As filed with the Securities and Exchange Commission on April 30, 2001.
Registration No.333-96027
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-effective Amendment No. 5
FORM S-1/A
Registration Statement
under
The Securities Act of 1933
USURF America, Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 7375
72-1346591
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER)
IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
8748 Quarters Lake Road, Baton Rouge, Louisiana 70809
(225) 922-7744
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
David M. Loflin, President
USURF America, Inc.
8748 Quarters Lake Road, Baton Rouge, Louisiana 70809
(225) 922-7744
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copies to:
Eric Newlan, Esq.
NEWLAN & NEWLAN
819 Office Park Circle
Lewisville, Texas 75057
Approximate date of commencement of proposed sale to public: As soon as
practicable
after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the
following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to
Rule 462(b) under the Securities Act, please check the following box and
list the
Securities Act registration number of the earlier effective registration
statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the
Securities Act, check the following box and list the Securities Act
registration
statement number of the earlier effective registration statement for the same
offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please
check the following box: [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
Title
of each Proposed Proposed
class of maximum maximum Amount
securities Amount offering aggregate of regi-
to be to be price per offering stration
registered registered(1) unit price fee
----------- ------------- --------- --------- --------
Common Stock 2,000,000 shares(3) $8.6875(2) $17,375,000 $4,587.00(16)
$.0001 par 462,607 shares(3) $8.6875(2) $ 4,018,898 1,060.99(16)
value per 68,810 shares(3) $1.25(4) $ 86,012 22.71(16)
share 56,667 shares(3) $1.50(5) $ 85,000 22.41(16)
60,000 shares(3) $3.50(6) $ 210,000 55.44(16)
50,000 shares(3) $6.00(7) $ 300,000 79.20(16)
90,000 shares(3) $7.00(8) $ 630,000 166.32(16)
92,500 shares(3) $8.25(9) $ 763,125 201.46(16)
225,000 shares(3) $4.00(10) $ 900,000 237.60(16)
60,000 shares(3) $7.50(11) $ 450,000 118.80(16)
1,807,280 shares(3) $ .5625(12)$ 1,016,595 268.38(16)
380,000 shares(3) $ .20(13) $ 76,000 20.06(16)
1,176,000 shares(3) $ .15(14) $ 176,400 46.46(16)
700,000 shares(3) $ .25(15) $ 175,000 46.20(16)
Total 7,228,864 shares $26,262,030 $6,933.03(16)
-----------------
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended,
this Registration Statement covers such additional indeterminate shares of
Common Stock as may be issued by reason of adjustments in the number of
shares of Common Stock pursuant to anti-dilution provisions contained in
various Common Stock Purchase Warrants. Because such additional shares of
Common Stock will, if issued, be issued for no additional consideration, no
registration fee is required.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee on the basis of the average of the bid and
ask prices reported on the American Stock Exchange on January 25, 2000,
$8.6875 per share.
(3) To be offered and sold by selling shareholders.
(4) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$1.25 per share.
(5) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$1.50 per share.
(6) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$3.50 per share.
(7) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$6.00 per share.
(8) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$7.00 per share.
(9) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee on the basis of the average of the bid and
ask prices reported on the American Stock Exchange on February 18, 2000,
$8.25 per share.
(10) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee on the basis of the closing price reported
on the American Stock Exchange on April 25, 2000, $4.00 per share.
(11) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$7.50 per share.
(12) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the registration fee on the basis of the closing price reported
on the American Stock Exchange on January 22, 2001, $.5625 per share.
(13) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$.20 per share.
(14) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$.15 per share.
(15) Shares issuable upon exercise of common stock purchase warrants.
Pursuant to Rule 457(g) the fee is based upon the Warrant exercise price of
$.25 per share.
(16) Paid previously.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file
a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
SEC. These securities may not be sold nor may offers to buy be accepted
prior to the time the Registration Statement becomes effective. This
Prospectus shall not constitute an offer to sell or the solicitation of an
offer to sell or an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
PROSPECTUS SUBJECT TO COMPLETION, DATED
APRIL 26, 2001
Up to 7,228,864 Shares
USURF America, Inc.
Common Stock
$.0001 par value
This prospectus relates to 7,228,864 shares our common stock offered for
sale by persons other than USURF America. These persons are referred to as
the selling shareholders. 4,587,387 of these shares have been issued by
us, and 2,641,477 of these shares will be issued by us upon exercise of
common stock purchase warrants. This prospectus relates to the offer and
sale, from time to time, of shares of stock by the selling shareholders.
We will receive none of the proceeds from sales of stock by the selling
shareholders. We are paying nearly all of the expenses of this offering.
Normal broker fees and any applicable transfer taxes will be paid by the
selling shareholders.
Our common stock is traded on the American Stock Exchange under the symbol
"UAX". On April 26, 2001, the closing sale price of our common stock, as
reported by AMEX, was $.40 per share.
Investing in our common stock involves risk. Please see "Risk Factors",
beginning on page 5, for an explanation of some of these risks.
The selling shareholders are "underwriters" within the meaning of the
Securities Act of 1933, as amended. Any broker executing selling orders on
behalf of a selling shareholder will be an "underwriter" of this offering.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
The date of this Prospectus is _______________, 2001
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from
that contained in this prospectus. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of our common stock.
TABLE OF CONTENTS
TABLE OF CONTENTS
Page
SUMMARY
THE OFFERING
SUMMARY FINANCIAL DATA
RISK FACTORS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
DILUTION
USE OF PROCEEDS
TRADING AND MARKET PRICES
DIVIDENDS
CAPITALIZATION
SELECTED FINANCIAL DATA
CHANGE OF INDEPENDENT AUDITOR
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REGULATION
BUSINESS
THE FUSION CAPITAL TRANSACTION
MANAGEMENT
CERTAIN TRANSACTIONS
PRINCIPAL SHAREHOLDERS
LITIGATION
PLAN OF DISTRIBUTION
SELLING SHAREHOLDERS
DESCRIPTION OF SECURITIES
LEGAL MATTERS
EXPERTS
ABOUT THIS PROSPECTUS
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
SUMMARY
Our Business
We own a proprietary wireless Internet access system, known as
"Quick-CellTM". Our Quick-Cell system operates in unlicensed spectra and
does not require right-of-way permission from local municipalities. A
single Quick-Cell cell can operate as a stand-alone system for a 3.5 mile
radius coverage, or any number of Quick-Cell cells can be interfaced to
serve a broader geographic area. We charge our customers a monthly fee for
wireless Internet access. To date, however, our wireless Internet business
has generated a very limited amount of revenues.
In the middle of 2000, we sold three Quick-Cell systems to two independent
telephone companies and another telecommunications company. Due to a lack
of capital, we have suspended this marketing effort.
We intend to commit all available resources to the development of our
Quick-Cell wireless Internet access products.
In September 2000, our CyberHighway subsidiary, a provider of dial-up
Internet access, was forced into involuntary bankruptcy. As of the end of
February 2001, CyberHighway had lost nearly all of its customers. We do
not intend to commit any capital to restore CyberHighway's business.
We have had substantial losses since our inception in 1996. At December
31, 2000, our accumulated deficit was $34,502,160, our net loss for 2000
was $21,885,330 and we used $1,038,262 in cash for all of 2000. We have a
limited operating history upon which to evaluate our prospects.
Our independent auditor has, in its opinion, expressed substantial doubt
about our ability to continue as a going concern, which means that our
independent auditor cannot be certain that we will be in business on
December 31, 2001.
You should read the risk factors, beginning on page 5, before you buy our
common stock.
Our Market and Strategy
We designed our Quick-Cell wireless Internet access products to provide
high-speed, high-quality wireless Internet access at prices below local
market prices for comparable hard-wire Internet access.
We have recently contracted with Wireless WebConnect!, Inc., a national
wireless Internet service reseller, to resell our Quick-Cell products. The
selection of the first city to be exploited by the reseller will be chosen
in the very near future. It is the stated intention of the reseller to
establish Quick-Cell systems in multiple cities during the remainder of
2001. We continue to pursue other resellers for our Quick-Cell service.
When marketing company-owned Quick-Cell systems, we intend to offer free
customer-premises modems, free installation and free first-month's service.
To date, we have established a company-owned Quick-Cell system only in
Santa Fe, New Mexico, which serves approximately 120 customers. A lack of
capital has prevented us from further activities in Santa Fe, as well as
prevented us from establishing Quick-Cell systems in other cities
Fusion Capital Agreement
On April 25, 2001, we executed a common stock purchase agreement with
Fusion Capital Fund II, LLC, which replaced a similar agreement dated
October 9, 2000. Under this agreement, Fusion Capital may purchase up to
$10 million of our common stock over a period of up to 25 months. Please
see "The Fusion Capital Transaction" below for a detailed description of
this agreement.
We intend to file, in the very near future, with the SEC a registration
statement that relates to the resale of the shares issued and to be issued
pursuant to the Fusion Capital agreement.
Our Address
USURF America was organized as a Nevada corporation in November 1996, under
the name "Media Entertainment, Inc." In 1998, we changed our name to
"Internet Media Corporation", then to our current name in June 1999. Our
principal office is located at 8748 Quarters Lake Road, Baton Rouge,
Louisiana 70809. Our telephone number is (225) 922-7744; our fax number is
(225) 922-9123. Our web site is located at www.usurf.com. Information
contained on our web site is not to be considered a part of this prospectus.
THE OFFERING
The selling shareholders are offering for sale their respective shares of
our common stock, as described under "Plan of Distribution" and "Selling
Shareholders", beginning on pages 52 and 53, respectively.
Common stock offered by the selling shareholders: 7,228,864
shares(1)
Common Stock Outstanding Prior to this Offering: 19,826,770
shares
Common Stock Outstanding After this Offering: 23,314,497
shares(2)
American Stock Exchange Trading Symbol: UAX
------------
(1) 4,587,387 of these shares are currently issued and outstanding and
will be offered
and sold by the selling shareholders; and 2,641,477 of these shares
may be purchased from
us upon the exercise of outstanding warrants and thereafter offered
and sold by the
selling shareholders.
(2) Assumes the exercise of all 3,487,727 outstanding warrants.
SUMMARY FINANCIAL DATA
Set forth below is our summary consolidated statements of operations data
for the years ended December 31, 1998, 1999 and 2000, as well as summary
balance sheet data as of December 31, 1999 and 2000.
This summary financial information should be read in conjunction with the
consolidated financial statements appearing elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA:
Year Ended December 31,
2000 1999 1998
Revenues $ 1,872,629 $ 2,547,225 $ 5,440
Internet access costs and
cost of goods sold 2,145,955 1,152,721 0
Operating expenses 14,975,583 11,860,758 1,034,464
Net Loss 21,885,330 10,930,163 1,037,626
Loss per share (1.60) (0.96) (0.14)
Weighted average number
of ahares outstanding 13,679,385 11,419,641 7,361,275
BALANCE SHEET DATA:
Year Ended December 31,
2000 1999
Working Capital(Deficit) $(1,517,164) $ (694,937)
Total Assets 410,316 19,545,169
Total Current Liabilities 1,764,973 1,221,650
Total Liabilities 1,764,973 5,104,860
Shareholders' Equity (Deficit) (1,354,657) 14,440,309
RISK FACTORS
You should carefully consider the risks described below before you decide
to buy our common stock. If any of the following risks actually occur, our
business, financial condition or results of operations would likely suffer.
In such case, the trading price of our common stock could decline, and you
could lose all or part of your investment.
Because we have a short operating history, there is a limited amount of
information about us upon which you can evaluate our business and potential
for future success.
We were incorporated in 1996 and have only a limited operating history
upon which you can evaluate our business and prospects. You must consider
the risks and uncertainties frequently encountered by early stage companies
in new and rapidly evolving markets, such as the market for wireless
Internet access services. Some of these risks and uncertainties relate to
our ability to:
* gain access to sufficient capital with which to support anticipated
growth;
* achieve customer acceptance of our Quick-Cell wireless Internet
access products;
* expand our wireless Internet access subscriber base and
subscriber-related revenues;
* compete successfully in a highly competitive market; and
* recruit and train qualified employees.
We cannot assure you that we will successfully address any of these risks
and uncertainties.
Our independent auditor expressed substantial doubt about our ability to
continue as a going concern.
In its opinion on our financial statements for the year ended December
31, 2000, our independent auditor, Postlethwaite & Netterville, expressed
substantial doubt about our ability to continue as a going concern. This
means that, given our current lack of capital, our independent auditor has
substantial doubt that we will be in business on December 31, 2001. Please
review the Independent Auditor's Report and Note 18 to the consolidated
financial statements appearing elsewhere in this prospectus.
Unless we obtain $300,000 in new capital, we will be unable to remain in
business.
During the next twelve months, we will need approximately $300,000 just
to continue our operations at their current levels. Absent this amount of
funding, we will be able to continue our operations.
Some of our shareholders may have rights of rescission, due to potential
violations by us of Section 5 of the Securities Act.
Since January 2000, a total of 5,302,085 shares of our common stock may
have been issued in violation of Section 5 of the Securities Act. The
aggregate value assigned to these shares upon their issuance totalled
$5,719,502. 5,172,085 of these shares, with an assigned value of
$5,069,502, were issued in payment of services or as bonuses to employees
and 130,000 of these shares were issued for cash or underlie currently
exercisable warrants, which were sold or will be sold for at total of
$650,000 in cash. It is possible that each of the issuees of these shares
has a potential claim for rescission of their respective issuance
transactions. We do not possess capital with which to pay any such claims,
if asserted.
1,927,387 of these shares are being offered and sold by the selling
shareholders pursuant to this prospectus.
We had an accumulated deficit of $34,502,160 as of December 31, 2000, and
we expect to continue to incur losses for the foreseeable future.
We have had substantial losses since our inception and our operating
losses may continue in the future.
We have incurred annual operating losses since our inception. As a
result, at December 31, 2000, we had an accumulated deficit of $34,502,160.
Our gross revenues for the years ended December 31, 2000, 1999 and 1998,
were $1,872,629, $2,547,225, and $5,440, respectively, with losses from
operations of $15,248,909, $10,466,254 and $1,029,024, respectively. Our
net losses for the years ended December 31, 2000, 1999 and 1998, were
$21,885,330, $10,930,163 and $1,037,626, respectively. We cannot assure
you that we will experience revenue growth, or that we will be profitable
in the future.
As we pursue full-scale sales and installation of our Quick-Cell wireless
Internet products, 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.
You will suffer substantial dilution in the net tangible book value of the
common stock you purchase.
Because the selling shareholders expect to sell their shares of our
common stock at market-level prices, you will suffer substantial and
immediate dilution, due to the lower book value per share of our common
stock compared to the purchase price per share of our common stock. We
cannot predict your actual dilution, because dilution will depend on the
price at which our common stock is sold by the selling shareholders.
We are unable to calculate the exact number of shares that we will issue
under the Fusion Capital agreement.
We intend to register 6,000,000 shares of our common stock for issuance
under the Fusion Capital agreement. Based on the closing price of our
stock on April 26, 2001, $.40 per share, we would issue a total of
6,000,000 shares to Fusion Capital, representing approximately 23.5% of our
then-outstanding shares, and the gross proceeds would be only $2,400,000.
However, due to the fact that the number of shares to be issued under the
Fusion Capital agreement depends on future market prices of our stock, we
are unable to calculate the exact number of shares that we will issue under
that agreement.
The lower our stock price at the time Fusion Capital makes a purchase, the
more shares of stock Fusion Capital will receive.
Since the shares covered under the Fusion Capital agreement are issuable
at a floating rate based on our stock price, Fusion Capital will receive
more shares at the time it makes a purchase, the lower the price of our
stock. The following table sets forth the number of shares issuable to
Fusion Capital at varying purchase prices:
Total Shares Percent of Our
Common
Issuable Upon Stock Outstanding
Assumed Per a Full Purchase After Giving
Share Purchase Under the Fusion Effect to the
Issuance
Price Capital Agreement(1) Gross Proceeds to Fusion Capital
$ .40(2) 6,000,000 $2,400,000 23.50%
$ 1.50 6,000,000 $9,000,000 23.50%
$ 2.00 5,000,000 $10,000,000 20.38%
$ 5.00 2,000,000 $10,000,000 9.29%
$10.00 1,000,000 $10,000,000 4.87%
------------
(1) We intend to register 6,000,000 shares in connection with the
Fusion Capital
agreement.
(2) Closing price on April 26, 2001, as reported by AMEX.
(3) In this circumstance, we intend to terminate that agreement
without payment or
liability to Fusion Capital. Thus, we would not be able to obtain the
maximum $10
million under that agreement.
Sales of stock by Fusion Capital could depress the price for our stock.
To the extent Fusion Capital sells its shares of stock, the market price
of our stock may decrease, due to the additional shares in the market. In
turn, this could allow Fusion Capital to receive ever greater amounts of
our stock, the sales of which would continue downward pressure on, if not
further depress, our stock price.
Fusion Capital may purchase more than 9.9% of our common stock.
Even though the Fusion Capital agreement restricts Fusion Capital from
owning any more than 9.9% of our stock at any one time, this restriction
does not prevent Fusion Capital from selling a portion of its holdings and
later purchasing additional shares. Thus, it is possible that the total
number of shares purchased by Fusion Capital would be greater than 9.9% of
the then-outstanding common stock.
The existence of our agreement with Fusion Capital could cause downward
pressure on the market price of our common stock.
Simply the existence of the Fusion Capital agreement could cause holders
of our common stock to sell their shares, which could cause the market
price of our common stock to decline. Also, prospective investors
anticipating future downward pressure on the price of our common stock due
to the shares that may be available for sale by Fusion Capital could
refrain from purchases or effect sales in anticipation of a decline of the
market price.
We may be unable to obtain sufficient capital to sustain our business or
pursue our growth strategy.
Currently, we do not have sufficient financial resources to implement our
business plan or grow our operations. Therefore, excluding any funding that
we might receive from Fusion Capital in the future, we will need additional
funds to continue our operations and to grow our business. Assuming we do
not receive any funding from Fusion Capital, there is no assurance that we
will be able to generate revenues that are sufficient to sustain our
operations and we would require additional sources of financing in order to
satisfy our working capital needs. Should needed financing be unavailable
or prohibitively expensive when we require it, it is possible that we would
be forced to cease operations.
We have designed a very aggressive growth strategy for the commercial
exploitation of our Quick-Cell wireless Internet access products. This
strategy is expected to place a significant strain on our managerial,
operational and financial resources. In particular, our planned wireless
Internet expansion will require significant capital with which to purchase
equipment necessary for the construction and implementation of systems. If
we are unable to secure enough capital, we will be unable to achieve our
growth objectives. We cannot assure you that we will be able to obtain
enough capital for our growth needs.
Even if we are able to access funds under the Fusion Capital agreement,
we will need additional capital to implement fully our growth plans.
We may not be able to secure enough Quick-Cell customer installation
personnel to keep up with demand.
It is possible that we will be unable to secure Quick-Cell installation
crews, either through independent contractors or directly hiring personnel,
in large enough numbers that will allow us to install new Quick-Cell
customers in a timely manner. Any unreasonable delays in installation can
cause customers to cancel their orders. We may not be able to overcome
this potential barrier to market penetration. Our failure to do so would
restrict our growth in revenues and severely impair our ability to earn a
profit.
Our future operating results may vary from period to period, and, as a
result, we may fail to meet the expectations of our investors and analysts,
which could cause our stock price to fluctuate or decline and inhibit our
ability to obtain funds under the Fusion Capital agreement or otherwise.
Our revenues and results of operations have fluctuated in the past and
can be expected to fluctuate significantly in the future, as we make
financial commitments to facilitate expected growth. The following factors
will influence our operating results:
* access to funds for expansion-related capital expenditures,
including Quick-Cell
equipment purchases;
* market acceptance of our Quick-Cell wireless Internet access products;
* the rates of new wireless Internet access subscriber acquisition
and retention;
* changes in our pricing policies or those of our competitors; and
* potential competition from large, well-funded national
telecommunications companies.
Our future personnel costs, marketing programs and overhead cannot be
adjusted quickly and are, therefore, relatively fixed in the short term.
To the extent, if ever, that we begin to derive funding pursuant to the
Fusion Capital agreement, our operating expense levels will be based, in
part, on our expectations of future revenue. If actual revenues are below
our expectations, our results of operations will suffer and we could be
forced to cease operations.
Period-to-period comparisons of our results of operations will likely not
provide reliable indications of our future performance.
Price fluctuations of our common stock could negatively impact our
ability to obtain needed capital.
Because we depend heavily on outside suppliers, our business may suffer,
should our suppliers fail to perform in a timely manner.
We depend on third-party suppliers of hardware components and
telecommunications carriers to provide equipment and communications
capacity. The failure of one or more of our suppliers to perform in a
timely manner could cause a significant disruption in our business. In
particular, should our manufacturer of Quick-Cell modem circuit boards fail
to deliver circuit boards when needed, it is possible that we would be
forced to suspend our wireless Internet business for an indeterminate
period of time.
Our failure to manage future growth would hinder our efforts in earning a
profit.
Without additional capital, we will be unable to expand significantly our
operations. However, should we ever begin to obtain funds under the Fusion
Capital agreement, we will begin to serve new geographic markets. This
expected expansion will place a significant strain on our management and
operating systems. In order to accommodate this sort of growth, we will
need to hire and retain appropriate management personnel. We may not be
able to hire and retain enough qualified managers. This circumstance would
likely hinder our growth and reduce our chance of earning a profit.
If and when we experience our anticipated rapid growth, we may encounter
difficulties in developing and implementing needed internal systems,
including our recruiting and management systems. Our failure to do so will
reduce the likelihood that we will earn a profit.
Our future success will depend on our ability to keep pace with the
Internet's rapid technological changes, evolving industry standards and
changing customer needs.
The Internet access market is constantly evolving, due primarily to
technological innovations, as well as evolving industry standards, changes
in subscriber needs and frequent new service and product introductions.
New services and products based on new technologies or new industry
standards expose us to risks of equipment obsolescence. We must use
leading technologies effectively, continue to develop our technical
expertise and enhance our existing services on a timely basis to remain
competitive in this industry. We cannot assure you that we will be able to
do so.
Our ability to compete successfully in our markets also depends on the
continued compatibility of our services with products and systems utilized
and sold by various third parties. Our failure to do so could cause us to
lose a competitive position in our markets, thereby causing us to operate
less profitably.
Our growth plans depend on the continued growth in the demand for
high-speed Internet access.
As Internet usage has become a common part of Americans' lives, a growing
number of consumers have begun to demand higher Internet-access speed than
can be provided by hard wire dial-up methods. If our wireless Internet
access products are unable to address changes in consumers' preferences, we
would become less likely ever to earn a profit.
Our Quick-Cell wireless Internet access products are new and consumer
acceptance may not be achieved.
Our Quick-Cell wireless Internet access products are new and do not enjoy
wide-spread name recognition among consumers. If we are unable to achieve
consumer acceptance of our products, it is unlikely that we would be able
to earn a profit.
We could fail to overcome the severe competition for Internet access
customers, which would impair our ability to earn a profit and cause our
overall financial condition to deteriorate.
The market for Internet access services is extremely competitive and
highly fragmented. As there are no significant barriers to entry, we
expect that competition will intensify over time.
Our competitors include many large, nationally-known companies, such as
America Online and Earthlink. These and other companies possess greater
resources, particularly access to capital sources, market presence and
brand name recognition than do we. In addition, we will face competition
from other wireless Internet access providers, such as Metricom, and
larger, national cellular telephone service providers. If we are unable to
overcome this severe competition, we do not expect that we would earn a
profit and our overall financial condition would decline.
We depend on our key personnel; the loss of any key personnel could disrupt
our operations, adversely affect our business and result in reduced revenues.
Our future success will depend on the continued services and on the
performance of our senior management and other key employees. In
particular, we depend on our president, David M. Loflin. While we have
entered into an employment agreement with Mr. Loflin, the loss of his
services for any reason could seriously impair our ability to execute our
business plan, which could reduce our revenues and have a materially
adverse effect on our business and results of operations. We have not
purchased any key-man life insurance.
