cash Flows for the Nine months
ended September 30, 2004 and 2003.........................................F-23
Notes to Consolidated Financial Statements..................................F-29
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
USURF America, Inc.
Colorado Springs, Colorado
We have audited the accompanying consolidated balance sheets of USURF
America, Inc. (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of our management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the
Public Company Accounting Oversight Board (United States). 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of USURF
America, Inc. as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming USURF
America, Inc. will continue as a going concern. As more fully described in Note
3, the Company has recurring losses, and negative working capital. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern (management's plans in regard to those matters are also described
in Note 3). The financial statements do not include any adjustments to reflect
the possible future effect on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the outcome
of this uncertainty.
/S/ HEIN & ASSOCIATES LLP
HEIN & ASSOCIATES LLP
DENVER, COLORADO
February 27, 2004
F-2
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
ASSETS
2003 2002
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 72,597 $ 111,568
Marketable securities 280,000 0
Accounts receivable 69,205 224
Inventory 71,906 2,715
Deposits and other assets 44,910 4,942
----------- -----------
Total Current Assets $ 538,618 $ 119,449
PROPERTY AND EQUIPMENT
Cost 681,511 73,359
Less: accumulated depreciation (98,836) (7,336)
----------- -----------
Total Property and Equipment 582,675 66,023
INTANGIBLES 909,932 201,604
OTHER LONG TERM ASSETS 805,000 20,000
----------- -----------
TOTAL ASSETS $ 2,836,225 $ 407,076
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
LIABILITIES AND STOCKHOLDERS' EQUITY
2003 2002
------------ ------------
CURRENT LIABILITIES
Notes payable, current portion $ 168,300 $ 87,604
Accounts payable 429,954 131,146
Accrued payroll 119,835
Other current liabilities 156,379 0
Deposits 17,867 0
Deferred revenues 403,333 0
Notes Payable to Stockholder 0 1,000
------------ ------------
Total Current Liabilities 1,295,658 219,750
Commitments and Contingencies (Notes 6, 7, 11, 12, 13 & 15
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; Authorized:
100,000,000, none outstanding (Note 11)
Common stock, $.0001 par value; Authorized: 400,000,000 shares;
Issued and outstanding: 114,684,486 in 2003 and 71,445,338 in 2002 11,468 7,145
Additional paid-in capital 47,159,317 40,778,870
Accumulated deficit (43,861,845) (40,207,489)
Subscriptions receivable 0 (21,200)
Deferred consulting (1,608,373) 0
Other comprehensive loss (160,000) 0
------------ ------------
Total Stockholders' Equity 1,540,567 187,326
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,836,225 $ 407,076
============ ============
The accompanying notes are an integral part of these statements.
F-4
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
------------ ------------
REVENUES
Revenues $ 329,297 $ 0
License revenues 74,467
Internet access costs, cost of goods sold (493,504) 0
Inventory write down 0 (132,031)
------------ ------------
Gross profit (loss) (89,740) (132,031)
OPERATING EXPENSES
Professional fees 1,709,556 2,794,020
Salaries and commissions 1,028,246 899,967
Rent 113,517 20,051
Depreciation and amortization 130,384 7,336
Other general and administrative 512,017 116,143
Total Operating Expenses 3,493,720 3,837,517
------------ ------------
LOSS FROM OPERATIONS (3,583,460) (3,969,548)
OTHER INCOME (EXPENSE)
Other income 27,048 5,593
Litigation settlement (42,235) (101,695)
Impairment loss 0 (94,772)
Interest expense (55,709) 0
------------ ------------
Total Other Income (Expense) (70,896) (190,874)
LOSS BEFORE INCOME TAX (3,654,356) (4,160,422)
------------ ------------
INCOME TAX BENEFIT 0 0
NET LOSS $ (3,654,356) $ (4,160,422)
------------ ------------
Net loss per common share $ (0.04) $ (0.09)
------------ ------------
Weighted average number of shares outstanding 89,186,106 45,008,651
The accompanying notes are an integral part of these statements.
F-5
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2003 AND 2002
COMMON PAID-IN ACCUMULATED SUBSCRIPTIONS DEFERRED
SHARES STOCK CAPITAL DEFICIT RECEIVABLE CONSULTING
----------- ------------ ---------- ------------ ------------ ------------
Balance at 12/31/2001 23,848,108 $ 2,385 $ 35,642,817 $(36,047,067) $ 165,750 $ (1,163,149)
Issuance of common stock
for cash 10,685,968 1,069 644,131 -- (10,000) --
Issuance of common stock
for legal fees 5,975,000 597 425,402 -- -- (370,000)
Issuance of common stock
for consulting fees 8,549,500 855 655,431 -- -- --
Issuance of common
stock for debt conversion 6,000,000 600 599,400 -- -- --
Issuance of common stock
for compensation 6,436,000 644 593,876 -- -- --
Issuance of common stock
for exercise of warrants 2,700,000 270 148,330 -- (11,200) --
Issuance of common stock
for services 2,000,000 200 142,800 -- -- --
Issuance of common stock
for acquisitions 2,200,000 220 113,780 -- -- --
Issuance of common stock
for subscriptions
receivable 912,036 91 223,813 -- (165,750) --
Issuance of warrants
to non-employees -- -- 396,604 -- -- --
Amortization of deferred
consulting -- -- -- -- -- 1,163,149
Shares no longer subject
to rescission 2,138,726 214 1,192,486 -- -- --
Net loss -- -- -- (4,160,422) -- --
----------- ------------ ---------- ------------ ------------ ------------
Balance at 12/31/02 71,445,338 $ 7,145 $ 40,778,870 $(40,207,489) $ (21,200) $ (370,000)
----------- ------------ ---------- ------------ ------------ ------------
Issuance of common stock
for cash 6,994,865 699 1,006,301 -- -- --
Issuance of common stock
for legal fees 400,000 40 99,960 -- -- (100,000)
Issuance of common stock
for consulting fees 3,981,500 398 653,727 -- -- (320,000)
Issuance of common stock
for debt conversion 600,000 60 95,940 -- -- --
Issuance of common stock
for compensation 4,525,000 452 284,298 -- -- --
Issuance of common stock
for exercise of warrants 12,244,500 1,224 1,257,008 -- -- --
Issuance of common stock
for services 10,918,283 1,092 2,028,113 -- -- (1,464,000)
Issuance of common stock
for acquisitions 3,575,000 358 585,642 -- -- --
Proceeds on subscriptions
receivable -- -- -- -- 21,200 --
Amortization deferred
consulting -- -- -- -- -- 645,627
Issuance of warrants to
non-employees -- -- 325,258 -- -- --
-- -- --
Unrealized loss-marketable
securities -- -- -- -- -- --
Net loss -- -- -- (3,654,356) -- --
Comprehensive loss -- -- -- -- -- --
Balance at 12/31/03 114,684,486 $ 11,468 47,159,317 $(43,861,845) $ 0 $ (1,608,373)
----------- ------------ ---------- ------------ ------------ ------------
COMPREHENSIVE
INCOME TOTAL
------------ ------------
Balance at 12/31/2001 -- $ (1,399,264)
Issuance of common stock
for cash -- 635,200
Issuance of common stock
for legal fees -- 55,999
Issuance of common stock
for consulting fees -- 656,286
Issuance of common
stock for debt conversion -- 600,000
Issuance of common stock
for compensation -- 594,520
Issuance of common stock
for exercise of warrants -- 137,400
Issuance of common stock
for services -- 143,000
Issuance of common stock
for acquisitions -- 114,000
Issuance of common stock
for subscriptions
receivable -- 58,154
Issuance of warrants
to non-employees -- 396,604
Amortization of deferred
consulting -- 1,163,149
Shares no longer subject
to rescission -- 1,192,700
Net loss -- (4,160,422)
------------ ------------
Balance at 12/31/02 -- $ 187,326
------------ ------------
Issuance of common stock
for cash -- 1,007,000
Issuance of common stock
for legal fees -- 0
Issuance of common stock
for consulting fees -- 334,125
Issuance of common stock
for debt conversion -- 96,000
Issuance of common stock
for compensation -- 284,750
Issuance of common stock
for exercise of warrants -- 1,258,232
Issuance of common stock
for services -- 565,205
Issuance of common stock
for acquisitions -- 586,000
Proceeds on subscriptions
receivable -- 21,200
Amortization deferred
consulting -- 645,626
Issuance of warrants to
non-employees -- 325,258
-- 44,200
Unrealized loss-marketable
securities (160,000) (160,000)
Net loss -- (3,654,356)
Comprehensive loss -- (3,814,356)
Balance at 12/31/03 $ (160,000) $ 1,540,567
------------ ------------
The accompanying notes are an integral part of these statements.
F-6
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,654,356) $(4,160,422)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 130,384 7,336
Settlement of accruals and debt paid with stock 0 315,501
Consulting and other fees paid with stock 1,174,957 1,592,435
Legal fees paid with stock 370,000 426,000
Compensation expense paid with stock 284,750 594,520
Warrants issued to non-employees 325,258 396,604
Impairment loss and write down of assets 50,000 94,772
Accretion of interest expense on convertible debt 44,200
Unrealized loss on marketable securities (160,000)
Impairment loss and write down of inventory 0 132,031
Changes in operating assets and liabilities
Accounts receivable (68,981) (224)
Marketable Securities (280,000) 0
Inventory (69,191) 0
Other assets (39,986) (24,942)
Accounts payable 298,887 (4,908)
Deferred revenue 403,333 0
Accrued expenses and other current liabilities 134,350 (15,540)
----------- -----------
Net cash used in operating activities $(1,056,395) $ $(646,837)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property and equipment $ (346,009) $ (73,359)
Cash paid for future acquisitions (785,000)
Cash paid for acquisitions (195,000) $ (73,359)
----------- -----------
Net cash used in investing activities $(1,326,009) $ (73,359)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments received on subscriptions receivable $ 21,200 $ 58,154
Proceeds on notes payable - stockholder 0 1,000
Issuance of common stock for cash 1,007,000 635,200
Warrants exercised 1,258,233 137,400
Proceeds from convertible debt 57,000 0
----------- -----------
Net cash provided by financing activities 2,343,433 831,754
----------- -----------
Net increase (decrease) in cash and cash equivalents (38,971) 111,558
Cash and cash equivalents, beginning of period 111,568 10
----------- -----------
Cash and cash equivalents, end of period $ 72,597 $ 111,568
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 11,509 $ 0
----------- -----------
Stock issued for acquisition of assets $ 586,548 $ 114,000
----------- -----------
Notes issued and accruals for acquisition of assets $ 267,600 $ 0
----------- -----------
Stock issued for forgiveness of debt $ 96,000 $ 600,000
----------- -----------
The accompanying notes are an integral part of these statements.
F-7
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
1. BUSINESS AND BACKGROUND
USURF America, Inc. (the "Company"), formerly Internet Media Corporation,
was incorporated as Media Entertainment, Inc. in the State of Nevada on November
1, 1996. We currently operate as a provider of video (cable television) and data
(Internet) services to business and residential customers. We also markets and
sell telecommunications-related hardware and software.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include all our
accounts and all our controlled wholly owned subsidiaries. Intercompany
transactions and balances have been eliminated in the consolidation. For the
years ended December 31, 2003 and 2002, CyberHighway, Inc., a wholly-owned
subsidiary, is not consolidated. As a result of the subsidiary's Chapter 7
bankruptcy, we do not have control of the entity and, therefore, has not been
consolidated (Note 13).
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Specific estimates include lives of
assets, intangibles, collectability of receivables and notes, purchase price
adjustments and valuation of allowance on net operating loss carryforward.
Actual results could differ from those estimates.
CASH EQUIVALENTS
We consider all highly liquid investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
MARKETABLE SECURITIES
Marketable securities consist of publicly traded equity securities, which
are classified as "available-for-sale" under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). In
accordance with SFAS No. 115, we are required to carry these investments at
their fair or market value. Changes in market value are reflected in other
comprehensive loss in the Statement of Stockholders' Equity.
RECEIVABLES AND CREDIT POLICIES
Accounts receivable consist of uncollateralized customer obligations due
under normal trade terms requiring payment within 30 days of the invoice date.
In most cases, trade receivables are applied to a specific identified invoice.
Management reviews trade receivables periodically and reduces the carrying
amount by a valuation allowance that reflects management's best estimate of the
amount that may not be collectible.
OTHER LONG TERM ASSETS
Other long term assets consist primarily of notes receivable representing
advances made to entities which we have agreements in place to acquire. Should
the acquisition not occur, we have the rights to the assets of the entities
under collateral agreements.
F-8
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
INVENTORY
Inventories are stated at the lower of cost or market, and represents
equipment purchased from suppliers. During 2002, we determined that certain
items of its inventory had become impaired and recorded a write-down of its
inventory in the approximate amounts of $132,000. No impairment was deemed
necessary during 2003.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets.
