UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2005
[_] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _________ to __________.
Commission File No. 001-15383
USURF AMERICA, INC.
-------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 91-2117796
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
390 INTERLOCKEN CRESCENT, SUITE 900, BROOMFIELD, COLORADO 80021
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 285-5379
- --------------------------------------------------- --------------
Check whether the issuer filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and has been subject to
such filing requirements for the past 90 days [ ] Yes [X] No
On February 25, 2005 Registrant filed a Current Report on Form 8-K to announce a
business combination under Item 2.01. Registrant has not yet filed the financial
statements required under Item 9.01of Form 8-K by amendment or otherwise and is
now beyond the 71day filing period under Item 9.01 of Form 8-K.
As of June 1, 2005, there were 249,263,647 shares of the issuer's outstanding
common stock.
Transitional Small Business Disclosure Format (Check One): [ ] Yes [X] No
1
PART I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
USURF AMERICA, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
----
Consolidated Balance Sheet as of March 31, 2005 (Unaudited) 3
Consolidated Statements of Operations for the three months ended
March 31, 2005 and 2004 (Unaudited) 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004 (Unaudited) 6
Notes to Consolidated Financial Statements 10
2
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2005 (UNAUDITED)
ASSETS
March 31,
2005
Cash and cash equivalents $ 1,326,735
Marketable securities 260,000
Securities receivable 340,000
Accounts receivable 1,127,074
Other receivables 396,846
Unamortized financing costs 268,974
Deposits and prepaid expenses 506,569
Property and equipment, net 5,056,968
Real Estate and land inventory 41,059,921
Intangibles, net 10,237,846
Other assets 457,628
-----------
Total Assets $61,038,561
===========
The accompanying notes are an integral part of these statements.
3
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2005 (UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
March 31,
2005
Accounts payable $ 1,842,641
Accrued expenses and other liabilities 1,523,298
Deferred revenue 254,057
Land and construction loans 36,760,301
Related party debt 4,783,283
Notes payable, net of discount 4,510,539
------------
Total Liabilities 49,674,119
------------
Commitments and Contingencies
Preferred Stock Committed 2,037,750
Minority Interest 4,840,210
Stockholders' equity:
Preferred stock; par value $0.0001; issuable in series; authorized 100,000,000
Series A Preferred stock; issued and outstanding 10,000 1
Series B Preferred stock; issued and outstanding 100,000 100
Common stock; par value $0.0001; authorized 400,000,000; issued and outstanding
234,432,147 23,443
Additional paid-in capital 66,896,987
Deferred consulting (8,750)
Accumulated deficit (62,425,299)
------------
Total Stockholders' Equity 4,486,482
------------
TOTAL LIABILITIES AND EQUITY $ 61,038,561
============
The accompanying notes are an integral part of these statements.
4
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
Three Months Ended March 31,
2005 2004
REVENUES
Revenues $ 4,860,642 $ 166,230
Cost of goods sold (2,385,701) (137,648)
------------- -------------
Gross profit 2,474,941 28,582
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OPERATING EXPENSES
Depreciation and amortization 338,876 109,437
Professional fees 993,331 1,200,437
Rent 63,800 27,881
Salaries and commissions 881,452 182,262
Selling, General and Administrative 984,101 445,564
------------- -------------
Total operating expenses 3,261,560 1,965,581
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(LOSS) FROM OPERATIONS (786,619) (1,936,999)
OTHER INCOME (EXPENSE)
Other income (expense) (13,604) (13,084)
Accretion of interest (expense) on convertible debt (186,380) (607,733)
Gain (loss) on disposition of assets (25,764) --
Interest (expense) (158,698) (3,019)
------------- -------------
Total other (expense) (384,446) (623,836)
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(LOSS) BEFORE MINORITY INTEREST (1,171,065) (2,560,835)
Minority interest allocation (89,538) --
------------- -------------
NET (LOSS) $ (1,260,603) $ (2,560,835)
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Net (loss) per common share (0.0058) (0.0200)
Weighted average number of shares outstanding 218,752,780 128,000,094
The accompanying notes are an integral part of these statements.
5
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
Three Months Ended March 31,
2005 2004
----------- -----------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net (loss) before minority interest $(1,171,065) $(2,560,835)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 338,876 109,437
Stock issued for consulting and other fees 1,169,461 1,163,011
Accretion of interest expense on convertible debt 186,380 607,733
Gain/loss on sale of assets 40,415
Changes in Operating Assets and Liabilities:
Accounts receivable (313,693) 36,532
Accounts payable (200,487) (155,274)
Accrued expenses and other liabilities 160,449 (184,340)
Deferred revenue 7,007 (61,659)
Other assets and liabilities (9,727) 13,844
Real Estate and Land Inventory (1,450,535)
----------- -----------
Net cash (used in) operating activities (1,242,919) (1,031,551)
----------- -----------
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Capital expenditures for property and equipment (44,747) (54,330)
Cash paid for acquisitions (294,765) (592,000)
Cash paid for intangibles & other assets (64,414)
Cash acquired through aqcuisition 1,352,147
Proceeds from sale of assets 9,284
----------- -----------
Net cash provided by or (used) in investing activities 957,505 (646,330)
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CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Proceeds from notes payable 3,109,351 2,455,000
Payment on notes payable (2,272,159)
Collections on subscriptions receivable 44,585
Issuance of common stock for cash 1,600,000
----------- -----------
Net cash provided by financing activities 881,777 4,055,000
----------- -----------
Net increase in cash 596,363 2,377,119
Cash and cash equivalents, beginning of period 730,372 72,597
----------- -----------
Cash and cash equivalents, end of period $ 1,326,735 $ 2,449,716
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 44,249 $ 3,019
----------- -----------
Stock issued for acquisition of assets $ 5,705,000 $ 574,499
----------- -----------
The accompanying notes are an integral part of these statements.
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING AND
OTHER CASH FLOW INFORMATION
Three Months Ended March 31, 2005
In January 2005, we issued 1,250,000 shares under a consulting agreement,
which shares were valued at $105,000.00.
In January 2005, we issued 3,077,809 shares under a consulting agreement,
which shares were valued at $249,303.00.
In January 2005, we issued 1,423,550 shares under a consulting agreement,
which shares were valued at $121,714.00.
In February 2005, we issued 1,508,100 shares under a consulting agreement,
which shares were valued at $135,729.00.
In February 2005, we issued 2,265,000 shares under a consulting agreement,
which shares were valued at $191,393.00.
In March 2005, we issued 1,756,000 shares under a consulting agreement,
which shares were valued at $156,284.00.
In March 2005, we issued 2,376,500 shares under a consulting agreement,
which shares were valued at $201,290.00.
Three Months Ended March 31, 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.
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.
7
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.
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.
8
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.
9
USURF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
Note 1. Interim Consolidated Financial Statements
In the opinion of management, the accompanying consolidated financial statements
as of and for the three months ended March 31, 2005 and 2004, reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial condition, results of operations and cash flows of
the Company, including subsidiaries, and include the accounts of the Company and
all of its subsidiaries. All material intra-company transactions and balances
are eliminated.
The financial statements included herein have been prepared by the Company,
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 the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2004, as filed with the
SEC. Certain reclassifications and adjustments may have been made to the
categories presented in the financial statements for the comparative period of
the prior fiscal year to conform with the 2005 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
The Company continues to implement and expand its business plan as a provider of
enhanced telephone (voice) services, cable television (video) and Internet
(data) services to business and residential customers. Since the completion of
the acquisition of Sovereign Partners, LLC in February 2005, the Company also
offers integrated construction and construction management services, as well as
broadband communications design, implementation, and operations services to
other large developers and municipalities seeking to deploy broadband services.
Principles of Consolidation
The accompanying consolidated financial statements include all the accounts of
the Company and all wholly-owned subsidiaries.
The equity method of accounting is used for affiliated entities over which the
Company has significant influence; generally this represents partnership equity
of at least 20% and not more than 50%. Under the equity method of accounting,
the Company recognizes its pro rata share of the profits and losses of these
entities. At March 31, 2005 the Company has recorded minority interest of $
4,840,210 presenting third party ownership of the entities not wholly owned by
the Company.
The cost method of accounting is used for investments in which the Company has
less than a 20% ownership interest and does not have the ability to exercise
significant influence.
Inter-company transactions and balances have been eliminated in the
consolidation.
Minority interest reflects the ownership of minority shareholders in the equity
of subsidiaries less than wholly owned. 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
have been granted to employees, officers or directors during the first quarter
of 2005.
10
Stock for Services
The Company has issued stock pursuant to various consulting agreements. Deferred
consulting costs which are valued at the stock price on the date of a particular
agreement or the value of services are recorded as a reduction of stockholders'
equity and are amortized over the useful lives of the respective agreements.