Our directors and executive officers own enough of our common stock
effectively to control directors' elections and thereby control our
management policies.
Our directors and executive officers own approximately 23.5% of our
currently outstanding common stock. Two of our directors, as well as three
other persons, have entered into a voting agreement relating to the voting
in elections of directors. Currently, approximately 21% of our outstanding
shares of common stock are subject to this voting agreement. These
shareholders may be able effectively to control the outcome of corporate
actions requiring shareholder approval by majority action. Their stock
ownership may have the effect of delaying, deferring or preventing a change
in control of USURF America. A more complete description of this voting
agreement may be found under the heading "Certain Transactions", page 42.
Our business plan is not based on independent market studies, so we cannot
assure you that our strategy will be successful.
We have not commissioned any independent market studies concerning the
extent to which customers will utilize our services and products. Rather,
our plans for implementing our business strategy and achieving
profitability are based on the experience, judgment and assumptions of our
key management personnel, and upon other available information concerning
the communications industry. If our management's assumptions prove to be
incorrect, we will not be successful in establishing our wireless Internet
access business.
We may not be able to protect our intellectual property rights, which could
dramatically reduce our ability to earn a profit.
We currently rely on common law principles for the protection of our
copyrights and trademarks and trade secret laws to protect our proprietary
intellectual property rights. We do not intend to file patent applications
relating to our Quick-Cell wireless Internet access products, until
completion of future generations of the products. We have not filed
trademark applications relating to the "Quick-Cell" and "USURF Wireless
Internet" brand names.
Without patent or trademark protection, the existing trade secret and
copyright laws afford us only limited protection. Third parties may
attempt to disclose, obtain or use our technologies. Others may
independently develop and obtain patents or copyrights for technologies
that are similar or superior to our technologies. If that happens, we may
need to license these technologies and we may not be able to obtain
licenses on reasonable terms, if at all, thereby causing great harm to our
business.
The market price of our common stock will continue to be extremely
volatile, and it may drop unexpectedly.
The market price of our common stock has fluctuated significantly in the
past and we expect this volatility to continue in the future. Since
January 2000, trading prices for our common stock have ranged from $.1875
per share to $11.00 per share. The closing price of our common stock on
April 26, 2001, was $.40. It is possible that the market price of our
common stock could fall below the price you paid for your shares of our
common stock.
The stock prices for many high technology companies, especially those
that base their businesses on the Internet, recently have experienced wide
fluctuations and extreme volatility. This volatility has often been
unrelated to the operating performance of such companies, so our stock
price could decline even if our wireless Internet access business is
successful. Also, following periods of volatility in the market price of a
company's securities, securities class action claims frequently are brought
against the subject company. To the extent that the market price of our
shares falls dramatically in any period of time, shareholders may bring
claims, with or without merit, against us. Such litigation would be
expensive to defend and would divert management attention and resources
regardless of outcome.
Nearly all of our shares are eligible for future sale, which could cause
the market price for our common stock to decline.
With the registration of the shares of stock included in this prospectus,
nearly all of the outstanding shares of our common stock owned by
non-affiliates will be eligible for resale to the public. This amount of
common stock represents a significant overhang on the market for our common
stock. The sale of a significant amount of these shares at any given time
could cause the trading price of our common stock to decline and to be
highly volatile.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be
found in the material set forth under "Risk Factors", "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Business", as well as in the prospectus generally. We generally use
words such as "believes", "intends", "expects", "anticipates", "plans" and
similar expressions to identify forward-looking statements. You should not
place undue reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in the
forward-looking statements for many reasons, including the risks described
above and elsewhere in this prospectus.
DILUTION
As of December 31, 2000, we had a total of 16,688,808 shares of common
stock outstanding and a net tangible book value of negative $.08 per share.
A purchase of our common stock will result in substantial and immediate
dilution in your investment. Dilution is the reduction of a purchaser's
investment measured by the difference between the price paid per share of
common stock and the net tangible book value per share following the purchase.
The following table depicts the potential dilution to purchasers of our
common stock, without taking into account any other changes in our net
tangible book value since December 31, 2000, other than to assume all
outstanding warrants are exercised and to assume various purchase prices:
Net Tangible Book
Public Offering Value Per Share Dilution per Share
Price Per Share At Time of Offering to Purchasers
$ .50 $.05 $ .45
$ 1.50 $.05 $1.45
$ 2.00 $.05 $1.95
$ 5.00 $.05 $4.95
$10.00 $.05 $9.95
You will incur substantial dilution when you purchase our common stock.
However, because the market price of our common stock fluctuates, we cannot
predict the actual dilution you will incur.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of selling shareholder
stock by the selling shareholders.
Should all of our outstanding warrants be exercised, we would receive cash
proceeds of approximately $2,540,000. The funds received from the exercise
of warrants would be used as follows:
Purchase of Quick-Cell Equipment $1,600,000
Construction of Quick-Cell Systems 350,000
Marketing 275,000
General and Administrative Expenses 50,000
Working Capital 265,000
--------
Total $2,540,000
TRADING AND MARKET PRICES
From 1997 through October 14, 1999, our common stock was traded on the
NASD's OTC Bulletin Board, first under the symbol "MEME", then under the
symbol "USRF". The table below sets forth, for the periods indicated, the
high and low bid and asked prices for our common stock, as reported by the
OTCBB:
High High Low Low
Quarter/Period Ended: Bid Ask Bid Ask
December 31, 1997 $.75 $1.625 $.0625 $.21875
March 31, 1998 $2.00 $3.00 $.03125 $.08
June 30, 1998 $2.00 $2.0625 $.8125 $.875
September 30, 1998 $1.50 $1.625 $.75 $.84375
December 31, 1998 $5.3125 $5.50 $.50 $.53125
March 31, 1999 $13.50 $13.75 $3.34375 $2.00
June 30, 1999 $7.375 $5.6875 $3.5625 $3.60
September 30, 1999 $8.8125 $8.875 $3.28125 $3.4375
10/1/99 thru 10/14/99 $3.8125 $3.9375 $2.875 $3.00
These prices represented quotations between dealers without adjustment for
retail mark-ups, mark-downs or commissions, and may not have necessarily
represented actual transactions.
Beginning on October 15, 1999, our common stock began to be traded on the
American Stock Exchange, under the symbol "UAX". The table below sets
forth, for the period indicated, the high and low sales prices for our
common stock, as reported by the American Stock Exchange:
Quarter/Period Ended: High Low
10/15/99 thru 12/31/99 $5.875 $2.50
March 31, 2000 $11.00 $3.625
June 30, 2000 $6.00 $2.25
September 30, 2000 $2.50 $.875
December 31, 2000 $1.25 $.1875
March 31, 2001 $.80 $.22
You should note that our common stock, like many newly-traded stocks, has
experienced significant fluctuations in its price and trading volume. We
cannot predict the future trading patterns of our common stock.
On April 26, 2001, the number of record holders of our common stock,
excluding nominees and brokers, was 1,121, holding 19,826,770 shares.
DIVIDENDS
We have never paid cash dividends on our common stock. We intend to
re-invest any future earnings for the foreseeable future.
Our board of directors has declared property dividends comprised of common
stock of three private companies acquired by us. These dividends of stock
are: 1,500,000 shares of New Wave Media Corp., in exchange for all of our
community-television-related assets; 400,000 shares of Argo Petroleum
Corporation, in exchange for 10,000 shares of our common stock; and 800,000
shares of Woodcomm International, Inc., in exchange for 7,500 shares of our
common stock. The combined value of these dividends is $43,750.
None of the three dividend distributions will occur unless and until a
registration statement relating to each distribution transaction has been
declared effective by the SEC.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2001.
This table should be read in conjunction with our consolidated financial
statements included elsewhere in this prospectus.
As at
12/31/00
Long-Term Liabilities $ 0
Shareholders' Equity:
Common Stock - $.0001 par value;
100,000,000 shares authorized, 16,688,808
shares issued 1,669
Additional Paid-in Capital 34,183,962
Accumulated Deficit (34,502,160)
Stock Subscriptions 933,514
Shareholders' Equity (Deficit) (1,354,657)
Total Capitalization (1,354,657)
SELECTED FINANCIAL DATA
The following selected financial data have been derived from our
consolidated financial statements, which appear elsewhere in this
prospectus. The selected financial data set forth below should be read in
conjunction with our financial statements, related notes and other
financial information included elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA:
Year Ended December 31,
2000 1999 1998
Revenues $ 1,872,629 $ 2,547,225 $ 5,440
Internet access costs and
cost of goods sold 2,145,955 1,152,721 0
Operating expenses 14,975,583 11,860,758 1,034,464
Net Loss 21,885,330 10,930,163 1,037,626
Loss per share (1.60) (0.96) (0.14)
Weighted average number
of ahares outstanding 13,679,385 11,419,641 7,361,275
BALANCE SHEET DATA:
Year Ended December 31,
2000 1999
Working Capital(Deficit) $(1,517,164) $ (694,937)
Total Assets 410,316 19,545,169
Total Current Liabilities 1,764,973 1,221,650
Total Liabilities 1,764,973 5,104,860
Shareholders' Equity (Deficit) (1,354,657) 14,440,309
CHANGE OF INDEPENDENT AUDITOR
On January 11, 2000, we dismissed Weaver and Tidwell, L.L.P. as our
independent auditor. At the time of the dismissal, there was no
disagreement with respect to any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
On January 24, 2000, we engaged Postlethwaite & Netterville as our new
independent auditor, which firm audited our financial statements for the
years ended December 31, 1999 and 2000. The audit committee of our board
of directors recommended this change in auditors and the full board
approved the change.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
We were organized to operate in the wireless cable and community (low
power) television industries. Due to existing market conditions, we have
abandoned our wireless cable business. Because our Quick-Cell wireless
Internet access system can be adapted for use on the wireless cable
frequencies, we believe our frequencies possess future value. However,
these frequencies will not be of value to us, unless and until the FCC
approves two-way communications on them. Due to this circumstance, our
wireless-cable-related assets have become impaired and their $188,091 book
value written off.
Effective July 1, 1999, we assigned all of our television-related assets to
New Wave Media Corp., in exchange for a 15% ownership interest in New Wave
common stock. This business segment was discontinued as of that date and,
since then, has not, and will not, generate any revenues. Our board of
directors has declared a dividend with respect to all of the New Wave
shares. These shares will be distributed to our shareholders, upon New
Wave's completion of a Securities Act registration of the distribution
transaction. This registration proceeding has not been commenced by New
Wave, due to a lack of funds necessary to pay related professional
expenses. New Wave has advised us that it is making its best efforts to
obtain capital for this purpose, but cannot provide an exact time by which
this will occur.
Since 1998, we have acquired seven dial-up Internet service providers,
including CyberHighway, the business of www.e-tail.com and a web design
firm, none of which was an affiliated company nor were any acquired from
an affiliate. All but one of these acquisitions were made for shares of
our stock. All of these acquisitions were accounted for as a purchase,
which means that we did not include past operations of the acquired
businesses in our historical statements of operations. Also in connection
with these acquisitions, we recorded large amounts of amortizable customer
base and goodwill values, as a result of the acquisitions' valuations
exceeding the values of the tangible net assets. At December 31, 2000, all
of these values were written off, due to the demise of CyberHighway's
business. Please see the discussion under "CyberHighway Bankruptcy" below.
All of the customers of the acquired Internet access providers were
assimilated into the dial-up operations of our CyberHighway subsidiary,
which has few remaining customers, please see the discussion under
"CyberHighway Bankruptcy" below.
We have determined to commit all of our available resources to the
exploitation of our Quick-Cell wireless Internet access products. We
currently lack the capital necessary to do so.
Current Overview
Our management has committed all available current and future capital and
other resources to the commercial exploitation of our Quick-Cell wireless
Internet access products. It is these products upon which our future is
based.
As CyberHighway's business has dwindled to near nothing while in
bankruptcy, we have determined not to attempt to revive our dial-up
Internet access business and, for the foreseeable future, we have abandoned
development of our e-commerce business.
In April 2001, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, which replaced a similar agreement entered
into in October 2000, pursuant to which Fusion Capital may purchase up to
$10 million of our common stock. We intend to file, in the very near
future, a registration statement with respect to the shares issued and to
be issued pursuant to the Fusion Capital agreement. Please see the
discussion under the heading "Management's Plans Relating to Future
Liquidity", for a more thorough explanation of the impact this agreement
could have on our business. Should we obtain this funding, we would be
able to begin to pursue our wireless Internet business plan. We have
commenced marketing of our Quick-Cell service through a reseller. We will
need more capital thereafter, as we continue to expand our wireless
Internet business. We may never possess enough capital to permit us to
earn a profit.
CyberHighway Bankruptcy
On September 29, 2000, an involuntary bankruptcy petition was filed against
CyberHighway in the Idaho Federal Bankruptcy Court, styled In Re:
CyberHighway, Inc., Case No. 00-02454, by ProPeople Staffing, CTC Telecom,
Inc. and Hawkins-Smith. In December 2000, CyberHighway and the petitioning
creditors filed a joint motion to dismiss this proceeding. The joint
motion to dismiss requires the approval of CyberHighway's creditors.
However, some of CyberHighway's creditors have objected to the dismissal of
the proceeding. The basis of the creditors' objection is their belief that
CyberHighway's as-yet unasserted damage claims against the original
petitioning creditors and their law firm and a claim against Dialup USA,
Inc. represent CyberHighway's most valuable assets. These as-yet
unasserted claims include claims for bad faith filing of the original
bankruptcy petition as to the original petitioning creditors and their law
firm, as well as a claim for tortious interference with beneficial business
relationships as to Dialup USA, Inc. The objecting creditors desire that
these claims be adjudicated in the bankruptcy court. It is likely that, at
some time in the future, a final order of bankruptcy will be entered with
respect to CyberHighway. No prediction of the timing of such an order can
be made, although we believe that such an order would come only after the
final adjudication of the claims described above.
The January 1999 acquisition of CyberHighway fundamentally altered our
company. Our annual revenues went from nearly zero to about $2.5 million.
Beginning in the last half of 1999, operating losses at CyberHighway,
primarily personnel costs and leased telephone-line charges, steadily
increased, while revenues began to decrease slightly each quarter. This
trend continued through 2000, until September 2000.
As a means to achieve immediate cost savings at CyberHighway, in September
2000, the following actions were taken:
* CyberHighway sold its affiliate-ISP business for $40,500, in cash; and
* CyberHighway contracted with Dialup USA for all "backroom" and
customer support
services, which took effect at the end of October 2000.
These actions did reduce monthly operating costs by approximately $50,000.
However, the involuntary bankruptcy proceeding started the demise of
CyberHighway's business, in effect rendering our September 2000 actions
meaningless. Since that time, CyberHighway's company-owned dial-up
customer base has gone from approximately 8,500 to nearly none. The filing
of the involuntary bankruptcy and CyberHighway's switch-over to the network
of Dialup USA were the primary causes of CyberHighway's customer base
demise. We will not apply any available future capital to the
revitalization of our dial-up Internet access business.
This sudden and permanent demise of CyberHighway's customer base has
rendered our intangible assets relating to those customers to become
worthless. The write-off of these intangible assets totalled $4,814,272,
net of deferred taxes, as reflected in our December 31, 2000, financial
statements. Due to this change in operating environment, monthly revenues
have decreased substantially, and, accordingly, goodwill has been impaired.
The write-down of goodwill totalled $4,425,037, as reflected in our
December 31, 2000, financial statements. Please see the discussion below
under the heading "Liquidity and Capital Resources" for more information on
this topic.
Shareholder Loans - Conversion to Equity
In August 2000, our president, David M. Loflin, converted all loan amounts
owed to him, including accrued interest, into a total of 774,162 shares of
our common stock. The total amount of indebtedness converted to common
stock was $967,703. Since August 2000, Mr. Loflin has made small loans to
us to ease periods of restricted cash flow. At December 31, 2000, we owed
Mr. Loflin $6,638.
Results of Operations
General. By the end of February 2001, CyberHighway had lost nearly all
of its dial-up Internet access customers and we do not foresee the
revitalization of CyberHighway's business. You should not purchase our
common stock expecting that CyberHighway's business will assist in making
us profitable.
Until the involuntary bankruptcy was filed against CyberHighway in
September 2000, our revenues for 2000 were approximately 10% below 1999's
nine-month results. Our revenues for the last three months of 2000
diminished rapidly month to month. Currently, we derive no revenue from
CyberHighway's business.
We will report nominal revenues for the first quarter of 2001, most of
which are attributable to our Quick-Cell system in Santa Fe, New Mexico.
With the demise of CyberHighway, any future revenues will be derived from
sales of our Quick-Cell wireless Internet access service. We currently
lack the capital necessary to pursue our Quick-Cell business plan, and we
may never possess enough capital with which to exploit fully our Quick-Cell
products. In this circumstance, it is likely that we would never earn a
profit.
Prior to 1999, nearly all of our revenues were generated by our
now-defunct community television segment. During 1999 and 2000, all of our
revenues were generated by our Internet segment. Before the demise of
CyberHighway, our revenues were derived primarily from monthly customer
payments for dial-up access and from per-customer royalty payments from our
CyberHighway affiliate-ISPs.
Beginning in March 2000, we began initial Quick-Cell wireless Internet
access operations in Santa Fe, New Mexico. Currently, we have
approximately 120 Quick-Cell customers. Throughout 2000, these customers
were in their one-year "free-use" period. Beginning in March 2001, we
began to receive monthly payments from the customers who had completed
their one-year of free use. The lack of growth of our wireless Internet
access business during 2000 is due to the fact that our available monies
were applied to CyberHighway expenses and corporate overhead. We had no
available capital to apply to the expansion of the Santa Fe market.
In the middle of 2000, we began marketing our Quick-Cell systems to local
exchange telephone companies, independent telephone companies, digital
subscriber line resellers and Internet service providers. We sold three
Quick-Cell systems in a short time, and received approximately 200
additional indications of interest via e-mail and telephone from other
telecommunications companies and others, 25% of which our management
considered to be of a serious nature. Due to a lack of capital, however,
this marketing effort was suspended before we investigated the nature of
the other inquiring companies. No paying customers use these systems, due
to circumstances involving these companies that are beyond our control.
During 2001, we do not expect to derive significant revenues from customer
modem sales to these Quick-Cell purchasers.
In cities in which we construct company-owned Quick-Cell systems, we
intend to employ telephone marketing as the initial means for acquiring
customers and, later, mass media. We will employ a sales force that will
focus primarily on potential business customers. This focus on business
customers is based on our management's informal study of Internet usage by
businesses versus home users that revealed businesses' higher demand for
high-speed Internet access. Our management's decision may prove to have
been incorrect, which would significantly impair our ability to earn a
profit. Our management believes, based on its collective business
experience, that effective marketing techniques can overcome Quick-Cell's
lack of name recognition, although this belief may also prove to have been
incorrect. Our Quick-Cell business will not be able to succeed without
additional capital.
In cities where a Quick-Cell reseller operates, we will not have final
approval of the reseller's marketing strategies. Our resellers will be
permitted to market our Quick-Cell service in any commercially reasonable
manner. We cannot, therefore, assure you that any of our resellers will
ever achieve high enough sales levels that would permit us to earn a profit.
Under our Quick-Cell reseller agreement with WebConnect, we expect to
derive revenues as follows:
* WebConnect's purchase of each Quick-Cell cell site;
* WebConnect's purchase of all customer modems;
* Charges for installation services on behalf of every customer
acquired by
WebConnect; and
* Monthly per-Quick-Cell-customer royalties, while we anticipate
that this monthly
per-customer royalty will average approximately $12.00, we cannot
assure you that the
monthly per-customer will be that high; in any event, given the
number of customers
that can use a single Quick-Cell cell site, approximately 2,000,
the lowest monthly
per-customer royalty to be paid by WebConnect will be about $9.00.
The results of operations for 1999 and 2000, when compared to those
expected for 2001, will not be similar. We expect our revenues for 2001 to
be significantly below those of 1999 and 2000, since we no longer will
derive revenues from the operations of CyberHighway. In 2001, we will
produce significant revenues only if:
* our Quick-Cell reseller is as successful selling our wireless
Internet access
products as it has been in the past in reselling a competing
wireless Internet
access service; or
* we are able to obtain at least $3,000,000 under the Fusion Capital
agreement.
Our reseller may not be successful enough for us to make a profit, nor
can we assure you that funding under the Fusion Capital agreement will
permit us to make a profit.
Year Ended December 31, 2000, versus Year Ended December 31, 1999.
During 1999 and 2000, nearly all of our revenues were generated by
CyberHighway's dial-up Internet access operations. We derived our revenues
from monthly customer payments for dial-up Internet access, which averaged
approximately $18.00 per customer. Also, until September 2000, we derived
revenue from per-customer royalty payments from our CyberHighway
affiliate-ISPs, which averaged approximately $1.75 per customer.
Due to the recent demise of CyberHighway, our revenues for most of 2001
can be expected to be significantly below our revenue levels of 1999 and
2000. However, due to uncertainties relating to the timing of receipt of
expected funds under the Fusion Capital agreement, we can make no
prediction of our actual revenues.
Our operating results for 2000 and 1999 are summarized in the following
table:
2000 1999
Revenues $ 1,872,629 $ 2,547,225
Internet Access Costs and
Cost of Goods Sold 2,145,955 1,152,721
Gross Profit (Loss) (273,326) 1,394,504
Operating Expenses 14,975,583 11,860,758
Loss from Operations 15,248,909 10,466,254
Other Expenses 9,193,281 2,117,070
Net Loss 21,885,330 10,930,163
Our 2000 statement of operations reflect the following significant
charges against our earnings:
* each of the following amounts relates to the demise of the business
of CyberHighway:
* $4,814,272 amount of intangible assets written off
attributable to acquired
customers bases, net of deferred taxes; and
* $4,425,037 amount of intangible assets written off
attributable to goodwill.
* $619,000, 750,000 shares of our common stock were issued to three
vice presidents,
250,000 shares as an employment agreement signing bonus valued at
$2.00 per share and
500,000 shares as employment bonuses valued at $119,000 this
expense is included in
the "Salary and Commissions" statement of operations line item.
In our 1999 financial statements, we incurred two significant charges
against our earnings, which appear in our statement of operations under the
"Other Income (Expense)" heading:
* As described above, we incurred a charge of $1,164,561 arising out
of our acquisition,
and subsequent tender for rescission, of Net 1.
* We incurred a charge of $957,075 arising out a settlement agreement
and mutual
release, which settled legal proceedings in which USURF America and
CyberHighway were
involved. These legal proceedings were settled in full by the
issuance of 340,000
shares of our common stock to the adverse parties and we paid
$43,325 for
reimbursement of their respective attorneys' fees. The 340,000
shares were valued at
$2.6875 per share, or $913,750, in the aggregate. The price per
share assigned to
these shares was the closing price of our common stock on November
30, 1999, as
reported by AMEX.
Due to our severe lack of capital during 1999 and 2000, during both
years, we issued a large number of shares of our stock to consultants in
payment of their services. The fair value of the shares issued to
consultants is included in our statements of operations under the
"Professional Fees" line item. Issuing stock was the only means by which
we could obtain the consultants' services. The value of the consulting
services received by us under each agreement has been expensed in equal
monthly amounts over their respective terms:
* in 2000, we issued 2,262,166 shares of our common stock under
consulting agreements;
these shares were valued for financial accounting purposes at
$3,110,000, in the
aggregate. This amount is being expensed in equal monthly amounts
over periods
ranging from four months to one year. Approximately 75% of this
total amount was
expensed during 2000.
* in 1999, we issued 566,000 shares of common stock under consulting
agreements; these
shares were valued for financial accounting purposes at $2,216,000,
in the aggregate.
$2,000,000 of this amount is being expensed in equal monthly
amounts over five years,
while the remaining $216,000 of this amount was expensed in equal
monthly amounts over
periods ranging from three to six months.