DESCRIPTION LIFE
- ---------------------- --------
Furniture and Fixtures 5 years
Equipment 3-5 years
Automobiles 5 years
In the event that facts and circumstances indicate that the carrying value
of long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.
REVENUE RECOGNITION
We charge our video and data customers monthly service fees and recognizes
the revenue in the month the services are provided or equipment is sold.
COSTS OF ACCESS REVENUES
Costs of access revenues primarily consist of telecommunications expenses
inherent in the network infrastructure.
COMPREHENSIVE INCOME/LOSS
SFAS No. 130 establishes standards for reporting and display of
comprehensive income/loss and its components and accumulated balances.
Comprehensive income/loss is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Comprehensive net loss is set forth in the following table.
2003 2002
----------- -----------
Net loss $(3,654,356) $(4,160,422)
Unrealized loss on Marketable securities (160,000) 0
Comprehensive net loss $(3,814,356) $(4,160,422)
Loss per share $ (0.04) $ (0.09)
INCOME TAXES
We account for income taxes under the liability method of SFAS No. 109,
whereby current and deferred tax assets and liabilities are determined based on
tax rates and laws enacted as of the balance sheet date.
F-9
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject us to concentrations of
credit risk, consist principally of cash. We maintain cash in bank deposit
accounts, which, at times, may exceed federally insured limits. We have not
experienced any losses in such accounts and believe it is not exposed to any
significant credit risk on cash.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash, trade
receivables, accounts payable and accrued expenses approximate fair value
because of the immediate or short-term maturities of these instruments.
LOSS PER COMMON SHARE
The loss per common share is presented in accordance with the provisions
of SFAS No. 128, Earnings Per Share. Basic loss per common share has been
computed by dividing the net loss available to the common stockholder by the
weighted average number of shares of common stock outstanding for the period.
The effect of considering all potential dilutive securities (totaling 8,476,727
and 12,558,727 at December 31, 2003 and 2002, respectively) is not presented as
the effects would be anti-dilutive.
INTANGIBLE ASSETS
Intangible assets are stated at cost and are amortized over the estimated
useful lives of the assets.
DESCRIPTION LIFE
- -------------------------- -------
Contracts 15 years
Right of entry agreements 7 years
Customer base 7 years
Websites and graphics 7 years
Software 7 years
We assess the recoverability of intangible assets by determining whether
the amortization of the intangible asset balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting our
average cost of funds. The assessment of the recoverability of intangible assets
will be impacted if estimated future operating cash flows are not achieved.
STOCK BASED COMPENSATION
Transactions in equity instruments with non-employees for goods or
services are accounted for on the fair value method, as described in SFAS No.
123. During 2003 and 2002 no options were granted to employees, officers or
directors.
STOCK FOR SERVICES
We have issued stock pursuant to various consulting agreements. Deferred
consulting costs, which are valued at the stock price on the date of the
agreements, are recorded as a reduction of stockholders' equity and are
amortized over the respective lives of the agreements.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, was issued in April 2003 and amends and clarifies accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not have a material impact on its financial position or results of
operations.
F-10
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, was issued in May 2003 and
requires issuers to classify as liabilities (or assets in some circumstances)
three classes of freestanding financial instruments that embody obligations for
the issuer. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have a material impact on its financial position or results of
operations.
The FASB issued Interpretation ("FIN") No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of
variable Interest Entities, in January 2003. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2002; however, disclosure requirements are
effective immediately. FIN No. 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee and expands the required disclosures to be
made by the guarantor about its obligation under certain guarantees that it has
issued. The adoption of FIN No. 45 did not have a material impact on our
financial position or results of operations. FIN No. 46 requires that a company
that controls another entity through interest other than voting interest should
consolidate such controlled entity in all cases for interim periods beginning
after June 15, 2003. The adoption of FIN No. 46 did not have a material impact
on its financial position or results of operations.
3. GOING CONCERN
These financial statements are presented on the basis that we are a going
concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The appropriateness of using the going concern basis is
dependent upon obtaining additional financing or equity capital and, ultimately,
to achieve profitable operations. The uncertainty about these conditions raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Management plans to raise capital by obtaining financing and, eventually,
through public offerings. Management intends to use the proceeds from any
borrowings to acquire and develop markets to implement its business plan and
sell its telecommunications services and telecommunications-related equipment.
We believe that these actions will enable it to carry out its business plan and
ultimately to achieve profitable operations. (See Note 14).
4. PROPERTY AND EQUIPMENT
Classifications of property and equipment and accumulated depreciation
were as follows at December 31, 2003 and 2002:
2003 2002
--------- ---------
Furniture, fixtures and equipment $ 681,511 $ 73,359
Accumulated depreciation (98,836) (7,336)
--------- ---------
Property and equipment, net $ 582,675 $ 66,023
========= =========
For the years ending December 31, 2003 and 2002, we recognized $91,500 and
$7,336 of depreciation expense, respectively.
5. INTANGIBLES
Classification of intangible assets and accumulated amortization at
December 31 were as follows:
F-11
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
--------- ---------
Contracts $ 201,622 $ 201,604
Right of entry agreements 40,000
Customer base 79,613
Website and graphics 86,000
Software 541,582
--------- ---------
948,817 201,604
Accumulated amortization (38,885) 0
--------- ---------
Intangible assets, net $ 909,932 $ 201,604
========= =========
For the year ending December 31, 2003, we recognized $38,885 of
amortization expense. Additions to intangible assets in 2003 are the result of
certain acquisitions (Note 12).
6. LICENSES AND RIGHTS TO LEASES OF LICENSES
We own licenses or rights to leases of licenses in the following wireless
cable and community television markets:
WIRELESS CABLE MARKET EXPIRATION DATE
- ---------------------- ----------------
Poplar Bluff, Missouri October 16, 2006
Lebanon, Missouri October 16, 2006
Sand Point, Idaho August 09, 2006
The Dallas, Oregon August 09, 2006
Fallon, Nevada August 09, 2006
Application for renewal of licenses must be filed within a certain period
prior to expiration.
7. NOTES PAYABLE
In December 2003, we executed a convertible loan agreement under which we
could borrow up to $700,000. At December 31, 2003, the balance of the loan was
$57,000. The loan(s) are due one year from funding, pay interest at the rate of
ten percent (10%) per annum and are convertible into our common stock at a
conversion price of $0.15 per share. Additionally, the agreement called for the
issuance of two warrants with an exercise price of $0.18 and $0.26 respectively
for each share converted. The entire proceeds from the convertible promissory
note were allocated to the warrants and the beneficial conversion feature based
on a calculation using the Black-Scholes model. As of December 31, 2003 interest
expense related to the accretion of the convertible promissory note to its face
value for $44,200 was recorded as the notes are convertible immediately.
Subsequent to year end, we borrowed an additional $543,000 under the agreement
bringing the balance to $600,000. This amount was converted into 5,000,000
shares of common stock. In connection with the conversion, the conversion price
and the exercise price of the warrants were reduced to $0.12 per share.
In connection with an acquisition made by us in 2003, our balance sheet
reflects a note payable obligation of $111,300 (see Note 12).
In connection with an acquisition made by us in 2002, our balance sheet
reflected a note payable obligation of the acquired subsidiary. At December 31,
2002, the balance of this note was $87,604. In August 2003, the note holder
agreed to exchange the note and accrued interest for 600,000 shares of our
common stock.
F-12
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
8. NOTE PAYABLE TO STOCKHOLDER
2003 2002
Note payable to stockholder, interest accrues at 8%, due on demand and
unsecured, without collateral $ 0 $1,000
9. INCOME TAXES
The significant components of deferred tax assets and liabilities were as
follows at December 31:
2003 2002
----------- -----------
Deferred tax assets
Net operating loss carryforwards $ 7,231,000 $ 5,950,000
Less - valuation allowance (7,231,000) (5,950,000)
----------- -----------
$ 0 $ 0
----------- ===========
The increase in the valuation allowance was approximately $1,281,000 and
$1,361,000 for the years ended December 31, 2003 and 2002, respectively. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.
We have net operating loss carryforwards of approximately $21,300,000 and
$17,500,000 for 2003 and 2002, respectively. These losses are available to
offset future income for income tax reporting purposes and will begin to expire
in 2011.
During 2002, there was an equity purchase and change in management. This
resulting ownership change could limit the availability of the net loss
carryforwards under federal tax law section 382. We do not anticipate any
limitations of these losses, but a formal analysis has not been performed to
date.
10. CONCENTRATIONS
We rely, in part, on local telephone companies and other companies to
provide certain telecommunications services. Although management believes
alternative telecommunications facilities could be found in a timely manner, any
disruption of these services could have an adverse effect on operating results.
11. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
At the 2003 annual meeting of shareholders, the Articles of Incorporation
were amended to increase the number of authorized shares of common stock to
400,000,000 and to authorize 100,000,000 shares of preferred stock. The Board of
Directors has been authorized to fix the number of shares in series, and the
designations, preferences, relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof as well as
increase or decrease the number of shares of any series.
2002 STOCK OWNERSHIP PLAN
In March 2002, the Board adopted a stock ownership plan for officers,
directors and consultants known as the 2002 Stock Ownership Plan, as amended and
restated in December 2002 (the "2002 Plan").
F-13
The 2002 Plan was established by the Board as a means to promote the
success and enhance the value by linking the personal interests of participants
to those of our shareholders, and by providing participants with an incentive
for outstanding performance. The 2002 Plan is further intended to attract and
retain the services of persons upon whose judgment, interest and special efforts
we are dependant upon for success. Persons who are either officers, directors or
consultants are eligible to participate in the 2002 Plan. The Board may, at any
time and from time to time, grant shares of our common stock in such amounts and
upon such terms and conditions as it may determine to include the granting of
shares of Company common stock and the granting of options to purchase shares of
Company common stock. 23,000,000 shares of Company common stock were reserved
for issuance under the 2002 Plan and a Registration Statement on Form S-8 (SEC
File No. 333-102167) relating to the 2002 Plan, as amended, has been filed with
the SEC. Under the 2002 Plan, at December 31, 2003, a total of 21,939,480 shares
had been issued to consultants.
STOCK COMPENSATION
During 2003 and 2002, we issued a total of 4,525,000 shares and 6,436,000
shares in payment of salaries in the total amount of $284,750 and $594,520,
respectively, the fair value of the common stock on the respective dates of
issue.
STOCK FOR SETTLEMENT OF DEBT
In 2002, we issued a total of 4,404,000 shares of common stock in payment
of $291,450 in accrued salary of certain of its officers and former officers, in
connection with the equity purchase and change in control. These shares were
valued at $.07 per share, the closing price of the Common Stock, as reported by
AMEX, on the date of issuance. In connection with the same transaction in 2002,
we issued 1,596,000 shares of common stock as payment for all loans outstanding
from a former officer.
OTHER TRANSACTIONS
During 2003, we issued 6,994,865 shares of common stock for cash of
$1,007,000 based on the market price at the time of issuance.
During 2003 and 2002 we issued 15,299,783 and 16,524,500 shares of common
stock, respectively to consultants and professionals for services to be
performed during 2002, 2003 and 2004. The stock price was determined to be
market price on the date of issuance. As of December 31, 2003 and 2002,
$1,608,373 and $370,000, respectively, of services were not performed and are
shown as a reduction to stockholders' equity.
WARRANT EXERCISES
During 2003 and 2002, we issued 12,244,250 and 2,700,000 shares,
respectively to non-employees upon the exercise of warrants for a total
consideration of $1,258,232 and $148,000 in cash.
The following table is a table of warrants issued during 2003 and 2002:
Warrants Outstanding, January 1, 2002 4,899,727
Warrants issued 10,569,000
Warrants exercised (2,700,000)
Warrants expired (210,000)
-----------
Warrants Outstanding, December 31, 2002 12,558,727
Warrants issued 8,162,250
Warrants exercised (12,244,250)
Warrants expired 0
-----------
Warrants Outstanding, December 31, 2003 8,476,727
===========
F-14
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Warrants for 8,162,250 and 10,569,000 shares were granted in 2003 and
2002. The weighted average remaining contractual life for all warrants as of
December 31, 2003, was approximately 2.4 years. At December 31, 2003, all
outstanding warrants were fully vested and exercisable.
If not previously exercised, warrants outstanding December 31, 2003, will
expire as follows:
WEIGHTED
RANGE NUMBER AVERAGE
----------------------- OF EXERCISE
YEAR LOW HIGH WARRANTS PRICE
---- ----- ----- --------- -----
2004 $0.15 $0.30 2,785,477 $0.22
2006 $0.19 $0.45 3,661,250 $0.19
2008 $0.05 $0.30 2,030,000 $0.16
8,476,727 $0.19
For the years ended December 31, 2003 and 2002, we recognized $325,258 and
$396,604 of compensation expense related to issuance of warrants to
non-employees in accordance with SFAS No. 123. During 2002 we repriced certain
warrants, which resulted in a charge to earnings of $106,609. This amount is
included in the compensation expense of $396,604 recognized in 2002.