Revenue Recognition
The Company charges video and data customers monthly service fees and recognizes
the revenue in the month the services are provided or equipment is sold. The
Company bills monthly for voice (telephone) services in advance and generally
receives payments during the month in which the services are provided. To the
extent that revenue is received, but not earned, the Company records these
amounts as deferred revenue.
The Company recognizes revenue from the sale of real estate when cash is
received, title possession and other attributes of ownership have been
transferred to the buyer and the Company is not obligated to perform significant
additional services after sale and delivery. During construction, all direct
material and labor costs and those indirect costs related to acquisition and
construction are capitalized, and all customer deposits are treated as
liabilities. Capitalized costs are charged to earnings upon revenue recognition.
Costs incurred in connection with completed homes and selling, general and
administrative costs are charged to expense as incurred.
For the mortgage operations, the Company recognizes revenue on fees received
from mortgage lenders when the loan is closed. The Company receives a percentage
of the loan closing by a third party sponsor based on the interest rate charged
to the consumer. The Company also recognizes loan origination fees from
borrowers.
The Company recognizes revenue from non-development service activities when
performed and there are no remaining service obligations.
Real Estate and Land Inventory
Finished inventories, consisting of single and multi family residential units
and commercial projects, are stated at the lower of accumulated cost or net
realizable value. Inventories under development or held for development are
stated at accumulated cost, unless certain facts indicate such cost would not be
recovered from the cash flows generated by future disposition. In this instance,
such inventories are measured at fair value.
Sold units are expensed on a specific identification basis. Under the specific
identification basis, cost of sales includes the construction cost of the unit,
an average lot cost by project based on land acquisition and development costs,
and closing costs and commissions. Construction related overhead and salaries
are also capitalized and allocated proportionately to projects being developed.
Construction cost of the unit includes amounts paid through the closing date of
the unit
Major components of inventory at March 31, 2005 were:
2005
Residential/Commercial units under construction $19,435,594
Land under development 21,624,327
-----------
Total real estate and land inventory $41,059,921
===========
Bad Debt
The Company estimates the amount of uncollectible accounts receivable and record
an allowance for bad debt. Uncollectible accounts receivable are then charged
against this allowance.
11
Goodwill
Goodwill was recorded at its purchase price and is not being amortized. Pursuant
to SFAS 142 ("Goodwill and Other Intangible Assets") and SFAS 144 ("Accounting
for the Impairment or Disposal of Long-Lived Assets"), the Company at December
31, 2004 evaluated its goodwill for impairment and determined the fair value of
its goodwill exceeded the book cost. In the first quarter of 2005, $6,706,271
was recorded as goodwill in relation to the acquisition of Sovereign Partners
LLC. See Note 5. Acquisitions below.
Intangibles
Classification of intangible assets and accumulated amortization at March 31,
2005 were as follows:
Description March 31, 2005
Contracts $ 201,604
Right of entry agreements 95,000
Customer Base 1,955,084
Goodwill 8,527,095
------------
Totals 10,778,783
Accumulated Amortization (540,938)
------------
Intangible Assets, net $ 10,237,846
============
For the quarter ending March 31, 2005, the Company recognized $221,927 of
amortization expense.
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.
Marketable Securities and Securities Receivable
In May 2004, the Company 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 the Company 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 March 31,
2005 the market value of the shares was $260, 000 and therefore the Company
recorded a $340,000 securities receivable.
Note 3. Stock, Option and Warrant Issuances
During the three months ended March 31, 2005, the Company issued shares of
common stock and Convertible Series B Preferred stock, as follows:
35,000,000 shares of common stock to acquire various businesses or business
assets;
13,656,959 shares of common stock in exchange for consulting and other services;
and
100,000 shares of convertible Series B Preferred Stock to acquire various
business or business assets. Each share of convertible Series B Preferred Stock
is convertible into 100 shares of common stock.
During the three months ended March 31, 2004, the Company issued shares of
common stock and common stock purchase warrants, as follows:
3,285,985 shares of common stock to acquire various businesses or business
assets;
12
15,000,000 shares of common stock for cash;
7,197,030 shares of common stock in exchange for consulting and other
services;
36,282,895 warrants (exercise price $0.12 per share) were issued.
Note 4. Financing Transactions
The Company and Evergreen Venture Partners, LLC ("Evergreen") entered into a
Surrender and Exchange Agreement effective as of February 18, 2005, the Closing
date of the acquisition of Sovereign. Under the terms of the Surrender and
Exchange Agreement Evergreen surrendered 17,000,000 shares of common stock owned
by it (the "Surrendered Shares"). Evergreen also surrendered warrants to
purchase 15,316,667 shares of common stock (the "Surrendered Warrants"). The
Surrendered Shares and the Surrendered Warrants have been canceled and are of no
further force or effect. In consideration of the Surrendered Shares and
Surrendered Warrants, the Company issued to Evergreen a new promissory note in
the principal amount of $750,000.00 (the "Note"). The Note provides for the lump
sum payment of the principal amount of the Note on July 1, 2006. However, should
the trading price of the Company's common stock be greater than $0.21 per share
for a consecutive thirty day period, the Note shall terminate and the Company
will have no further obligation to Evergreen under the Note.
Additionally, in February 2005 the Company modified the terms of its 2004
private placement agreements with Crestview Capital Master Fund, LLC
(Crestview") and other affiliates of Crestview totaling $4,420,000 (the
"Modification") such that a maximum of 40,000,000 shares are to be issued upon
conversion of the debentures and that the warrants issued in connection with the
private placements to purchase an aggregate of 31,626,372 shares of common stock
were surrendered and canceled. If the Company's common share price exceeds $0.25
per share for 30 consecutive days, payment of debentures totaling $2,250,000
shall be forgiven by the debenture holders.
At March 31, 2005 total notes payable under the above is $4,420,000 with debt
discount of $659,461 netted against the balance and $750,000 described above
resulting in a notes payable balance of $ 4,510,539 .
During the three months ended March 31, 2004, the Company borrowed $543,000
under a convertible loan agreement bringing the balance to $600,000. This amount
was subsequently converted into 5,000,000 shares of common stock and 10,000,000
warrants (the warrants were canceled in 2005 in connection with the Surrender
and Exchange Agreement described above). 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. During
the three months ended March 31, 2004 interest expense of $521,045 was recorded
relating to the accretion of the convertible promissory note to its face value.
In March 2004, the Company completed a private placement with Crestview Capital
Master Fund, LLC and other affiliates of Crestview totaling $2,095,000
represented by convertible debentures convertible into common stock at $0.10 per
share, with 125% warrant coverage with an exercise price of $0.12 per share. The
convertible debentures, if not converted, are due July 1, 2006 and bear interest
at six percent (6%) payable quarterly. 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 is being amortized over eighteen months, the term of the
convertible note. As of March 31, 2004 interest expense of $51,933 was amortized
and recorded as additional interest expense. The $2,095,000 and related warrants
were included in the Modification described above.
Note 5. ACQUISITIONS
Sovereign Partners, LLC
On February 18, 2005, the Company closed on the acquisition with Sovereign
Partners, LLC (Sovereign) to acquire 100% of the membership interests of
Sovereign from the Members in exchange for the issuance of 35,000,000 shares of
the Company's common stock and 100,000 shares of the Company's newly created
Series B Convertible Preferred Stock. Under the terms of the acquisition
agreement the members are to be issued an additional 125,000 shares of Series B
13
Preferred Stock on each of January 1, 2006 and July 1, 2006. As a result of the
Acquisition, Sovereign is now owned and operated as a wholly owned subsidiary of
the Company. Sovereign operations include real estate development and the
related communications infrastructure for residential, multiple dwelling unit
(apartment) and planned community developments. See Sovereign Acquisition under
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations below.
This transaction was accounted for using the purchase method and, accordingly,
the purchase price has been allocated to net assets acquired based on their
estimated fair values at the date of acquisition. The preliminary allocation
resulted in goodwill totaling approximately $6,706,271. Goodwill was recorded at
its purchase price and is not being amortized. Pursuant to SFAS 142 ("Goodwill
and Other Intangible Assets") and SFAS 144 ("Accounting for the Impairment or
Disposal of Long-Lived Assets") the Company evaluates its goodwill for
impairment annually. Pro forma results of operations will be presented on a
Current Report on Form 8-K by amendment as required under Item 9.01 once the
audited Sovereign Partners, LLC financial statements are available for 2003 and
2004.