Our net loss for 2000 is attributable to several large non-standard items:
* the depreciation and amortization of acquired customer bases,
goodwill and other
intangibles of $7,618,755;
* $4,168,610 in professional fees, substantially all of which is
attributable to stock
issuances under various consulting agreements;
* $2,060,528 in salary and commissions was expensed, $619,000 of
which is the result of
stock bonuses to three officers; and
* $9,239,310 in impairment loss relating to the demise of
CyberHighway's business and
the associated write off of all related intangible assets.
For 1999, our net loss is attributable in large measure to the following
expense items:
* $7,653,924 in depreciation and amortization of acquired customer
bases, goodwill and
other intangibles;
* $1,945,935 in professional fees, substantially all of which is
attributable to stock
issuances under various consulting agreements; and
* $1,603,556 in salary and commissions.
Our acquisition and subsequent rescission of the acquisition of Net 1,
Inc. affected our 1999 and 2000 statements of operations in different ways,
as follows:
* On August 23, 1999, we acquired Net 1, Inc. Net 1 is primarily
engaged as an Internet
service provider in Alabama. In September 1999, we tendered the
shares of capital
stock obtained in the acquisition of Net 1 for rescission of the
transaction. This
rescission was based on perceived material misstatements made by
one of the principals
of Net 1. However, legally, we were still the owner of the
outstanding shares of Net
1 at December 31, 1999, and were required by generally accepted
accounting principles
to record Net 1 as a wholly-owned subsidiary from the date of
acquisition.
* It was discovered during the arbitration proceedings between us and
the former owners
of Net 1 that no activity had occurred in Net 1 after the
acquisition. The customer
base was moved to an unrelated company by a former owner, and all
activity was
transacted in the unrelated company. Therefore, no revenues or
expenses were incurred
by Net 1 from the date of acquisition, August 23, 1999, through
December 31, 1999.
* The total cost of the acquisition was $1,164,561, which exceeded
fair value of the net
assets of Net 1 by $1,164,561. The excess was deemed to be
impaired at December 31,
1999, due to the change in the operating environment and was
recorded as an impairment
loss in our statement of operations for 1999 under the "Impairment
Loss" heading.
* On October 12, 2000, the acquisition of Net 1 was rescinded.
Included in the terms of
the settlement agreement was the return to us of the 250,000 shares
issued by us in
the original transaction. We then issued 250,000 shares of our
stock in settlement of
the arbitration. The settlement agreement also called for one of
the former owners of
Net 1 to assume a $50,000 liability, that was recorded by us upon
the acquisition. The
total gain on the recission of the Net 1 transaction, $961,436, has
been recorded in
our statement of operations for 2000 under the "Gain on Rescission"
heading.
For 1999 and 2000, our statements of operations reflect an income tax
benefit of $1,595,424 and $1,653,161, respectively, resulting from the
difference in the bases of the acquired customer bases for book versus tax
purposes. Due to the demise of the business of CyberHighway, our statement
of operations for 2001 will not contain a similar tax benefit.
Community Television Segment. During 1999, this segment had no revenues
and incurred a nominal loss from operations. As discussed above, effective
July 1, 1999, we assigned all of our community television properties to New
Wave Media Corp. and is now defunct. This segment was discontinued as of
that date and will not generate any revenues in the future.
Wireless Cable Segment. The wireless cable segment has had no operating
activity since 1997. As described above, we have ceased, for the
foreseeable future, our wireless cable activities.
Liquidity and Capital Resources
General. Since our inception, we have had a significant working capital
deficit. Prior to our January 1999 acquisition of CyberHighway, we had no
material revenues and we operated from a severely illiquid position.
Following the CyberHighway acquisition and until the recent demise of
CyberHighway's business, we generated significant monthly revenues, yet
continued to have a working capital deficit. Currently, we are
substantially illiquid, although we do possess approximately $150,000 in
cash, the result of recent securities sales to private investors. Without
additional capital, it is possible that we would be forced to cease
operations.
Our Capital Needs. To sustain our current level of operations for the
next twelve months, we will require additional capital of approximately
$300,000. To accomplish our goals of expanding our Quick-Cell business, we
will require at least $2.5 million. If we are unable to obtain this needed
capital, we could be forced to cease our operations.
Currently we do not possess enough capital to accomplish our goals for
our Quick-Cell wireless Internet access business, including the
construction of Quick-Cell systems. When we refer to the construction of a
Quick-Cell system in any city, that process requires the following
expenditures:
* A single Quick-Cell cell site, including a Quick-Cell server modem,
parts and
configuration projected average cost: $25,000;
* Tower lease site projected average cost: $500 per month;
* Direct T1 telephone line connection to the Internet projected
average cost: $1,200
per month; and
* Initial inventory of customer modems approximate cost: $70,000.
Each Quick-Cell cell site added to an existing system will cost
approximately $25,000 for the server modem, parts and configuration, plus
tower lease costs and, if customer usage requires, the cost of a direct T1
telephone line connection to the Internet.
Should we be able to obtain the minimum of $400,000 per month pursuant to
the Fusion Capital agreement, we would have enough money to pay for the
construction of the initial Quick-Cell cell site in at least three markets
per month. We cannot assure you that we will be able to construct
Quick-Cell cell sites at that rate.
In light of the relatively small amount of capital required to construct
each Quick-Cell cell site, we believe that the expected funding under the
Fusion Capital agreement would provide us with enough capital to construct
the initial Quick-Cell cell site and commence marketing activities in
approximately 60 markets. With the Quick-Cell construction permitted by
this amount of capital, we will be able to determine whether our Quick-Cell
wireless Internet access business is a viable business, as presently
offered. However, the funds expected under the Fusion Capital agreement
will not be adequate for us to pursue our complete Quick-Cell business
plan, and we cannot assure you that we will be able to obtain capital when
needed. Our inability to obtain further capital when needed would lessen
our chance of earning a profit, as we would become illiquid.
Expected Proceeds from the Fusion Capital Agreement. Beginning near the
end of the second quarter of 2001, we expect to being to receive the first
funds of up to $10 million under our agreement with Fusion Capital.
Assuming we receive the entire $10 million under that agreement, of which
there is no assurance, we anticipate that we will apply these funds as
follows:
Purchase of Quick-Cell Equipment $ 6,000,000
Construction of Quick-Cell Systems 1,300,000
Marketing 1,000,000
General and Administrative Expenses 200,000
Finder's Fee 800,000
Working Capital 700,000
Total $10,000,000
Should all of our outstanding warrants, including all of the warrants to
be issued in connection with the Fusion Capital agreement, be exercised, we
would receive cash proceeds of approximately $2,540,000. Funds received
from the exercise of warrants would be used to purchase Quick-Cell
equipment, to construct Quick-Cell systems, to market our Quick-Cell
wireless Internet access service and for working capital. Please see the
discussion under "Use of Proceeds".
You should note that we may never receive any of the funds discussed
above. Our failure to obtain capital from these sources could cause us to
cease our operations.
December 31, 2000. At December 31, 2000, our working capital deficit was
$1,517,164, which is greater than our working capital deficit at December
31, 1999, of $694,937. Our deficit would have been significantly larger,
if not for our president's converting $967,000 of our indebtedness to him
(including interest) into shares of our stock. This conversion of debt
into stock was more than offset by an increase in accounts payable, accrued
salary and other current liabilities.
The following table sets forth our current assets and current liabilities
at December 31, 2000 and 1999:
2000
1999
Current Assets Cash $ 1,088 $
75,313
Accounts Receivable -
59,098
Inventory 246,721
386,802
Prepaids -
5,500
Current Liabilities Notes payable -
current portion $ - $
5,910
Accounts payable 1,472,030
363,665
Accrued payroll 158,262
118,157
Other current
liabilities 41,824
216,650
Property dividends
payable 43,750
43,750
Accrued interest to
stockholder -
29,741
Notes payable to
stockholder 6,638
356,239
Deferred revenue -
87,538
Many balance sheet line items changed significantly from 1999 to 2000.
These changes are summarized below:
* Accounts Payable our accounts payable increased to $1,472,030 in
2000, from $363,665
in 1999. This increase is due to our lack of capital throughout
2000, compounded by
our decision to suspend payment of most of our accounts, beginning
in April 2000.
While no creditor has taken any adverse action against USURF
America as a result of
this policy, this policy did negatively impact CyberHighway.
* Other Current Liabilities our other current liabilities decreased
from 1999 to 2000,
from $216,650 to $41,824. This change resulted from the rescission
of the Net 1
acquisition transaction, as Net 1's liabilities were removed.
* Accrued Interest to Stockholder at December 31, 2000, we owed our
president only
$6,638, because of his converting approximately $967,000 that we
owed him into shares
of our stock in August 2000.
* Deferred Revenue we had no deferred revenue for 2000, due to the
sudden demise of
CyberHighway during the last quarter of 2000.
* Long-term Liabilities at December 31, 2000, we had no long-term
liabilities. Our
1999 long-term liabilities consisted primarily of deferred taxes
relating to our
acquired customer bases. However, deferred taxes are no longer
applicable, since our
intangible assets have been written off.
* Subscriptions Receivable this amount of $933,514 arises from our
president's
converting his loans into shares of our stock. This entry appears
due to the fact that
the shares issued in that transaction were not actually issued
until after December
31, 2000, due to an administrative oversight.
* Stockholders' Equity (Deficit) at December 31, 2000, we had a
stockholders' deficit
of $1,354,657, the result of the write off of all of our intangible
assets. This is
compared to our stockholders' equity of $14,440,309 at December 31,
1999.
Without obtaining at least $1,000,000 in new capital, we will continue to
have a significant working capital deficit and will not be able to operate
from a position of liquidity. This will impair our ability to pursue our
Quick-Cell business plan and, thus, our ability ever to earn a profit.
Our accrued payroll at December 31, 2000, as well as at December 31,
1999, is primarily attributable to accrued salary of our president and two
of our vice presidents.
In August 2000, our president, David M. Loflin, converted the entire
amount owed to him, including accrued interest, into a total of 774,162
shares of our common stock. The total amount of indebtedness converted to
common stock was $967,703. Mr. Loflin received one share for each $1.25
owed him - $1.25 was the low sale price for our common stock on the
American Stock Exchange on August 18, 2000, the last trading day prior to
the conversion. Until converted, all of the loans from Mr. Loflin were
payable on demand, with interest accruing at 8% per annum. The funds
loaned by Mr. Loflin were used primarily for operating expenses, including
expenses of CyberHighway, corporate overhead and the construction of our
Quick-Cell system in Santa Fe, New Mexico. Subsequent to the conversion
transaction, Mr. Loflin has loaned us small sums. At December 31, 2000, we
owed Mr. Loflin $6,638. All sums owed to Mr. Loflin are payable on demand,
with interest accruing at 8% per annum. We cannot assure you that Mr.
Loflin will continue to loan us money when we need it.
During 2000, we obtained funds from sales of our securities on two
occasions:
* In March and April 2000, we sold a total of 60,000 units of
securities to private
investors, each unit being comprised of one share of our stock and
one warrant with an
exercise price of $7.50 per share. The warrants are exercisable
for a period of two
years. Each unit was sold for $5.00 in cash, for total proceeds of
$300,000. These
proceeds were used to pay approximately $275,000 in operating
expenses, including
operating expenses of CyberHighway, and to purchase about $50,000
of equipment.
* In December 2000, we sold 400,000 shares of our common stock to a
private investor for
$80,000 in cash. The proceeds from this sale of stock were used to
pay accounting
expenses and for working capital. In connection with this sale of
stock, we issued to
a finder 40,000 shares of our common stock and a warrant to
purchase 380,000 shares of
our common stock at an exercise price of $.20 per share. These
warrants are
exercisable for a period of three years. The 40,000 shares issued
to the finder were
valued at $.20 per share, a total value of $8,000. No value was
placed on the
warrants issued.
Subsequent to 2000, we have sold securities on two occasions:
* In February 2001, we sold 840,000 units of securities, each unit
being comprised of
one share of our stock and one warrant with an exercise price of
$.15 per share, to a
private investor for $126,000 in cash. The warrants are
exercisable for a period of
three years. The proceeds from this sale of securities will be
applied to the payment
of approximately $50,000 in professional fees and the balance will
be used for working
capital. In connection with this sale of securities, we issued to
a finder 84,000
shares of our common stock and a warrant to purchase 336,000 shares
of our common
stock at an exercise price of $.15 per share. These warrants are
exercisable for a
period of three years. The 84,000 shares issued to the finder were
valued at $.15 per
share, a total value of $12,600. No value was placed on the
warrants issued.
* In March 2001, we sold 500,000 units of securities, each unit being
comprised of one
share of our stock and one warrant with an exercise price of $.25
per share, to a
private investor for $125,000 in cash. The warrants are
exercisable for a period of
three years. Approximately 60% of the proceeds from this sale of
securities will be
applied to the construction of a Quick-Cell system and the balance
will be used for
working capital. In connection with this sale of securities, we
issued to a finder
50,000 shares of our common stock and a warrant to purchase 200,000
shares of our
common stock at an exercise price of $.25 per share. These
warrants are exercisable
for a period of three years. The 50,000 shares issued to the
finder were valued at
$.25 per share, a total value of $12,500. No value was placed on
the warrants issued.
If we are unable to obtain significant additional capital, it is possible
that we would be forced to cease operations.
Community Television Stations. In furtherance of our plan to focus on the
implementation of our Quick-Cell business plan, effective July 1, 1999, we
assigned all of our community (low power) television properties to New Wave
Media Corp., in exchange for 1,500,000 shares of New Wave common stock.
Our board of directors declared a dividend with respect to all 1,500,000
New Wave shares.
Cash Flows from Operating Activities. During the year ended December 31,
2000, our operations used $953,112 in cash compared to cash used of
$546,097 during 1999. In both years, the use of cash in operations was a
direct result of the lack of revenues compared to our operating expenses,
particularly our Internet access costs and salary and commissions. The
recent demise of the business of CyberHighway has served to reduce
substantially our ongoing operating expenses; however, its demise also
reduced our revenues to insubstantial amounts. The effects of the demise
of CyberHighway will not be readily apparent from our financial statements
until the first quarter of 2001.
For the year ended December 31, 2000, our operations would have used
approximately $750,000 more in cash, had we not determined to defer payment
of nearly all of our accounts payable for most of the year, due to our lack
of working capital.
Cash Flows from Investing Activities. During the year ended December 31,
2000, our investing activities used cash of $85,150 compared to $412,785 in
1999. During 2000, in our investing activities, purchases of equipment
used cash, though to a lesser extent than during 1999; in 1999, our
equipment purchases of $614,193 were offset, to some degree, by cash
acquired in acquisitions of $186,318. Because we lack working capital, we
cannot predict our cash flows from investing activities for 2001.
Cash Flows from Financing Activities. For 2000, our financing activities
provided $964,037 in cash. Of this amount, $568,571 is attributable to
loans from our president and $370,000 is attributable to sales of
securities. For 1999, our financing activities provided $1,026,963 in
cash, $235,010 of which is attributable to loans from our president and
$545,000 of which is attributable to private sales of our securities. We
continue to seek capital and cannot, therefore, predict future levels of
cash flows from financing activities. However, we expect that financing
activities will provide significant sums of cash, as a result of sales of
our common stock expected under the agreement with Fusion Capital.
Non-Cash Investing and Financing Activities. During the year ended
December 31, 2000, we issued a total of 2,262,166 shares of common stock
under consulting agreements; these shares have been valued at $3,110,000,
in the aggregate. Also during 2000, we issued a total of 131,063 shares of
common stock in acquisitions, which shares were valued at $761,751, in the
aggregate.
In May 2000, we issued 250,000 shares of our common stock to a vice
president as a signing bonus under his employment agreement, which were
valued at $500,000, in the aggregate.
In July 2000, we we entered into an investment banking agreement with
Gruntal & Co., L.L.C., under which we issued 250,000 shares of our common
stock, valued at $470,000, in the aggregate.
In December 2000, we issued a total of 500,000 shares of our common stock
as bonuses to two of our vice presidents, which were valued at $.24 per
share, the last closing price of our common stock prior to the issuances, a
total value of $119,000.
During 1999, non-cash investing and financing activities included the
issuance of shares for the acquisition of several businesses. By far the
largest of these transactions was the acquisition of CyberHighway. We
issued 2,325,000 shares of our common stock in connection with this
acquisition. These shares were valued at approximately $18,530,250. Each
of the four other Internet service providers acquired by us were
assimilated into the operations of CyberHighway. Now, with the involuntary
bankruptcy of CyberHighway, none of these Internet service providers
represents a portion of our continuing operations. Our historical balance
sheets have reflected these acquisition values, less accumulated
amortization. However, due to the recent demise of CyberHighway, the
unamortized portion of this value was written-off on our December 31, 2000
balance sheet. We have suspended, for the foreseeable future, the
development of the acquired business known as www.usurf.com, due to a lack
of capital, the acquisition of which was valued at $863,000, and we have
determined not to pursue the development of www.e-tail.com.
Management's Plans Relating to Future Liquidity
To sustain our current level of operations for the next twelve months, we
will require additional capital of approximately $300,000. To accomplish
our goals of expanding our Quick-Cell business, we will require at least
$2.5 million.
Our best opportunity for obtaining needed funds is pursuant to the Fusion
Capital agreement. The following summarizes the important terms under the
Fusion Capital agreement:
* Fusion Capital may purchase up to $10 million of our common stock;
* The selling price to Fusion Capital will be equal to a price based
upon the future
market price of the common stock without any fixed discount to the
market price;
* We have the right to require Fusion Capital to purchase up to
$20,000 each trading day
during the agreement;
* Should our stock price be $5.00 or higher for five consecutive
trading days, we have
the right to require Fusion Capital to purchase up to the full
remaining portion of
the $10 million commitment; and
* During the term of the Fusion Capital agreement, we may not issue,
or agree to issue,
any variable-priced equity or variable-priced "equity-like"
securities, unless we have
obtained Fusion Capital's prior written consent.
We may never realize proceeds under the Fusion Capital agreement.
Should we obtain at least $2.5 million under the Fusion Capital agreement,
we expect that we will be able to accomplish our two primary objectives:
* Placing at least 20,000 customers on our Quick-Cell systems during
the next year; and
* proving the commercial viability of our Quick-Cell wireless
Internet access service.
We cannot assure you that we will accomplish these objectives.
Currently, we have no other sources for funding on the scale of the Fusion
Capital transaction.
If we do not obtain the necessary funding, we would be forced to cease
operations.
Capital Expenditures
During 2000, we made approximately $195,000 in equipment purchases,
approximately 40% for wireless Internet equipment and approximately 60% for
needed equipment in our network operations center. We currently have no
capital with which to make any significant capital expenditures. Should we
obtain funding under the Fusion Capital agreement, we will be able to make
major expenditures on Quick-Cell-related equipment, as described above.
However, without additional capital, we will make no capital expenditures.
During Fiscal 1999, we made $614,193 in equipment purchases.
Year 2000 Issues
We experienced no problems related to Year 2000 issues. During our efforts
to become completely Year 2000 compliant, we incurred expenses of
approximately $75,000.
REGULATION
Quick-Cell Wireless Internet Access. Our Quick-Cell wireless Internet
access products operate in unregulated spectra, the 900 MHz and 2400 MHz
spectra (primarily the 2400 MHz spectrum), and we expect that such spectra
will remain unregulated.
Regulation of Internet Access Services. We provide Internet access, in
part, using telecommunications services provided by third-party carriers.
Terms, conditions and prices for telecommunications services are subject to
economic regulation by state and federal agencies. As an Internet access
provider, we are not currently subject to direct economic regulation by the
FCC or any state regulatory body, other than the type and scope of
regulation that is applicable to businesses generally. In April 1998, the
FCC reaffirmed that Internet access providers should be classified as
unregulated "information service providers" rather than regulated
"telecommunications providers" under the terms of the Federal
Telecommunications Act of 1996. As a result, we are not subject to federal
regulations applicable to telephone companies and similar carriers merely
because we provide our services using telecommunications services provided
by third-party carriers. To date, no state has attempted to exercise
economic regulation over Internet access providers.
Governmental regulatory approaches and policies to Internet access
providers and others that use the Internet to facilitate data and
communication transmissions are continuing to develop and, in the future,
we could be exposed to regulation by the FCC or other federal agencies or
by state regulatory agencies or bodies. In this regard, the FCC has
expressed an intention to consider whether to regulate providers of voice
and fax services that employ the Internet, or IP, switching as
"telecommunications providers", even though Internet access itself would
not be regulated. The FCC is also considering whether providers of
Internet-based telephone services should be required to contribute to the
universal service fund, which subsidizes telephone service for rural and
low income consumers, or should pay carrier access charges on the same
basis as applicable to regulated telecommunications providers. To the
extent that we engage in the provision of Internet or Internet
protocol-based telephony or fax services, we may become subject to
regulations promulgated by the FCC or states with respect to such
activities. We cannot assure you that these regulations, if adopted, would
not adversely affect our ability to offer certain enhanced business
services in the future.
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.
BUSINESS
History
In July 1999, we changed our name to "USURF America, Inc.", from "Internet
Media Corporation". We were incorporated on November 1, 1996, under the
name "Media Entertainment, Inc.", to act as a holding company in the
wireless cable and community (low power) television industries. Due to
current market conditions in the wireless cable industry, we have abandoned
efforts to develop our wireless cable properties. In furtherance of our
plan to focus on the exploitation of our Quick-Cell wireless Internet
access products, we assigned all of our community (low power) television
properties to New Wave Media Corp.
Since September 1998, we have acquired seven dial-up ISPs, the business of
www.e-tail.com and a web design firm.
Current Overview
Our management has committed all available current and future capital and
other resources to the commercial exploitation of our Quick-Cell wireless
Internet access products. It is these products upon which our future is
based.
Our dial-up Internet access business has lost nearly all of its customers
and, for the foreseeable future, we have abandoned development of our
e-commerce business.
Recent Developments
On September 29, 2000, an involuntary bankruptcy petition was filed against
CyberHighway, our wholly-owned subsidiary, in the Idaho Federal Bankruptcy
Court. The petition was brought by ProPeople Staffing, CTC Telecom, Inc.
and Hawkins-Smith. In December 2000, a settlement was reached and the
petitioning creditors and CyberHighway filed a joint motion to dismiss this
involuntary proceeding. The joint motion to dismiss requires the approval
of CyberHighway's creditors. However, some of CyberHighway's creditors
have objected to the dismissal of the proceeding. The basis of the
creditors' objection is their belief that CyberHighway's as-yet unasserted
damage claims against the original petitioning creditors and their law firm
represent CyberHighway's most valuable assets. These objecting creditors
desire that these claims be adjudicated in the bankruptcy court. It is
likely that, at some time in the future, a final order of bankruptcy will
be entered with respect to CyberHighway. No prediction of the timing of
such an order can be made, although we believe that such an order would
come only after the final adjudication of the claims described above.
Due primarily to the involuntary bankruptcy proceeding, CyberHighway has
lost nearly all of its customers. We do not expect that CyberHighway will
resume operations.
On April 25, 2001, we executed the Fusion Capital agreement, which replaced
a similar agreement dated October 9, 2001. Under this agreement, Fusion
Capital may purchase up to $10 million of our common stock over a period of
up to 25 months. (See "The Fusion Capital Transaction", page 35). We
intend to file, in the very near future, with the SEC a registration
statement that relates to the resale of the shares issued and to be issued
pursuant to the Fusion Capital agreement.
With the recent merger between Qwest Communications and US West, we do not
expect to execute final agreements that embody our previously announced
letter of intent. This change in circumstance will not hinder our
Quick-Cell business plan.
We have abandoned our plan to establish ourselves as a national dial-up
Internet service provider. Because of this change, we terminated our
contracts with two companies that serve as Internet backbone providers,
NaviNet, Inc. and ioNET, Inc., a subsidiary of PSINet, Inc., with no
liability accruing to us.
In April 2001, we entered into a Quick-Cell reseller agreement with
Wireless WebConnect!, Inc., a Florida-based national reseller of wireless
Internet access services.