OPTIONS
During 2003 and 2002 no options were granted to employees, officers or
directors.
12. 2003 ACQUISITION
PIPELINE NETWORKS OF COLORADO, LLC
On August 25, 2003, through our subsidiary, USURF Communications, Inc.,
acquired the customer base and 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"). This purchase was
entered into to add customers and agreements to offer services in areas that we
had not previously been providing service. The acquisition was effected pursuant
to an Asset Purchase Agreement (the "APA"), dated August 25, 2003 and modified
effective December 15, 2003. The members of Pipeline were paid a total of
$312,600, comprised of the following: $45,000 in cash, a promissory note for
$111,300 due December 15, 2003, and $156,300 in stock due December 15, 2003.
Effective December 15, 2003, we entered into a Modification and Extension
Agreement (the"MEA") amending the original terms of the APA. The MEA changed the
interest rate to 18%, the due date on the note to March 15, 2004 and the stock
due date to April 13, 2004. The note and accrued interest were paid in cash in
February 2004 and the shares were issued in April 2004.
The following table summarized the assets acquired and liabilities assumed
by us in the transaction:
Property and Equipment $ 207,177
Intangibles: Customer Base $ 79,613
Intangibles: Right-of Entry Agreements $ 40,000
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. Intangibles will be
amortized using the straight line method over 7 years.
The following proforma condensed statements of operations assumes the
Pipeline acquisition occurred on January 1, 2003 and presents proforma financial
information for the year ended December 31, 2003. In the opinion of management,
all adjustments necessary to present fairly such proforma condensed statements
of operations have been made.
F-15
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
PROFORMA PROFORMA
COMPANY PIPELINE ADJUSTMENTS COMBINED
----------------- ----------------- --------------------- --------------
Revenues $ 403,764 $ 154,091 $ 557,855
Expenses
Internet access cost 493,504 106,985 600,489
Depreciation and amortization 130,384 54,410 (1) 12,073 196,867
General and administrative 3,363,336 218,256 3,581,592
----------------- ----------------- -------------------- --------------
Total Operating Expenses 3,987,224 379,651 12,073 4,378,948
Operating loss (3,583,460) (225,560) (12,073) (3,821,093)
Other Income (expense) (70,846) 24,281 (2) 3,642 (42,973)
------------------ ----------------- -------------------- ---------------
Net loss $ (3,654,356) $ (201,279) (8,431) $ (3,864,066)
================== ================== ===================== ===============
Net loss per common share $ (0.041) $ (0.041)
Weighted average shares outstanding 89,186,106 89,186,106
(1) To record amortization of intangible assets
(2) To eliminate interest expense related to the purchase
The following 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 proforma condensed statements
of operations have been made.
PROFORMA PROFORMA
COMPANY PIPELINE ADJUSTMENTS COMBINED
----------------- ----------------- -------------------- --------------
Revenues $ 0 $ 98,276 $ 98,276
Expenses
Internet access cost 107,995 107,995
Inventory write down 132,031 132,031
Depreciation and amortization 7,336 57,979 (1) 21,495 86,810
General and administrative 3,830,181 256,535 4,086,716
----------------- ----------------- -------------------- --------------
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)
------------------ ----------------- -------------------- ---------------
Net loss $ (4,160,422) $ (322,579) (21,495) $ (4,504,496)
================== ================== ===================== ===============
Net loss per common share $ (0.092) $ (0.100)
Weighted average shares outstanding 45,008,651 45,008,651
(1) To record amortization of intangible assets
CHILDREN'S TECHNOLOGY GROUP, INC.
In September 2003, we acquired certain assets of Children's Technology
Group, Inc. ("CTG") a provider of content-filtering Internet services for a
total of $682,548, consisting primarily of $150,000 in cash and 2,800,000 shares
of common stock. The content-filtering software and related assets were acquired
to complement our Internet services product offerings
F-16
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
The following table summarized the assets acquired in the transaction and
the amount attributable to cost in excess of assets acquired:
Property and Equipment $ 54,966
Intangibles: Website and graphics $ 86,000
Intangibles: Content Filtering Software $ 541,582
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. Intangibles will be
amortized using the straight line method over 7 years.
In October 2003, we entered into an agreement to license certain software
acquired in the CTG purchase. The terms of the agreement called for a license
fee payment of $485,000 paid with a combination of $25,000 cash and two million
shares of stock. The agreement also calls for a monthly fee, based upon sales,
with a minimum of $4,000 per month. The license fee has been recorded as
deferred revenue and is being amortized over the two year term of the agreement
using the straight line method. The balance of deferred revenue at December 31,
2003 was $403,333.
OTHERS
In 2003, we issued 775,000 shares of stock for investment in two entities,
totaling approximately $54,000. During 2003, the value of these investments was
impaired and the carrying value was reduced by $50,000.
13. CONTINGENCIES
A. INVOLUNTARY BANKRUPTCY
On September 29, 2000, three creditors of CyberHighway filed an
involuntary petition in the Idaho Federal Bankruptcy Court, styled In Re:
CyberHighway, Inc. In December 2000, CyberHighway and the petitioning creditors
filed a joint motion to dismiss this proceeding. However, some of CyberHighway's
creditors objected to the joint motion to dismiss and the motion failed.
At December 31, 2003 and 2002, approximately $953,561 of accounts payable
of CyberHighway are not reflected on the balance sheet. As a result of the
bankruptcy, this subsidiary is not consolidated.
B. LITIGATION
We have been involved in lawsuits and other claims. We assess the
likelihood of any adverse judgments or outcomes to these matters as well as the
potential range of probable losses. A determination of the amount of accrual
required, if any, for these contingencies is made after careful analysis of each
matter. The required accrual may change in the future due to new developments in
any matter or changes in approach (such as a change in settlement strategy) in
dealing with these matters. As noted in footnote 15. below, we settled certain
litigation early 2004. The liabilities related to these matters were accrued at
December 31, 2003 and 2002 in the amounts of $42,235 and $126,048, respectively.
Management is unaware of any other existing or potential litigation or judgment
and has made no litigation-related accruals at December 31, 2003
C. LEASES
We sublease office space in Colorado Springs, Colorado, through 2004. The
future rental payments for 2004 are approximately $66,000, but do not include
the proportionate obligation of property taxes (approximately $2,500 per month
for the term of the sublease agreement). We have a small office in Denver during
2004 as well as leased space for communications equipment located in
co-locations facilities, on towers and roofs of various buildings. These leases
are generally on a month to month basis.
F-17
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Rent expense for the years ended December 31, 2003 and 2002, was $113,517
and $20,051, respectively.
14. SEGMENT DISCLOSURE
We adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information," during the fourth quarter of 2000. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by chief operating decision makers or decision making groups, in
deciding how to allocate resources and in assessing performance. Through
December 31, 2003, our operations contained no individual segments that are
required to be reported pursuant to SFAS 131.
15. SUBSEQUENT EVENTS
A. AMERICAN STOCK EXCHANGE LISTING
On March 5, we were notified by the American Stock Exchange ("AMEX") that,
following a hearing on March 4, 2004, a Listing Qualifications Panel of the AMEX
Committee on Securities affirmed a decision by the AMEX staff to delist our
common stock. On March 9, 2004, AMEX suspended trading of our common stock. On
March 10, 2004, our common stock began trading on the "pink sheets" and on March
22, 2004, began trading "over the counter" under the symbol "USUR".
B. LITIGATION SETTLEMENTS
In July 2002, an adverse arbitration decision was rendered against us in
favor of one of our former employees, Christopher L. Weibelt. The decision arose
out of a claim by Mr. Weibelt of wrongful termination under his employment
agreement. The arbitration matter was styled: USURF America, Inc. versus
Christopher L. Weibelt, American Arbitration Association, Case No.
71-160-00087-01. In September 2003, judgment was entered by a Louisiana District
Court on the arbitration award, plus accrued interest and attorneys fees
totaling approximately $124,000. In February 2004, we entered into a settlement
agreement with Mr. Weibelt under which we agreed to satisfy the judgment by
making an initial payment of $30,000 and six equal monthly payments of $15,700
thereafter for the balance. Under the settlement agreement, the judgment will be
fully satisfied in August 2004. All settlement amounts have been accrued as of
December 31, 2003.
In June 2001, a default judgment in the amount of $23,666 was entered
against us in the matter styled: Marcus, Merrick, Montgomery, Christian &
Hardee, LLP vs. USURF America, Inc., District Court of the Fourth Judicial
District of the State of Idaho, in and for the County of Ada, Case No. CV OC
0101693D. The lawsuit, filed by a law firm in Boise, Idaho, arose out of a
dispute regarding legal fees and went unchallenged as a result of administrative
error. In February of 2004, we settled this matter for the amount of $39,404.
Counsel for the plaintiff has filed with the court an acknowledgment of full
satisfaction of the judgment.
In March 2004, we became aware of a default judgment in the amount of
$12,963, rendered against us on November 13, 2001 in the matter styled
Teletronics International, Inc. v. USURF America, Inc.; Cause No. 0108-07513-D;
in the City Court of Baton Rouge, Louisiana. The lawsuit arose out of a dispute
regarding a vendor invoice and went unchallenged as a result of administrative
error. In March 2004, we settled this matter for the amount of $17,217. Counsel
for the plaintiff will file appropriate documents with the court to
acknowledgment full satisfaction of the judgment.
C. FINANCING ACTIVITIES (UNAUDITED)
In January 2004, we entered into an agreement with Atlas Capital Services,
LLC ("Atlas") to provide financing directly or indirectly to us. Under the terms
of the agreement, we will pay to Atlas a fee equal to 10% of the principal
amount of the transaction amount to be paid as proceeds are received by us from
each transaction.
F-18
USURF AMERICA, INC. AND SUBSIDIARIES COLORADO SPRINGS, COLORADO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
In March 2004, Atlas arranged for us to complete the closing of a private
placement totaling $3,100,000. The placement consisted of $1,000,000 in common
stock at $0.10 per share, $2,100,000 in convertible debentures convertible into
common stock at $0.10 per share, and 125% warrant coverage at an exercise price
of $0.12 per share. Under the terms of the private placement, the investors have
the right to purchase up to an amount equal to, at the election of such
investors, $3,000,000 principal amount of additional debentures. Any additional
investment will be on terms identical those set forth in the private placement,
except that, the conversion price of any additional convertible debentures shall
be $0.12 per share.
D. ACQUISITIONS (UNAUDITED)
SUNWEST COMMUNICATIONS, INC.
In February, 2004, we signed a definitive agreement to acquire the assets
of SunWest Communications, Inc. ("SunWest"). The assets include SunWest's
telecommunications network of fiber optic lines covering over 100 linear miles,
state-of-the-art operations facilities and equipment (including a Lucent 5ESS
switch). SunWest provides PUC licensed telecommunications services to
approximately 7,500 residential and commercial customers in the state of
Colorado. This acquisition provides us with an integral component in its
business plan to offer a complete voice, video and data service package.
SunWest is based in Colorado Springs, CO and currently generates over $5.0
million (unaudited) in annual revenues and has delivered high quality
telecommunications services for nearly seven years. SunWest serves primarily the
growing southern Colorado market, including Colorado Springs (population
517,000), Pueblo (147,000) and Canon City (45,000). The transaction is subject
to the approval of the Colorado Public Utilities Commission.
APOLLO COMMUNICATIONS, INC.
In October 2003, we announced the signing of a Letter of Intent to acquire
the assets of Apollo Communications, Inc. of Colorado Springs ("Apollo"). Apollo
provides data and high-speed Internet access services as well as local and long
distance telephone services. Apollo has over 5,500 (unaudited) customers and
generates $4.0 million (unaudited) in annual revenues. The transaction is
subject to the approval of the Colorado Public Utilities Commission.
CONNECT PAGING, INC. D/B/A GET A PHONE
In March 2004, we signed a letter of intent to acquire Connect Paging,
Inc., doing business as Get A Phone ("GAP"). The purchase price consists of
$2,000,000 in cash and 15,000,000 shares of common stock. GAP operates as a
competitive local exchange carrier (CLEC) in Texas offering local and long
distance telephone services. GAP has acquired approximately 14,000 customers
(unaudited) that will generate over $8.0 million (unaudited) in annual revenues.
The transaction is subject to the approval of the Texas Public Utilities
Commission.