Sovereign Preliminary Purchase Price Allocation
Consideration
Stock $ 5,705,000
Transaction costs 294,765
Minority Interest 4,750,672
Assumption of liabilities 43,003,203
------------
Adjusted Purchase Price 53,753,640
Allocation to Assets (47,047,369)
------------
Residual Value of Goodwill $ 6,706,271
============
The preliminary estimate of assets represents management's best estimate based
on currently available information; however, such estimate may be revised within
the one-year period following the acquisition date. The Company has engaged a
third party business valuation expert to assess the fair market value of
Sovereign and its assets.
The following unaudited proforma condensed statements of operations assumes the
Sovereign Partners, LLC acquisition occurred on January 1, 2005 and presents
proforma financial information for the quarter ended March 31, 2005. In the
opinion of management, no adjustments are currently necessary to present fairly
such unaudited proforma condensed statements of operations.
14
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Quarter Ended March 31, 2005
-------------------------------------------------------------------------
January 1 to January 1 to Proforma Proforma
March 31 February 18
USURF Sovereign Adjustments Combined
-------------------------------------------------------------------------
Revenues $ 4,860,642 $ 3,257,211 $ 8,117,853
Expenses
Costs of Goods Sold 2,385,701 2,947,916 5,333,617
Depreciation and amortization 338,876 46,930 385,806
General and administrative 2,922,684 592,808 3,515,492
-------------------------------------------------------------------------
Total Operating Expenses 5,647,261 3,587,653 9,234,914
-------------------------------------------------------------------------
Operating (loss) (786,619) (330,442) -- (1,117,061)
Other (expense) (473,984) (51,746) (525,730)
-------------------------------------------------------------------------
Net (loss) $ (1,260,604) $ (382,188) $ -- $ (1,642,792)
=========================================================================
Net (loss) per common share (0.006) (0.01)
Weighted average shares outstanding 218,752,780 218,752,780
============= =============
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 2004 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 within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including statements regarding, among other things, (a) our growth
strategies, (b) anticipated trends in our industry, (c) our future financing
plans and (d) our ability to obtain financing and continue operations. 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 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 2004 and through March 31, 2005, we continued to implement and expand our
business plan as a provider of enhanced telephone (voice) services, cable
television (video) and Internet (data) services to business and residential
customers. Since the completion of the acquisition of Sovereign Partners, LLC in
February 2005, we also offer integrated construction and construction management
services, as well as broadband communications design, implementation, and
operations services to other large developers and municipalities seeking to
15
deploy broadband 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 that would provide an immediate or potential customer base for
our services.
Sovereign Acquisition
On January 26, 2005, we entered into a Securities Purchase Agreement (the
"Acquisition Agreement") with Sovereign Partners, LLC, a Colorado limited
liability company ("Sovereign") and each of the members of Sovereign (the
"Members") (the "Acquisition"). The Acquisition Agreement provides, among other
things, that we acquire 100% of the membership interests of Sovereign from the
Members in exchange for the issuance of shares of our common stock and shares of
our newly created Series B Convertible Preferred Stock, $0.0001 par value per
share (the "Preferred Stock"). As a result of the Acquisition, Sovereign is now
owned and operated as a wholly owned subsidiary of our Company. Sovereign
operations include real estate development and the related communications
infrastructure for residential, multiple dwelling unit (apartment) and planned
community developments ("developments"). As part of these new developments, all
communications infrastructure (voice, video, data, fiber to the home, etc) will
be engineered jointly by USURF and Sovereign. The communications facilities will
be owned by USURF and the ongoing communications services, after sale of the
developments, will be provided and operated by a USURF subsidiary, resulting in
residual revenue streams to USURF.
We closed on the Acquisition Agreement on February 18, 2005 (the "Closing"). At
the Closing, the Members were issued an aggregate of 35,000,000 shares of our
common stock and 100,000 shares of our Series B Preferred Stock.
Under the terms of the Acquisition Agreement, the Members are to be issued
shares of our common stock and Preferred Stock, as follows: (i) 35,000,000
shares of common stock and 100,000 shares of Preferred Stock (which were issued
at the Closing of the Acquisition); (ii) 125,000 shares of Series B Preferred
Stock on each of January 1, 2006 and July 1, 2006; (iii) 250,000 shares of
Series B Preferred Stock at such time as the Net Operating Income of Sovereign
after January 1, 2005 is equal to or greater than $6,000,000; and (iv) 400,000
shares of Series B Preferred Stock if the average Net Operating Income of
Sovereign ending on the period twenty-four months following the closing of the
acquisition is equal to or greater than $5,000,000. For the purposes of the
Acquisition Agreement, Net Operating Income means for any period the "EBITDA" on
a consolidated basis for Sovereign and all of its subsidiaries, in accordance
with generally accepted accounting principles. "EBITDA" means earnings before
interest, taxes, depreciation and amortization.
In addition, the Members may earn additional shares of our common stock or
Series B Preferred Stock if the average annualized Net Operating Income for the
period commencing on the closing and ending on the twenty-four month anniversary
date of the closing is: (A) greater than $5,000,000, but less than or equal to
$6,000,000, then the Members will receive in the aggregate an additional 0.05
shares of Series B Preferred Stock for each dollar that the average annualized
Net Operating Income for that period exceeds $5,000,000; (B) greater than
$6,000,000 but less than or equal to $7,000,000, then the Members will receive
in the aggregate an additional 0.10 shares of Series B Preferred Stock for each
dollar that the average annualized Net Operating Income for that period exceeds
$5,000,000; (C) greater than $7,000,000 but less than or equal to $8,000,000,
then the Members will receive in the aggregate 0.15 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000; or (D) greater than $8,000,000 for that period, then
the Members will receive in the aggregate 0.20 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000 (collectively, the "Twenty-Four Month Issuances").
In addition, the Members may earn additional shares of our common stock or
Series B Preferred Stock as follows: if the average annualized Net Operating
Income for the period commencing on the Closing and ending on the thirty-six
month anniversary date of the closing is: (A) greater than $5,000,000, but less
than or equal to $6,000,000, the Members will receive in the aggregate an
additional 0.10 shares of Series B Preferred Stock for each dollar that the
average annualized Net Operating Income for that period exceeds $5,000,000; (B)
greater than $6,000,000 but less than or equal to $7,000,000, then the Members
will receive in the aggregate an additional 0.20 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000; (C) greater than $7,000,000 but less than or equal to
$8,000,000, then the Members will receive in the aggregate 0.30 shares of Series
B Preferred Stock for each dollar that the average annualized Net Operating
Income for that period exceeds $5,000,000; or (D) greater than $8,000,000 for
16
that period, then the Members will receive in the aggregate 0.40 shares of
Series B Preferred Stock for each dollar that the average annualized Net
Operating Income for that period exceeds $5,000,000. Such issuances will be
reduced by the number of shares of common stock or Series B Preferred Stock
received pursuant to the Twenty-Four Month Issuances, if any.
Under the terms of the Acquisition Agreement, the aggregate number of shares of
our capital stock issuable to the Members is limited to 300,000,000 shares of
common stock or such number of shares of Series B Preferred Stock that is
convertible into 300,000,000 shares of common stock, or any combination of
Series B Preferred Stock and common stock which does not exceed 300,000,000
shares of common stock in total.
We may suspend the issuance of additional shares of common stock or Series B
Preferred Stock upon certain "breaches" by Sovereign defined in the Acquisition
Agreement. In the event of a breach, any shares that have not yet been issued to
the Members under the terms of the Acquisition Agreement may be withheld by us
until the earlier of (i) twelve months from the date such shares would have
otherwise been issued to the Members or (ii) such time as any such breach has
been cured by Sovereign.
The Acquisition Agreement also provides for customary representations and
warranties of all parties, certain covenants and agreements related to the
closing and mutual indemnification of the parties.
This transaction was accounted for using the purchase method and, accordingly,
the purchase price has been allocated to net assets acquired based on their
estimated fair values at the date of acquisition. The preliminary allocation
resulted in goodwill totaling approximately $6,706,271. Goodwill was recorded at
its purchase price and is not being amortized. Pursuant to SFAS 142 ("Goodwill
and Other Intangible Assets") and SFAS 144 ("Accounting for the Impairment or
Disposal of Long-Lived Assets") the Company evaluates its goodwill for
impairment annually. Pro forma results of operations will be presented on a
Current Report on Form 8-K by amendment as required under Item 9.01 once the
audited Sovereign Partners, LLC financial statements are available.