Industry Background
Growth of the Internet; the World Wide Web. The Internet, commonly known
as the World Wide Web, or simply the Web, is a collection of connected
computer systems and networks that link millions of public and private
computers to form, essentially, the largest computer network in the world.
The Internet has experienced rapid growth in recent years and is expected
to continue its growth.
Internet Access. Internet access services represent the means by which
ISPs interconnect business and consumer users to the Internet's resources.
Access services vary from dial-up modem access, like that provided by our
CyberHighway subsidiary, for individuals and small businesses to high-speed
dedicated transmission lines for broadband access by large organizations to
wireless Internet access systems, like our Quick-Cell wireless Internet
access system.
Strategic Relationships
Financial Relationships. We view our investment banking relationship with
Gruntal & Co., L.LC., New York, New York, and our recently established
relationship with Fusion Capital as valuable strategic relationships as we
move ahead with efforts to exploit our wireless Internet access products.
Our efforts will require significant capital and we expect that these
relationships will assist in obtaining some of the needed capital.
However, we cannot assure you that this will be the case.
Business Relationship. We recently entered into a reseller agreement
relating to our Quick-Cell wireless Internet access products with Wireless
WebConnect!, Inc., a Florida-based subsidiary of Intellicall, Inc., a
publicly-held company. WebConnect is a nationally-known reseller of
wireless Internet access services. Based on statements made by WebConnect
personnel, we anticipate that this strategic alliance will provide us a
relatively rapid means of increasing the number of Quick-Cell customers.
However, because activities under this agreement have only recently begun,
there is no actual sales data available upon which you can judge
WebConnect's ability to resell our Quick-Cell products.
Wireless Internet Access
What is Wireless Internet? "Wireless Internet" is a new type of
communications spectrum recently designated by the FCC. Wireless Internet
access requires a transmission facility maintained by an ISP employing a
wireless system and the user's modem (a transmitter/receiver modem)
equipped with an antenna. Wireless Internet capability allows users to
access the Internet from a stationary computer or, in some situations, from
a mobile, lap-top computer.
What is Quick-Cell? "Quick-Cell" is the brand name of our proprietary
wireless Internet access system. Each Quick-Cell system is comprised of
one or more server modems, or cells. Server modems, which are less than
one cubic foot in size, are mounted on tall structures, towers, tall
buildings or billboards, for example. The space needed for mounting the
server modems can be leased for an average monthly payment of about $500.
Each server modem relays transmitted data directly into the Internet via a
T1, or larger, telephone line. The monthly charge for each T1 line ranges
from $600 to $1,500, depending on the market.
Installed customer modems, which are slightly larger in size than a deck of
playing cards, transmit data to, and receive data from, a server modem.
Each customer modem is installed in the customer's computer and connected
by a thin cable to a small antenna that is mounted on the outside of the
customer's place of business or home, as the case may be. The installation
process for customer modems is quite similar to that of cable television:
the installation crew installs the customer modem in the computer, mounts
the antenna outside, connects the modem and antenna with the cable and
tests the connection. Depending on the market, each customer installation
is expected to cost between $40 and $80.
The number of Quick-Cell server modems needed for a particular system
depends on a few factors:
* the geographic size of the city to be served each server modem's
signal covers an
area approximately seven miles in diameter;
* the population density of the city to be served since each server
modem is capable
of handling up to approximately 2,000 customers, the greater the
population density,
the greater the number of server modems required ;
* the terrain of the city to be served the hillier the terrain, the
greater the number
of server modems required; and
* the density of foliage of the city to be served more densely
foliated areas require
a greater number of server modems.
Within a particular system, each additional server modem is configured to
share transmitted data with the other server modems, so as to provide an
uninterrupted connection to the Internet. In a Quick-Cell system with
multiple server modems, the server modems are geographically located in a
honeycomb fashion, for technical reasons.
Data transmission speeds remain constant within a Quick-Cell system's
transmission radius, regardless of the distance from the server modem. On
the fringes of a Quick-Cell system's transmission radius, a customer's
connection may fade in and out, similar to the reception of distant AM
radio stations. To avoid this circumstance, we will attempt to avoid
installing a customer modem within the fringe areas.
Quick-Cell Equipment and Facilities. Until February 2001, all of our
Quick-Cell modems were manufactured for us by OTC Telecom, San Jose,
California, using off-the-shelf circuit boards and other parts. These
modems cost approximately $300 each, because we lacked capital to purchase
large quantities at a reduced per-modem cost.
In February 2001, we completed the design and testing of our own modem
circuit board. This advancement has freed us from our dependence on OTC
Telecom for modems. We now are able to solicit competitive bids from
circuit board manufacturers and other parts suppliers, then assemble the
modems in our new facility located in Baton Rouge, Louisiana. Our first
assembly run in this facility is planned for May 2001. With these changes,
the modems will cost approximately $250.
We will not construct towers on which to mount server modems. Instead, we
will lease tower spaces, rooftop spaces or spaces on other tall structures.
We have recently signed a 23-city tower lease agreement with SBA
Communications Corporation, a Boca Raton, Florida-based tower company. We
are currently negotiating with other tower companies for similar agreements
in other cities. Based on our management's experience, securing adequate
locations to mount the server modems is not expected to impede Quick-Cell
system construction in any market.
In each market, we will obtain the necessary fiber-optic telephone line
connections to the Internet from one of the many telecommunications
companies capable of providing an adequate Internet connection. Based on
our past experience, we do not believe that we will encounter any
difficulty in obtaining needed connections to the Internet at acceptable
prices.
Quick-Cell System Control Software. We have developed software that
enables us to control the data transmission speed of each customer modem
within each Quick-Cell system, all from a single location. With this
software, we are able to increase or decrease a customer's data
transmission speed in just a few minutes' time. This software also permits
us to monitor easily each Quick-Cell server modem's bandwidth usage, which
will enable us to add a server modem to a Quick-Cell system that is
approaching maximum capacity prior to the time that system becomes
overloaded and its transmission speed slows. This capability will enhance
our ability to provide our customers data transmission service at speeds
for which they contracted.
Current Market. We have one Quick-Cell system operating in Santa Fe, New
Mexico, where we serve approximately 120 customers. We have been unable to
acquire more customers in Santa Fe, because we have lacked capital for
advertising and customer installation expenses.
Reseller Agreement. In April 2001, we entered into a Quick-Cell reseller
agreement with Wireless WebConnect!, Inc., a Florida-based wireless
Internet access reseller. Prior to this time, WebConnect has acted
primarily as a reseller of a nationally-known wireless Internet access
service, known as "RicochetTM", which is offered by Metricom, Inc., San
Jose, California. Our reseller agreement with WebConnect is for an initial
term of 10 years.
Under the reseller agreement, WebConnect will select markets in which it
desires to market our Quick-Cell service and begin to pre-sell the service.
When 200 customers have subscribed to the service, we will construct the
Quick-Cell system for that market, at WebConnect's expense, paid in
advance. WebConnect will also purchase all customer modems from us. We
will provide all customer installation services, at WebConnect's expense.
WebConnect will provide all first level customer support services, services
that do not require a visit to the customer's location. We will provide
all second level customer support services, services that require technical
expertise and/or a visit to the customer's location, at WebConnect's
expense. In addition, WebConnect will pay us a monthly per-customer
royalty that we expect to average about $12. However, because WebConnect
has not yet begun selling our Quick-Cell service in any market, we cannot
state with certainty the actual average monthly per-customer royalties that
we will be paid by WebConnect.
While WebConnect has achieved a high level of success in reselling
Metricom's RicochetTM wireless Internet service, we cannot assure you that
WebConnect will be successful in reselling our Quick-Cell service.
It is possible that WebConnect's rate of sales will outstrip our ability to
obtain needed equipment, including customer modems, due to our lack of
capital, or ability to hire and train qualified installation crews. In
these circumstances, we would be unable to take full advantage of
WebConnect's abilities, thereby limiting potential profits.
Other Quick-Cell Marketing Strategies. In the middle of 2000, we began
marketing our Quick-Cell systems to local exchange telephone companies,
independent telephone companies, digital subscriber line resellers and
Internet service providers. We sold three Quick-Cell systems in a short
time. Due to a lack of capital, we have suspended this marketing effort.
These Quick-Cell systems were sold to companies located in Brownwood,
Texas, Wheeling, West Virginia, and San Juan, Puerto Rico. No paying
customers use these systems, due to circumstances involving these companies
that are beyond our control. We are unsure if and when the owners of these
Quick-Cell systems will begin to offer service to the public.
In 1999, we licensed five small Internet service providers to operate our
Quick-Cell system. Three of these companies never acted on the granted
licenses and they expired. A licensed Quick-Cell system in Casper,
Wyoming, operated for three months, but was discontinued due to the sale of
the licensee's business. The Santa Fe, New Mexico, licensee was acquired
by us in June 1999.
Quick-Cell Sales and Marketing. In cities in which we construct
company-owned Quick-Cell systems, we intend to employ telephone marketing
as the initial means for acquiring customers, primarily business customers.
As a particular market begins to mature, we will employ mass media,
including radio advertising. In conjunction with our mass media
advertising, we will employ a sales force that will focus primarily on
potential business customers. This focus on business customers is based on
our management's informal study of Internet usage by businesses versus home
users that revealed businesses' higher demand for high-speed Internet
access. Our management's decision may prove to have been incorrect, which
would significantly impair our ability to earn a profit.
Without additional capital, we will not be able to construct another
company-owned Quick-Cell system.
In cities where a Quick-Cell reseller operates, we will not have final
approval of the reseller's marketing strategies. Our resellers will be
permitted to market our Quick-Cell service in any commercially reasonable
manner. We cannot, therefore, assure you that any of our resellers will
ever achieve high enough sales levels that would permit us to earn a profit.
Competitive Features of Quick-Cell. While we believe Quick-Cell possesses
some competitive advantages over other Internet access modes, it currently
has three significant competitive disadvantages:
* No wide-spread brand name recognition;
* Professional installation usually required; and
* Internet access only available locally, compared to dial-up
Internet access that is
available from virtually any telephone in any geographic location.
It is possible that we could overcome the first two listed disadvantages,
after a lengthy period of marketing and product research and development.
However, we currently lack capital to overcome either disadvantage.
Further, it is likely that we will never overcome the third disadvantage,
due to the inherent broadcast limitations of wireless technologies.
We believe Quick-Cell offers the following competitive advantages:
* Speed: our Quick-Cell system is capable of data transmission speeds
of up to 10 Mbs;
we expect that most of our customers' connections will transmit
data at the rate of
256 kbs, the wireless equivalent of the well-publicized digital
subscriber line (DSL)
hard wire Internet access method; our Quick-Cell system offers far
greater data
transmission speeds than cellular telephone-based Internet access
methods;
* Lower Cost: we expect that our Quick-Cell service will be offered
at costs between 15%
and 60% less than available hard-wire Internet access, depending on
the particular
market, that is, less than the sum of monthly Internet service
provider charges and
monthly telephone line charges; Quick-Cell will also be priced
competitively with
cellular-telephone-based and other wireless Internet access methods;
* No Telephone Company Involvement: our Quick-Cell customers will not
be required to
incur the expense of a hard-wire telephone line through which to
access the Internet;
* Security/Encryption: our Quick-Cell system is capable of
encrypting, or scrambling,
its broadcast signal, thereby offering a high degree of security to
customers; and
* Mobility: our Quick-Cell system is able to permit service personnel
of a business to
file contemporaneous reports, request and receive technical
assistance and perform
other computer-based functions from a customer's place of business
or from a service
vehicle, as long as the personnel remain within the Quick-Cell
system's coverage area.
Other Wireless Product. In January 1998, we delivered our first
proprietary wireless DataLink system. This DataLink system was delivered
to the Baton Rouge refinery of one of the largest international oil
companies, the refinery being the second largest in the U.S. The DataLink
system was purchased to replace an existing hard-wire (T1 telephone line)
data transmission system. The wireless DataLink system transfers data at
the rate of 2 megabytes per second. Due to a lack of capital for marketing
and equipment, our management suspended DataLink-related activities. It
was determined that our Quick-Cell products provided us the greater
opportunity of achieving short-term market share and profitability. We
cannot assume you that our management's decision in the regard will prove
to have been correct or that we will ever earn a profit.
Dial-up Internet Access
As recently as September 2000, our CyberHighway subsidiary provided dial-up
Internet service to about 25,000 customers, approximately 8,500 directly
and 16,500 through affiliate-Internet service providers. As of the end of
February 2001, we had lost nearly all of our dial-up customers. This rapid
demise of CyberHighway's business is due primarily to three factors:
* In September 2000, we sold our affiliate-ISP business, due to its
lack of
profitability;
* In September 2000, an involuntary bankruptcy petition was filed
against CyberHighway
we estimate that we lost at least 6,000 customers due to this event;
* Our November 2000 switch-over to our contracted Internet service
company's network
we estimate that we lost at least 2,000 customers to due to this
event.
The remainder of lost customers is attributable to CyberHighway's normal
customer attrition rate, in light of the fact that CyberHighway ceased to
advertise its services following the involuntary bankruptcy filing.
We do not intend to commit any resources towards the revitalization of the
business of CyberHighway.
Customers and Markets. We have lost nearly all of our dial-up Internet
access customers. We do not expect that we will ever reclaim any dial-up
customers.
Sales and Marketing. CyberHighway has ceased all sales and marketing
activities. We do not expect that these activities will be resumed.
Affiliate-ISP Program. From its inception, CyberHighway employed an
affiliate marketing program, a technique designed to generate rapid
expansion of CyberHighway's subscriber base, which it did. However, the
affiliate-ISP program was terminated during 1999. In September 2000, this
business was sold, due to its continuing monthly losses.
Customer Service and Support
We are committed to the highest levels of customer satisfaction. We
believe that maintaining high levels of customer satisfaction will remain
as a key competitive factor. Currently, we provide wireless Internet
access customer support during normal business hours. Our customer support
operations can be expected to expand, if and when we obtain needed capital.
Competition
We believe that the primary competitive factors determining success as an
Internet access provider are: a reputation for reliability and high-quality
service; effective customer support; access speed; pricing; effective
marketing techniques for customer acquisition; ease of use; and scope of
geographic coverage. We believe that we will be able to address adequately
all of these factors, except that we will not be able to offer scope of
geographic coverage for the foreseeable future. It is also possible that
we will not address any of these competitive factors successfully. Should
we fail to do so, our business would likely never earn a profit. We
currently lack capital necessary to compete effectively.
We face severe competition from other wireless Internet access providers,
such as from Metricom's RicochetTM product, as well as large, national
providers of cellular telephone service providers.
The market for the provision of dial-up Internet access services, in which
our Quick-Cell wireless Internet access service will compete, is extremely
competitive and highly fragmented. Current and prospective competitors
include many large, nationally-known companies that possess substantially
greater resources, financial and otherwise, market presence and brand name
recognition than do we. We currently compete, or expect to compete, for
the foreseeable future, with the following: national Internet service
providers, numerous regional and local Internet service providers, most of
which have significant market share in their markets; established on-line
information service providers, such as America Online, which provide basic
Internet access, as well as proprietary information not available through
public Internet access; providers of web hosting, co-location and other
Internet-based business services; computer hardware and software and other
technology companies that provide Internet connectivity with their
products; telecommunications companies, including global long distance
carriers, regional Bell operating companies and local telephone companies;
operators that provide Internet access through television cable lines;
electric utility companies; communications companies; companies that
provide television or telecommunications through participation in satellite
systems; and, to a lesser extent, non-profit or educational Internet access
providers.
With respect to potential competitors, we expect that manufacturers of
computer hardware and software products, as well as media and
telecommunications companies will continue to enter the Internet services
market, which will serve to intensify competition. In addition, as more
consumers and businesses increase their Internet usage, we expect existing
competitors to increase further their emphasis on Internet access and
electronic commerce initiatives, resulting in even greater competition.
The ability of competitors or others to enter into business combinations,
strategic alliances or joint ventures, or to bundle their services and
products with Internet access, could place us at a significant competitive
disadvantage. We currently lack capital necessary to compete effectively
and we may never obtain enough capital to permit us to compete effectively
in our markets.
Moreover, we expect to face competition in the future from companies that
provide connections to consumers' homes, such as telecommunications
providers, cable companies and electrical utility companies. For example,
recent advances in technology have enabled cable television operators to
offer Internet access through their cable facilities at significantly
higher speeds than existing analog modem speeds. These types of companies
could include Internet access in their basic bundle of services or offer
such access for a nominal additional charge. Any such developments could
reduce our market share, thereby impairing our ability to earn a profit.
Properties
General. We own all of the equipment necessary for the operation of a
state-of-the-art network operations center. However, because of our
agreement with Dialup USA, we no longer maintain this center. We intend to
utilize this equipment in facilitating the expected growth of our wireless
Internet access business. In addition, we own office equipment necessary
to conduct our business.
In Baton Rouge, Louisiana, we lease approximately 650 square feet for our
executive offices, for a monthly rental of approximately $800, and a 1,600
square foot modem assembly facility, for a monthly rental of approximately
$1500. We lease approximately 500 square feet in Santa Fe, New Mexico, for
a monthly rental of approximately $800. CyberHighway has given up our
leased premises.
Wireless Cable Properties. We own the rights to wireless cable channels in
Poplar Bluff, Missouri, Lebanon, Missouri, Port Angeles, Washington, The
Dalles, Oregon, Sand Point, Idaho, Fallon, Nevada, and Astoria, Oregon. We
have abandoned our efforts to develop these wireless cable properties, due
to current market conditions. Rather, because our Quick-Cell system can be
adapted for use on the wireless cable frequencies, we intend to develop
these properties into operating wireless Internet systems, at such time as
two-way data transmission on these frequencies is permitted. We cannot
predict when this permission will be granted, if ever.
Intellectual Property. We currently rely on common law principles for the
protection of our copyrights and trademarks and trade secret laws to
protect our proprietary intellectual property rights. We do not intend to
file patent applications relating to our Quick-Cell wireless Internet
access products, until completion of future generations of the products.
We have not filed trademark applications relating to the "Quick-Cell" and
the "USURF Wireless Internet" brand names.
We have received authorization to use the products of each manufacturer of
software that is bundled in its software for users with personal computers
operating on the Windows or Macintosh platforms. While certain of the
applications included in our start-up kit for Internet access services
subscribers are shareware that we have obtained permission to distribute or
that are otherwise in the public domain and freely distributable, certain
other applications included in our start-up kit have been licensed where
necessary. We currently intend to maintain or negotiate renewals of all
existing software licenses and authorizations as necessary. We may also
enter into licensing arrangements for other applications, in the future.
Employees
We have eight employees, including four officers. All of our officers have
entered into employment agreements.
None of our employees is covered by any collective bargaining agreement,
nor have we ever experienced a work stoppage. Our management believes
employee relations to be good. Much of our future success will depend, in
large measure, upon our ability to continue to attract and retain highly
skilled technical, sales, marketing and customer support personnel.
THE FUSION CAPITAL TRANSACTION
General
On April 25, 2001, we entered into a common stock purchase agreement with
Fusion Capital, which replaced a similar agreement dated October 9, 2000,
and amended by letter agreement on December 27, 2000, pursuant to which
Fusion Capital agreed to purchase up to $10 million of our common stock.
The selling price of the shares will be equal to a price based upon the
future market price of the common stock without any fixed discount to the
market price.
We intend to file, in the near future, with the SEC a registration
statement that relates to the resale by Fusion Capital of the shares issued
and to be issued pursuant to the Fusion Capital agreement.
Purchase of Shares Under the Fusion Capital Agreement
Under the Fusion Capital agreement, Fusion Capital will purchase shares of
our common stock by purchasing from time to time a specified dollar amount
of our common stock. Subject to the limits on purchase and the termination
rights described below, each day during the term of up to 25 months, Fusion
Capital will purchase $20,000 of our common stock. The term may be
extended up to an additional 3 months at our election. This amount may be
decreased by us at any time. If our stock price equals or exceeds $5.00 per
share, we have the right to increase this monthly amount up to the full
remaining portion of the $10 million commitment. The selling price per
share is equal to the lesser of:
* the lowest sale price of our common stock on the day of submission
of a purchase
notice by Fusion Capital; or
* the average of the three lowest closing sale prices of our common
stock during the 15
trading days prior to the date of submission of a purchase notice
by Fusion Capital.
The selling price will be adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar
transaction occurring during the fifteen (15) trading days in which the
closing bid price is used to compute the purchase price. Even though the
Fusion Capital Agreement restricts Fusion Capital from owning more than
9.9% of our stock at any one time, this restriction does not prevent Fusion
Capital from selling a portion of its holdings and later purchasing
additional shares. Thus, it is possible that the total number of shares
purchased by Fusion Capital would be greater than 9.9% of the
then-outstanding common stock.
The following table sets forth the number of shares of our common stock
that would be sold to Fusion Capital upon our sale of common stock under
the Fusion Capital agreement at varying purchase prices:
Total Shares Percent of Our
Common
Issuable Upon Stock Outstanding
Assumed Per a Full Purchase After Giving
Share Purchase Under the Fusion Effect to the
Issuance
Price Capital Agreement(1) Gross Proceeds to Fusion Capital
$ .40(2) 6,000,000 $2,400,000 23.50%
$ 1.50 6,000,000 $9,000,000 23.50%
$ 2.00 5,000,000 $10,000,000 20.38%
$ 5.00 2,000,000 $10,000,000 9.29%
$10.00 1,000,000 $10,000,000 4.87%
------------
(1) We intend to register 6,000,000 shares in connection with the
Fusion Capital
agreement.
(2) Closing price on April 26, 2001, as reported by AMEX.
(3) In this circumstance, we intend to terminate that agreement
without payment or
liability to Fusion Capital. Thus, we would not be able to obtain
the maximum $10
million under that agreement.
Since we only plan to sell up to 6,000,000 shares to Fusion Capital under
the Fusion Capital agreement, the selling price of our stock sold to Fusion
Capital will need to average $1.67 per share for us to receive the maximum
proceeds of $10 million under that agreement. Assuming a selling price of
$.40 per share, the closing sale price of the common stock on April 26,
2001, and the purchase by Fusion Capital of the full amount of shares
purchasable under the Fusion Capital agreement, proceeds to us would only
be approximately $2,400,000, unless we choose to issue more than 6,000,000
shares, which we have the right to do.
Our Right to Prevent Purchases
At any time or from time to time, we shall have the unconditional right to
prevent any purchases by Fusion Capital effective upon three trading days
prior notice. To the extent we need to use the cash proceeds of the sales
of common stock under the Fusion Capital agreement for working capital or
other business purposes, we do not intend to restrict purchases under the
Fusion Capital agreement.
Our Right to Mandatory Purchases
At all times, we shall have the right to decrease the $20,000 daily
purchase amount. If the closing sale price of our common stock is at least
$5.00 for five consecutive trading days, we shall have the right to require
purchase by Fusion Capital of part or all of the full remaining portion of
the $10 million amount, in such amounts as determined by us. Our right to
require purchase by Fusion Capital shall be exercisable by written notice
from us to Fusion Capital.
Our Termination Rights
Prior to the date on which shares are purchased by Fusion Capital, we shall
have the right to terminate the common stock purchase agreement at any time
for any reason. After the date on which shares are first purchased by
Fusion Capital, we shall have the right to terminate the common stock
purchase agreement at any time for any reason, by giving notice to Fusion
Capital exercising our right to terminate the agreement. The termination
notice shall be effective three trading days after Fusion Capital receives
such notice. We may not exercise our termination rights in anticipation of,
or in connection with, a change of control or other major transaction
unless the change of control or other major transaction has been publicly
disclosed for at least 60 trading days.
No Short-Selling or Hedging by Fusion Capital
Fusion Capital has agreed that neither it nor any of its affiliates will
engage in any direct or indirect short-selling or hedging of our common
stock during any time prior to the termination of the Fusion Capital
agreement.