F-19
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED BALANCE SHEET
AND SEPTEMBER 30, 2004
ASSETS (UNAUDITED)
9/30/04
-----------
CURRENT ASSETS
Cash and cash equivalents $ 260,795
Marketable securities 200,000
Securities receivable 440,000
Accounts receivable 253,707
Financing Costs net of $210,183 of amortization 492,217
Inventory 31,795
Deposits and other assets 52,075
-----------
Total Current Assets 1,730,589
-----------
PROPERTY AND EQUIPMENT
Cost 1,309,863
Less: accumulated depreciation (312,056)
-----------
Total Property and Equipment 997,807
-----------
INTANGIBLES 3,981,416
-----------
OTHER LONG TERM ASSETS 20,000
-----------
TOTAL ASSETS $ 6,729,812
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED BALANCE SHEET
AND SEPTEMBER 30, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
9/30/04
------------
CURRENT LIABILITIES
Notes payable, current portion (Net of unamortized discount of $225,383) $ 1,869,617
Accounts payable 717,468
Accrued liabilities and payroll 186,660
Other current liabilities 393,759
Customer deposits 14,270
Deferred Revenues 259,971
------------
Total Current Liabilities 3,441,745
------------
LONG TERM LIABILITIES
Notes payable (Net of unamortized discount of $134,932) 2,190,068
------------
Total Long Term Liabilities 2,190,068
------------
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; Authorized: 100,000,000, none
Outstanding
Common stock, $.0001 par value; Authorized: 400,000,000 shares;
Issued and outstanding: 177,861,835 at September 30, 2004 17,787
Additional paid-in capital 57,632,847
Accumulated deficit (56,310,384)
Deferred consulting (62,251)
Other comprehensive loss (180,000)
------------
Total Stockholders' Equity 1,097,999
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,729,812
============
The accompanying notes are an integral part of these consolidated financial statements.
F-21
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------------
2004 2003
(Unaudited) (Unaudited)
------------- -------------
REVENUES
Revenues $ 5,098,714 $ 236,448
Internet access costs, cost of goods sold (2,471,969) (131,070)
------------- -------------
Gross profit 2,626,745 105,378
------------- -------------
OPERATING EXPENSES
Professional fees 4,283,727 754,837
Salaries and commissions 1,030,871 582,086
Rent 95,001 78,033
Depreciation and amortization 717,293 67,902
Other general and administrative 2,993,418 604,588
------------- -------------
Total Operating Expenses 9,120,309 2,087,446
------------- -------------
LOSS FROM OPERATIONS (6,493,565) (1,982,068)
------------- -------------
OTHER (EXPENSE)
Accretion of interest expense on convertible debt (990,036) -0-
Other expense (55,112) 556
Write off of other assets and reclassification of
related expenses (3,273,258) -0-
Gain (loss) on debt modification (1,568,688) -0-
Gain (loss) on disposition of asset 75,613 -0-
Interest expense (143,494) (9,283)
------------- -------------
Total Other Expense (5,954,974) (8,727)
------------- -------------
NET LOSS (12,448,539) (1,990,795)
------------- -------------
Imputed dividend attributable to rights applicable to
certain shareholders (850,000) -0-
------------- -------------
NET LOSS APPLICABLE TO OTHER SHAREHOLDERS $ (13,298,539) $ (1,990,795)
------------- -------------
Net loss per common share $ (0.0853) $ (0.0240)
------------- -------------
Weighted average number of shares outstanding 155,878,255 83,109,557
------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-22
USURF AMERICA, INC. AND SUBSIDIARIES
COLORADO SPRINGS, COLORADO
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
Nine Months Ended September 30,
2004 2003
(Unaudited) (Unaudited)
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(12,448,539) $ (1,990,795)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 717,292 67,902
Consulting and other fees paid with stock 4,249,931 1,183,511
Accretion of interest expense on convertible debt 990,036 -0-
Loss on debt modification 1,568,688 -0-
Write off advances 1,830,000 -0-
Loss on Sale of assets for securities (99,847) -0-
Changes in operating assets and liabilities
Accounts receivable (184,502) (66,342)
Marketable Securities and Securities Receivable (80,000) -0-
Inventory 40,111 (1,383)
Accounts payable 287,514 130,996
Accrued Payroll (73,640) -0-
Accrued Interest 140,475 -0-
Deferred revenue (198,312) -0-
Other assets and liabilities (485,894) 12,268
Net cash used in operating activities (3,190,063) (663,843)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures for property and equipment (709,412) (384,715)
Cash paid for other assets (1,045,000) -0-
Cash paid for intangibles and other long term assets (1,319,028) (28,434)
------------ -----------
Net cash used in investing activities (3,073,440) (413,149)
CASH FLOWS FROM FINANCING ACTIVITIES
Disbursement for notes receivable (111,300) (332,000)
Payments on subscriptions receivable -0- (468,875)
Proceeds from notes payable 4,963,000 (1,000)
Issuance of common stock for cash 1,600,000 1,433,876
Warrants exercised -0- 593,732
------------ -----------
Net cash provided by financing activities 6,451,700 1,225,733
Net increase in cash and cash equivalents 188,198 148,741
Cash and cash equivalents, beginning of period 72,597 111,568
Cash and cash equivalents, end of period $ 260,795 $ 260,309
------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,019 $-0-
Stock issued for acquisition of assets $ 2,656,999 $ 531,720
------------ -----------
The accompanying notes are an integral part of these consolidated financial statements.
F-23
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING AND
OTHER CASH FLOW INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, 2004
In January 2004, we issued 57,550 shares under a consulting agreement, which
shares were valued at $13,812.00.
In January 2004, we issued 55,380 shares under a consulting agreement, which
shares were valued at $13,291.00.
In January 2004, we issued 28,000 shares under a consulting agreement, which
shares were valued at $7,840.00.
In January 2004, we issued 246,000 shares under a consulting agreement, which
shares were valued at $59,040.00.
t 6 0 In January 2004, we issued 130,000 shares under a consulting agreement,
which shares were valued at $24,000.00.
In January 2004, we issued 273,000 shares under a consulting agreement, which
shares were valued at $65,520.00.
In January 2004, we issued 320,000 shares under a consulting agreement, which
shares were valued at $76,800.00.
In January 2004, we issued 300,000 shares under a consulting agreement, which
shares were valued at $72,000.00.
In January 2004, we issued 175,000 shares under a consulting agreement, which
shares were valued at $43,750.00.
In January 2004, we issued 61,000 shares under a consulting agreement,
which shares were valued at $14,640.00.
In January 2004, we issued 61,000 shares under a consulting agreement, which
shares were valued at $14,640.00.
In January 2004, we issued 612,350 shares under a consulting agreement, which
shares were valued at $89,490.00.
In January 2004, we issued 66,500 shares under a consulting agreement, which
shares were valued at $11,280.00.
In January 2004, we issued 134,000 shares to a new employee as an inducement to
employment, which shares were valued at $36,180.00.
In February 2004, we issued 49,150 shares under a consulting agreement, which
shares were valued at $13,762.00.
In February 2004, we issued 34,000 shares under a consulting agreement, which
shares were valued at $9,520.00.
In February 2004, we issued 25,000 shares under a consulting agreement, which
shares were valued at $7,000.00.
In February 2004, we issued 81,600 shares under a consulting agreement, which
shares were valued at $22,848.00.
In February 2004, we issued 73,500 shares under a consulting agreement,
which shares were valued at $20,580.00.
In February 2004, we issued 75,000 shares to an employee as compensation for
services rendered, which shares were valued at $5,250.00.
In February 2004, we issued 50,000 shares to an employee as compensation for
services rendered, which shares were valued at $11,000.00.
In February 2004, we issued 60,000 shares to an employee as compensation for
services rendered, which shares were valued at $9,600.00.
In February 2004, we issued 250,000 shares under a one-year consulting agreement
for services rendered during 2003, which shares were valued at $17,500.00.
In February 2004, we issued 300,000 shares under a one-year consulting agreement
for services rendered during 2004, which shares were valued at $72,000.00.
F-24
In February 2004, we issued 600,000 shares as full payment of principal and
accrued interest under a promissory note, which shares were valued at
$96,000.00.
In February 2004, we issued 1,514,500 shares to a new employee as an inducement
to employment, which shares were valued at $302,900.00.
In February 2004, we issued 1,514,500 shares to a new employee as an inducement
to employment, which shares were valued at $302,900.00.
In February 2004, we issued 160,000 shares to a new employee as an inducement to
employment, which shares were valued at $32,000.
In February 2004, we issued 120,000 shares to a new employee as an inducement to
employment, which shares were valued at $24,000.00.
In February 2004, we issued 120,000 shares to a new employee as an inducement to
employment, which shares were valued at $24,000.00.
In February 2004, we issued 200,000 shares to a new employee as an
inducement to employment, which shares were valued at $40,000.00.
In February 2004, we issued 431,818 shares to acquire certain assets, which
shares were valued at $95,000.
In February 2004, we issued 1,188,679 shares to acquire certain assets, which
shares were valued at $199,698.
In February 2004, we issued 282,031 shares to acquire certain assets, which
shares were valued at $47,381.
In February 2004, we issued 39,189 shares to acquire certain assets, which
shares were valued at $6,584.
In February 2004, we issued 849,786 shares to acquire certain assets, which
shares were valued at $142,764.
In February 2004, we issued 494,482 shares to acquire certain assets, which
shares were valued at $83,073.
In March 2004, we issued 50,000 shares to a vendor as payment for services
rendered or to be rendered, which shares were valued at $3,000.
In April 2004, we issued 1,333,334 shares to obtain exclusive licensing rights
in certain intellectual property, which shares were valued at $200,000.
In April 2004, we issued 14,250,000 shares to acquire a business, which shares
were valued at $1,425,000.
In April 2004, we issued 450,000 shares to an employee as compensation for
services rendered, which shares were valued at $27,000.
In April 2004, we issued 375,000 shares to an employee as compensation for
services rendered, which shares were valued at $22,500.
In April 2004, we issued 250,000 shares to a former employee as compensation for
services rendered, which shares were valued at $15,000.
In April 2004, we issued 125,000 shares to an employee as compensation for
services rendered, which shares were valued at $7,500.
In April 2004, we issued 175,000 shares to an employee as compensation for
services rendered, which shares were valued at $10,500.
In April 2004, we issued 1,250,000 shares to acquire a business, which
shares were valued at $90,000.
F-25
In May 2004, we issued 1,000,000 shares under a consulting agreement for
services to be rendered during 2004, which shares were valued at $120,000.
In May 2004, we issued 1,000,000 shares to a new employee as an inducement to
employment, which shares were valued at $100,000.
In May 2004, we issued 1,000,000 shares to a new employee as an inducement to
employment, which shares were valued at $100,000.
In May 2004, we issued 1,000,000 shares to a new employee as an inducement to
employment, which shares were valued at $100,000.
In May 2004, we issued 400,000 shares to an employee as compensation for
services rendered, which shares were valued at $40,000.
In May 2004, we issued 50,000 shares for professional services to be rendered
during 2004, which shares were valued at $5,000.
In May 2004, we issued 625,000 shares for consulting services rendered in
connection with a business acquisition, which shares were valued at $75,000.
In June 2004, we issued 122,000 shares to a vendor as payment for services
rendered or to be rendered, which shares were valued at $12,200.
In June 2004, we issued 475,000 shares for consulting services rendered in
connection with a financing transaction, which shares were valued at $47,500.
In June 2004, we issued 250,000 shares for consulting services rendered in
connection with a financing transaction, which shares were valued at $25,000.
In June 2004, we issued 275,000 shares for consulting services rendered in
connection with a financing transaction, which shares were valued at $27,500.
In June 2004, we issued 100,000 shares to an employee as bonus compensation for
services rendered in 2003, which shares were valued at $10,000.
In June 2004, we issued 25,000 shares to an employee as bonus compensation for
services rendered in 2003, which shares were valued at $2,500.
In June 2004, we issued 15,000 shares to an employee as bonus compensation for
services rendered in 2003, which shares were valued at $1,500.
In June 2004, we issued 50,000 shares to an employee as bonus compensation for
services rendered in 2003, which shares were valued at $5,000.
In June 2004, we issued 15,000 shares to an employee as bonus compensation for
services rendered in 2003, which shares were valued at $1,500.
In June 2004, we issued 15,000 shares to an employee as bonus compensation
for services rendered in 2003, which shares were valued at $1,500.
In June 2004, we issued 600,000 shares for professional services to be rendered
during 2004, which shares were valued at $60,000.
In June 2004, we issued 950,000 shares for consulting services rendered in
connection with a business acquisition, which shares were valued at $95,000.
In June 2004, we issued 750,000 shares for consulting services rendered in
connection with a business acquisition, which shares were valued at $75,000.
F-26
In June 2004, we issued 2,000,000 shares under a consulting agreement for
services to be rendered during 2004, which shares were valued at $200,000.
In June 2004, we issued 250,000 shares for consulting services rendered in
connection with a business acquisition, which shares were valued at $25,000.
In June 2004, we issued 154,000 shares for consulting services rendered in
connection with a business acquisition, which shares were valued at $15,030.
In June 2004, we issued 175,000 shares to a vendor for services to be rendered
during the next twelve months, which shares were valued at $17,500.
In June 2004, we issued 175,000 shares to a vendor for services to be rendered
during the next twelve months, which shares were valued at $17,500.
In June 2004, we issued 280,000 shares to an employee as compensation for
services rendered during the first half of 2004, which shares were valued at
$21,000.
In June 2004, we issued 480,000 shares to an employee as compensation for
services rendered during the first half of 2004, which shares were valued at
$36,000.