Sovereign Preliminary Purchase Price Allocation
Consideration
Stock $ 5,705,000
Transaction costs 294,765
Minority Interest 4,750,672
Assumption of liabilities 43,003,203
------------
Adjusted Purchase Price 53,753,640
Allocation to Assets (47,047,369)
------------
Residual Value of Goodwill $ 6,706,271
============
Bylaws Amendment
In connection with the Acquisition Agreement, we amended our Bylaws to provide
that the provisions of Nevada Revised Statutes Sections 78.378 to 78.3793 do not
apply to the acquisition of our capital stock by Sovereign, its Members or its
affiliates in connection with the Acquisition Agreement. These sections would
have triggered compliance with certain take over measures that our Board of
Directors determined should not apply to this transaction.
Registration Rights Agreement
In addition, we entered into a Registration Rights Agreement with the Members
whereby we will undertake to prepare and file a registration statement on Form
SB-2 to register the common stock (and the common stock which may be issued upon
conversion of the Series B Preferred Stock) issued to the Members. Under the
terms of the Registration Rights Agreement, the registration statement is
required to be filed within seventy-five days of the Closing, and then within
seventy-five days of each subsequent issuance of common stock or Series B
Preferred Stock under the Acquisition Agreement. We must cause the registration
statement to become effective within 180 days of the filing of the registration
statement, or we must pay cash to the Members in the amount of 0.5% per month of
the fair market value of the common stock then held by the Members.
17
Management Agreement
In addition, we entered into a Management Agreement which will provide that Mr.
Ed Garneau, the current manager of Sovereign, will continue to serve as manager
of Sovereign and that the Members will continue to elect the manager of
Sovereign after the closing for a period of three years. The Management
Agreement also provides that while we may use Sovereign's cash on hand following
the closing, however, should there be an objection to such use, our Board of
Directors of shall determine whether the cash may be used for the our corporate
purposes.
Investors Rights Agreement; Voting Agreement Concerning our Board of Directors
In connection with the Acquisition Agreement, the Company, each member of our
Board of Directors, and each of the Members entered into an Investor Rights
Agreement. Pursuant to the Investor Rights Agreement, each of the parties agree
to take all steps necessary, including the exercise of their voting rights as a
shareholder of our Company, to ensure the Mr. Ed Garneau and one other person
selected by the Members, is elected to our Board of Directors and serves as a
Director until all of the shares of common stock issued to the Members have
either been registered and sold on an effective registration statement or are
eligible for resale under Rule 144 of the Securities Act of 1933. The Investor
Rights Agreement also provides that should certain events happen, each party to
the Investor Rights Agreement will take all steps necessary to increase the
number of Directors of our Company and grant the Members the right to fill all
such newly created Board of Director vacancies. In addition, the Investor Rights
Agreement provides for certain protective operating covenants that prohibit us
from taking certain extraordinary actions absent the prior consent of the
Members.
Newly Created Series B Convertible Preferred Stock; Redemption Obligations
In connection with the Acquisition Agreement, we have filed a Certificate of
Designation with the Secretary of the State of Nevada designating the Series B
Preferred Stock. The features of the Series B Preferred Stock include the right
on our part or the holders of the Preferred Stock to effect the conversion of
the Series B Preferred Stock to common stock from time to time when there is
sufficient authorized but unissued shares of common stock available for issuance
upon conversion.
The Series B Preferred Stock is convertible into common stock at the conversion
rate of 100 shares of common stock for each share of Series B Preferred Stock.
In the event we fail to increase the number of authorized shares of common stock
to a level sufficient to allow for the conversion of all of the Series B
Preferred Stock into common stock by June 30, 2006, we will be obligated, at the
request of the holders of the Series B Preferred Stock, to redeem the Series B
Preferred Stock at the then fair market value of the underlying common stock
into which the Series B Preferred Stock would otherwise be convertible. The
Preferred Stock designation also provides that the Series B Preferred Stock will
be senior to the common stock with respect to rights upon liquidation, winding
up or dissolution of the Company, but will be junior to our existing Series A
Convertible Preferred Stock. The holders of the Series B Preferred Stock will
vote together with the common stock as a single class on an as-converted to
common stock basis except for any matter that requires a separate class or
series vote.
Modifications to Existing Investment Agreements
In order to close the Acquisition Agreement, several shareholders and investors
in our Company granted their consent to the actions contemplated by the
Acquisition. In addition, certain of our outstanding investment agreements,
notes and warrants were modified and/or terminated.
Surrender and Exchange Agreement
In connection with the Acquisition, we restructured an investment arrangement
with Evergreen Venture Partners, LLC ("Evergreen"). Evergreen and the Company
had been parties to a certain Convertible Loan and Security Agreement dated as
of December 23, 2003 (the "Loan Agreement") pursuant to which we issued a
convertible promissory note to Evergreen in the principal amount of $600,000
(the "Old Note"). In addition, on September 19, 2003, we entered into a Letter
Agreement with Evergreen, pursuant to which we issued to Evergreen a warrant to
purchase 3,816,667 shares of common stock. The Company and Evergreen also were
parties to a certain Stock Purchase Agreement dated February 27, 2004 (the
"Stock Agreement"). Under the terms of the Stock Agreement, we issued 10,000,000
shares of common stock to Evergreen and a warrant to purchase 12,500,000 shares
of common stock. On or about April 23, 2004, the Company and Evergreen
terminated the Old Note issued under the Loan Agreement and the Company issued
5,000,000 shares of common stock to Evergreen and a warrant to purchase
10,000,000 shares of common stock.
18
Effective as of February 18, 2005, on the Closing of the Acquisition, the
Company and Evergreen entered into the Surrender and Exchange Agreement dated as
of January 31, 2005. Under the terms of the Surrender and Exchange Agreement
Evergreen surrendered 17,000,000 shares of common stock owned by it (the
"Surrendered Shares"). Evergreen also surrendered warrants to purchase
15,316,667 shares of common stock (the "Surrendered Warrants"). The Surrendered
Shares and the Surrendered Warrants have been canceled and are of no further
force or effect. In consideration of the Surrendered Shares and Surrendered
Warrants, we issued to Evergreen a new promissory note in the principal amount
of $750,000.00 (the "New Note"). The New Note provides for the lump sum payment
of the principal amount of the New Note on July 1, 2006. However, should the
trading price of our common stock be greater than $0.21 per share for a
consecutive thirty day period, the New Note shall terminate and we will have no
further obligation to Evergreen under the New Note.
Waiver, Consent, Surrender and Modification Agreement
In connection with the Acquisition, we entered into a Waiver, Consent, Surrender
and Modification Agreement with Crestview Capital Master Fund, LLC and certain
of Crestview's affiliated investment entities (collectively, "Crestview"). We
entered into a series of Purchase Agreements (the "Purchase Agreements") with
Crestview during the year 2004, whereby we issued Crestview (and certain other
participating investors) convertible notes (the "Crestview Debentures"),
warrants to purchase our common stock (the "Crestview Warrants") and shares of
our common stock.
Effective as of February 18, 2005, on the Closing of the Acquisition, the
Company and Crestview entered into the Waiver, Consent, Surrender and
Modification Agreement dated as of January 21, 2005. Under the terms of the
Agreement, Crestview surrendered warrants to purchase an aggregate of 31,626,372
shares of common stock (the "Surrendered Crestview Warrants"). In addition, the
Purchase Agreements between Crestview and the Company were terminated with
respect to the Surrendered Crestview Warrants, except for the registration
requirements of the Agreements with respect to any surviving shares or warrants
owned by Crestview. The Surrendered Crestview Warrants were canceled and are of
no further force or effect.
In addition, the conversion features of the Debentures were modified such that
the maximum number of shares issuable upon conversion of the Debentures is now
limited to 40,000,000 shares of our common stock. The payment terms of the
Debentures were also modified such that the principal amount of the Debentures,
approximately $2,250,000 plus accrued but unpaid interest shall be due and
payable on July 1, 2006. However, should the trading price of our common stock
be greater than $0.25 per share for a consecutive thirty-day period up to
$2,250,000 of the Debentures shall terminate and we shall have no further
obligation to Crestview under the Debentures.
Certain Relationships and Related Transactions
On December 20, 2004, Mr. Ed Garneau became a member of our Board of Directors.
On February 18, 2005, we closed on the acquisition of Sovereign Partners LLC
(the "Acquisition") (described above under "Recent Developments" under Part I,
Item 2 and Part II, Item 5 of this Quarterly Report). At the time the
Acquisition was negotiated, signed and closed, Mr. Garneau was both an indirect
shareholder and Director of our Company and the Manager of Sovereign Partners
LLC ("Sovereign"). Mr. Garneau's prior shareholdings in our Company are
described below. Mr. Garneau also owned direct and indirect economic interests
in Sovereign at and prior to the closing of the Acquisition, as described below.
Upon the closing of the Acquisition, Mr. Garneau assumed the title of Chief
Operating Officer of our Company and entered into an Employment Agreement with
us.