Events of Default
Generally, Fusion Capital may terminate the Fusion Capital agreement
without any liability or payment to us upon the occurrence of any of the
following events of default:
* if for any legal reason the shares purchased cannot be sold
pursuant to this
prospectus for a period of 10 consecutive trading days or for more
than an aggregate
of 30 trading days in any 365-day period;
* suspension by the American Stock Exchange of our common stock from
trading for a
period of 10 consecutive trading days or for more than an aggregate
of 30 trading days
in any 365-day period;
* our failure to satisfy any listing criteria of the American Stock
Exchange for a
period of 10 consecutive trading days or for more than an aggregate
of 30 trading days
in any 365-day period;
* (1) notice from us or our transfer agent to the effect that we or
the transfer agent
intends not to comply with a proper request for purchase of shares
under the Fusion
Capital agreement; (2) our failure to promptly confirm to the
transfer agent Fusion
Capital's purchase notice; or (3) the failure of the transfer agent
to issue shares of
our common stock promptly upon delivery of a purchase notice or
upon delivery of a
warrant exercise notice;
* any material breach of the representations or warranties or
covenants contained in the
Fusion Capital agreement or any related agreements which has or
which could have a
material adverse affect on us, subject to a cure period of 10
trading days;
* if the number of shares to be issued to Fusion Capital reaches an
aggregate amount
that would require shareholder approval under our principal market
regulations (to the
extent not previously obtained and then required) or otherwise
cause us to breach our
principal market rules and regulations;
* a default of any payment obligation of USURF America in excess of
$1.0 million; or
* commencement of insolvency or bankruptcy proceedings by or against
USURF America.
Shares and Warrants Issued to Fusion Capital
Under the Fusion Capital agreement, Fusion Capital has received 800,000
shares as part of its commitment fee. These shares may not be sold by
Fusion Capital until the earliest of termination of the Fusion Capital
agreement, default under the Fusion Capital agreement or approximately 25
months from the date hereof. Under the Fusion Capital agreement, we have
issued to Fusion Capital, as part of its commitment fee, warrants to
purchase 215,000 shares of our common stock at an exercise price of $.25
per share, warrants to purchase 215,000 shares of our common stock at an
exercise price of $.35 per share and warrants to purchase 215,000 shares of
our common stock at an exercise price of $.45 per share. These warrants
are exercisable by Fusion Capital for a period of five years from the date
of their issuance.
No Variable-Priced Financings
Until the termination of the Fusion Capital agreement, we have agreed not
to issue, or enter into any agreement with respect to the issuance of, any
variable-priced equity or variable-priced "equity-like" securities, unless
we have obtained Fusion Capital's prior written consent.
Holdings of Fusion Capital Upon Termination of the Offering
Because Fusion Capital may sell all, some or none of the common stock
offered by this prospectus, no estimate can be given as to the amount of
common stock that will be held by Fusion Capital upon early termination of
the offering.
Registration Rights Agreement
In connection with the execution of the Fusion Capital agreement, we
executed a registration rights agreement with Fusion Capital, which relates
to the shares of our stock issued or to be issued under the Fusion Capital
agreement. We are required under the registration rights agreement to
register all such shares of our common stock pursuant to a registration
statement and to keep such registration statement current for purposes of
Rule 424 under the Securities Act, for a period of up to five years. In
keeping with our obligations under this agreement, we intend to file, in
the near future, with the SEC a registration statement that relates to the
resale by Fusion Capital of the shares issued and to be issued pursuant to
the Fusion Capital agreement.
Finder's Fee
Pursuant to the transactions contemplated by the Fusion Capital agreement,
we have issued to our investment banker, Gruntal & Co., L.L.C., as a
finder's fee, 200,000 shares of our common stock and a total of 161,250
warrants. All of the warrants issued to Gruntal & Co. are exercisable for
a period of five years from the date of their issuance.
In addition to the shares and warrants to be issued to Gruntal & Co., we
will be obligated to pay to Gruntal & Co., as a further finder's fee, a sum
of cash equal to 8% of the gross proceeds obtained by us pursuant to the
Fusion Capital agreement.
MANAGEMENT
Directors and Officers
The following table sets forth the officers and directors of USURF America.
Name Age Position(s)
David M. Loflin(1) 43 President, Acting Chief
Financial Officer
and Director
Waddell D. Loflin(1) 51 Vice President, Secretary
and Director
Robert A. Hart IV 53 Vice President of Technology
James Kaufman 36 Vice President Corporate
Development
Ross S. Bravata 42 Director
Michael Cohn 43 Director
------------
(1) David M. Loflin and Waddell D. Loflin are brothers.
Our current officers and directors serve until the next annual meeting of
our board of directors or until their respective successors are elected and
qualified. All officers serve at the discretion of our board of directors.
Family relationships between our officers and directors are noted above.
Certain information regarding the backgrounds of each of the officers and
directors is set forth below.
David M. Loflin, President and Director, has, for more than the past five
years, owned and operated Gulf Atlantic Communications, Inc., a Baton
Rouge, Louisiana-based wireless technology firm specializing in development
of wireless cable systems and broadcast television stations. Gulf Atlantic
has designed, constructed and operated two wireless cable systems: (1)
Baton Rouge, Louisiana, and (2) Selma, Alabama. Mr. Loflin developed and
currently operates one television station, WTVK-TV11, Inc. (a Warner
Brothers Network affiliate), Channel 11 in Baton Rouge, Louisiana. For
over ten years, Mr. Loflin has served as a consultant for Wireless One, one
of the largest wireless communications firms in the United States. Mr.
Loflin is a member of the Wireless Cable Association International and the
Community Broadcasters Association.
Waddell D. Loflin, Vice President, Secretary and Director, has, for more
than the past five years, served as Vice President of Operations and
Treasurer of Gulf Atlantic Communications, Inc. and WTVK-TV11, Inc., both
in Baton Rouge, Louisiana. In addition, Mr. Loflin serves as Production
Manager and Film Director for WTVK-TV11, Inc. Mr. Loflin served as General
Manager for Baton Rouge Television Company, Baton Rouge, Louisiana, a
wireless cable system, where he directed the development and launch of such
wireless cable system. Also, Mr. Loflin has devoted over five years to
demographic research relating to the wireless cable industry. Mr. Loflin
is a member of the Wireless Cable Association International and the
Community Broadcasters Association. Mr. Loflin holds a B.A. degree in
Social Sciences from Oglethorpe University, Atlanta, Georgia.
Robert A. Hart, IV, Vice President of Technology, is a 30-year veteran of
the telecommunications industry as proprietor of Hart Engineers, which
provides engineering and consulting services to BellSouth, numerous
independent telephone companies and other communications service providers.
Mr. Hart is a graduate of Louisiana State University with a B.S. degree in
Electrical Engineering and is a Registered Professional Engineer. Mr. Hart
has served on the board of the Small Business Personal Communications
Services (PCS) Association, a national trade association focused on small
business applications and opportunities for PCs technology (a universal
wireless communications technology), and also served this organization as
chairman of the lobbying committee. He is also a past board member and
current member of the Association of Communication Engineers, and current
member of the Institute of Electrical and Electronics Engineers, National
Society of Professional Engineers and the Louisiana Engineering Society.
James Kaufman, Vice President Corporate Development, received a B.S.
degree in Journalism from the University of Colorado, Boulder, Colorado.
From 1994 to 1995, Mr. Kaufman was a registered representative with D.E.
Fry, a Denver, Colorado-based broker-dealer. From 1995 to 1996, Mr.
Kaufman was a registered representative with A.G. Edwards, a St. Louis,
Missouri-based broker-dealer. From 1997 to February 1999, Mr. Kaufman
served as Director of Corporate Development for B. Edward Haun & Company, a
Denver, Colorado-based investment banking and research firm.
Ross S. Bravata, Director, has, since 1981, worked for Novartis (formerly
Ciba Corporation), in various positions, and currently serves as a Senior
Control Systems Technician. In such capacity, Mr. Bravata supervises the
service and maintenance of electronic instrumentation. Since 1988, Mr.
Bravata has served as a director and principal financial officer of CG
Federal Credit Union, Baton Rouge, Louisiana. Also, Mr. Bravata has, since
its inception in 1994, served as a director of Trinity's Restaurant, Inc.,
in Baton Rouge, Louisiana.
Michael Cohn, Director, has, for over 20 years, owned and operated Arrow
Pest Control, Inc., Baton Rouge, Louisiana. In addition, Mr. Cohn owns
Arrow Pest Control of New Orleans, Wilson and Sons Exterminating in Mobile,
Alabama, and Premier Termite and Pest Control in Florida.
Executive Committee
Our board of directors created an Executive Committee to facilitate
management between meetings of the full board of directors. David M.
Loflin, Waddell D. Loflin and Ross S. Bravata comprise the Executive
Committee.
Our bylaws provide that the Executive Committee has the authority to
exercise all powers of the board of directors, except the power:
* Declare dividends;
* Sell or otherwise dispose of all or substantially all of our assets;
* Recommend to our shareholders any action requiring their approval; and
* Change the membership of any committee, fill the vacancies thereon
or discharge
any committee.
The Executive Committee, in general, acts on all matters requiring approval
of our board of directors.
Audit Committee
In September 1999, our board of directors created an Audit Committee,
consisting of three members, the majority of whom must be outside
directors. The initial members of the Audit Committee are David M. Loflin
and Michael Cohn. There is one vacancy on this committee, due to the
recent resignation of Richard N. Gill as a director. The Audit Committee
has the responsibility to review internal controls, accounting policies and
financial reporting practices, to review the financial statements, the
arrangements for, and scope of, the independent audit as well as the
results of the audit arrangement and to review the services and fees of the
independent auditors, their independence and recommend to the board of
directors for its approval and for the ratification by our shareholders the
engagement of the independent auditors to serve the following year in
examining our accounts. The Audit Committee has held two meetings.
The Audit Committee recommended the change in our auditors to the full
board of directors.
Executive Compensation
The following table sets forth in summary form the compensation received
during each of the last three completed fiscal years by our Chief Executive
Officer and each executive officer who received total salary and bonus
exceeding $100,000 during any of the last three fiscal years.
Long-
term
Compen-
sation
Other Awards All
Annual of other
Name and Compen- Stock Compen-
Principal Salary Bonus sation Options sation
Position Year $ $ $ # $
--------- ---- -------- ---------- ------- ------- -------
David M. 2000 $62,500(1) $-0- $-0- 0 $-0-
Loflin 1999 $62,500(2) $-0- $-0- 0 $-0-
President 1998 $55,000 $-0- $-0- 0 $-0-
[Principal
Executive
Officer]
Waddell D. 2000 $41,667(3) $48,000(7) $-0- 0 $-0-
Loflin 1999 $41,667(4) $-0- $-0- 0 $-0-
[Vice 1998 $48,000 $-0- $-0- 0 $-0-
President
and Sec-
retary]
James 2000 $103,333(5) $71,000(8) $-0- 0 $-0-
Kaufman 1999 $103,333(6) $-0- $-0- 0 $-0-
[Vice 1998 $-0- $-0- $-0- 0 $-0-
President
- Corporate
Develop-
ment]
Julius W. 2000 $-0- $-0- $-0- 0 $-0-
Basham II 1999 $133,762 $-0- $-0- 0 $-0-
[Former 1998 $-0- $-0- $-0- 0 $-0-
Chief
Operating
Officer]
Robert A. 2000 $-0- $500,000(9) $-0- 0 $-0-
Hart IV 1999 $-0- $-0- $-0- 0 $-0-
[Vice 1998 $-0- $-0- $-0- 0 $-0-
President
- Tech-
nology]
-------------
(1) $27,083 of this amount has been accrued.
(2) $27,083 of this amount has been accrued.
(3) $10,417 of this amount has been accrued.
(4) $10,417 of this amount has been accrued.
(5) $20,667 of this amount has been accrued.
(6) $20,667 of this amount has been accrued; $82,666 of this amount was
paid in shares of our stock.
(7) This bonus was paid by the issuance of 200,000 shares to Mr. Loflin,
which were valued at $.24 per share, the last closing price of our common
stock prior to the issuance.
(8) This bonus was paid by the issuance of 300,000 shares to Mr. Kaufman,
which were valued at $.24 per share, the last closing price of our common
stock prior to the issuance.
(9) Mr. Hart received 250,000 shares of our common stock as a signing bonus
under the terms of his employment agreement. These shares were valued at
$2.00 per share.
In May 2000, we issued 250,000 shares to Robert A. Hart IV, our vice
president of technology, as a bonus, upon the execution of his employment
agreement. These shares were valued at $2.00 per share, which was the
closing price of our common stock on the day of Mr. Hart's execution of his
employment agreement.
In December 2000, two of our vice presidents, Waddell D. Loflin and James
Kaufman, were issued shares of our common stock as a bonus. Mr. Loflin was
issued 200,000 shares and Mr. Kaufman was issued 300,000 shares. These
shares were valued at $.24 per share, which was the closing sale price of
our common stock on the day immediately preceding their issuance.
Compensation of Directors
In March 1998, four of our directors, Waddell Loflin, Ross S. Bravata,
Richard N. Gill and Michael Cohn, were issued 20,000 shares each of our
common stock as a bonus for their services as directors. These shares were
valued at $.80 per share by the board of directors; however, for financial
reporting purposes, these shares were valued at $.56 per share, the last
closing bid price for our common stock prior to issuance.
No other compensation has been paid to any of our directors for their
services as directors. It is possible that our management could begin to
pay our directors for meetings attended or grant a small number of stock
options for their services. However, no specific determination in this
regard has been made.
Employment Contracts and Termination of
Employment and Change-in-Control Agreements
Each of our officers have entered into employment agreement, as well as
confidentiality agreements and agreements not to compete.
Name of Officer Position(s) Term Salary Date
---------------- ----------- ---- ------ ----
David M. Loflin President 7 years $150,000(1) 6/1/99
Waddell D. Loflin Vice President 7 years $100,000(2) 6/1/99
and Secretary
Robert A. Hart, IV Vice President 3 years $90,000(3) 5/25/00
of Technology
James Kaufman Vice President, 1 year $120,000(4) 3/22/99
Corporate (renewable)
Development
------------
(1) Mr. Loflin has agreed to defer payment of a portion of his salary
until we are able
to pay it. As at December 31, 2000, we owed Mr. Loflin deferred
salary in the amount of
$54,166.
(2) Mr. Loflin has agreed to defer payment of a portion of his salary
until we are able
to pay it. As at December 31, 2000, we owed Mr. Loflin deferred
salary in the amount of
$20,834.
(3) Mr. Hart will begin to receive salary payments at such time as we
obtain a
significant capital investment. Mr. Hart received 250,000 shares of
our stock as a
signing bonus, which shares were valued at $500,000. The value of
these shares was
derived from the closing price for our stock on the date of execution
of his employment
agreement.
(4) Mr. Kaufman has agreed to defer payment of a portion of his salary
until we are able
to pay it. As at December 31, 2000, we owed Mr. Kaufman deferred
salary in the amount of
$41,334, 80% of which is payable in shares of our stock. In 2000, we
issued Mr. Kaufman
a total of 34,536 shares of our stock valued at $154,667 in payment of
the stock portion
of his salary.
In January 1999, we entered into an employment agreement with Julius W.
Basham, II, formerly a director and our former chief operating officer.
Pursuant to the terms of a settlement agreement, Mr. Basham resigned as
chief operating officer on January 4, 2000.
In November 2000, we terminated the employment of Darrell Davis, formerly
Vice President of U.S. Internet Operations, based on violations of his
employment agreement. (See "Litigation" for a discussion of Mr. Davis'
termination).
In December 2000, we terminated the employment of Christopher L. Wiebelt,
formerly Vice President of Finance and Chief Financial Officer, based on
violations of his employment agreement. (See "Litigation" for a discussion
of Mr. Wiebelt's termination).
We have no compensatory plan or arrangement that results or will result
from the resignation, retirement or any other termination of an executive
officer's employment or from a change in control or a change in an
executive officer's responsibilities following a change-in-control.
Option/SAR Grants in Last Fiscal Year
We have never granted any stock appreciation rights (SARs), nor do we
expect to grant any SARs in the foreseeable future.
Section 16(a) Beneficial Ownership Reporting Compliance
We became subject to the provisions of Sections 16(a) of the Securities
Exchange Act of 1934 on October 14, 1999. Section 16(a) requires
directors, executive officers and persons who own more than 10% of our
outstanding common stock to file with the SEC an Initial Statement of
Beneficial Ownership of Securities (Form 3) and Statements of Changes of
Beneficial Ownership of Securities (Form 4). Directors, executive officers
and greater-than-10% shareholders are required by SEC regulation to furnish
copies to us of all Section 16(a) forms they file.
Based on a review of copies of these reports furnished to us, we believe
that all of our directors, executive directors and greater-than-10%
beneficial owners filed their respective Form 3 reports; all of the Form 3
reports were filed late. Form 5 reports for 1999 and 2000 for all officers
and directors are due and have not yet been filed. Form 4 reports for
certain of our officers and directors are due and have not yet been filed.
We have requested that all of these persons file the required reports.
Based on a review of the copies of these reports furnished to us, it
appears that Julius W. Basham, II, a former officer, director and
10%-owner, is current in his filings of required Forms 4 and Form 5 and is
no longer required to file ownership reports.
Indemnification of Directors and Officers
Article X of the Articles of Incorporation of USURF America provides that
no director or officer shall be personally liable to USURF America or its
shareholders for damages for breach of fiduciary duty as a director or
officer; provided, however, that such provision shall not eliminate or
limit the liability of a director or officer for (1) acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law
or (2) the payment of dividends in violation of law. Any repeal or
modification of Article X shall be prospective only and shall not adversely
affect any right or protection of a director or officer of USURF America
existing at the time of such repeal or modification for any breach covered
by Article X which occurred prior to any such repeal or modification. The
effect of Article X is that directors and officers will experience no
monetary loss for damages arising out of actions taken (or not taken) in
such capacities, except for damages arising out of intentional misconduct,
fraud or a knowing violation of law, or the payment of dividends in
violation of law.
As permitted by Nevada law, our bylaws provide that we will indemnify our
directors and officers against expense and liabilities they incur to
defend, settle or satisfy any civil, including any action alleging
negligence, or criminal action brought against them on account of their
being or having been directors or officers unless, in any such action, they
are judged to have acted with gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or control
persons pursuant to the foregoing provisions, we have been informed that,
in the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
Founders
In November 1996, David M. Loflin purchased 1,600,000 shares of our common
stock for $1,600 and Waddell D. Loflin, purchased 200,000 shares of our
common stock for $200.
Conversion of Loans to Stock by Officer
As of August 21, 2000, we owed Mr. Loflin a total of $967,703 ($916,045 in
principal, $51,658 in interest), the result of cash loans made to us by Mr.
Loflin during the past approximately two years. The proceeds of these
loans were used primarily for operating expenses and purchases of
equipment. On August 21, 2000, we entered into a letter agreement with our
president, David M. Loflin, whereby Mr. Loflin agreed to convert all sums
owed to him into shares of our common stock.
Pursuant to the letter agreement, Mr. Loflin received one share of common
stock for every $1.25 of debt converted, for a total of 774,162 shares.
The $1.25 price was agreed upon as that price was the low sale price for
our common stock on Friday, August 18, 2000, as reported by AMEX.
Our board of directors, in authorizing the transaction described above,
found the transaction to be in the best interest of USURF America, as it
would significantly improve our financial condition, potentially making it
more attractive to prospective investors.
Subscription Agreements
In December 1996, we entered into a subscription agreement with David M.
Loflin, whereby we issued 1,578,512 shares of our common stock to Mr.
Loflin in exchange for assignments of licenses and leases of licenses of
television channels and wireless cable television channels and options to
acquire these assets.
These assets were valued at $1,826,873, which was determined pursuant to a
market report and appraisal prepared by Broadcast Services International,
Inc., Sacramento, California. A more complete description of this
appraisal appears below, under the heading "Appraisal". Mr. Loflin's total
acquisition costs of these assets are unknown. Accordingly, our financial
statements attribute no value to these assets.
Also in December 1996, we entered into a subscription agreement with
Waddell D. Loflin, whereby we issued 104,249 shares of our common stock to
Mr. Loflin in exchange for an assignment of the license of a television
channel.
These assets were valued at $120,652, which was determined pursuant to the
appraisal described above. Mr. Loflin's acquisition costs of these assets
are unknown. Accordingly, our financial statements attribute no value to
these assets.
Reorganizations
Effective December 31, 1996, we entered into an agreement and plan of
reorganization, whereby we purchased television station K13VE Channel 13 in
Baton Rouge, Louisiana. In this transaction, David M. Loflin received
227,336 shares of our common stock for his ownership in this television
station. The television station was valued at $263,106, which was
determined pursuant to the appraisal described above. Mr. Loflin's
acquisition costs relating to the rights to K13VE Channel 13 were $6,750.
An additional $10,587 in costs was capitalized.
Effective December 31, 1996, we entered into an agreement and plan of
reorganization, whereby we purchased licenses and leases of licenses of
wireless cable television channels in Poplar Bluff, Missouri, and Lebanon,
Missouri. In this transaction, David M. Loflin received 1,179,389 shares
of our common stock valued at $1,364,553; Ross S. Bravata, one of our
directors, received 42,887 shares of our common stock valued at $49,620;
and Michael Cohn, one of our directors, received 53,608 shares of our
common stock valued at $62,024. The values assigned to the assets acquired
from Messrs. Loflin, Bravata and Cohn were determined pursuant to the
appraisal described above. The acquisition cost of these assets was
$179,611, which is reflected in our financial statements. At the time of
this transaction, Messrs. Bravata and Cohn were not directors.
Securities Purchases
In March 1997, Michael Cohn purchased 20,000 shares of our common stock for
$50,000 in cash. At the time of this transaction, Mr. Cohn was not a director.
In January 1999, Mr. Cohn purchased 30,000 units of our securities in a
private offering, at a purchase of $4.50 per unit, or $135,000 in the
aggregate. Each unit purchased by Mr. Cohn consisted of one share of our
common stock and one common stock purchase warrant to purchase one share of
our common stock at an exercise price of $7.00 per share. Mr. Cohn
purchased units on the same terms and conditions as were offered to
unaffiliated persons.
In November 1999, Mr. Cohn purchased 50,000 units of our securities in a
private offering, at a purchase of $3.00 per unit, or $150,000 in the
aggregate. Each unit purchased by Mr. Cohn consisted of one share of our
common stock and one common stock purchase warrant to purchase one share of
our common stock at an exercise price of $7.00 per share. Mr. Cohn
purchased units on the same terms and conditions as were offered to
unaffiliated investors.
Stock Bonus Officers
In May 2000, one of our vice presidents, Robert A. Hart IV, was issued
250,000 shares of our common stock as an employment agreement signing
bonus. These shares were valued at $500,000, or $2.00 per share, pursuant
to the terms of the Mr. Hart's employment agreement.
In December 2000, two of our vice presidents, Waddell D. Loflin and James
Kaufman, were issued shares of our common stock as a bonus. Mr. Loflin was
issued 200,000 shares and Mr. Kaufman was issued 300,000 shares. These
shares were valued at $119,000, or $.24 per share, which was the closing
sale price of our common stock on the day immediately preceding their
issuance.
Stock Bonus Directors
In March 1998, four of our directors, Waddell Loflin, Ross S. Bravata,
Richard N. Gill and Michael Cohn, were issued 20,000 shares each of our
common stock as a bonus for their services as directors. These shares were
valued by the board of directors at $.80 per share. However, for financial
reporting purposes, these shares were valued at $.56 per share, the last
closing bid price for our common stock prior to issuance.
Employment Agreements
Each of our officers have entered into employment agreement, as well as
confidentiality agreements and agreements not to compete.
Name of Officer Position(s) Term Salary Date
---------------- ----------- ---- ------ ----
David M. Loflin President 7 years $150,000(1) 6/1/99
Waddell D. Loflin Vice President 7 years $100,000(2) 6/1/99
and Secretary
Robert A. Hart, IV Vice President 3 years $90,000(3) 5/25/00
of Technology
James Kaufman Vice President, 1 year $120,000(4) 3/22/99
Corporate (renewable)
Development
------------
(1) Mr. Loflin has agreed to defer payment of a portion of his salary
until we are able
to pay it. As at December 31, 2000, we owed Mr. Loflin deferred
salary in the amount of
$54,166.