In June 2004, we issued 200,000 shares to an employee as compensation for
services rendered during the fourth quarter of 2003 and the first quarter of
2004, which shares were valued at $40,000.
In July 2004, we issued 80,000 shares for consulting services, which shares were
valued at $5,600.
In September 2004, we issued 75,000 shares for consulting services, which
shares were valued at $13,500.
In September 2004, we issued 2,200,000 shares for consulting services, which
shares were valued at $132,000.
In September 2004, we issued 1,200,000 shares for consulting services, which
shares were valued at $72,000.
NINE MONTHS ENDED SEPTEMBER 30, 2003
In March 2003, we issued 2,500,000 shares as a commitment fee under a common
stock purchase agreement, which shares were valued at $75,000.
In July 2003, we issued 75,000 shares under a consulting agreement, which shares
were valued at $14,250.
In July 2003, we issued 100,000 shares under a consulting agreement, which
shares were valued at $17,000.
In August 2003, we issued 3,000,000 shares under an amended one-year consulting
agreement, which shares were valued at $480,000.
In August 2003, we issued 333,333 shares in payment of a $4,800 account payable
and $45,200 of future services, which shares were valued at $50,000.
In September 2003, we issued 1,650,000 shares to certain directors, in lieu of
cash, in payment of directors' fees, which shares were valued at $141,500.
In September 2003, we issued 75,000 shares under a consulting agreement, which
shares were valued at $14,250.
In September 2003, we issued 100,000 shares under a consulting agreement, which
shares were valued at $17,000.
In September 2003, we issued a total of 4,475,000 shares of stock to certain
officers, in lieu of cash compensation, pursuant to their respective employment
agreements, which shares were valued at $281,750.
In September 2003, we issued 2,800,000 shares to acquire certain assets, which
shares were valued at $532,000.
In September 2003, we issued 600,000 shares in payment of a note payable and
related accrued interest, which shares were valued at $96,000.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2004
(UNAUDITED)
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying consolidated financial statements
as of September 30, 2004 and for the nine months ended September 30, 2004 and
2003, 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 in the United States
have been condensed or omitted pursuant to such rules and regulations. These
unaudited financial statements should 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, 2003, 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 2003
presentation. The results of operations for the interim periods are not
necessarily indicative of the results to be obtained for the entire year.
NOTE 2. CRITICAL ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include all the accounts of
USURF and all wholly-owned subsidiaries. Inter-company transactions and balances
have been eliminated in the consolidation.
STOCK-BASED COMPENSATION
Transactions in equity instruments with non-employees for goods or services are
accounted for on the fair value method, as described in SFAS No. 123. No options
were granted to employees, officers or directors during 2003. During 2004,
certain directors, officers and employees were granted a total of 6,650,000
options and 17,500,000 warrants to purchase an equivalent number of shares of
our stock.
STOCK FOR SERVICES
We have issued stock pursuant to various consulting agreements. Deferred
consulting costs which are valued at the stock price on the date of a particular
agreement are recorded as a reduction of stockholders' equity and are amortized
over the useful lives of the respective agreements.
REVENUE RECOGNITION
We charge our video and data customers monthly service fees and recognizes the
revenue in the month the services are provided or equipment is sold. We bill
monthly for voice (telephone) services in advance and generally receive payments
during the month in which the services are provided. To the extent that revenue
is received, but not earned, we record these amounts as deferred revenue.
BAD DEBT
We estimate the amount of uncollectible accounts receivable and records an
allowance for bad debt. Uncollectible accounts receivable are then charged
against this allowance.
LOSS PER COMMON SHARE
The loss per common share is presented in accordance with the provisions of SFAS
No. 128, Earnings Per Share. Basic loss per common share has been computed by
dividing the net loss available to the common stockholder by the weighted
average number of shares of common stock outstanding for the period. The effect
of considering all potential dilutive securities is not presented as the effects
would be anti-dilutive.
F-28
MARKETABLE SECURITIES AND SECURITIES RECEIVABLE
In May 2004, we sold Children's Technology Group, Inc., dba MomsandDads, to ZKID
Network Company (OTCBB: ZKID). The terms of the sale provided for ZKID to pay us
$600,000 in stock consideration (the "Purchase Price'). At closing we received
4,000,000 shares of ZKID common stock valued at $0.15 per share. The terms of
the purchase and sale agreement provide that if the shares issued to us do not
have a market value of at least $600,000, then ZKID would issue additional
shares to us for the difference. At September 30, 2004 the market value of the
shares was $160, 000 and therefore we recorded a $440,000 securities receivable.
NOTE 3. STOCK, OPTION AND WARRANT ISSUANCES
During the nine months ended September 30, 2004, we issued shares of common
stock and common stock purchase warrants, as follows:
23,485,985 shares to acquire various businesses or business assets;
19,000,000 shares for cash;
21,191,364 shares in exchange for consulting and other services; and
56,488,312 warrants (350,000 w/exercise price of $0.20 per share; 1,000,000
w/exercise price of $0.18 per share; 2,500,000 w/exercise price of $0.15 per
share; 39,419,562 w/exercise price of $0.12 per share; 1,968,750 w/exercise
price of $0.08 per share; 7,500,000 w/exercise price of $0.12 per share;
3,750,000 w/exercise price of $0.12 per share) were issued.
During the quarter ended September 30, 2004 the Board of Directors granted
options to certain key employees and consultants totaling 6,650,000. The options
have an exercise price of $0.10 per share and are exercisable in three
installments, each of which become exercisable when the market price for common
share of our stock reaches $0.15 per share, $0.22 per share and $0.30 per share
respectively. We used the BlackScholes method to calculate the fair market value
of the options given to consultants as $43,499; this amount was recorded as an
expense.
Additionally, the Board granted warrants for the purchase of 17,500,000 shares
of our common stock to the new Chairman. The exercise price for the warrants is
$0.07 per share and the warrants are exercisable in whole or in part through
September 30, 2006.
We use the intrinsic value method for accounting for employee stock based
compensation. Under the intrinsic value method, the compensation cost, if any,
is the excess of the quoted market price of the stock over the exercise price.
All of the warrants and options were granted with an exercise price in excess of
market at the date of grant and therefore no compensation expense is recognized
in the financial statements. For years ended after December 31, 2004, the
Financial Accounting Standards Board may require the use of the fair value
method. Had we used the fair value method for the quarter ended September 30,
2004 we would have recognized an additional expense of $149,348 for the options
granted employees and $615,638 in additional expense for the warrants. Below is
the proforma net loss and earnings per share if we used the fair value method.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2004 2003 2004 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------- ------------------ ------------------- ------------------
NET LOSS $ (7,098,037) $(772,008) $(12,448,539) $(1,990,795)
FAIR VALUE OF OPTIONS AND WARRANTS GRANTED (764,986) (764,986)
------------------- ------------------ ------------------- ------------------
PROFORMA NET LOSS $(7,863,023) $(772,008) $(13,213,525) $(1,990,795)
=================== ================== =================== ==================
PROFORMA NET LOSS PER COMMON SHARE ($0.045) ($0.008) ($0.085) ($0.024)
=================== ================== =================== ==================
F-29
NOTE 4. FINANCING TRANSACTIONS
In December 2003, we executed a convertible loan agreement under which we could
borrow up to $700,000. At December 31, 2003, the balance of the loan was
$57,000. The loan(s) are due one year from funding, pay interest at the rate of
ten percent (10%) per annum and are convertible into common stock at a
conversion price of $0.15 per share. Additionally, the agreement called for the
issuance of two warrants with an exercise price of $0.18 and $0.26 respectively
for each share converted. During the first quarter of 2004, we borrowed an
additional $543,000 under the agreement bringing the balance to $600,000. This
amount was converted into 5,000,000 shares of common stock. In connection with
the conversion, the conversion price and the exercise price of the warrants were
reduced to $0.12 per share. The entire proceeds from the convertible promissory
note were allocated to the warrants and the beneficial conversion feature based
on a calculation using the Black-Scholes model. As of September 30, 2004
interest expense related to the accretion of the convertible promissory note to
its face value and price reduction for $555,800 was recorded as the notes are
convertible immediately.
In January 2004, we entered into an agreement with Atlas Capital Services, LLC
("Atlas") to provide financing directly or indirectly to us. Under the terms of
the agreement, we will pay to Atlas a fee equal to 10% of the principal amount
of the Transaction Amount to be paid as proceeds are received by us from each
Transaction.
In March 2004, Atlas arranged for us to complete the closing of a private
placement totaling $3,095,000. The placement consisted of $1,000,000 in common
stock at $0.10 per share, $2,095,000 in convertible debentures convertible into
common stock at $0.10 per share, with 125% warrant coverage at an exercise price
of $0.12 per share. The convertible debentures, if not converted, are due
September 15, 2005 and bear interest at six percent (6%) payable quarterly.
Under the terms of the private placement, the investors have the right to
purchase up to an amount equal to, at the election of such investors, $3,000,000
principal amount of additional debentures. Any additional investment will be on
terms identical those set forth in the private placement. The entire proceeds
from the convertible debentures were allocated to the warrants and the
beneficial conversion feature based on a calculation using the Black-Scholes
model. The interest expense related to the accretion of the convertible
debentures to their face value totals $934,798 and will be amortized over
eighteen months, the term of the convertible note. As of September 30, 2004
interest expense of $207,733 was amortized and recorded as additional interest
expense.
During the second quarter of 2004, Atlas arranged for us to complete the closing
of an additional private placements totaling $1,575,000, consisting of
$1,575,000 in convertible debentures convertible into common stock at $0.08 per
share, with 75% warrant coverage at an exercise price of $0.12 per share. The
convertible debentures, if not converted, are due June, 2006 and bears interest
at eight percent (8.0%) payable quarterly. Under the terms of these private
placements, the investors have the right to purchase up to an amount equal to,
at the election of such investors, $1,500,000 principal amount of additional
debentures. Any additional investment will be on terms identical those set forth
in the private placements. The entire proceeds from the convertible debentures
were allocated to the warrants and the beneficial conversion feature based on a
calculation using the Black-Scholes model. The interest expense related to the
accretion of the convertible debentures to their face value totals $491,830 and
will be amortized over 24 months, the term of the convertible note. As of
September 30, 2004 interest expense of $20,493 was amortized and recorded as
additional interest expense.
During the third quarter of 2004, Atlas arranged for us to complete the closing
of two additional private placements totaling $750,000, consisting of $750,000
in convertible debentures convertible into common stock at $0.05 per share. The
convertible debentures, if not converted, are due June, 2006 and bear interest
at twelve percent (12.0%) payable quarterly. Under the terms of these private
placements, the investors have the right to purchase up to an amount equal to,
at the election of such investors, $750,000 principal amount of additional
debentures. Any additional investment will be on terms identical those set forth
in the private placements. The proceeds from the convertible debentures were
allocated to notes payable and the beneficial conversion feature based on
intrinsic value. The debt discount related to the beneficial conversion feature
totals $435,000 and will be amortized over 24 months, the term of the
convertible notes. As of September 30, 2004 interest expense of $58,123 was
amortized and recorded as additional interest expense.
F-30
Additionally in July 2004, we repriced the purchase price and conversion price
of the above first and second quarter transactions to $0.05 per share. As a
result, we will issue an additional 17,000,000 shares for shares purchased under
a securities purchase agreement and certain notes, previously converted, and
have reserved an additional 32,762,500 shares to be issued upon conversion of
the outstanding convertible debentures. We recognized $850,000 as an imputed
dividend to these shareholders for this right. This amount is subtracted from
net loss to determine the net loss to the other shareholders. According to FASB
Statement Number 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" and FASB's EITF Issue 96-19 "Debtor's
Accounting for a Modification or Exchange of Debt Instruments" the repricing of
the conversion price results in the deemed extinguishment of the convertible
debt and replacement with new convertible debt. As a result, we recorded
$1,568,688 as loss on debt modification. In addition $396,050 of debt discount
and $284,487 of debt premium was recorded in connection with the deemed new
convertible debt according to the guidelines suggested in FASB's EITF Issue
00-27 regarding the application of issue No. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios" and will be amortized over the remaining life of the
debentures. The debt discount and premium respectively will be amortized over
the remaining lives months of the debentures. The net interest expense for the
quarter ended September 30, 2004 for these debentures is $46,074.
At September 30, 2004 total short term notes payable under the above is
$2,095,000, the debt discount of $225,383 is netted with the total resulting in
a balance of $1,869,617. The total long term notes payable under the above is
$2,325,000, the debt discount of $380,625 and debt premium of $245,693 are
netted with the total resulting in a balance of $2,190,068 for the balance sheet
presentation.
NOTE 5. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 123(r), on October 13, 2004, the FASB concluded that Statement 123R,
"Share-Based Payment, an Amendment of FASB Statements No. 123 and 95" (SFAS
123R), which would require all companies to measure compensation cost for all
shared-based payments (including employee stock options) at fair value, would be
effective for public companies for interim or annual periods beginning after
June 15, 2005. This Statement would eliminate the ability to account for
stock-based compensation transactions using APB 25 and, generally, would require
instead that such transactions be accounted for using a fair-value based method,
with a binomial or lattice model preferred to the Black-Scholes valuation model.