In connection with the Acquisition, we issued common stock and series B
preferred stock to the former members of Sovereign. On February 18, 2005 at the
closing of the Acquisition, 9,721,950 shares of common stock and 27,777 shares
of Series B preferred stock were issued by us to entities in which Mr. Garneau
has an economic interest. These entities were members of Sovereign as of the
closing of the Acquisition. Specifically, the common stock and preferred stock
were issued to, and are owned by, DD Family Properties LLC, a family owned LLC
of which Mr. Garneau owns a 21% interest and for which he serves as Manager. Mr.
Garneau exercises voting control over all of the common stock and preferred
stock owned by the LLC. Under the terms of the Acquisition described above
19
additional shares of common stock and preferred stock will be issued to the
former Sovereign members, including DD Family Properties LLC over the next
several years.
In 2004, we entered into an acquisition transaction whereby we acquired certain
assets of the "Sovereign Companies." As part of that transaction, we issued
2,854,167 shares of common stock on March 8, 2004 and 2,349,703 shares of common
stock on November 22, 2004 to five affiliated limited liability companies (the
owners of the Sovereign Company assets) over which Mr. Garneau served as Manager
as of those dates. Mr. Garneau continues to serve as Manager of those entities
and in his capacity as Manager, Mr. Garneau exercises voting control over the
5,203,870 common stock. The acquisition of the assets closed before Mr. Garneau
became a Director or officer of our Company.
In addition, 600,000 shares of common stock and warrants to purchase 200,000
shares of common stock were issued by us on November 22, 2004 as part of a
private placement transaction. All of the foregoing common stock and warrants to
purchase common stock were acquired by, and are owned by, September Serenade
Ltd., a family owned partnership of which Mr. Garneau serves as a general
partner. He shares voting control over the stock with his wife. Each of Mr.
Garneau and his wife own a 0.05% interest in the partnership. The private
placement and the sale of the stock and warrants closed before Mr. Garneau
became a Director or officer of our Company.
Additionally, in connection with the acquisition of Sovereign, we assumed
certain of the obligations of Sovereign, including certain debt owed to
individuals and/or entities that are considered to be related parties for SEC
reporting purposes. The following table sets forth the individual amounts
totaling $4,783,283 due to these individuals and entities:
Name and Relationship Amount Interest Due
Rate Date
Jeffrey Fiebig, Director and Shareholder $ 104,000 16% Dec `05
AEJM Enterprises, Limited Partnership, (1) 700,000 10% Oct `05
Thunderbird Management Limited Partnership, Shareholder 800,000 10% Aug `06
Thunderbird Management Limited Partnership, Shareholder 702,682 12% None
Bob Searls, Shareholder (2) 819,691 6% May `33
Investors and/or Partners in Sovereign Partners as group 1,655,910 4-12% Oct `05 -
---------
May `34
Total $ 4,783,283
(1) The general partner of the partnership is a shareholder of the
Company
(2) Mr. Searls is also the general partner of a partnership that is
a shareholder of the Company
Segment Information
We have two reportable segments; communications services and real estate
activities. Communications services include individual, voice, video and data
services as well as various combinations of bundled packages of these
communications services. Real estate activities includes sales of residential
single family units, rental from commercial properties and fees from mortgage
operations.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Our business is conducted through
separate legal entities. Each entity is managed separately as each business has
a distinct customer base and requires different strategic and marketing efforts.
The following table reflects the income statement and balance sheet information
for each of the reporting segments:
Real Estate Communications Total
Revenue $ 2,232,491 $ 2,628,150 $ 4,860,642
Net Income (Loss) 377,813 (1,638,416) (1,260,604)
Interest Expense 73,273 85,425 158,698
Depreciation and Amortization 36,811 302,065 338,876
Assets 48,876,367 12,162,194 61,038,561
20
Current Sovereign Projects
Mountain View at West T-Bone Ranch, Greeley, CO
Mountain View at West T-Bone Ranch is a 21 acre multi-dwelling unit
development located in southwest Greeley, Colorado with onsite amenities
including a clubhouse with pool, hot tub, and fitness room. The completed
project will have 216 units consisting of two-story flats with detached
garages, along with 7-unit and 4-unit town homes with attached garages. 75
units have been sold to date with an average sale price of $133,694.
The Renaissance at Fox Hill, Greeley, CO
The Renaissance at Fox Hill is a 13 acre multi-dwelling unit development
located in Greeley, Colorado. The completed project will contain 110
dwelling units consisting of two story stacked flats/carriage units with
direct access garages and 4-unit town homes with attached garages. 40
units have been sold to date with an average sale price of $177,543.
Colony Ridge Condominiums, (Settler's Chase) Thornton, CO
The Colony Ridge Condominiums are a mix of 4 three-story stacked flats
over one level of underground parking with elevators, and 98 town
home-style residences (platted as condominiums) on a 7.24 acre parcel in
the City of Thornton, Colorado. Colony Ridge at Settler's Chase is the
final phase in the master planned community of Settler's Chase, located
near the intersection of 104th Avenue and Steele Street in Thornton,
Colorado. 21 units have been sold to date with an average sale price of
$180,219.
SR Condominiums, Parker, CO
The SR Condominiums are a mix of two and three story stacked flats with
detached garages marketed as Hunter's Chase Condominiums in Parker,
Colorado. The completed project will include 188 dwelling units situated
on a 13 acre parcel located at the corner of Stroh Road and Motsenbacker
Road in Parker, and includes a clubhouse featuring an outdoor swimming
pool and spa. 13 units have been sold to date with an average sale price
of $155,067.
Millstone at Clear Creek, Golden, CO
The Millstone at Clear Creek consists of three four-story condominium
buildings each with a ground level parking structure located on
approximately 1.7 acre parcel in Golden, Colorado. The completed project
will have 78 dwelling units and is located on 12th street between
Washington Street and Ford Street adjacent to Clear Creek. 25 units have
been put under reservation to date with an average sale price of $326,923.
Pumpkin Ridge, Greeley, CO
The Pumpkin Ridge development consists of 78 lots in the Pumpkin Ridge
subdivision located in west Greeley, Colorado. The plan is build single
and two-story single family detached residences on each of the lots. 3
units have been sold to date with an average sale price of $286,179.
Settler's Commercial Development, Thornton, CO
Settler's Commercial Development is the commercial/retail component of a
master planned community. This 3.8 acre parcel is the final piece of the
Settler's Chase subdivision to be developed and is located on the
southeast corner of East 104th Avenue and Steele Street, Thornton,
Colorado with a current zoning designation of Neighborhood Service. David
Hicks brokerage has secured a lease with 3 Margaritas Restaurant to anchor
the site and is in negotiations with other tenants.
21
Parker Commercial, Parker, CO
Parker Commercial consists of 18.5 undeveloped commercial acres located
within the downtown core of the Town of Parker, Colorado, and is situated
between Twenty Mile Road and Dransfeldt Road. This property is currently
on the market for approximately $3.5 million.
Going Concern
Our auditor stated in its report on our financial statements for the period
ended December 31, 2004 that we have experienced recurring losses and, as a
result, there exists substantial doubt about our ability to continue as a going
concern. For the three months ended March 31, 2005, we incurred a net loss of $
1,260,604 . As of March 31, 2005, USURF had an accumulated deficit of $
62,425,299 . 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
entitled "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 31,2004 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.
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
Three Months Ended March 31, 2005 And 2004
Revenues
For the three months ended March 31, 2005 and 2004, USURF had revenue of $
4,860,642 and $ 166,230 , respectively, an increase of $ 4,694,412 . This
increase is primarily due to the acquisitions of Connect Paging, Inc. d/b/a
Get-A-Phone in April 2004 and the acquisition of Sovereign Partners, LLC. During
the three months ended March 31, 2005, USURF's revenues were derived primarily
from the sale of telecommunication services, internet access services,
telecommunications-related hardware and services, satellite-based CATV access
services, residential units, rental from commercial properties, fees from
mortgage operations and construction management services. These revenues are
recognized and recorded as services are performed and properties are sold or
rented.
Operating Expenses
For the three months ended March 31, 2005 and 2004, operating expenses were $
3,261,560 and $ 1,965,581 , respectively. During the three months ended March
31, 2005, operating expenses consisted primarily of professional and consulting
fees of $ 993,331 , of which $538,981 was paid in stock, salaries and
commissions of $ 881,452 , and other general and administrative expenses of $
1,047,901 consisting primarily of bad debt related to Get-A-Phone accounts
receivable of $ 262,409 , software expense of $ 119,112 and Long Distance
Telephone expense of $ 74,078 .
22
Net loss
For the three months ended March 31, 2005, we had a net loss of $ 1,260,604 or
$0.0058 per share. In the comparable period of the prior year, we had a net loss
of $ 2,560,835 , or $0.0200 per share.