(2) Mr. Loflin has agreed to defer payment of a portion of his salary
until we are able
to pay it. As at December 31, 2000, we owed Mr. Loflin deferred
salary in the amount of
$20,834.
(3) Mr. Hart will begin to receive salary payments at such time as we
obtain a
significant capital investment. Mr. Hart received 250,000 shares of
our stock as a
signing bonus, which shares were valued at $500,000. The value of
these shares was
derived from the closing price for our stock on the date of execution
of his employment
agreement.
(4) Mr. Kaufman has agreed to defer payment of a portion of his salary
until we are able
to pay it. As at December 31, 2000, we owed Mr. Kaufman deferred
salary in the amount of
$41,334, 80% of which is payable in shares of our stock. In 2000, we
issued Mr. Kaufman
a total of 34,536 shares of our stock valued at $154,667 in payment of
the stock portion
of his salary.
In January 1999, we entered into an employment agreement with Julius W.
Basham, II, formerly a director and our former chief operating officer.
Pursuant to the terms of a settlement agreement, Mr. Basham resigned as
chief operating officer on January 4, 2000.
In May 2000, we issued 250,000 shares to Robert A. Hart IV, our vice
president of technology, as a bonus, upon the execution of his employment
agreement. These shares were valued at $2.00 per share, which was the
closing price of our common stock on the day of Mr. Hart's execution of his
employment agreement.
In November 2000, we terminated the employment of Darrell Davis, formerly
Vice President of U.S. Internet Operations, based on violations of his
employment agreement. (See "Litigation" for a discussion of Mr. Davis'
termination).
In December 2000, we terminated the employment of Christopher L. Wiebelt,
formerly Vice President of Finance and Chief Financial Officer, based on
violations of his employment agreement. (See "Litigation" for a discussion
of Mr. Wiebelt's termination).
Voting Agreement
On January 29, 1999, David W. Loflin, Waddell D. Loflin, Julius W. Basham,
David W. Brown and Wm. Kim Stimpson entered into a voting agreement,
whereby all of these persons are required to vote all shares owned by them
for David M. Loflin and Waddell D. Loflin in all elections of directors of
USURF America. Currently, approximately 4,100,000 shares are subject to
this voting agreement. This amount of stock represents approximately 21%
of our currently outstanding shares.
Settlement Agreement
On November 30, 1999, we entered into a settlement agreement and mutual
release, which settled certain legal proceedings in which USURF America and
CyberHighway, had been involved. The parties to the settlement agreement
were: USURF America, CyberHighway, Julius W. Basham, II, William Kim
Stimpson and David W. Brown.
Under the settlement agreement, the following legal proceedings have been
settled in full: (1) David W. Brown, Plaintiff v. USURF America, Inc. and
Cyberhighway, Inc., Defendants, in the District Court of the Fourth
Judicial District of the State of Idaho, in and for the County of Ada,
Civil Case No. CV OC 9904230D; (2) Julius W. Basham, II, Individual
Plaintiff, David W. Brown, William Kim Stimpson, Individuals, Involuntary
Party Plaintiffs v. USURF America, Inc., formerly known as Internet Media,
Inc., in the District Court of the Fourth Judicial District of the State of
Idaho, in and for the County of Ada, Civil Case No. CVOC 9904382D; and (3)
David W. Brown, Claimant v. Cyberhighway, Inc., Respondent, Industrial
Commission, State of Idaho, IDOL 3362-1999.
Other material terms of the settlement agreement include
* each and every of the claims made in the legal proceedings
described above by Basham,
Stimpson and Brown were dismissed with prejudice and any other
potential claims of
Basham, Stimpson and Brown against USURF America and/or
CyberHIghway released;
* USURF America and CyberHighway released any and all claims against
Basham, Stimpson
and Brown;
* Basham, Stimpson and Brown each reaffirmed their existing
agreements not to compete,
with the exception that Brown is now able to seek any employment
opportunity, except
that Brown remains prohibited from working for any person or entity
engaged in the 2.4
GHz wireless Internet access industry;
* Basham, Stimpson and Brown each reaffirmed their existing
confidentiality agreements
in their entirety;
* USURF America delivered a total of 340,000 shares of common stock,
as follows: 215,000
shares to Basham; 34,000 shares to Stimpson; and 91,000 shares to
Brown; these shares
were valued at $2.6875 per share, $913,750 in the aggregate;
* Basham resigned as chief operating officer of USURF America;
* USURF America paid, as reimbursement for attorneys fees incurred by
Basham, Stimpson
and Brown, the total sum of $43,325 to the law firm of Givens
Pursley, Boise, Idaho;
* each of Basham, Stimpson and Brown acknowledged that the voting
agreement among
Basham, Stimpson, Brown, David M. Loflin and Waddell D. Loflin
remained in full force
and effect; and
* nothing contained in the settlement agreement is construed as an
admission of
liability by any party to the settlement agreement.
For a discussion on the financial impact of the settlement agreement,
please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
The board of directors determined that entering into the settlement
agreement was in the best interest of USURF America.
H + N Partners
During 1998, we issued a total of 187,000 shares of our common stock to H +
N Partners, a fictitious name division of B. Edward Haun & Company, a
Denver, Colorado-based investment banking and research firm in which James
Kaufman, our Vice President Corporate Development, was a partner. Mr.
Kaufman received a portion of the shares issued to H + N Partners. 37,000
of the shares were valued at $2.00 per share and 150,000 of the shares were
valued at $2.50 per share. All of the shares issued to H+N Partners were
the subject of effective registration statements filed with the SEC. Mr.
Kaufman was not an officer at the time of the stock issuances to H + N
Partners.
Also during 1998, in connection with a private offering of our securities,
we issued to H + N Partners 56,667 warrants to purchase a like number of
shares of our common stock at an exercise price of $1.25 per share and
56,667 warrants to purchase a like number of shares of our common stock at
an exercise price of $1.50 per share. H+N Partners is a selling
shareholder under this prospectus as to all of the shares underlying these
warrants. Mr. Kaufman was not an officer at the time of the warrant
issuances to H + N Partners.
Fusion Capital Consulting Agreement
On January 12, 2001, we entered into a one-year consulting agreement with
Fusion Capital, pursuant to which Fusion Capital agreed to provide
operational and strategic consulting services. Fusion Capital will receive
10,000 shares of our common stock during each month of this agreement and
reimbursement for expenses.
Appraisal
Background. The appraisal referred to above was prepared by Broadcast
Services International, Inc., a now-defunct Sacramento, California-based
communications appraisal firm. The report of Broadcast Services was based
on 1990 Census Data. With respect to the wireless cable markets, the
engineering studies relied upon by Broadcast Services indicate the number
of households within the broadcast radius using the 1200 MHZ frequency.
The 1200 MHZ frequency was assumed, due to Broadcast Service's experience
that, given all of the variables that may be present in a market-by-market
system build-out, the actual benchmark performance is more truly reflected
by using the higher (1200 MHZ) frequency, such that the signal attenuation
is not over-stated. Valuation formulas for the wireless cable markets were
based on initial public offerings within the wireless cable industry during
the past three years. The formulas used in evaluation of the broadcast
channels were based on recent sales and market evaluation techniques
employed by the Community Broadcasters Association, among others.
Use of Appraisal. At our inception, the board of directors adopted a plan
that provided that our initial capitalization be 6,000,000 shares.
1,800,000 of these shares were sold as founders' stock and 360,000 shares
were sold to a public company for distribution as a dividend. The balance
of these shares, 3,840,000 shares, were to be utilized to acquire assets,
which were acquired pursuant to the subscription agreements and the
reorganization agreements described above. The board of directors utilized
the appraisal as a means to allocate the 3,840,000 shares among the assets
acquired, as follows:
Current
Percentage
Appraised Shares of of Out-
Value of Common Stock standing Historical Cost
Transaction Assets Acquired Issued shares of Assets
------------- --------------- ------------- ---------- ---------------
Subscription
Agreement
with David M.
Loflin $1,826,873 1,578,512 8.08% Unknown
Subscription
Agreement
with Waddell D. less
Loflin 120,652 104,249 than 1% Unknown
First
Reorganization 263,106 227,336 1.16% $ 17,337
Second
Reorganization 2,233,555 1,929,903 9.88% $179,611
Total $4,444,186 3,840,000 19.66% $196,948
--------------
(1) These historical costs could not be determined by our original
independent auditor, due to the lack of reliable cost records associated
with the underlying assets. Consequently, no value was assigned to these
assets, for financial statement purposes.
The apparent $1.157 per share value was determined by dividing the
3,840,000 shares of our common stock allocated by the board of directors
for asset acquisition into the $4,444,186 total appraised value of the
assets acquired. The board of directors utilized this apparent per share
value for corporate purposes, that is, the determination of consideration
received for the issuance of shares of our common stock. However, the
independent appraiser did not value the shares of our common stock issued
in consideration of the assets acquired. Rather, the independent appraiser
valued only the assets acquired by us in the various transactions. The
$1.157 per share figure was utilized by the board of directors primarily as
a means of allocating the 3,840,000 shares among the four asset acquisition
transactions consummated in completing its plan for our initial
capitalization. Thus, the $1.157 figure, while utilized in two ways by the
board of directors, was determined arbitrarily by the board of directors
and is not based on any accounting or other financial criteria.
The appraised value of the assets described above bears no relationship to
the costs of the assets to the affiliates from whom they were acquired.
PRINCIPAL SHAREHOLDERS
There are 19,826,770 shares of our common stock issued and outstanding.
The following table sets forth certain information regarding the current
beneficial ownership of our common stock, and after giving effect to the
issuance of all 3,487,727 shares of common stock underlying currently
outstanding and exercisable options and warrants by (i) persons known to be
beneficial owners of more than 5% of our common stock, (ii) each our
officers and directors and (iii) our officers and directors, as a group.
Unless otherwise noted, the address of the listed persons is 8748 Quarters
Lake Road, Baton Rouge, Louisiana 70809.
Name and Shares Shares
Address of Owned Percent Owned Percent
Beneficial Owner Beneficially Owned(1) Beneficially Owned(1)
David M. Loflin(2) 3,250,960 13.94% 3,250,960 13.94%
Waddell L. Loflin(2) 290,000 1.24% 290,000 1.24%
James Kaufman 625,000 2.68% 625,000 2.68%
665 W. Velarde Drive
Thousand Oaks, CA 91360
Robert A. Hart IV 250,000 1.07% 250,000 *
Ross S. Bravata 32,000 * 32,000 *
Michael Cohn 209,000(3) * 79,000(4) *
Fusion Capital
Fund II, LLC 1,445,000(5) 6.19% 1,445,000 6.19%
222 Merchandise
Mart Plaza
Suite 9-112
Chicago, IL 60654
Shelter Capital Ltd. 1,328,000(6) 5.69% 25,000(7) *
P.O. Box 635
Providenciales
Turks and Caicos Islands
British West Indies
Claymore Asset
Management Group Ltd. 1,680,000(8) 7.20% 0(9) 0%
P.O. Box 64
Providenciales
Turks and Caicos Islands
British West Indies
All officers and
directors 4,656,960(4) 19.97% 4,526,960 19.41%
as a group
(6 persons)
-------------------
* Less than 1%.
(1) Based on 23,314,497 shares outstanding, assuming the issuance of all
3,487,727 shares underlying currently outstanding and exercisable warrants.
(2) All of the shares owned by this shareholder are subject to a voting
agreement and must be voted for David M. Loflin and Waddell D. Loflin, in
all elections of directors; approximately 4,100,000 shares are currently
subject to this voting agreement.
(3) 80,000 of these shares have not been issued, but underlie currently
exercisable warrants.
(4) Assumes 80,000 shares underlying warrants are purchased and sold and
50,000 shares currently owned are sold by Mr. Cohn under this prospectus.
(5) 800,000 of these shares may not be sold by Fusion Capital until the
earliest of the termination of the Fusion Capital agreement, default under
the Fusion Capital agreement or approximately 25 months from the date
hereof. 645,000 of these shares have not been issued, but underlie
currently exercisable warrants.
(6) 960,000 of these shares have not been issued, but underlie currently
exercisable warrants.
(7) Assumes 960,000 shares underlying warrants are purchased and sold and
343,000 shares currently owned are sold by Shelter Capital Ltd. under this
prospectus.
(8) 840,000 of these shares have not been issued, but underlie currently
exercisable warrants.
(9) Assumes 840,000 shares underlying warrants are purchased and sold and
840,000 shares currently owned are sold by Claymore Asset Management Group
Ltd. under this prospectus.
LITIGATION
Net 1 Acquisition Transaction
In September 1999, we tendered the acquired shares of capital stock of Net
1, Inc. for rescission. We had intended to commence arbitration to pursue
our rescission claim. However, one of the former owners of Net 1, Knud
Nielsen, III, instituted arbitration, through the American Arbitration
Association, and sought to enforce certain registration rights associated
with a portion of the shares of our common stock received by him in the
acquisition transaction. We presented the rescission claim as a
counterclaim in the arbitration proceeding. In October 2000, this
litigation was settled, with the acquisition being rescinded in its
entirety. We issued 250,000 shares of our common stock to the former
owners of Net 1 in settlement of certain claims. These shares were valued
at $961,436.
CyberHighway Involuntary Bankruptcy
On September 29, 2000, an involuntary bankruptcy petition was filed against
CyberHighway in the Idaho Federal Bankruptcy Court, styled In Re:
CyberHighway, Inc., Case No. 00-02454. The petitioning creditors were
ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith. In December 2000,
CyberHighway and the petitioning creditors filed a joint motion to dismiss
this proceeding. The joint motion to dismiss requires the approval of
CyberHighway's creditors. However, some of CyberHighway's creditors have
objected to the dismissal of the proceeding. The basis of the creditors'
objection is their belief that CyberHighway's as-yet unasserted damage
claims against the original petitioning creditors and their law firm and a
claim against Dialup USA, Inc. represent CyberHighway's most valuable
assets. These as-yet unasserted claims include claims for bad faith filing
of the original bankruptcy petition as to the original petitioning
creditors and their law firm, as well as claim for tortious interference
with beneficial business relationships as to Dialup USA, Inc. The
objecting creditors desire that these claims be adjudicated in the
bankruptcy court. It is likely that, at some time in the future, a final
order of bankruptcy will be entered with respect to CyberHighway, no
prediction of the timing of such an order can be made, although we believe
that such an order would come only after the final adjudication of the
claims described above.
Other Litigation
In November 2000, CyberHighway requested and received a temporary
restraining order against Darrell Davis, formerly one of our officers, and
his wife, Deanna Davis. We have alleged that the Davises have diverted
dial-up customers from CyberHighway to a company controlled by him, all
while he was an employee of USURF America. We expect that a hearing for
our motion for a permanent injunction will occur in the very near future.
In addition, we are seeking monetary damages in this action. This case is
in its early stages and no prediction as to its final outcome can be made.
This case is styled: CyberHighway, Inc. versus Deanna Davis, individually
and d/b/a Cyber-Trail, Inc., and Darrell D. Davis, 19th Judicial District
Court, Parish of East Baton Rouge, State of Louisiana. Patrick F. McGrew,
Esquire, is our counsel in this case.
In January 2000, we instituted arbitration proceedings against Christopher
L. Wiebelt, our former vice president of finance and chief financial
officer. We have alleged that Mr. Wiebelt violated certain terms of his
employment agreement and are seeking damages resulting from those
violations. This case is in its early stages and no prediction as to its
outcome can be made. This case is styled: USURF America, Inc. versus
Christopher L. Wiebelt, American Arbitration Association, Case No.
71-160-00087-01. The law firm of Newlan & Newlan is our counsel in this
proceeding.
Possible Claim
Some time in the future, it is possible that we will enter into arbitration
proceedings with Commonwealth Associates. The dispute revolves around
Commonwealth's claim that we owe it approximately 127,000 shares of our
common stock. It is our position that Commonwealth is entitled to any
shares and will vigorously defend our position in arbitration. We cannot
predict the outcome of this arbitration proceeding.
Potential Legal Proceeding
In addition to CyberHighway's cause of action against Dialup USA, it is the
intention of USURF America to pursue damage claims against Dialup USA for
tortiously interfering with the beneficial business relationships between
CyberHighway and its customers. These claims arise out of Dialup USA's
actions on behalf of one of our former officers, which were designed to
divert customers to a company controlled by him. Our claim against Dialup
USA will be for approximately $2 million. We have not established a date
by which we intend to commence this legal proceeding.
PLAN OF DISTRIBUTION
The shares of common stock offered by this prospectus are being offered by
selling shareholders. The common stock may be resold or distributed from
time to time by the selling shareholders, or by donees or transferees of,
or other successors in interests to, the selling shareholders, directly to
one or more purchasers or through brokers, dealers or underwriters who may
act solely as agents or may acquire such common stock as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which
may be changed. The sale of the common stock offered by this prospectus may
be effected in one or more of the following methods:
* ordinary brokers' transactions;
* transactions involving cross or block trades or otherwise on the
American Stock
Exchange;
* purchases by brokers, dealers or underwriters as principal and
resale by such
purchasers for their own accounts pursuant to this prospectus;
* "at the market" to or through market makers or into an existing
market for the common
stock;
* in other ways not involving market makers or established trading
markets, including
direct sales to purchasers or sales effected through agents;
* in privately negotiated transactions; or
* any combination of the foregoing.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the shares may not be
sold unless they have been registered or qualified for sale in such state
or an exemption from such registration or qualification requirement is
available and complied with.
Brokers, dealers, underwriters or agents participating in the distribution
of the shares as agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholder and/or
purchasers of the common stock for whom such broker-dealers may act as
agent, or to whom they may sell as principal, or both. The compensation
paid to a particular broker-dealer may be less than or in excess of
customary commissions. Commissions received by any broker may be deemed to
be underwriting commissions.
Each selling shareholder is an "underwriter" within the meaning of the
Securities Act. Any broker-dealers who act in connection with the sale of
the shares hereunder will be "underwriters" within the meaning of the
Securities Act, and any commissions they receive and proceeds of any sale
of the shares will be underwriting discounts and commissions under the
Securities Act.
We know of no existing arrangements between any selling shareholder, any
other shareholder, broker, dealer, underwriter or agent relating to the
sale or distribution of their respective shares. Neither we nor any
selling shareholder can presently estimate the amount of compensation that
any agent will receive. At a time a particular offer of shares is made by
a selling shareholder, a prospectus supplement, if required, will be
distributed that will set forth the names of any agents, underwriters or
dealers and any compensation from a selling shareholder and any other
required information. We will pay all of the expenses incident to the
registration, offering and sale of the shares of stock to the public other
than commissions or discounts of underwriters, broker-dealers or agents.
USURF America has also agreed to indemnify other selling shareholders and
related persons against specified liabilities, including liabilities under
the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of USURF America, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
We have advised the selling shareholders that while they are engaged in a
distribution of shares of our common stock included in this prospectus,
they are required to comply with Regulation M promulgated under the
Exchange Act. With certain exceptions, Regulation M precludes the selling
shareholders, any affiliated purchasers and any broker-dealer or other
person who participates in such distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire
distribution is complete. Regulation M also prohibits any bids or
purchases made in order to stabilize the price of a security in connection
with the distribution of that security. All of the foregoing may affect
the marketability of the shares of our common stock offered by this
prospectus. This offering will terminate on the date on which all shares
included in this prospectus and offered hereby have been sold by the
selling shareholders.
SELLING SHAREHOLDERS
The following table assumes that each selling shareholder is offering for
sale shares of common stock previously issued or issuable by us. We have
agreed to pay all expenses in connection therewith (other than brokerage
commissions and fees and expenses of counsel of the respective selling
shareholders). Except for Michael Cohn and Darrell Davis, none of the
selling shareholders has ever held any position with us or had any other
material relationship with us. The following table sets forth the
beneficial ownership of the shares of the stock by each person who is a
selling shareholder. We will not receive any proceeds from the sales of
stock by the selling shareholders.
Shares of
Shares Common
Common Stock Stock Percentage Owned
Name of Beneficially Being Before After
Beneficial Owner Owned Offered Offering(1) Offering(2)
Jeanne Rowzee 30,000 10,000 * *
Albert Gottlieb 30,000 10,000 * *
Rogers Family Trust 45,000 15,000 * *
Delaware Charter
Guarantee & Trust
Company f/b/o
Clarence Yim IRA 60,000 20,000 * *
Delaware Charter
Guarantee & Trust
Company f/b/o
R. Logan Kock IRA 60,000 20,000 * *
H + N Partners 113,334(3) 113,334 * 0%
Centex Securities, Inc. 12,143(3) 12,143 * 0%
Michael Cohn 209,000(4) 130,000 * *
Walter C. Schiller 20,000(5) 10,000 * *
Michael R. Van Geons 20,000(5) 10,000 * *
Harry P. Kunecki Trust 10,000(6) 5,000 * *
Frank L. Leyba 10,000(6) 5,000 * *
Shelter Capital Ltd. 1,328,000(7) 1,303,000 5.69% *
Walter Engler 30,000(8) 20,000 * *
CyberHighway of
North Georgia, Inc. 73,000 20,000 * *
Darrell Davis and
Deanna Davis 55,000 21,000 * *
Roger Davis and
Gloria Davis 30,000 9,000 * *
Peter Rochow 390,000 390,000 1.67% 0%
Victor Nostas 90,000 90,000 * *
John Faessel 90,000 90,000 * *
JF Mills/Worldwide 6,000 6,000 * 0%
The Research
Works, Inc. 60,000(3) 60,000 * 0%
Cyber Mountain, Inc. 25,000 25,000 * 0%
Gordon Engler 10,000(6) 10,000 * 0%
Annie Rochow 10,000(6) 10,000 * 0%
Eden Park Homes Ltd. 10,000(6) 10,000 * 0%
Daniel E. Pisenti 10,000(6) 10,000 * 0%
Wolfgang and
Helga Rochow 10,000(6) 10,000 * 0%
Geoffrey Page Flett 10,000(6) 10,000 * 0%
Donald Rayburn 12,000(9) 12,000 * 0%
Knud Nielsen, III 202,500 202,500 * 0%
James Halford, Esquire 23,750 23,750 * 0%
Saltco 23,750 23,750 * 0%
Fair Market, Inc. 300,000 300,000 1.28% 0%
Marcus Merrick &
Montgomery 10,000 10,000 * 0%
Patrick F. McGrew 100,000 100,000 * 0%
Newlan & Newlan 668,500 500,000 2.86% *
Gestalt Corporation 100,000 100,000 * 0%
Anchor House Ltd. 400,000 400,000 1.71% 0%
Diggs Lewis 55,940 55,940 * 0%
Bridgett Stewart 15,123 15,123 * 0%
Ryan Thibodeaux 33,162 33,162 * 0%
Ryan Campanile 33,162 33,162 * 0%
Slade Maurer 10,000 10,000 * 0%
IBC.TV, LLC 300,000 300,000 1.28% 0%
Claymore Asset Manage-
ment Group Ltd. 1,680,000(10) 1,680,000 7.20% 0%
Atlas Securities Inc. 1,000,000(11) 1,000,000 4.29% 0%
---------------
(1) Based on 23,314,497 shares outstanding, assuming the issuance of a
total of 3,487,727 shares of common stock that can be acquired by any
person pursuant to any option, warrant or other right within 60 days of the
date of this prospectus, all of which are deemed outstanding for the
purpose of computing the percentage of existing shares beneficially owned
by each person listed.
(2) Based on 23,314,497 shares outstanding, assuming the issuance of all
3,487,727 shares of common stock that can be acquired by any person
pursuant to any option, warrant or other right within 60 days of the date
of this prospectus, all of which are deemed outstanding for the purpose of
computing the percentage of existing shares beneficially owned by each
person listed.
(3) All of these shares underlie currently exercisable warrants; none of
these shares has been issued.
(4) 80,000 of these shares underlie currently exercisable warrants.