The FASB's current plan is to issue a final Statement on or around December 15,
2004. This will have an effect on stock options granted employees in future
periods.
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity, was issued in May 2003 and requires issuers to
classify as liabilities (or assets in some circumstances) three classes of
freestanding financial instruments that embody obligations for the issuer. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have
a material impact on its financial position or results of operations.
NOTE 6. ACQUISITIONS AND PRO FORMAS
Effective April 20, 2004, USURF signed a definitive agreement to acquire all of
the issued and outstanding common stock of Connect Paging, Inc., (formerly Extel
Enteprises, 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 was be accounted for as a purchase. The purchase price was 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.
F-31
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.
--------------------------------------------------------
2002
--------------------------------------------------------
PROFORMA PROFORMA
USURF CPI ADJUSTMENTS COMBINED
----------- ----------- -- ----------- -----------
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
----------- ----------- ----------- -----------
Total Operating Expenses 3,969,548 2,002,302 328,337 6,300,188
----------- ----------- ----------- -----------
Operating loss (3,969,548) (813,599) (328,337) (5,111,485)
Other Income (expense) (190,874) (6,978)(2) (80,000) (277,852)
----------- ----------- ----------- -----------
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.
F-32
--------------------------------------------------------
2003
--------------------------------------------------------
PROFORMA PROFORMA
USURF CPI ADJUSTMENTS COMBINED
----------- ----------- -- ----------- -----------
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
----------- ----------- ----------- -----------
Total Operating Expenses 3,987,224 7,241,498 328,337 11,557,059
----------- ----------- ----------- -----------
Operating loss (3,583,460) (974,754) (328,337) (4,886,551)
Other Income (expense) (70,896) (907)(2) (80,000) (151,803)
----------- ----------- ----------- -----------
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.
NOTE 7. SUBSEQUENT EVENT
Subsequent to September 30, 2004, we executed a Subscription Agreement (the
"Agreement) with Monarch Pointe Fund, Ltd. and Mercator Advisory Group, LLC
(collectively referred to as "Purchasers"), whereby us agreed to issue and sell
to the Purchasers, 10,000 shares of Series A Convertible Preferred Stock
("Series A Stock") at $100.00 per share, for a total consideration of
$1,000,000. In connection with the purchase and sale of the Series A Stock, the
Purchasers will receive Warrants to purchase up to an aggregate of 7,000,000
shares of our common stock, at an exercise price of $0.075 per share subject to
certain adjustment.
The Series A Stock is convertible into our common stock at a conversion price
ranging from $0.05 to $0.075 as calculated in accordance with the Certificate of
Designation. Generally, the conversion price per share for the Series A Stock
shall be equal to eighty-five percent (85%) of the Market Price provided,
however, that subject to certain provisions, in no event shall the conversion
price be less than $0.05 per share (the "Floor Price") or exceed $0.075 (the
"Ceiling Price").
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements, including the notes thereto, included elsewhere in this
Form 10-QSB, and the Management's Discussion and Analysis of Financial Condition
and Results of Operations included in our 2003 Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This report contains forward-looking statements. In addition, when used in this
filing, the words "believes," "anticipates," "intends," "in anticipation of,"
and similar words are intended to identify certain forward-looking statements.
These forward-looking statements are based on our expectations and are subject
to a number of risks and uncertainties, many of which are beyond our control.
Actual results could differ materially from these forward-looking statements as
a result of changes in trends in the economy and our industry, reductions in the
F-33
availability of financing and other factors. In light of these risks and
uncertainties, the forward-looking statements contained in this report may not
occur. Except to fulfill our obligation under the United States securities laws,
we do not undertake any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
OVERVIEW OF OUR BUSINESS
During 2003 and through September 30, 2004, we continued to implement and expand
our business plan beyond solely offering wireless Internet access service. We
currently operate as a provider of video (cable television) and data (Internet)
services to business and residential customers and since the completion of the
acquisition of Connect Paging Inc. d/b/a/ Get-A-Phone, we also offer additional
telecommunications services including local, long distance and enhanced
telephone (voice) services. Our current business plan involves obtaining,
through internal growth, as many, voice, video and data customers as possible
offering various combinations of bundled packages of communications services.
Our growth strategy also includes acquisitions of telecommunications-related
businesses and/or properties which would provide an immediate or potential
customer base for our services.
SUNWEST COMMUNICATIONS, INC. AND APOLLO COMMUNICATIONS, INC.
In October 2003, we signed a Letter of Intent to acquire the assets of Apollo
Communications, Inc. of Colorado Springs ("Apollo"). Apollo provides data and
high-speed Internet access services as well as local and long distance telephone
services. Additionally, in February, 2004, we signed a definitive agreement to
acquire the assets of SunWest Communications, Inc. ("SunWest"). The assets
included SunWest's network of fiber optic lines, its operations facilities and
equipment and, subject to Colorado Public Utility Commission approval, its
customer base.
Through September 30, 2004 we advanced a combined total of $1,830,000 to SunWest
and Apollo and recorded this amount as "other long term assets". Through
September 30, 2004 we supported through its operations $1,443,257.71 of customer
care and related expenses of SunWest and Apollo. During the quarter ended
September 30, 2004 the senior secured lenders of SunWest and Apollo foreclosed
on the assets of these companies. As a result, we have written off the balance
of other assets of $1,830,000 and reclassified the related expenses of
$1,443,257.71 as write off of other assets and reclassification of related
expenses. We have not made a determination whether to seek legal recourse to
recover damages as a result of the foreclosure.
GOING CONCERN
Our auditor stated in its report on our financial statements for the period
ended December 31, 2003 and 2002 that we have experienced recurring losses and
operated with negative working capital and, as a result, there exists
substantial doubt about our ability to continue as a going concern. For the nine
months ended September 30, 2004 and 2003, we incurred a net loss of $12,448,539
and $1,990,795, respectively. As of September 30, 2004, USURF had an accumulated
deficit of $56,310,384. We are actively seeking customers for our services. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event we cannot
continue in existence. These factors raise substantial doubt about our ability
to continue as a going concern.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis discusses the results of operations and
financial condition as reflected in our consolidated financial statements, which
have been prepared in accordance with accounting principals generally accepted
in the United States. The preparation of financial statements in conformity with
accounting principals generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management evaluates its
estimates and judgments, including those related to accounts receivable,
inventory valuation, amortization and recoverability of long-lived assets,
including goodwill, litigation accruals and revenue recognition. These critical
accounting policies are described in more detail under item 6 in the section
titled "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our Annual Report on Form 10-KSB for the year ended December
31,2003 filed with the Securities and Exchange Commission. Management bases its
estimates and judgments on its historical experience and other relevant factors,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources.
F-34
While we believe that the historical experience and other factors considered
provide a meaningful basis for the accounting policies applied in the
preparation of our consolidated financial statements, we cannot guarantee that
our estimates and assumptions will be accurate. If such estimates and
assumptions prove to be inaccurate, we may be required to make adjustments to
these estimates in future periods.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
REVENUES
For the nine months ended September 30, 2004 and 2003, USURF had $5,098,714 and
$236,448, respectively in revenue, an increase of $4,862,266. This increase is
primarily due to the acquisition of Connect Paging, Inc. d/b/a Get-A-Phone in
April 2004. During the nine months ended September 30, 2004, USURF's revenues
were derived primarily from the sale of telecommunication services, Internet
access services, telecommunications-related hardware and services and
satellite-based CATV access services. These revenues are recognized and recorded
as services are performed.
OPERATING EXPENSES
For the nine months ended September 30, 2004 and 2003, operating expenses were
$9,120,309 and $2,087,446, respectively. During the nine months ended September
30, 2004, operating expenses consisted primarily of professional and consulting
fees of $4,283,727, of which $4,249,931 was paid in stock, salaries and
commissions of $1,030,871, and other general and administrative expenses of
$2,993,418 consisting primarily of bad debt related to Get-A-Phone accounts
receivable ($1,516,788), right of entry expense ($336,278), software expense
($127,054) and insurance expense ($122,516).
NET LOSS
For the nine months ended September 30, 2004, we had a net loss of $12,448,539,
or $0.0799 per share. In the comparable period of the prior year, we had a net
loss of $1,990,795, or $0.0240 per share.
LIQUIDITY
At September 30, 2004, USURF had a net working capital deficit of $1,711,155,
compared to a net working capital deficit of $757,040 at December 31 2003. A net
working capital deficit means that current liabilities exceeded current assets.
Current assets are generally assets that can be converted into cash within one
year and can be used to pay current liabilities.
Currently, we believe we have sufficient cash from the sale of securities and
commitments from Atlas Capital financing transactions to continue current
business operations through December 31, 2004. During the nine months ended
September 30, 2004, we received approximately $1,600,000 from the sale of
securities, $543,000 in debt from Evergreen that was converted to securities and
$4,420,000 in debt from the Atlas Capital financing transaction. At September
30, 2004, we had cash on hand of $260,795.
Subsequent to September 30, 2004, we executed a Subscription Agreement whereby
us agreed to issue and sell to the Purchasers, 10,000 shares of Series A
Convertible Preferred Stock ("Series A Stock") at $100.00 per share, for a total
consideration of $1,000,000. In connection with the purchase and sale of the
Series A Stock, the Purchasers will receive Warrants to purchase up to an
aggregate of 7,000,000 shares of our common stock, at an exercise price of
$0.075 per share subject to certain adjustment.
We anticipate that our capital needs will be met through financing transactions
arranged by Atlas Capital. We will also seek other sources of financing to fund
operations, although we may not be successful in such efforts. We may not be
able to secure adequate capital as we need it. Without additional capital, we
would be forced to curtail or cease our operations.
CASH USED IN OPERATING ACTIVITIES
During the nine months ended September 30, 2004, our operations used cash of
$3,190,063 compared to $663,843 used during the same period in 2003. In each
period reported, the use of cash was a direct result of the increase in net
loss. During the nine months ended September 30, 2004, $990,036 of accreted
interest expense and $1,568,688 loss on debt modification was recorded in
relation to our notes payable with beneficial conversion features; during the
same period in 2003 we did not incur any accreted interest expense or debt
modification expense.
F-35
CASH USED IN INVESTING ACTIVITIES
During the first three quarters of 2004, we engaged in a significant amount of
capital investment activity, primarily through the acquisition of business
assets from other companies. The total value of capital investments for the
period was $1,045,000 compared to only $413,149 for the same period in 2003.
During the 2004 period, capital assets were also acquired through the issuance
of stock valued at $2,656,998.
CASH PROVIDED BY FINANCING ACTIVITIES
During the first three quarters of 2004, the total value of our financing
activities was $6,451,700 compared to a value of $1,225,733 provided during the
same period in 2003. During the 2004 period, $1,600,000 of cash was provided
through the sale of stock and $4,420,000 (presented as $4,059,685 net of
unamortized discount of $360,315) was provided through debt issuance.
OFF-BALANCE SHEET FINANCING ACTIVITIES
We do not have any off-balance sheet arrangements that have, or are reasonably
likely to a current or future effect on our financial condition, changes in
financial condition, revenue or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 123(r), on October 13, 2004, the FASB concluded that Statement 123R,
"Share-Based Payment, an Amendment of FASB Statements No. 123 and 95" (SFAS
123R), which would require all companies to measure compensation cost for all
shared-based payments (including employee stock options) at fair value, would be
effective for public companies for interim or annual periods beginning after
June 15, 2005. This Statement would eliminate the ability to account for
stock-based compensation transactions using APB 25 and, generally, would require
instead that such transactions be accounted for using a fair-value based method,
with a binomial or lattice model preferred to the Black-Scholes valuation model.
The FASB's current plan is to issue a final Statement on or around December 15,
2004. This will have an effect on stock options granted employees in future
periods.
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity, was issued in May 2003 and requires issuers to
classify as liabilities (or assets in some circumstances) three classes of
freestanding financial instruments that embody obligations for the issuer. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have
a material impact on its financial position or results of operations.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
USURF America is a Nevada corporation. Section 78.751 of Nevada Revised
Statutes (the "Nevada Act") empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity as directors and officers. The Nevada Act further provides that
the indemnification permitted thereunder shall not be deemed exclusive of any
other rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of the shareholders or otherwise.
Section VIII of Registrant's Bylaws, included as Exhibit 3.2 filed
herewith, which provides for the indemnification of directors and officers, is
incorporated herein by reference.