Liquidity
Currently, we believe we have sufficient working capital, cash on hand and cash
to be generated from operations to continue current business operations through
December 31, 2005. For the three months ended March 31, 2005 we used $ 1,242,919
cash in operations and at March 31, 2005 we had cash on hand of $ 1,326,735 .
We anticipate that any additional capital needs will be met through financing
transactions. We may 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.
Cash Used in Operating Activities
During the three months ended March 31, 2005, our operations used cash of $
1,242,919 compared to $ 1,031,551 used during the same period in 2004. In each
period reported, the use of cash was a direct result of the lack of revenues
compared to operating expenses. During the three months ended March 31, 2005, $
186,380 of accreted interest expense was recorded in relation to our notes
payable with beneficial conversion features; during the same period in 2004 we
incurred accreted interest expense of $ 607,733 .
Cash Used in Investing Activities
During the three months ended March 31, 2005, 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 generated $ 957,505 compared to using $ 646,330 for the same period in
2004.
Cash Provided by Financing Activities
During the three months ended March 31, 2005, the total value provided by our
financing activities was $ 881,777 compared to a value of $ 4,055,000 provided
during the same period in 2004. Further detail of our financing activities is
provided in Notes to Consolidated Financial Statements, Note 4.
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.
Factors Affecting our Business and Prospects
There are many factors that affect our business and the results of our
operations, some of which are beyond our control. These factors include:
o we have a limited operating history with significant losses;
o the market price of our common stock is very volatile and the value
of your investment may be subject to sudden decreases;
o a low market price may severely limit the potential market for our
common stock, and
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o our is categorized as a "penny stock."
For a discussion of these and other factors affecting our business and
prospects, see "Item 1. - Description of Business--Risk Factors Concerning Us
and Our Common Stock" in our Annual Report on Form 10-KSB for the year ended
December 31, 2004. In addition, the following factors may affect our business,
the results of our operations and the market price of our securities:
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXPRESSED IN THEIR AUDIT
REPORT RELATED TO OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004,
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
In their opinion on our financial statements for the year ended December 31,
2004, our independent auditor, AJ. Robbins PC 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
March 31, 2004, we had an accumulated deficit of $ 62,425,299 . Our gross
revenues for the quarters ended March 31, 2005 and 2004, were $ 4,860,642 and $
166,230 with losses from operations of $ 786,619 and $ 1,936,999 and net losses
of $ 1,260,604 and $ 2,560,835 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. WE MAY NOT ACHIEVE THE RESULTS WE ANTICIPATE AND DESIRE FROM
OUR ACQUISITION OF THE SOVEREIGN COMPANIES
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,
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o assumption of known or unknown liabilities or other unanticipated
events or circumstances,
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.
On February 18, 2005 we acquired Sovereign Partners, LLC which we now own and
operate as a subsidiary in the residential and planned community (real estate
and communications infrastructure) development industry. In connection with the
acquisition, we issued common stock and newly created Series B preferred stock.
That issuance was dilutive to our shareholders. We are obligated to issue more
shares of preferred stock, which is convertible to common stock on a hundred for
one basis, under the terms of the acquisition agreement with Sovereign. All such
issuances will be dilutive to our shareholders. In addition, the preferred stock
we are issuing is senior to the rights of our common stock holders upon
liquidation. If we are unable to assimilate Sovereign's management and
operations, or if we incur unforeseen liabilities, or if the operations of
Sovereign do not continue to grow or if they diminish, we will not obtain
recognizable benefits from the acquisition and our shareholders will have
suffered material dilution.
WE HAVE SENIOR SECURED CONVERTIBLE DEBENTURES TOTALING $4,250,000 DUE IN 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 $4,250,000
in senior secured debentures, convertible into common stock. If not converted,
the debentures are due on July 1, 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.
In March 2005 the terms of the agreements were modified such that a maximum of
40,000,000 shares are to be issued upon conversion of the debentures. If our
common share price exceeds $0.25 per share for 30 consecutive days, payment of
debentures totaling $2,250,000 shall be forgiven by the debenture holders.
WE HAVE A NOTE PAYABLE TO EVERGREEN VENTURE PARTNERS, LLC DUE IN 2006. WE
CURRENTLY DO NOT HAVE THE FUNDS AVAILABLE TO PAY THIS NOTE WHEN DUE.
In March 2005 we entered into an agreement with Evergreen Venture Partners, LLC
to purchase 17,000,000 unregistered shares of our common stock for a $750,000
note payable. The terms of the agreement call for payment of the note plus
accrued interest on July 1, 2006, provided however, if our common share price
exceeds $0.21 per share for 30 consecutive days, payment of the note shall be
forgiven.
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 affect 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.
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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 stock 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.
In February 2005, we issued 35,000,000 shares of our common stock and 100,000
shares of our newly created Series B Convertible Preferred Stock in the
acquisition of the Sovereign Partners LLC. The Series B Preferred Stock is
convertible into our common stock at a conversion rate of one hundred (100)
shares of common stock for each one (1) share of Series B Preferred Stock, in
accordance with the Certificate of Designation. The Series B Preferred Stock has
a liquidation preference ahead of the common stock 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 our Board of Directors. We have the ability
to issue an additional 2,900,000 shares of Series B Preferred Stock without
shareholder approval.
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 March 31, 2005, we had 165,567,853 shares of common stock
available for issue. 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.
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 $0.03 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 report, there are 122,999,022 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.
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SOVEREIGN PARTNERS, LLC IS ROUTINELY INVOLVED IN LITIGATION MATTERS ARISING FROM
ACCIDENTS AND WARRANTY RELATED CLAIMS; ALTHOUGH WE STRIVE TO KEEP THE LITIGATION
COSTS AND PAYMENTS IF ANY, TO A MINIMUM, AND WE MAINTAIN LIABILITY INSURANCE, WE
CANNOT BE ASSURED THAT LITIGATION WILL NOT HAVE AN ADVERSE IMPACT ON THE
OPERATIONS AND FINANCIAL PERFORMANCE OF THE COMPANY TAKEN AS A WHOLE.
Sovereign Partners, LLC, a wholly owned subsidiary of the Company, (Sovereign)
performs residential and commercial construction activities directly and through
sub-contractors. Such activities frequently give rise to warranty claims and
personal injury claims against Sovereign and other job contractors. Although
Sovereign has procedures in place to assist in the prevention of such claims,
litigation arising from accidents and warranty issues are an inevitable part of
the business. While Sovereign maintains insurance for such claims in reasonable
amounts to protect it from losses, we cannot predict if any pending or future
claims will have an adverse impact on our financial condition and results of
operations. Also, we cannot be certain that liability insurance will be continue
to be available to Sovereign on terms acceptable to Sovereign, if at all. Loss
of Sovereign's liability insurance could have an adverse impact on our financial
condition and results of operations.
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.
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.
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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.
ITEM 3. CONTROLS AND PROCEDURES
As of March 31, 2005, we carried out an evaluation, under the supervision and
with the participation of our Chief Executive Officer and Principal Financial
Officer of the effectiveness of the design and operation of our disclosure
controls and procedures. Our disclosure controls and procedures are designed to
ensure that information required to be disclosed in our reports filed under the
Securities Act of 1934 is recorded, processed, summarized, and reported within
the time periods specified in the SEC's rules and forms. Based on this
evaluation, our Chief Executive Officer and Principal Financial Officer have
concluded that our controls and procedures are effective in timely alerting them
to material financial information required to be disclosed and included in our
periodic SEC filings. There has been no change in our internal control over
financial reporting that occurred during the quarter ended March 31, 2005 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of our financial reporting and preparation of financial statements for external
reporting purposes in accordance with generally accepted accounting principles.
This quarterly report could not be filed when due because we were unable to
timely provide our independent auditor with all requested documents to complete
its review of the unaudited financial statements to be included in the Form
10-QSB.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. To date, there has been no activity in the case
involving USURF Telecom, nor has the plaintiff directed any attention to USURF
Telecom beyond the original filing of the lawsuit. Company 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.
Sovereign Homes, LLC, et al, (various affiliates of Sovereign Partners, LLC, a
wholly-owned subsidiary of the Company) are defendants in a personal injury
proceeding known as Gumaro Gomez v. Sovereign Homes, LLC, et al. pending in the
Colorado Court of Appeals. The case involves claims for personal injuries
allegedly sustained while performing work at a development site for one of the
defendants' sub-contractors. The plaintiff asserts damages between $800,000 and
$1,500,000. The defendants deny direct liability for the injury or the damages,
and assert that all costs are covered by adequate insurance maintained by Terra
Firma (a co-employer) and its insurance company Zurich American Insurance
Company. There have been several court proceedings and appeals, but the final
resolution of the case is not imminent. The defendants will continue to
vigorously defend the action, but the Company and the defendants cannot control
the outcome and the extent of the losses, if any, that may be incurred.