(5) 10,000 of these shares underlie currently exercisable warrants.
(6) 5,000 of these shares underlie currently exercisable warrants.
(7) 960,000 of these shares underlie currently exercisable warrants.
(8) 10,000 of these shares underlie currently exercisable warrants.
(9) 6,000 of these shares underlie currently exercisable warrants.
(10) 840,000 of these shares underlie currently exercisable warrants.
(11) 500,000 of these shares underlie currently exercisable warrants.
DESCRIPTION OF SECURITIES
Authorized Capital Stock
Our authorized capital stock consists of 100,000,000 shares of common
stock, $.0001 par value per share. The following description of certain
provisions of our common stock does not purport to be complete and is
subject to, and qualified in its entirety by, the provisions of the our
Articles of Incorporation, as amended.
Description of Common Stock
There are 19,826,770 shares of our common stock outstanding. An additional
3,487,727 shares of common stock have been reserved for issuance pursuant
to various warrants and an additional 6,000,000 shares of common stock have
been reserved for issuance pursuant to the Fusion Capital agreement. Each
share of common stock is entitled to one vote at all meetings of
shareholders. All shares of common stock are equal to each other with
respect to liquidation rights and dividend rights. There are no preemptive
rights to purchase any additional shares of common stock, nor are there any
subscription, conversion or redemption rights applicable to the common
stock. Our Articles of Incorporation, as amended, prohibit cumulative
voting in the election of directors. The absence of cumulative voting
means that holders of more than 50% of the shares voting for the election
of directors can elect all directors if they choose to do so. In such
event, the holders of the remaining shares of common stock will not be
entitled to elect any director. A majority of the shares entitled to vote,
represented in person or by proxy, constitutes a quorum at a meeting of
shareholders. In the event of liquidation, dissolution or winding up,
holders of shares of common stock will be entitled to receive, on a pro
rata basis, all assets remaining after satisfaction of all liabilities.
Transfer Agent and Registrar
Securities Transfer Corporation, Frisco, Texas, is the transfer agent and
registrar for our common stock.
LEGAL MATTERS
The law firm of Newlan & Newlan, Lewisville, Texas, has acted as our legal
counsel in connection with the registration statement of which this
prospectus forms a part and related matters. The partners of the firm of
Newlan & Newlan own a total of 668,500 shares of our common stock.
EXPERTS
Our financial statements for the years ended December 31, 1999 and 2000, as
indicated in the report thereon, that appear in this prospectus have been
audited by Postlethwaite & Netterville, independent auditor. The financial
statements audited by Postlethwaite & Netterville, have been included in
reliance on its reports given as its authority as an expert in accounting
and auditing.
Our financial statements for the year ended December 31, 1998, as indicated
in the report thereon, that appear in this prospectus have been audited by
Weaver and Tidwell, L.L.P., independent auditor. The financial statements
audited by Weaver and Tidwell, L.L.P., have been included in reliance on
its reports given as its authority as an expert in accounting and auditing.
On January 11, 2000, Weaver and Tidwell, L.L.P. was dismissed as our
independent auditor.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf process, the
selling shareholders may sell up to an aggregate of 7,228,864 shares of our
common stock in one or more offerings. This prospectus and any applicable
prospectus supplement provided to you should be considered together with
the additional information described under the heading "Where You Can Find
More Information". The registration statement that contains this
prospectus (including exhibits to the registration statement) contains
additional information about our company and the securities offered by this
prospectus. That registration statement can be read at the SEC web site or
at the SEC offices mentioned under the heading "Where You Can Find More
Information".
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 (including its exhibits
and schedules) with the SEC under the Securities Act with respect to our
common stock to be sold in this offering. This prospectus, which is part
of the registration statement, does not contain all of the information
included in the registration statement. Certain information is omitted and
you should refer to the registration statement and its exhibits. With
respect to references made in this prospectus to any contract, agreement or
other document of USURF America, such references are not necessarily
complete and you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document.
You may review a copy of the registration statement, including exhibits, at
the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at Seven World Trade Center, Suite 1300, New York, New York
10048, or at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call 1-800-SEC-0330 for further information about
the operation of the public reference rooms. The registration statement
and our other SEC filings can also be reviewed by accessing the SEC's
Internet site at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the SEC.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information on file at the public reference rooms. You can also
request copies of these documents, for a copying fee, by writing to the SEC.
We will furnish our shareholders with annual reports containing financial
statements audited by our independent auditors and to make available to our
shareholders quarterly reports containing unaudited financial data for the
first three quarters of each fiscal year.
INDEX TO FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditor
Report of Independent Auditor
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
USURF America, Inc. and Subsidiaries
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheets of USURF
America, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders
equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of USURF America, Inc. and
Subsidiaries as of December 31, 2000 and 1999, and the results of its
operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 18 to the
consolidated financial statements, the Company has significant operating
losses. In addition, the Company has excess current liabilities over
current assets of approximately $1.5 million. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans regarding these matters are also described in Note 18.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Postlethwaite & Netterville
Baton Rouge, Louisiana
April 16, 2001
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Director's and Stockholders
USURF America, Inc.
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended December
31, 1998 of USURF America, Inc. (formerly Internet Media Corporation) and
Subsidiaries. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows for the year ended December 31, 1998 of USURF
America, Inc. (formerly Internet Media Corporation) and Subsidiaries, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has insignificant
operating revenue. In addition, the Company has limited capital resources
and a loss from operations since inception, all of which raise substantial
doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are also discussed in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
April 9, 1999
<PAGE>
USURF AMERICA, INC. AND SUBSIDIARIES
BATON ROUGE, LOUISIANA
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
CURRENT ASSETS
Cash and cash equivalents $ 1,088 $ 75,313
Accounts receivable-net - 59,098
Inventory 246,721 386,802
Prepaid expenses and
other current assets - 5,500
---------- ---------
247,809 526,713
---------- ---------
PROPERTY AND EQUIPMENT
Cost 138,954 1,135,638
Less: accumulated depreciation (69,476) (421,786)
---------- ---------
69,478 713,852
---------- ---------
INVESTMENTS 68,029 68,029
---------- ---------
OTHER ASSETS
Acquired customer base-net - 11,764,650
Goodwill-net - 5,681,992
Other intangibles-net - 782,580
Other assets 25,000 7,353
---------- ---------
25,000 18,236,575
TOTAL ASSETS $ 410,316 $19,545,169
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Disbursements in Excess of
Cash Balances $ 42,469 $ 0
Notes payable-current portion - 5,910
Accounts payable 1,472,030 363,665
Accrued payroll 158,262 118,157
Other current liabilities 41,824 216,650
Property dividends payable 43,750 43,750
Accrued interest to stockholder - 29,741
Notes payable to stockholder 6,638 356,239
Deferred revenue - 87,538
---------- ---------
1,764,973 1,221,650
LONG-TERM LIABILITIES
Deferred income taxes - 3,883,210
---------- ---------
1,764,973 5,104,860
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value
Authorized: 100,000,000 shares
Issued and outstanding:
16,688,808 in 2000; 12,786,116
in 1999 1,669 1,279
Additional paid-in capital 34,183,962 28,918,638
Accumulated deficit (34,502,160) (12,616,830)
Subscriptions receivable 933,514 (860)
Deferred consulting (1,971,642) (1,861,918)
--------- ---------
(1,354,657) 14,440,309
---------- ---------
TOTAL LIABILTIES AND
STOCKHOLDERS' EQUITY $ 410,316 $19,545,169
========== =========
The accompanying notes are an integral part of these statements.
<PAGE>
USURF AMERICA, INC. AND SUBSIDIARIES
BATON ROUGE, LOUISIANA
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
REVENUES
Internet access revenues $1,781,082 $2,268,511 $ 5,440
Equipment sales 91,547 278,714 -
Internet access costs
and cost of goods sold (2,145,955) (1,152,721) -
--------- --------- ---------
Gross profit (loss) (273,326) 1,394,504 5,440
--------- --------- ---------
OPERATING EXPENSES
Depreciation and
amortization 7,618,755 7,653,924 4,394
Professional fees 4,168,610 1,945,935 813,517
Rent 216,416 132,395 15,823
Salaries and commissions 2,060,528 1,603,556 154,924
Advertising 24,583 125,034 -
Other 886,691 399,914 45,806
--------- --------- ---------
14,153,852 11,860,758 1,034,464
LOSS FROM OPERATIONS (15,248,909) (10,466,254) (1,029,024)
OTHER INCOME (EXPENSE)
Other income 67,447 23,875 -
Litigation settlement - (957,075) -
Impairment loss (9,239,310) (1,164,561) -
Interest expense (21,418) (19,309) (8,602)
--------- --------- ---------
(9,193,281) (2,117,070) (1,037,626)
--------- --------- ---------
GAIN ON RESCISSION 961,436 - -
--------- --------- ---------
LOSS BEFORE INCOME TAX (23,480,754) (12,583,324) (1,037,626)
INCOME TAX BENEFIT 1,595,424 1,653,161 -
--------- --------- ---------
NET LOSS $(21,855,330) $(10,930,163) (1,037,626)
========== ========== =========
Net loss per common share (1.60) $(0.96) $(.14)
========== ========== =========
Weighted average number
of shares outstanding 13,679,385 11,419,641 7,361,275
========== ========== =========
The accompanying notes are an integral part of these statements.
<PAGE>
USURF AMERICA, INC. AND SUBSIDIARIES
BATON ROUGE, LOUISIANA
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Sub-
scrip-
Accum- tions Deferred
Common Paid-in ulated Receiv- Con-
Shares Stock Capital Deficit vable sulting Total
---------- ----- ---------- ------------ --------- --------- -----------
Balance,
December
31, 1997
6,424,000 642 998,466 (649,041) (860) (311,889) 37,318
Issuance of
common
stock for
future
services
1,655,759 166 1,556,734 - - (1,556,900) -
Issuance of
common
stock for
cash
400,000 40 332,760 - - - 332,800
Issuance of
common
stock for
investments
17,500 2 43,748 - - - 43,750
Declared
dividends
- - (57,519) - - - (57,519)
Amortization
of deferred
consulting
- - - - - 765,865 765,865
Net loss
- - - (1,037,626) - - (1,037,626)
Balance,
December
31, 1998
8,497,259 850 2,874,189 (1,686,667) (860)(1,102,924) 84,588
Issuance of
common
stock for
future
services
566,000 57 2,215,943 - - (2,216,000) -
Issuance of
common
stock for
acqui-
sitions
3,030,000 303 21,586,726 - - - 21,587,029
Issuance of
common
stock for
cash
115,000 11 394,989 - - - 395,000
Exercise of
warrants
176,857 18 337,304 - - - 337,322
Issuance of
subscription
agreement
50,000 5 149,995 - (150,000) - -
Proceeds
on sub-
scription
receivable
- - - - 150,000 - 150,000
Issuance of
stock per
employment
agreement
11,000 1 43,311 - - - 43,312
Expenses to
be paid by
issuance
of common
stock
- - 257,167 - - - 257,167
Issuance of
common
stock for
settlement
340,000 34 913,716 - - - 913,750
Stock
warrants
- - 145,298 - - - 145,298
Amortization
of deferred
consulting
- - - - - 1,457,006 1,457,006
Net loss
- - - (10,930,163) - - (10,930,163)
Balance,
December
31, 1999
12,786,116 1,279 28,918,638 (12,616,830) (860)(1,861,918) 14,440,309
Issuance of
common
stock for
future
services
2,262,166 226 3,109,774 - - (3,110,000) -
Issuance of
common
stock for
acqui-
sitions
131,063 13 761,738 - - - 761,751
Issuance of
common
stock for
cash
400,000 40 79,960 - (10,000) - 70,000
Issuance of
subscription
agreement
65,000 7 324,993 - (325,000) - -
Proceeds
on sub-
scription
receivable
- - - - 300,000 - 300,000
Issuance of
stock per
employment
agreement
754,463 75 345,992 - - - 346,067
Expenses
paid by
issuance
of common
stock
290,000 29 214,871 - - - 214,900
Conversion
of debt to
equity
- - - - 969,374 - 969,374
Stock
warrants
- - - - - - -
Amortization
of deferred
consulting
- - - - - 3,000,276 3,000,276
Net loss
- - - (21,855,330) - - (21,855,330)
The accompanying notes are an integral part of these statements.
<PAGE>
USURF AMERICA, INC. AND SUBSIDIARIES
BATON ROUGE, LOUISIANA
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(21,855,330) $(10,930,163) $ (624,804)
Adjustment to
reconcile net loss
to net cash used
in operating
activities
Depreciation and
amortization 7,618,755 7,653,924 2,721
Consulting fees
paid with stock 3,000,276 1,457,006 438,111
Litigation settlement 214,900 913,750 -
Gain on rescission (961,436) - -
Impairment loss and
write down of assets 10,577,878 1,164,561 -
Legal fees paid
with stock 281,498 126,500 -
Compensation expense
paid with stock 774,066 319,301 -
Deferred income taxes (1,595,423) (1,653,161) -
Loss on disposal - 280 -
Changes in operating
assets and liabilities
Accounts receivable 59,098 35,537 (809)
Inventory 71,000 49,518 -
Prepaid expenses and
other current assets 5,500 7,980 -
Accounts payable 1,108,365 (36,857) 1,787
Accrued payroll 40,105 118,157 (39,310)
Other current
liabilities (174,826) 215,929 -
Other assets and
liabilities - (11,555) (300)
Deferred revenue (87,538) 23,196 -
--------- --------- ---------
Net cash used in
operating activities (953,112) (546,097) (305,999)
--------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds on disposal
of fixed assets $ 40,050 $ 15,090 $ -
Cash acquired in
acquisitions - 186,318 (24,666)
Payment of organization
costs - - 569
Capital expenditures (125,000) (614,193) (25,605)
--------- --------- ---------
Net cash used in
investing activities (85,150) (412,785) (49,702)
--------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments on notes
payable $ (5,910) $ (65,369) -
Disbursements in excess of
cash balances 42,469 - -
Payments on notes
payable-stockholder (11,093) (25,000) -
Payments on subscriptions
receivable - 150,000 -
Proceeds from note
payable-stockholder 568,571 235,010 30,133
Issuance of common
stock for cash 370,000 395,000 332,800
Warrants exercised - 337,322 -
--------- --------- ---------
Net cash provided
by financing
activities 964,037 1,026,963 362,933
--------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents (74,225) 68,081 7,232
Cash and cash equivalents,
Beginning of period 75,313 7,232 -
Cash and cash equivalents,
End of period $1,088 $ 75,313 7,232
========= ========= =========
The accompanying notes are an integral part of these statements.
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
USURF America, Inc. (USURF), formerly Internet Media Corporation, was
incorporated as Media Entertainment, Inc. in the State of Nevada on
November 1, 1996. USURF currently provides wireless Internet access
services to a small number of customers in Santa Fe, New Mexico. USURF's
original purpose was to operate as a holding company in the wireless cable
television and community (low power) television industries, as well as
other segments of the communications industry. Until January 1999, the
Company was in the development stage. In 1998 the Company changed its
focus to concentrate in the wireless internet communications industry. The
Company later ceased efforts to develop the wireless cable and low power
television business areas and assigned all of its assets from the low power
television activities to New Wave Media Corp. in exchange for a 15%
ownership interest in New Wave Media Corp.
Effective December 31, 1996, USURF acquired all of the outstanding common
stock of Winter Entertainment, Inc., a Delaware corporation incorporated on
December 28, 1995 (WEI), and Missouri Cable TV Corp., a Louisiana
corporation incorporated on October 9, 1996 (MCTV). WEI operates a
community television station in Baton Rouge, Louisiana; MCTV owns wireless
cable television channels in Poplar Bluff, Missouri, which system has been
constructed and is ready for operation, and Lebanon, Missouri. Effective
October 8, 1998, the Company formed Santa Fe Wireless Internet, Inc. (Santa
Fe), a New Mexico corporation, to hold the assets acquired from Desert Rain
Internet Services. Santa Fe was organized to provide wireless internet
access. The acquisition of WEI and MCTV by USURF was accounted for as a
reorganization of companies under common control. The assets and
liabilities acquired were recorded at historical cost in a manner similar
to a pooling of interests. The acquisition of Santa Fe was accounted for
as a purchase whereby cost is allocated to the assets acquired.
On January 29, 1999, the Company acquired all the stock of CyberHighway,
Inc., a Boise, Idaho-based ISP, by issuing 2,000,000 shares of stock valued
at approximately $15,940,000. In addition, 325,000 shares of common stock
were issued in payment of a finder's fee arising out of this acquisition.
This acquisition was accounted for as a purchase business combination.
In June 1999, USURF acquired all the stock of Santa Fe Trail Internet Plus,
Inc., a Santa Fe, New Mexico-based ISP, by issuing 100,000 shares of stock
valued at approximately $400,000. This acquisition was accounted for as a
purchase business combination.
In July 1999, USURF acquired all of the stock of Premier Internet Services,
Inc., an Idaho-based ISP, by issuing 127,000 shares of stock valued at
approximately $508,000. This acquisition was accounted for as a purchase
business combination.
In November 1999, the Company acquired the customer base of Cyber Mountain,
Inc. a Denver, Colorado-based ISP, for 25,000 shares of stock valued at
approximately $75,000.
In December 1999, USURF acquired a portion of the ISP-related equipment and
customer base of Cyber Highway of North Georgia, Inc., a Demorest,
Georgia-based ISP for 54,000 shares of stock valued at approximately $212,000.
In February 2000, the Company acquired Spinning Wheel, Inc., an Idaho
Springs, Idaho-based ISP, for 81,063 shares of stock valued at
approximately $325,000. This acquisition has been accounted for as a
purchase business combination.
In February 2000, the Company acquired Internet Innovations, LLC, a Baton
Rouge, Louisiana based web design company, for 50,000 shares of common
stock valued at approximately $437,000. This acquisition has been
accounted for as a purchase business combination.
None of the acquisitions described above, with the exception of
Cyberhighway which was near the beginning of 1999, had significant
operations at the time they were acquired by the Company. Therefore,
proforma disclosure of what operations would have been as if the
transactions had occurred at the beginning of the period are not shown due
to the transactions being immaterial to the financial statements taken as a
whole.
Principles of Consolidation
The accompanying consolidated financial statements include all the accounts
of USURF and all wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in the consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
A material estimate that is particularly susceptible to significant change
is the amortization of intangibles. In estimating the period over which to
amortize the acquired customer bases, management obtains information from
industry data.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less from the date of purchase to be cash
equivalents.
Inventory
Inventories are stated at the lower of cost or market, and represents
modems purchased from suppliers.
Property and Equipment
Property and equipment are stated at cost and are depreciated principally
by the straight-line method over the estimated useful lives of the assets,
ranging from 3 to 15 years.
Revenue Recognition
Until September 2000, the Company maintained license agreements with
affiliate ISP's to provide internet access to affiliates' customers.
License fees were typically billed in the month the services were provided.
The Company charges direct customers (residential and business subscribers)
monthly access fees to the internet and recognizes the revenue in the month
the access is provided. For certain subscribers billed in advance, the
Company recognizes the revenue over the period the billing covers. Revenue
for other services provided, including set-up fees charged to customers and
affiliates, and equipment sales are recognized as the service is performed
or the equipment is delivered.
Costs of Access Revenues
Costs of access revenues primarily consist of telecommunications expenses
inherent in the network infrastructure. Costs of access expenses also
include fees paid for lease of the Company's backbone, as well as license
fees for Web browser software based on a per-user charge, other license
fees paid to third-party software vendors, product costs, and contractor
fees for distribution of software to new subscribers.
Income Taxes
Deferred income tax assets and liabilities are computed for differences
between financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the period in which the differences are
expected to affect taxable income. Valuation allowances are established
when realization is less than 50% probable. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Financial Instruments and Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and trade
receivables. The Company maintains its cash in bank deposit accounts,
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to
any significant credit risk on cash.
Fair Values of Financial Instruments
The carrying amounts of financial instruments including cash, trade
receivables, accounts payable and accrued expenses approximate fair value
because of the immediate or short-term maturities of these instruments.
The difference between the carrying amount and fair value of the Company's
long-term debt is not significant.
Loss Per Common Share
Basic loss per common share has been computed by dividing the net loss by
the weighted average number of shares of common stock outstanding
throughout the period. Calculation of diluted loss per common share is not
presented because the effects of potential common stock issuable upon
exercise of stock options and contingently issuable shares would be
antidilutive.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets, primarily acquired customer bases,
are stated on the basis of cost and are amortized, principally on a
straight-line basis, over the estimated future periods to be benefited
(generally 3 years). Goodwill and other intangible assets are periodically
reviewed for impairment to ensure they are appropriately valued. Conditions
which may indicate an impairment issue exists include a negative economic
downturn or a change in the assessment of future operations. In the event
that a condition is identified which may indicate an impairment issue
exists, an assessment is performed using a variety of methodologies,
including cash flow analysis, estimates of sales proceeds and independent
appraisals. Where applicable, an appropriate interest rate is utilized,
based on location specific economic factors.
Due to the demise of the business of the dial-up Internet access business
of the CyberHighway subsidiary, associated goodwill and other intangibles
were impaired at December 31, 2000, and were written-down in the amounts of
$4,425,037 and $4,814,272 (net of deferred taxes of $2,531,497), respectively.
Advertising
The Company expenses advertising costs as incurred. During the years ended
December 31, 2000 and 1999, the Company incurred approximately $25,000 and
$125,000, in advertising costs, respectively.
Investments
Investments include minority interests held in three non-public companies
recorded at cost, which approximates fair value.
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 the agreements, are recorded as a reduction of stockholders' equity and
will be amortized over the respective lives of the agreements.
2. NET 1, INC. ACQUISITION
On August 23, 1999, the Company acquired Net 1, Inc. (Net 1) in a business
combination accounted for as a purchase. Net 1 was primarily engaged as an
ISP in Alabama. In September, 1999 the Company tendered the shares of
capital stock obtained in the acquisition of Net 1 for rescission of the
transaction. However, legally the Company was still the owner of the
outstanding shares of Net 1 at December 31, 1999, and is required by
generally accepted accounting principles to record Net 1 as a wholly owned
subsidiary from the date of acquisition.
It was discovered during arbitration proceedings that no activity occurred
in the newly acquired subsidiary, Net 1, after the acquisition. The
customer base was moved to an unrelated company by a former owner, and all
activity was transacted in the unrelated company. Therefore, no revenues
or expenses were incurred by Net 1 from the date of acquisition, August 23,
1999 through December 31, 1999.
The total cost of the acquisition was $1,164,561, which exceeded fair value
of the net assets of Net 1 by $1,164,561. The excess was deemed to be
impaired at December 31, 1999 due to the change in the operating
environment and was recorded in the accompanying financial statements as an
impairment loss.
On October 12, 2000 the acquisition of Net 1 was rescinded. Included in
the terms of the settlement agreement was the return of the 250,000 shares
issued in the original transaction to the Company. The Company then issued
250,000 shares of stock in settlement of the arbitration. The agreement
also called for one of the former owners to assume a $50,000 liability,
that was recorded by USURF upon the acquisition. The total gain on the
recission of the transaction was approximately $960,000.
3. PROPERTY AND EQUIPMENT
Classifications of property and equipment and accumulated depreciation were
as follows at December 31, 2000 and 1999:
2000 1999
Wireless cable equipment $ - $ 188,091
Equipment 138,954 540,452
Furniture and fixtures - 37,487
Office equipment - 338,531
Leasehold improvements - 31,077
----------- -----------
138,954 1,135,638
Accumulated depreciation (69,476) (421,786)
----------- -----------
Property and equipment, net $ 69,478 $ 713,852
4. INTANGIBLES
Classification of intangibles and accumulated amortization at December 31st
were as follows:
2000 1999
Acquired customer base $ - $16,676,433
Goodwill - 8,126,616
Other - 940,186
----------- -----------
- 25,743,235
Accumulated amortization ( -) (7,514,013)
----------- -----------
$ - $18,229,222
5. WIRELESS CABLE ASSETS
Property and equipment includes wireless cable station equipment, which is
operational but has not been put into use. The equipment was determined to
be impaired at December 31, 2000 and its cost of approximately $188,000 was
written off. In addition, the Company owns licenses in the wireless cable
markets, which operate on the same frequencies and will be used in the
wireless Internet market.