Registrant has purchased no insurance for indemnification of its officers
and directors, agents, etc., nor has there been any specific agreement for
indemnification made between Registrant and any of its officers and directors,
or others, with respect to indemnification for them arising out of their duties
to Registrant.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, the Securities Exchange Act of 1934 or the rules and regulations of
the Securities and Exchange Commission thereunder may be permitted under said
indemnification provisions of the law, or otherwise, Registrant has been advised
that, in the opinion of the Securities and Exchange Commission, any such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Nevada
Act and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses payable by us in connection with the registration of
common stock covered by this prospectus are as follows:
SEC registration fee $ 784
Printing and related expenses $ 2,500*
Legal fees and expenses $ 50,000
Accounting fees and expenses $ 10,000*
Blue Sky fees and expenses $ 0
Transfer agent and registrar fees and expenses $ 0
Miscellaneous $ 6,716*
Total $ 70,000*
* Estimate.
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
1. (a) Securities Sold. In January 2002, 120,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Fusion Capital Fund II, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $12,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was an accredited investor.
2. (a) Securities Sold. In February 2002, 86,500 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Shelter Capital Ltd.
(c) Consideration. Such shares of Common Stock were issued as a
finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
3. (a) Securities Sold. In February 2002, 160,000 common stock purchase
warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued as a finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.10 per share and exercisable for a period of three years from issuance.
4. (a) Securities Sold. In February 2002, 266,000 common stock purchase
warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued as a finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.20 per share and exercisable for a period of three years from issuance.
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5. (a) Securities Sold. In February 2002, 93,000 common stock purchase
warrants were issued.
(b) Securities Sold. In February 2002, 93,000 common stock purchase
warrants were issued. Underwriter or Other Purchasers. Such warrants were issued
to Shelter Capital Ltd.
(c) Consideration. Such warrants were issued as a finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.30 per share and exercisable for a period of three years from issuance.
6. (a) Securities Sold. In February 2002, 300,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were value at $30,000.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
7. (a) Securities Sold. In March 2002, 400,000 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
(c) Consideration. Such shares of Common Stock were issued as a
finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
8. (a) Securities Sold. In March 2002, 400,000 common stock purchase
warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Peter Rochow.
(c) Consideration. Such warrants were issued as a finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.10 per share and exercisable for a period of three years from issuance.
9. (a) Securities Sold. In March 2002, 400,000 common stock purchase
warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Peter Rochow.
(c) Consideration. Such warrants were issued as a finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.20 per share and exercisable for a period of three years from issuance.
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10. (a) Securities Sold. In March 2002, 200,000 common stock purchase
warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued as a finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.049 per share and exercisable for a period of three years from issuance.
11. (a) Securities Sold. In April 2002, 200,000 common stock purchase
warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued as a finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.049 per share and exercisable for a period of three years from issuance.
12. (a) Securities Sold. In April 2002, 500,000 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan.
(c) Consideration. Such shares of Common Stock were issued as a
bonus, at a price of $.10 per share.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
13. (a) Securities Sold. In April 2002, 75,000 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Patrick F. McGrew.
(c) Consideration. Such shares of Common Stock were issued as a
bonus, at a price of $.10 per share.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
14. (a) Securities Sold. In April 2002, 500,000 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Heyer Capital Fund.
(c) Consideration. Such shares of Common Stock were issued as a
finder's fee.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
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15. (a) Securities Sold. In April 2002, 200,000 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Employer Support Services.
(c) Consideration. Such shares of Common Stock were issued in
payment of a trade payable and were valued at a price of $20,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
16. (a) Securities Sold. In April 2002, a total of 9,000,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Douglas O. McKinnon (3,000,000 shares), David M. Loflin
(2,000,000 shares), Waddell D. Loflin (2,000,000 shares) and James Kaufman
(2,000,000 shares).
(c) Consideration. Such shares of Common Stock were issued in
pursuant to the terms of employment-related agreements and were valued at
approximately $930,000, in the aggregate.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. Messrs. Loflin, Loflin and McKinnon were
accredited investors. Mr. Kaufman was a sophisticated investor capable of
evaluating an investment in us.
17. (a) Securities Sold. In April 2002, 1,562,500 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Evergreen Venture Partners, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a securities purchase agreement, at a price of $.08 per share.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
18. (a) Securities Sold. In April 2002, 1,562,500 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Evergreen Venture Partners, LLC.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to securities purchase agreement.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.15 per share and exercisable for a period of three years from issuance.
19. (a) Securities Sold. In April 2002, 1,562,500 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Evergreen Venture Partners, LLC.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to securities purchase agreement.
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(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.30 per share and exercisable for a period of three years from issuance.
20. (a) Securities Sold. In April 2002, 900,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Allen & Company Business Communications.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $90,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
21. (a) Securities Sold. In April 2002, 250,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to B. Edward Haun & Company.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $25,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
22. (a) Securities Sold. In April 2002, 250,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Summit Venture Partners, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $25,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
23. (a) Securities Sold. In April 2002, 150,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Barker Design, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $15,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
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24. (a) Securities Sold. In May 2002, 900,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan.
(c) Consideration. Such shares of Common Stock were issued in
payment of legal services, at a price of $.06 per share.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
25. (a) Securities Sold. In June 2002, 2,083,333 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Evergreen Venture Partners, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a securities purchase agreement, at a price of $.08 per share.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
26. (a) Securities Sold. In June 2002, 1,562,500 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Evergreen Venture Partners, LLC.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to securities purchase agreement.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.15 per share and exercisable for a period of three years from issuance.
27. (a) Securities Sold. In June 2002, 1,562,500 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Evergreen Venture Partners, LLC.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to securities purchase agreement.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.30 per share and exercisable for a period of three years from issuance.
28. (a) Securities Sold. In July 2002, 300,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Regency Capital, LLC.
F-42
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $15,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
29. (a) Securities Sold. In July 2002, 300,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $15,000.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
30. (a) Securities Sold. In August 2002, 300,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to JF Mills/Worldwide.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $21,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
31. (a) Securities Sold. In August 2002, 600,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Kenneth J. Upcraft.
(c) Consideration. Such shares of Common Stock were issued as a
signing bonus pursuant to an employment agreement and were valued at $36,000.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
32. (a) Securities Sold. In August 2002, 375,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Precise Directions, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $18,750.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
33. (a) Securities Sold. In August 2002, 1,000,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
F-43
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $60,000.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
34. (a) Securities Sold. In August 2002, 400,000 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Heyer Capital Fund.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.15 per share and exercisable for a period of three years from issuance.
35. (a) Securities Sold. In August 2002, 400,000 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Heyer Capital Fund.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.20 per share and exercisable for a period of three years from issuance.
36. (a) Securities Sold. In August 2002, 400,000 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Heyer Capital Fund.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.25 per share and exercisable for a period of three years from issuance.
37. (a) Securities Sold. In August 2002, 400,000 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Heyer Capital Fund.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.30 per share and exercisable for a period of three years from issuance.
38. (a) Securities Sold. In August 2002, 400,000 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Heyer Capital Fund.
F-44
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.35 per share and exercisable for a period of three years from issuance.
39. (a) Securities Sold. In August 2002, 400,000 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Heyer Capital Fund.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.40 per share and exercisable for a period of three years from issuance.
40. (a) Securities Sold. In September 2002, 1,000,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan.
(c) Consideration. Such shares of Common Stock were issued in
payment of legal services, at a price of $.07 per share.
(d) Exemption from Registration Claimed. We relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933 and Rule 506 thereunder. This purchaser was a sophisticated investor
capable of evaluating an investment in us.
41. (a) Securities Sold. In September 2002, 135,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Christopher K. Brenner and Janice B. Brenner.
(c) Consideration. Such shares of Common Stock were sold for cash,
at a price of $.045 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. These purchasers, together, were accredited investors.
42. (a) Securities Sold. In September 2002, 1,000,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to the John Pritzlaff Irrevocable Trust.
(c) Consideration. Such shares of Common Stock were sold for cash,
at a price of $.06 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was an accredited investor.
43. (a) Securities Sold. In September 2002, 300,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Philip A. Samuels.
F-45
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $18,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
44. (a) Securities Sold. In November 2002, 2,000,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Michael Woods (1,600,000 shares) and Homesync Corporation
(400,000 shares).
(c) Consideration. Such shares of Common Stock were issued pursuant
to an agreement and plan of reorganization and were valued at $100,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
45. (a) Securities Sold. In November 2002, 200,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to George Coon (100,000 shares) and Richard Vorwaller (100,000
shares).
(c) Consideration. Such shares of Common Stock were issued pursuant
to a stock purchase agreement and were valued at $14,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
46. (a) Securities Sold. In December 2002, 1,000,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to the John Pritzlaff Irrevocable Trust.
(c) Consideration. Such shares of Common Stock were issued for
$60,000 in cash, pursuant to a stock purchase agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
47. (a) Securities Sold. In December 2002, 1,000,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Eton Financial.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a letter agreement and were valued at $80,000.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
48. (a) Securities Sold. In December 2002, 1,500,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Financial Capital Consultants.
F-46
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement and were valued at $120,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
49. (a) Securities Sold. In December 2002, a total of 4,654,000
shares of Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Douglas O. McKinnon (1,450,000 shares), Kenneth J. Upcraft
(996,000 shares), Waddell D. Loflin (600,000 shares), David M. Loflin (618,000
shares), James Kaufman (600,000 shares), Christopher K. Brenner (140,000
shares), Corey McDanial (125,000 shares) and Shaunna Spears (125,000 shares).
(c) Consideration. Such shares of Common Stock were issued in
payment of accrued salaries and/or consulting fees of each issuee and were
valued at $.08 per share, an aggregate value of $372,320.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
50. (a) Securities Sold. In December 2002, 3,500,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan, Attorneys at Law.
(c) Consideration. Such shares of Common Stock were issued in
payment of future legal services and were valued at $280,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
51. (a) Securities Sold. In January 2003, 375,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to DMJ Communications, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a stock purchase agreement and were valued at $30,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
52. (a) Securities Sold. In February 2003, 400,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Associated Equipment Specialists, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an asset purchase agreement and were valued at $28,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
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53. (a) Securities Sold. In February 2003, 1,000,000 common stock
options were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
FMF Investments, Ltd.
(c) Consideration. Such options were issued pursuant to a consulting
agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the options
is $.05 per share and are exercisable for a period of one year from issuance.
54. (a) Securities Sold. In February 2003, 540,000 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued pursuant to a letter
agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.049 per share and are exercisable for a period of five years from issuance.
55. (a) Securities Sold. In February 2003, 213,368 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued pursuant to a letter
agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.10 per share and are exercisable for a period of five years from issuance.
56. (a) Securities Sold. In February 2003, 885,954 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued pursuant to a letter
agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.20 per share and are exercisable for a period of five years from issuance.
57. (a) Securities Sold. In February 2003, 266,710 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd. (c) Consideration. Such warrants were issued pursuant to a
letter agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
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(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.25 per share and are exercisable for a period of five years from issuance.
58. (a) Securities Sold. In February 2003, 123,968 common stock
purchase warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued pursuant to a letter
agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.30 per share and are exercisable for a period of five years from issuance.
59. (a) Securities Sold. In March 2003, 2,500,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Fusion Capital Fund II, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a common stock purchase agreement and were valued at $150,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
60. (a) Securities Sold. In April 2003, 200,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Richard E. Wilson.
(c) Consideration. Such shares of Common Stock were issued as a
bonus and were valued at $10,000.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
61. (a) Securities Sold. In June 2003, 1,500,000 common stock
options were issued.
(b) Underwriter or Other Purchasers. Such options were issued to
Peter Rochow.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration Claimed. These securities were sold
to a single non-U.S. purchaser and are exempt from registration under the
Securities Act of 1933, pursuant to the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the options
is $.14 per share and are exercisable for a period of one year from issuance.
62. (a) Securities Sold. In June 2003, 132,500 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Three Point Properties, LLC.
(c) Consideration. Such shares of Common Stock were sold for $26,500
in cash, pursuant to a securities purchase agreement.
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(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
63. (a) Securities Sold. In June 2003, 132,500 common stock purchase
warrants were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Three Point Properties, LLC.
(c) Consideration. Such warrants were issued pursuant to a
securities purchase agreement for no additional consideration.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, pursuant to the provisions
of Section 4(2) thereof and Rule 506 thereunder, as a transaction not involving
a public offering. This purchaser was a sophisticated investor capable of
evaluating an investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.20 per share and are exercisable for a period of three years from issuance.
64. (a) Securities Sold. In March 2003, 2,500,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Fusion Capital.
(c) Consideration. Such shares of Common Stock were valued at
$75,000.00, and were issued a commitment fee under a common stock purchase
agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
65. (a) Securities Sold. In September 2003, 200,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Richard Wilson. .
(c) Consideration. Such shares of Common Stock were valued at
$10,000.00, and were issued to certain directors, in lieu of cash, in payment of
directors fees.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
66. (a) Securities Sold. In November 2003, 150,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Ross Bravata.
(c) Consideration. Such shares of Common Stock were valued at
$28,500.00, and were issued to certain directors, in lieu of cash, in payment of
directors fees.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
67. (a) Securities Sold. In November 2003, 1,300,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to David Loflin.