Sovereign Companies, LLC (an affiliate of Sovereign Partners, LLC, a
wholly-owned subsidiary of the Company), is a defendant in a case entitled,
Sovereign Bank v. Sovereign Companies, LLC, pending at the United States Patent
and Trademark Office (Cancellation No. 92043948). The petitioner seeks to
prevent Sovereign Companies, LLC from using the name "Sovereign Mortgage." A
tentative settlement has been reached whereby Sovereign Partners LLC would be
able to continue using the name "Sovereign" in connection with certain home and
realty products and services.
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SR Condominiums, LLC (an affiliate of Sovereign Partners, LLC, a wholly-owned
subsidiary of the Company), has been notified that one of its sub-contractors
and its supplier have filed mechanics liens on a project known as "Hunter's
Chase Condominiums" in Arapahoe County, Colorado. The sub-contractor and the
supplier each assert that there is money owed to them by SR Condominiums in the
aggregate amount of $163,000. If the status of the liens and claims are not
resolved, the assets under the liens will be subject to foreclosure. Neither
entity has filed a complaint against SR Condominiums. SR Condominiums intends to
vigorously defend the potential claims, but cannot control the outcome or any
losses that may be incurred. The Company does not believe that the outcome of
this matter, even if adverse, would be material to the Company's operations and
financial results as a whole.
Sovereign Companies, LLC, Mountain View, at T-Bone, LLC ("Mountain View"), and
Mr. Edouard A. Garneau have filed a declaratory relief action against certain
members of Mountain View seeking a determination of the various rights and
obligations of the members. The action is titled Sovereign Companies, LLC;
Mountain View at T-Bone, LLC, et al. v. Yale King, et al., pending in Larimer
County District Court in Colorado. The declaratory relief action seeks to
clarify the roles and responsibilities of certain members and the operational
authority of the individual managers of Mountain View. Mr. Garneau is a member
of the Company's Board of Directors and indirectly owns and controls shares of
the Company's common stock and preferred stock.
In a related action, Sovereign Companies, LLC ("Sovereign") and Mr. Edouard A.
Garneau ("Garneau") in his capacity as Manager of Sovereign and Mountain View at
T-Bone, LLC ("Mountain View"), have been named in a lawsuit brought by several
individual members of Mountain View claiming unspecified damages for breach of
contract by Sovereign and Garneau, and for other causes of action against
Garneau individually, seeking unspecified damages. The suit is entitled Yale
King, et al, v. Sovereign Companies LLC and Edouard A. Garneau, pending in the
Weld County District Court in Colorado. Garneau is a member of the Company's
Board of Directors and indirectly owns and controls shares of the Company's
common stock and preferred stock. Sovereign disputes the allegations and intends
to vigorously defend the action. However, the Company and the defendants cannot
control the outcome and the extent of the losses, if any, that may be incurred.
Foxhill Development, LLC, (an affiliated single purpose development entity of
Sovereign Partners, LLC, a wholly-owned subsidiary of the Company) is a vendor
to the debtor in a case known as In re On Site Production, Inc. pending in the
U.S. Bankruptcy Court for the District of Colorado. Prior to the bankruptcy
proceeding of On Site Productions, it attempted to collect $103,687 for amounts
it alleged was owed by Foxhill Development, LLC ("Foxhill") to it for materials
supplied to a project site. Foxhill has consistently denied that such amount is
owed by it. Foxhill will continue to vigorously defend this action. However, the
Company cannot control the outcome and the extent of the losses, if any, that
may be incurred.
Rocky Mountain Panel, LLC (a dissolved wholly-owned subsidiary of Sovereign
Partners, LLC, a wholly-owned subsidiary of the Company), is a defendant in a
lawsuit known as Baker Commons HOA v. Nicholas Construction, Inc. pending in the
District Court, Denver County. The framing division of Rocky Mountain Panel,
LLC, performed as a framing subcontractor to Nicholas Construction, Inc., at the
Baker Commons development site in Denver, Colorado. The Baker Commons homeowners
have filed a lawsuit alleging, among other things, defective construction
against Nicholas Construction, Inc. for unspecified damages. Rocky Mountain
Panel, LLC is represented by insurance counsel under a reservation of rights by
the insurance carrier. At this time it is impossible to estimate the dollar
amount of this potential claim. Rocky Mountain Panel, LLC and the Company intend
to vigorously defend this action, however, the Company cannot control the
outcome and the extent of the losses, if any, that may be incurred.
Rocky Mountain Panel, LLC (a dissolved wholly-owned subsidiary of Sovereign
Partners, LLC, a wholly-owned subsidiary of the Company) is a subcontractor to a
general contractor named in a lawsuit known as Carlyle Park HOA v. Trimark
Communities/D.R. Horton Inc., et al. pending in the District Court, Arapahoe
County, Colorado. The framing division of Rocky Mountain Panel, LLC, performed
as a framing subcontractor to Trimark Communities/D.R. Horton Inc. at the
Carlyle Park residential project in Highlands Ranch, Colorado. Rocky Mountain
Panel was contracted to perform "finish" framing after another framing
29
subcontractor performed at the project. The Carlyle Park homeowners have filed a
lawsuit against Trimark Communities/D.R. Horton Inc., alleging certain defects
in workmanship at the project, including framing. Rocky Mountain Panel has been
invited by the general contractor to participate in a global mediation among all
of the companies who worked on the project. In coordination with its insurance
carrier, who is actively investigating the matter under a reservation of rights,
Rocky Mountain Panel has thus far declined to participate in the mediation
process. At this time it is impossible to estimate the dollar amount of this
potential claim, as Rocky Mountain Panel has not been joined in the lawsuit.
Should Rocky Mountain Panel, LLC, become involved in the lawsuit, the Company
intends to vigorously defend this action. However, the Company cannot control
the outcome and the extent of the losses, if any, that may be incurred.
King Concrete, LLC (a dissolved wholly-owned subsidiary of Sovereign Companies,
LLC, a wholly-owned subsidiary of the Company), is a defendant in a proceeding
known as ABCO Development Corporation v. Systems Contractors, Inc., pending in
the Superior Court for the County of Los Angeles, California. The lawsuit
alleges defective construction claims with respect to certain concrete
components performed by King Concrete at a project site in Lakewood, Colorado,
and seeks unspecified damages. King Concrete disputes these allegations and is
represented by insurance counsel in the matter under a reservation of rights.
King Concrete and the Company intend to vigorously defend this action, however,
the Company cannot control the outcome and the extent of the losses, if any,
that may be incurred.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
1. (a) Securities Issued. In February 2005, 9,721,950 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to DD Family Properties, LLC.
(c) Consideration. Such shares 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 the Company.
2. (a) Securities Issued. In February 2005, 27,777 shares of the Company's
series B convertible preferred s tock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to DD Family Properties, LLC.
(c) Consideration. Such shares 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 the Company.
3. (a) Securities Issued. In February 2005, 3,332,700 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Thunderbird Management Limited Partnership.
(c) Consideration. Such shares 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 the Company.
4. (a) Securities Issued. In February 2005, 9,522 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Thunderbird Management Limited Partnership.
30
(c) Consideration. Such shares 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 the Company.
5. (a) Securities Issued. In February 2005, 3,747,800 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Searls Family, LLLP.
(c) Consideration. Such shares 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 the Company.
6. (a) Securities Issued. In February 2005, 10,708 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Searls Family, LLLP.
(c) Consideration. Such shares 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 the Company.
7. (a) Securities Issued. In February 2005, 3,123,400 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Krantz Family, LLLP.
(c) Consideration. Such shares 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 the Company.
8. (a) Securities Issued. In February 2005, 8,924 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Krantz Family, LLLP.
(c) Consideration. Such shares 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 the Company.
9. (a) Securities Issued. In February 2005, 2,998,450 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Dolphin Bay, LLC.
(c) Consideration. Such shares were issued pursuant to a stock purchase
agreement.
31
(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 the Company.
10. (a) Securities Issued. In February 2005, 8,567 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Dolphin Bay, LLC.
(c) Consideration. Such shares 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 the Company.
11. (a) Securities Issued. In February 2005, 993,300 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to New Opportunities, LLC.
(c) Consideration. Such shares 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 the Company.
12. (a) Securities Issued. In February 2005, 2,838 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to New Opportunities, LLC.
(c) Consideration. Such shares 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 the Company.