(c) Consideration. Such shares of Common Stock were valued at
$75,000.00, and were issued to certain directors, in lieu of cash, in payment of
directors fees.
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(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
68. (a) Securities Sold. In November 2003, 1,450,000 shares of
common stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Douglas O. McKinnon.
(c) Consideration. Such shares of Common Stock were valued at
$95,500.00, and were issued to certain officers, in lieu of cash compensation,
pursuant to their respective employment agreements.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
69. (a) Securities Sold. In November 2003, 1,150,000 shares of
common stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Kenneth Upcraft.
(c) Consideration. Such shares of Common Stock were valued at
$74,000.00, and were issued to certain officers, in lieu of cash compensation,
pursuant to their respective employment agreements.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
70. (a) Securities Sold. In November 2003, 1,100,000 shares of
common stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Christopher K. Brenner.
(c) Consideration. Such shares of Common Stock were valued at
$66,500.00, and were issued to certain officers, in lieu of cash compensation,
pursuant to their respective employment agreements.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
71. (a) Securities Sold. In November 2003, 825,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Mike Woods.
(c) Consideration. Such shares of Common Stock were valued at
$48,750.00, and were issued to certain officers, in lieu of cash compensation,
pursuant to their respective employment agreements.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
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72. (a) Securities Sold. In September 2003, 2,800,000 shares of
common stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Children's Technology Group.
(c) Consideration. Such shares of Common Stock were valued at
$532,000.00, and were issued to acquire certain assets.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
73. (a) Securities Sold. In September 2003, 600,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Meyer M. Saltzman.
(c) Consideration. Such shares of Common Stock were valued at
$96,000.00, and were issued in payment of a note payable and related accrued
interest.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
74. (a) Securities Issued. In October 2003, 50,000 shares of our
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were
issued to Kenneth J. Upcraft.
(c) Consideration. Such shares were issued pursuant to an employment
agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof and Rule 506 thereunder, as a transaction not
involving a public offering. This purchaser is a sophisticated investor capable
of evaluating an investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the options
is $.128 per share and the options are exercisable for a period of two years
from issuance.
75. (a) Securities Sold. In February 2004, 75,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Denise Hoover.
(c) Consideration. Such shares of Common Stock were valued at
$5,250.00, and were issued to an employee as compensation for services rendered.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
76. (a) Securities Sold. In February 2004, 50,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Reda Habib.
(c) Consideration. Such shares of Common Stock were valued at
$11,000.00, and were issued to an employee as compensation for services
rendered.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
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77. (a) Securities Sold. In February 2004, 60,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Dale Tapp.
(c) Consideration. Such shares of Common Stock were valued at
$9,600.00, and were issued to an employee as compensation for services rendered.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
78. (a) Securities Sold. In February 2004, 250,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to J.F. Mills Worldwide.
(c) Consideration. Such shares of Common Stock were valued at
$17,500.00, and were issued under a one-year consulting agreement for services
rendered during 2003.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
79. (a) Securities Sold. In February 2004, 300,000 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to J.F. Mills. .
(c) Consideration. Such shares of Common Stock were valued at
$72,000.00, and were issued under a one-year consulting agreement for services
rendered during 2004.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
80. (a) Securities Sold. In February 2004, 431,818 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Integrity.
(c) Consideration. Such shares of Common Stock were valued at
$95,000.00, and were issued to acquire certain assets.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
81. (a) Securities Sold. In February 2004, 1,188,679 shares of
common stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Sovereign Companies, LLC.
(c) Consideration. Such shares of Common Stock were valued at
$199,698.00, and were issued to acquire certain assets.
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(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
82. (a) Securities Sold. In February 2004, 282,031 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Mountain View at T-Bone LLC.
(c) Consideration. Such shares of Common Stock were valued at
$47,381.00, and were issued to acquire certain assets.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
83. (a) Securities Sold. In February 2004, 39,189 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Pinnacle T-Bone LLC.
(c) Consideration. Such shares of Common Stock were valued at
$6,584.00, and were issued to acquire certain assets.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us..
84. (a) Securities Sold. In February 2004, 849,786 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Wentworth Telecom Services LLC.
(c) Consideration. Such shares of Common Stock were valued at
$142,764.00, and were issued to acquire certain assets.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us..
85. (a) Securities Sold. In February 2004, 494,482 shares of common
stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were sold to Settlers Chase Development LLC.
(c) Consideration. Such shares of Common Stock were valued at
$83,073.00, and were issued to acquire certain assets.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us..
86. (a) Securities Issued. In April 2004, we issued 666,667 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to NetUnwired, LLC to obtain exclusive licensing rights in certain
intellectual property.
(c) Consideration. Such shares were issued pursuant to the terms of
a licensing agreement.
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(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
87. (a) Securities Issued. In April 2004, we issued 666,667 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Robert Letson to obtain exclusive licensing rights in certain
intellectual property.
(c) Consideration. Such shares were issued pursuant to the terms of
a licensing agreement. (d) (e) Exemption from Registration. These securities are
exempt from registration under the Securities Act of 1933, as amended, pursuant
to the provisions of Section 4(2) thereof as a transaction not involving a
public offering. This purchaser is a sophisticated investor capable of
evaluating an investment in us.
87. (a) Securities Issued. In April 2004, we issued 4,750,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Brandon Young.
(c) Consideration. Such shares were issued to acquire a business
pursuant to the terms of a stock purchase agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
88. (a) Securities Issued. In April 2004, we issued 4,750,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Brian Young.
(c) Consideration. Such shares were issued to acquire a business
pursuant to the terms of a stock purchase agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
89. (a) Securities Issued. In April 2004, we issued 4,750,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Byron Young.
(c) Consideration. Such shares were issued to acquire a business
pursuant to the terms of a stock purchase agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
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90. (a) Securities Issued. In April 2004, we issued 450,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Douglas O. McKinnon.
(c) Consideration. Such shares were issued as compensation for
services rendered to us during the fourth quarter of 2003.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
91. (a) Securities Issued. In April 2004, we issued 375,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Kenneth J. Upcraft.
(c) Consideration. Such shares were issued as compensation for
services rendered to us during the fourth quarter of 2003.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
92. (a) Securities Issued. In April 2004, we issued 250,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Christopher K. Brenner.
(c) Consideration. Such shares were issued to a former employee as
compensation for services rendered to us during the fourth quarter of 2003.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
93. (a) Securities Issued. In April 2004, we issued 125,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Michael T. Woods.
(c) Consideration. Such shares were issued as compensation for
services rendered to us during the fourth quarter of 2003.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
94. (a) Securities Issued. In April 2004, we issued 175,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Ronald Bass.
(c) Consideration. Such shares were issued as compensation for
services rendered to us during the fourth quarter of 2003.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. These purchasers are accredited or sophisticated investor capable of
evaluating an investment in us.
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95. (a) Securities Issued. In April 2004, we issued 1,250,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares were issued to
Palmer Wells, LLC.
(c) Consideration. Such shares were issued to acquire a business
pursuant to a membership interest purchase agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
96. (a) Securities Issued. In April 2004, we issued 2,500,000
warrants to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Palmer Wells, LLC.
(c) Consideration. Such warrants were issued pursuant to a
membership interest purchase agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.15 per share and the warrants are exercisable for a period of two years.
97. (a) Securities Issued. In April 2004, we issued 4,000,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to John Pritzlaff, III.
(c) Consideration. Such shares were issued for cash pursuant to a
stock purchase agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
98. (a) Securities Issued. In April 2004, we issued 1,000,000
warrants to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
John Pritzlaff, III.
(c) Consideration. Such warrants were issued pursuant to a stock
purchase agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.18 per share and the warrants are exercisable for a period of two years.
99. (a) Securities Issued. In June 2004, we issued 475,000 shares of
our common stock.
(b) Underwriter or Other Purchasers. Such shares were issued to
Atlas Capital Services, LLC.
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(c) Consideration. Such shares were issued pursuant to a consulting
agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
100. (a) Securities Issued. In June 2004, we issued 753,598 warrants
to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Atlas Capital Services, LLC.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.08 per share and the warrants are exercisable for a period of seven years.
101. (a) Securities Issued. In June 2004, we issued 1,574,792
warrants to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Atlas Capital Services, LLC.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.12 per share and the warrants are exercisable for a period of seven years
102. (a) Securities Issued. In June 2004, we issued 250,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Marc Berger.
(c) Consideration. Such shares were issued pursuant to a consulting
agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
103. (a) Securities Issued. In June 2004, we issued 285,938 warrants
to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Marc Berger.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
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(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.08 per share and the warrants are exercisable for a period of seven years.
104. (a) Securities Issued. In June 2004, we issued 610,417 warrants
to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Marc Berger.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.12 per share and the warrants are exercisable for a period of seven years
105. (a) Securities Issued. In June 2004, we issued 275,000 shares
of our common stock.
(b) Underwriter or Other Purchasers. Such shares were issued to
Steven Pollan.
(c) Consideration. Such shares were issued pursuant to a consulting
agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
106. (a) Securities Issued. In June 2004, we issued 929,214 warrants
to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Steven Pollan.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.08 per share and the warrants are exercisable for a period of seven years.
107. (a) Securities Issued. In June 2004, we issued 951,458 warrants
to purchase shares of our common stock.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Steven Pollan.
(c) Consideration. Such warrants were issued pursuant to a
consulting agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $0.12 per share and the warrants are exercisable for a period of seven years.
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108. (a) Securities Issued. In September 2004, 75,000 shares of our
common stock were issued.
(b) Underwriter or Other Purchasers. Such shares of stock were
issued to Ed Basquez.
(c) Consideration. Such shares were issued pursuant to the terms of
a consulting agreement.
(d) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
109. (a) Securities Issued. In November 2004, 10,000 shares of our
series A convertible preferred stock were issued.
(e) Underwriter or Other Purchasers. Such shares of stock were
issued to Monarch Pointe Fund Ltd.
(f) Consideration. Such shares were issued pursuant to the terms of
a subscription agreement.
(g) Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in us.
ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.01(1) Stock Purchase Agreement, dated April 20, 2004 by
and among USURF America, Inc. and Brandon Young,
Brian Young and Byron Young, as shareholders of
Connect Paging, Inc.
* 3.1 Articles of Incorporation of Registrant.
** 3.2 Bylaws of Registrant, as amended.
*** 3.5 Articles of Amendment to Articles of Incorporation
of Registrant.
**** 3.6 Articles of Amendment to Articles of Incorporation
of Registrant.
** 4.1 Specimen Common Stock Certificate.
5.1 Legality Opinion of Richardson & Patel LLP.
Financial Statements of Connect Paging, Inc.
(successor to Extel Enterprises, Inc.)
# 21.1 Subsidiaries of Registrant.
# 23.1 Consent of Hein + Associates LLP, independent
auditors.
23.2 Consent of Lewis B. Fox, independent auditors.
23.3 Consent of Christopher K. Brenner P.C. (included in
Exhibit 5.1)
24.1 Power of Attorney (included on page F-70 of this
Registration Statement)
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(1) Incorporated by reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K filed with the SEC on May 5, 2004.
(2) Incorporated by reference to Exhibit 4.1 and Exhibit 4.2 to Registrant's
Quarterly Report on Form 10-QSB filed with the SEC on August 23, 2004.
(3) Incorporated by reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K filed with the SEC on November 5, 2004.
# Filed herewith.
* Incorporated by reference from Registrant's Registration Statement on Form
S-1, Commission File No. 333-26385.
** Incorporated by reference from Registrant's Registration Statement on Form
S-1, Commission File No. 333-96027.
*** Incorporated by reference from Registrant's Current Report on Form 8-K,
date of event, July 21, 1998.
**** Incorporated by reference from Registrant's Current Report on Form 8-K,
date of event, July 6, 1999.
% Incorporated by reference from Registrant's Current Report on Form 8-K,
date of event: March 10, 2003.
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ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To included any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act);
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of
Broomfield, State of Colorado, on December 23, 2004.
USURF AMERICA, INC.
By: /S/ Douglas O. McKinnon
---------------------------
Douglas O. McKinnon
President and Chief
Executive Officer
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas O. McKinnon as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do them in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or any of them, or their or his substitute or substitutes, shall do or cause to
be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURES TITLE DATE
- ------------------------------- ------------------------------------------- ------------------
/S/ Douglas O. McKinnon
- ------------------------------- President and Chief Executive Officer December 23, 2004
Douglas O. McKinnon (Principal Executive Officer) and Director
/S/ David A. Weisman
- ------------------------------- Director and Chairman of the Board December 23, 2004
David A. Weisman
/S/ Ronald Bass
- ------------------------------- Principal Accounting Officer December 23, 2004
Ronald Bass
/S/ Byron Young
- ------------------------------- Director December 23, 2004
Byron Young
/S/ Richard E. Wilson
- ------------------------------- Director December 23, 2004
Richard E. Wilson
/S/ Ed Garneau
- ------------------------------- Director December 23, 2004
Ed Garneau
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