13. (a) Securities Issued. In February 2005, 7,923,650 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Kenneth Miller.
(c) Consideration. Such shares 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 the Company.
14. (a) Securities Issued. In February 2005, 22,639 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Kenneth Miller.
(c) Consideration. Such shares 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 the Company.
32
15. (a) Securities Issued. In February 2005, 470,750 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Jeffery Schetgen.
(c) Consideration. Such shares 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 the Company.
16. (a) Securities Issued. In February 2005, 1,345 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Jeffery Schetgen.
(c) Consideration. Such shares 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 the Company.
17. (a) Securities Issued. In February 2005, 875,000 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Thomas Beck.
(c) Consideration. Such shares 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 the Company.
18. (a) Securities Issued. In February 2005, 2,500 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Thomas Beck.
(c) Consideration. Such shares 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 the Company.
19. (a) Securities Issued. In February 2005, 875,000 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Brent E. Couch.
(c) Consideration. Such shares 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 the Company.
20. (a) Securities Issued. In February 2005, 2,500 shares of the Company's
series B convertible preferred stock were issued.
33
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Brent E. Couch.
(c) Consideration. Such shares 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 the Company.
21. (a) Securities Issued. In February 2005, 350,000 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Jeffrey W. Fiebig.
(c) Consideration. Such shares 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 the Company.
22. (a) Securities Issued. In February 2005, 1,000 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Jeffrey W. Fiebig.
(c) Consideration. Such shares 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 the Company.
23. (a) Securities Issued. In February 2005, 350,000 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Craig A. Cook.
(c) Consideration. Such shares 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 the Company.
24. (a) Securities Issued. In February 2005, 1,000 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Craig A. Cook.
(c) Consideration. Such shares 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 the Company.
25. (a) Securities Issued. In February 2005, 119,000 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Curt A. Bushman.
(c) Consideration. Such shares were issued pursuant to a stock purchase
agreement.
34
(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 the Company.
26. (a) Securities Issued. In February 2005, 340 shares of the Company's
series B convertible preferred stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Curt A. Bushman.
(c) Consideration. Such shares 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 the Company.
27. (a) Securities Issued. In February 2005, 119,000 shares of the Company's
common stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Michael P. Petrusich.
(c) Consideration. Such shares 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 the Company.
28. (a) Securities Issued. In February 2005, 340 shares of the Company's
Series B convertible Preferred Stock were issued.
(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued
to Michael P. Petrusich.
(c) Consideration. Such shares 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 the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Securities Purchase Agreement
On February 18, 2005, we acquired 100% of the membership interests of Sovereign
from its Members in exchange for the issuance of shares of our common stock and
shares of our newly created Series B Convertible Preferred Stock, $0.0001 par
value per share (the "Preferred Stock"). As a result of the Acquisition,
Sovereign is now owned and operated as a wholly owned subsidiary of our Company.
35
Sovereign operations include real estate development and the related
communications infrastructure for residential, multiple dwelling unit
(apartment) and planned community developments ("developments"). See "Sovereign
Acquisition" included in Item 2. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations above for a detail description of
the transaction and information related to the purchase.
Bylaws Amendments
In connection with the Acquisition Agreement, we amended our Bylaws to provide
that the provisions of Nevada Revised Statutes Sections 78.378 to 78.3793 do not
apply to the acquisition of our capital stock by Sovereign, its Members or its
affiliates in connection with the Acquisition Agreement. These sections would
have triggered compliance with certain take over measures that our Board of
Directors determined should not apply to this transaction.
In addition, on April 20, 2005, we amended our Bylaws to provide that vacancies
on the Board of Directors may be filled by a majority vote of the remaining
Directors, and that such newly appointment Director shall serve out the term of
his or her predecessor and if no such term is designated, until the next annual
meeting of shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NO. DESCRIPTION
(1) 3.1 Articles of Incorporation of Registrant.
# 3.2 Bylaws of Registrant, as amended April 20, 2005.
(3) 3.5 Articles of Amendment to Articles of Incorporation of
Registrant.
(4) 3.6 Articles of Amendment to Articles of Incorporation of
Registrant.
(8) 3.7 Certificate of Designation of Series A Convertible
Preferred Stock.
(6) 3.8 Certificate of Designation of Series B Convertible
Preferred Stock.
(2) 4.1 Specimen Common Stock Certificate.
(10) 4.2 Specimen Series A Preferred Stock Certificate.
(10) 4.3 Specimen Series B Preferred Stock Certificate.
(5) 10.1 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.
(6) 10.2 Securities Purchase Agreement dated as of January 26
2005 by and among Usurf America, Inc., Sovereign
Partners, LLC and each of the members of Sovereign
listed on the signature pages thereto.
36
(6) 10.3 Registration Rights Agreement dated as of February 18,
2005 by and among Usurf America, Inc., Sovereign
Partners, LLC and each of the Members of Sovereign
listed on the signature pages thereto.
(6) 10.4 Management Agreement dated as of February 18, 2005 by
and among Usurf America, Inc. and each of the Members of
Sovereign listed on the signature pages thereto.
(6) 10.5 Investor Rights Agreement dated as of February 18, 2005
by and among Usurf America, Inc., each member of its
Board of Directors, and each of the Members of Sovereign
listed on the signature pages thereto.
(6) 10.6 Employment Agreement dated as of February 18, 2005 by
and between Usurf America, Inc. and Mr. Ed Garneau.
(6) 10.7 Surrender and Exchange Agreement dated as of January 31,
2005 by and between Usurf America, Inc. and Evergreen
Venture Partners, LLC.
(6) 10.8 Promissory Note in the Principal Amount of $750,000.
(6) 10.9 Waiver, Consent, Surrender and Modification Agreement
dated as of January 21, 2005 by and between Usurf
America, Inc. and Crestview Capital Master Fund LLC.
(7) 10.10 Subscription Agreement dated October 29, 2004, by and
between Usurf America, Inc., Mercator Momentum Fund, LP,
Mercator Momentum Fund III, LP, Monarch Point Fund, Ltd
and Mercator Advisory Group.
(7) 10.11 Warrant to Purchase Common Stock issued to Mercator
Advisory Fund, Ltd.
(7) 10.12 Warrant to Purchase Common Stock issued to Monarch Point
Fund, Ltd.
EXHIBIT NO. DESCRIPTION
(7) 10.13 Registration Rights Agreement, dated October 29, 2004,
by and between Usurf America, Inc., Mercator Momentum
Fund, LP, Mercator Momentum Fund III, LP, Monarch Point
Fund, Ltd and Mercator Advisory Group.
(8) 10.14 Asset Purchase Agreement Dated February 6, 2004 by and
between Usurf America, Inc. and SunWest Communication,
Inc.
(9) 10.15 Agreement and Plan of Reorganization between Usurf
America, Inc. and UTEL, Inc. and SunWest Communications,
Inc. effective February 5, 2004.
(10) 10.16 Colorado Office Lease Agreement.
37
(10) 10.17 Texas Office Lease Agreement.
# 21.1 Subsidiaries of Registrant.
# 31.1 Certification pursuant to rules 13A-14 and 15D-14 of the
Securities Exchange Act of 1934 of President and CEO.
# 31.2 Certification pursuant to rules 13A-14 and 15D-14 of the
Securities Exchange Act of 1934 of Principal Accounting
Officer.
# 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350 AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 of CEO and Principal Accounting Officer.
(1) Incorporated by reference from Registrant's Registration Statement on
Form S-1, Commission File No. 333-26385.
(2) Incorporated by reference from Registrant's Registration Statement on
Form S-1, Commission File No. 333-96027.
(3) Incorporated by reference from Registrant's Current Report on Form 8-K
filed with the SEC on July 29, 1998.
(4) Incorporated by reference from Registrant's Current Report on Form 8-K
filed with the SEC on July 13, 1999.
(5) Incorporated by reference from Registrant's Current Report on Form 8-K
filed with the SEC on May 5, 2004.
(6) Incorporated by reference from Registrant's Current Report on Form 8-K
filed with the SEC on February 22, 2005
(7) Incorporated by reference from Registrant's Current Report on Form 8-K
filed with the SEC on November 4, 2004
(8) Incorporated by reference from Registrant's Current Report on Form 8-K
filed with the SEC on February 20, 2004
(9) Incorporated by reference from Registrant's Current Report on Form 8-K
filed with the SEC on April 21, 2004
(10) Incorporated by reference from Registrant's Annual Report on Form
10-KSB filed with the SEC on March 31, 2005 and amended on April 6, 2005
# Filed Herewith
38
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Date: June 3, 2005 USURF AMERICA, INC.
By: /S/ David A. Weisman
-----------------------------
David A. Weisman
Chief Executive Officer
39