6. LICENSES AND RIGHTS TO LEASES OF LICENSES
The Company owns licenses or rights to leases of licenses in the following
wireless cable and community television markets:
Wireless Cable Market Expiration Date
Poplar Bluff, Missouri October 16, 2006
Lebanon, Missouri October 16, 2006
Port Angeles, Washington December 21, 2003
Astoria, Oregon December 21, 2003
Sand Point, Idaho August 09, 2006
The Dalles, Oregon August 09, 2006
Fallon, Nevada August 09, 2006
Application for renewal of licenses must be filed within a certain period
prior to expiration.
7. NOTE PAYABLE TO STOCKHOLDER
2000 1999
Note payable to stockholder,
interest accrues at 8%, due
on demand and unsecured. $ 6,638 $356,239
8. LOAN CONVERSION - STOCKHOLDER
As of August 21, 2000, the Company owed its president, David M. Loflin, a
total of $967,703 ($916,045 in principal, $51,658 in interest), the result
of cash loans made to the Company by Mr. Loflin during the previous
approximately two years. On August 21, 2000, the Company entered into a
letter of agreement with Mr. Loflin, whereby Mr. Loflin agreed to convert
all sums owed to him into shares of Company common stock.
Pursuant to the letter agreement, Mr. Loflin received one share of common
stock for every $1.25 of debt converted, for a total of 774,162 shares.
The $1.25 price was agreed upon as that price was the low price for the
Company's common stock on Friday, August 18, 2000, as reported by the
American Stock Exchange. The Company's board of directors, in authorizing
the transaction described above, found the transaction to be in the best
interest of USURF America. The issuance of shares was not complete until
the first quarter of 2001, therefore, the substance of this transaction has
been reflected as stock subscription in the accompanying financial statements.
9. NOTE PAYABLE
The note payable of $5,910 at December 31, 1999, consists of a note payable
to a bank with interest at 9.25%, due in monthly payments of $2,887, with
final payment due February 25, 2000, secured by accounts receivable,
inventory and equipment.
10. INCOME TAXES
The significant components of deferred tax assets and liabilities were as
follows at December 31:
2000 1999
Deferred tax liabilities
Amortization of intangibles $ - $3,883,210
Deferred tax assets
Net operating loss
carryforwards 3,739,588 2,313,159
Less - valuation allowance (3,739,588) (2,313,159)
----------- ----------
- -
Net deferred tax liability $ - $3,883,210
The net changes in the valuation allowance for the periods ended December
31, 1999 and 1998 were $1,426,429 and $352,793, respectively.
The deferred tax liability results from the acquisitions of Cyberhighway,
Inc., Santa Fe Trail Internet Plus, Inc., and Premier Internet Services,
Inc. in tax free reorganizations, in which there is no tax basis in the
acquired customer base.
The Company has a net operating loss carry forward of approximately
$11,000,000 available to offset future income for income tax reporting
purposes, which will ultimately expire between 2011 and 2014 if not utilized.
11. SOURCES OF SUPPLIES
The Company relies on local telephone companies and other companies to
provide data communications. Although management believes alternative
telecommunications facilities could be found in a timely manner, any
disruption of these services could have an adverse effect on operating
results.
The Company maintains various vendors for required products, such as
modems, terminal services and high-performance routers, which are important
components of its network. Some of the Company's suppliers have limited
resources and production capacity. If the suppliers are unable to meet the
Company's needs as it is building out its network infrastructure, then
delays and increased costs in the expansion of the Company's network
infrastructure could result, having an adverse effect on operating results.
During 2000, the Company purchased all of its network radios from one
supplier. Additionally, the Company has purchased its modems principally
from two suppliers. Additional changes in suppliers could cause a delay in
manufacturing which would affect operation results adversely.
12. COMMITMENTS
The Company has contracts with various telephone companies and other
companies to provide data communication services. The terms on these
agreements range from month-to-month to five years. Future obligations
under these agreements as of December 31, 2000 are as follows for the years
ending December 31:
2001 $540,000
2002 330,000
2003 140,000
2004 100,000
13. RELATED PARTY
In December 2000, a total of 500,000 shares of common stock were issued to
two officers as bonuses for their services as officers. Compensation
expense of approximately $125,000 was recorded based on the fair value of
the common stock on the date of issue.
14. WARRANTS
During 2000, the Company issued warrants to purchase 480,000 shares of
common stock at various share prices. The remaining warrants expire
between 2001 and 2004. Warrants at December 31, 2000 consist of the
following:
56,667 issued on May 18, 1999, pursuant to an Investment Banking
Agreement, with an exercise price of $1.25, exercisable for a period of
four years from issuance.
56,667 issued on May 18, 1999, pursuant to an Investment Banking
Agreement, with an exercise price of $1.50, exercisable for a period of
four years from issuance.
34,000 issued on May 18, 1999, pursuant to a Selling Agreement, with an
exercise price of $1.25, exercisable for a period of five years from
issuance, of which 21,857 were exercised during 1999.
60,000 issued on January 20, 1999, pursuant to a private offering, with
an exercise price of $7.00, exercisable for a period of three years from
issuance, redeemable by the Company at any time the bid price of the
Company's common stock has been at or above $8.50 per share for five
consecutive trading days.
35,000 issued on June 4, 1999, pursuant to a private offering, with an
exercise price of $7.00, exercisable for a period of two years from
issuance, redeemable by the Company at any time the bid price of the
Company's common stock has been at or above $10.00 per share for five
consecutive trading days.
60,000 issued on December 1, 1999, pursuant to a Consulting Agreement,
with an exercise price of $3.50, exercisable for a period of five years
from issuance. The Company does apply SFAS No. 123, Accounting for
Stock-Based Compensation, in accounting for the stock warrants issued to
non-employees in connection with the original stock issuance. The Company
has recorded expense of $145,298 pursuant to the issuance of these
warrants. The fair value of the warrants granted to non-employees is
estimated on the date of the grant using the assumption of an expected life
of five years, and a risk-free interest rate of 5.0%.
50,000 issued on August 27, 1999, pursuant to a Subscription Agreement,
with an exercise price of $6.00, exercisable for a period of three years
from issuance.
65,000 issued in April 2000, pursuant to a private offering, with an
exercise price of $7.50, exercisable for a period of two years from issuance.
35,000 issued in November 2000, pursuant to a Consulting Agreement, with
an exercise price of $1.00, exercisable for a period of three years from
issuance.
380,000 issued in December 2000, as a finder's fee, an exercise price of
$.20, exercisable for a period of three years from issuance.
15. SETTLEMENT AGREEMENT
On November 30, l999, the Company entered into a settlement agreement and
mutual release, which settled certain legal proceedings in which USURF and
CyberHighway had been involved. The parties to the settlement agreement
were: USURF, CyberHighway, the former operating officer and a former
director, and two former owner-employees (collectively the plaintiffs) of
CyberHighway.
Pursuant to this settlement agreement, certain legal proceedings were
settled in full by issuance of 340,000 shares of USURF common stock to the
plaintiffs. The Company is paying the total sum of $43,325 for
reimbursement of attorneys' fees paid by the plaintiffs.
The 340,000 shares issued were valued at $2.6875 per share, or $913,750, in
the aggregate. The price per share assigned to the issued shares was the
closing price of the common stock, as reported by the American Stock
Exchange. The total charge against earnings in 1999 resulting from the
settlement agreement was $957,075.
16. CONTINGENCIES
A. Bankruptcy
On September 29, 2000, three creditors of CyberHighway filed an
involuntary petition in the Idaho Federal Bankruptcy Court,
styled In Re:CyberHighway, Inc., Case No. 00-02454. In December
2000, CyberHighway and the petitioning creditors filed a joint
motion to dismiss this proceeding. The joint motion to dismiss
requires the approval of CyberHighway's creditors. However,
some of CyberHighway's creditors objected to the dismissal of
the proceeding. The objecting creditors desire that all claims
be adjudicated in the bankruptcy court. The Company believes it
is likely that, at some time in the future, a final order of
bankruptcy will be entered with respect to CyberHighway.
Subsequent to the involuntary bankruptcy, CyberHighway lost nearly
all of its customers. Due to this loss of customer base, the
Company's intangible assets relating to those customers are
worthless. The write-off of the intangible assets reflected on
the Company's December 31, 2000 balance sheet was $4,814,272 (net
of deferred taxes). Due to this change in operating environment,
the Company's revenues have decreased substantially as well as a
decrease in expenses associated with the elimination of personnel
previously required to operate the Company's network operations
center, and accordingly goodwill has been impaired. The write-
down of goodwill reflected on the Company's December 31, 2000,
balance sheet was $4,425,037.
B. Potential Rescission Claims
From January 24, 2000, to December 31, 2000, a total of 5,032,085
shares of the common stock of the Company may have been issued in
violation of Section 5 of the Securities Act of 1933, as amended.
The aggregate value assigned to these shares upon their issuance
totaled $5,521,502. It is possible that each of the issues of
these shares has a potential claim for rescission of their
respective issuance transactions.
The Company believes that it is unlikely that any of these
potential rescission claims will be asserted against the Company.
17. SEGMENT DISCLOSURE
The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," during the fourth quarter of 2000.
SFAS No. 131 established standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
stockholders. It also established standards for related disclosures about
products and services and geographic areas. Operating segments are defined
as components of an enterprise about which separate financial information
is available that is evaluated regularly by chief operating decision makers
or decision making groups, in deciding how to allocate resources and in
assessing performance. The Company considers internet service providing
and wireless internet service providing to be a similar industry; as such,
there are no individual segments that are required to be reported pursuant
to SFAS 131.
18. GOING CONCERN
These financial statements are presented on the basis that the Company is a
going concern. Going concern contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business over a
reasonable length of time. The accompanying financial statement shows that
current liabilities exceed current assets by approximately $1.5 million at
December 31, 2000. The Company's president loaned the Company
approximately $568,571 during fiscal 2000 and loaned an additional $26,590
subsequent to year-end. The appropriateness of using the going concern
basis is dependent upon continued funding by the Company's president,
obtaining additional financing or equity capital and, ultimately, to
achieve profitable operations. The uncertainty about these conditions
raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Management plans to raise capital by obtaining financing and eventually,
through public offerings. Management intends to use the proceeds from any
borrowings to acquire and develop markets to implement its Wireless
Internet Access System and sell its service. The Company believes that
these actions will enable it to carry out its business plan and ultimately
to achieve profitable operations.
19. FINANCING TRANSACTION
On October 9, 2000, the Company signed a common stock purchase agreement
with an unrelated company to sell up to 6,000,000 shares of common stock
and 645,000 common warrants for up to $10,000,000. The purchase price of
the shares under this agreement will vary, based on future market prices of
the Company's common stock. The agreement calls for the Company to meet
certain requirements and maintain certain criteria with respect to its
common stock in order to avoid an event of default. Upon the occurrence of
the event of default the buyer is no longer obligated to purchase any
additional shares of stock. The agreement will terminate on April 30,
2001, if all of the circumstances necessary to effect the transaction have
not occurred by that date, including completion of a registration statement
with respect thereto.
20. SIGNIFICANT BUSINESS COMBINATION
On January 29, 1999, the Company acquired all of the capital stock of
CyberHighway, Inc. (CyberHighway), an Idaho corporation.
The acquisition was effected pursuant to a Plan and Agreement of
Reorganization dated January 20, 1999 between the Company and CyberHighway.
The Company paid the shareholders of CyberHighway approximately
$15,940,000 through the issuance of 2,000,000 shares of common stock. The
purchase price was based upon the weighted average closing price of the
Company's common stock for five days prior and subsequent to the
acquisition date.
The transaction was accounted for as a purchase. The purchase price was
allocated to the underlying assets purchased and liabilities assumed based
on their fair market values at the acquisition date.
The following table summarizes the net assets purchased in connection with
the CyberHighway acquisition and the amount attributable to cost in excess
of net assets acquired:
Net assets acquired $ 372,472
Acquired customer base 15,566,787
Other assets 5,260,690
Deferred tax liability (5,260,690)
21. SUBSEQUENT EVENTS
The following events occurred subsequent to December 31, 2000:
In January 2001, the Company issued 80,000 shares of its common stock as a
commitment fee under the common stock purchase agreement to the unrelated
company.
In February 2001, the Company sold, pursuant to a Securities Purchase
Agreement, 840,000 shares of common stock and 840,000 warrants with an
exercise price of $.15, exercisable for a period of three years from
issuance. These securities were sold for $126,000 in cash, with no portion
of the purchase price having been allocated to these warrants.
In February 2001, the Company issued, as a finder's fee, 84,000 shares of
common stock and 336,000 warrants with an exercise price of $.15 per share,
exercisable for a period of three years from issuance.
In March 2001, the Company sold, pursuant a Securities Purchase Agreement,
500,000 shares of common stock and 500,000 warrants with an exercise price
of $.25, exercisable for a period of three years from issuance. These
securities were sold for $125,000 in cash, with no portion of the purchase
price having been allocated to the warrants.
In March 2001, the Company issued, as a finder's fee, 50,000 shares of
common stock and 200,000 warrants with an exercise price of $.25 per share,
exercisable for a period of three years from issuance.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Estimated expenses payable by the Company in connection with the
registration of Common Stock covered hereby are as follows:
Registration fee $ 6,933.03
Underwriter's unaccountable expense allowance 0.00
Printing and engraving expenses
5,000.00 *
Legal fees and expenses 25,000.00
Accounting fees and expenses
20,000.00 *
Blue Sky fees and expenses 0.00
Transfer agent and registrar fees and expenses 0.00
Miscellaneous
1,000.00 *
---------------
----------------
(* estimate) Total
$57,933.03 *
Item 14. Indemnification of Directors and Officers.
Registrant is a Nevada corporation. Section 78.751 of Nevada Revised
Statutes (the "Nevada Act") empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity as directors and officers. The Nevada Act
further provides that the indemnification permitted thereunder shall not be
deemed exclusive of any other rights to which the directors and officers
may be entitled under the corporation's bylaws, any agreement, vote of the
shareholders or otherwise.
Section VIII of Registrant's Bylaws, included as Exhibit 3.2 filed
herewith, which provides for the indemnification of directors and officers,
is incorporated herein by reference.
Registrant has purchased no insurance for indemnification of its officers
and directors, agents, etc., nor has there been any specific agreement for
indemnification made between registrant and any of its officers and
directors, or others, with respect to indemnification for them arising out
of their duties to Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, the Securities Exchange Act of 1934 or the Rules and
Regulations of the Securities and Exchange Commission thereunder may be
permitted under said indemnification provisions of the law, or otherwise,
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, any such indemnification is against public policy and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Nevada Act and will be governed by the
final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities.
1. (a) Securities Sold. On February 17, 1998, 400,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan, Attorneys at Law.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting and Legal Services Agreement, at a price of $.10 per share,
or $40,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
2. (a) Securities Sold. On February 17, 1998, 36,092 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Langley Downey Entertainment, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $1.25 per share, or $45,115, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
3. (a) Securities Sold. On March 20, 1998, 22,667 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Geoff Newlan, d/b/a jara.com productions.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $.375 per share, or $8,500, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
4. (a) Securities Sold. On March 21, 1998, a total of 80,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Waddell D. Loflin (20,000 shares), Ross S. Bravata (20,000
shares), Michael Cohn (20,000 shares) and Richard N. Gill (20,000 shares).
(c) Consideration. Such shares of Common Stock were issued as a
bonus for services rendered, at a price of $.80 per share, or $64,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
5. (a) Securities Sold. On June 22, 1998, a total of 300,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Dennis A. Faker (100,000 shares), Barbara V. Schiller
(60,000 shares), Jeanne M. Rowzee (20,000 shares), Alvin Gottlieb (20,000
shares), Rogers Family Trust (60,000 shares), Delaware Charter Guarantee &
Trust Company f/b/o Clarence Yim (20,000 shares) and Delaware Charter
Guarantee & Trust Company f/b/o R. Logan Kock (20,000 shares).
(c) Consideration. Such shares of Common Stock were sold for cash
pursuant to a private offering, at a price of $1.00 per share, or $300,000,
in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
6. (a) Securities Sold. On June 22, 1998, a total of 150,000 common
stock purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Dennis A. Faker (50,000 warrants), Barbara V. Schiller (30,000 warrants),
Jeanne M. Rowzee (10,000 warrants), Alvin Gottlieb (10,000 warrants),
Rogers Family Trust (30,000 warrants), Delaware Charter Guarantee & Trust
Company f/b/o Clarence Yim (10,000 warrants) and Delaware Charter
Guarantee & Trust Company f/b/o R. Logan Kock (10,000 warrants).
(c) Consideration. Such warrants were issued for no additional
consideration as part of units of securities in a private offering.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $2.00 per share and exercisable for a period of two years from issuance.
The warrants are redeemable by the Company at any time the bid price of
the Company's Common Stock has been at or above $4.00 per share for five
consecutive trading days.
7. (a) Securities Sold. On May 18, 1999, 56,667 common stock purchase
warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
H+N Partners.
(c) Consideration. Such warrants were issued pursuant to an
Investment Banking Agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $1.25 per share and exercisable for a period of four years from issuance.
8. (a) Securities Sold. On May 18, 1999, 56,667 common stock purchase
warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
H+N Partners.
(c) Consideration. Such warrants were issued pursuant to an
Investment Banking Agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $1.50 per share and exercisable for a period of four years from issuance.
9. (a) Securities Sold. On May 18, 1999, 34,000 common stock purchase
warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Centex Securities, Inc.
(c) Consideration. Such warrants were issued pursuant to a Selling
Agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $1.25 per share and exercisable for a period of five years from issuance.
10. (a) Securities Sold. On June 15, 1998, 37,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to H+N Partners.
(c) Consideration. Such shares of Common Stock were issued pursuant
a Consulting Agreement, at a price of $2.00 per share, or $74,000, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
11. (a) Securities Sold. On July 31, 1998, 10,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Craig Boothe.
(c) Consideration. Such shares of Common Stock were issued as a
signing bonus pursuant a Business Acquisition Agreement, at a price of
$1.00 per share, or $10,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
12. (a) Securities Sold. On August 26, 1998, a total of 40,000 shares
of Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Delaware Charter Guarantee & Trust Company f/b/o Clarence
Yim (20,000 shares) and Delaware Charter Guarantee & Trust Company f/b/o R.
Logan Kock (20,000 shares).
(c) Consideration. Such shares of Common Stock were issued in a
private offering, at a price of $1.00 per share, or $40,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
13. (a) Securities Sold. On August 26, 1998, a total of 20,000 common
stock purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Delaware Charter Guarantee & Trust Company f/b/o Clarence Yim (10,000
warrants) and Delaware Charter Guarantee & Trust Company f/b/o R. Logan
Kock (10,000 warrants).
(c) Consideration. Such warrants were issued for no additional
consideration as part of units of securities in a private offering.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $2.00 per share and exercisable for a period of two years from issuance.
The warrants are redeemable by the Company at any time the bid price of
the Company's Common Stock has been at or above $4.00 per share for five
consecutive trading days.
14. (a) Securities Sold. On September 9, 1998, 300,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Capital Financial Consultants, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $1.10 per share, or $330,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
15. (a) Securities Sold. On September 1, 1998, 400,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan, Attorneys at Law.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting and Legal Services Consulting Agreement, at a price of
$1.00 per share, or $400,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
16. (a) Securities Sold. On October 14, 1998, 100,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $.70 per share, or $70,000, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
17. (a) Securities Sold. On August 14, 1998, 5,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Darrell Davis.
(c) Consideration. Such shares of Common Stock were issued as a
signing bonus pursuant to an Agreement and Plan of Reorganization, at a
price of $1.00 per share, or $5,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
18. (a) Securities Sold. On November 3, 1998, 150,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Fair Market Value, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $.50 per share, or $75,000, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
19. (a) Securities Sold. On December 30, 1998, 150,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to H+N Partners.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $2.50 per share, or $375,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
20. (a) Securities Sold. On December 30, 1998, 60,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to The Humbolt Corporation.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $2.50 per share, or $150,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
21. (a) Securities Sold. On January 29, 1999, a total of 2,000,000
shares of Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Julius W. Basham, II (1,394,000 shares), Wm. Kim Stimpson
(303,000 shares) and David W. Brown (303,000 shares).
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Agreement and Plan of Reorganization, at a price of $7.97 per share,
or $15,940,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
22. (a) Securities Sold. On January 20, 1999, a total of 60,000 shares
of Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Michael Cohn (30,000 shares), Walter C. Schiller (10,000
shares), Michael R. Van Geons (10,000 shares), Harry P. Kunecki Trust
(5,000 shares) and Frank L. Leyba (5,000 shares).
(c) Consideration. Such shares of Common Stock were sold for cash
pursuant to a private offering, at a price of $4.50 per share, or $270,000,
in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
23. (a) Securities Sold. On January 20, 1999, a total of 60,000 common
stock purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Michael Cohn (30,000 warrants), Walter C. Schiller (10,000 warrants),
Michael R. Van Geons (10,000 warrants), Harry P. Kunecki Trust (5,000
warrants) and Frank L. Leyba (5,000 warrants).
(c) Consideration. Such warrants were issued for no additional
consideration as part of units of securities in a private offering.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $7.00 per share and exercisable for a period of two years from issuance.
The warrants are redeemable by the Company at any time the bid price of
the Company's Common Stock has been at or above $8.50 per share for five
consecutive trading days.
24. (a) Securities Sold. On February 5, 1999, 325,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to James Kaufman.
(c) Consideration. Such shares of Common Stock were issued as a
finder's fee, at a price of $7.97 per share, or $2,590,250, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
25. (a) Securities Sold. On June 2, 1999, a total of 100,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Darrell Davis and Deanna Davis (74,000 shares) and Roger
Davis and Gloria C. Davis (26,000).
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Agreement and Plan of Reorganization, at a price of $4.00 per share,
or $400,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
26. (a) Securities Sold. On June 4, 1999, a total of 35,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Walter Engler (10,000 shares) and Shelter Capital Ltd.
(25,000 shares).
(c) Consideration. Such shares of Common Stock were sold for cash
pursuant to a private offering, at a price of $3.00 per share, or $105,000,
in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
27. (a) Securities Sold. On June 4, 1999, a total of 35,000 common
stock purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Walter Engler (10,000 warrants) and Shelter Capital Ltd. (35000 warrants).
(c) Consideration. Such warrants were issued for no additional
consideration as part of units of securities in a private offering.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $7.00 per share and exercisable for a period of one year from issuance.
Warrants are redeemable by the Company at any time the bid price of the
Company's Common Stock has been at or above $10.00 per share for five
consecutive trading days.
28. (a) Securities Sold. On June 4, 1999, 500,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Interactive Business Channel.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $4.00 per share, or $2,000,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
29. (a) Securities Sold. In July, 1999, a total of 155,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Dennis A. Faker (50,000 shares), Barbara V. Schiller (30,000
shares), Jeanne M. Rowzee (10,000 shares), Alvin Gottlieb (10,000 shares),
Rogers Family Trust (15,000 shares), Delaware Charter Guarantee & Trust
Company f/b/o Clarence Yim (20,000 shares) and Delaware Charter Guarantee &
Trust Company f/b/o R. Logan Kock (20,000 shares).
(c) Consideration. Such shares of Common Stock were issued upon the
exercise of warrants, at a price of $2.00 per share, or $310,000, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
30. (a) Securities Sold. On February 5, 1999, 21,857 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Terry Lewis.
(c) Consideration. Such shares of Common Stock were issued upon the
exercise of warrants, at a price of $1.25 per share, or $27,321, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
31. (a) Securities Sold. On August 11, 1999, 150,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Mark Bove.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Business Acquisition Agreement, at a price of $4.00 per share, or
$600,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
32. (a) Securities Sold. On August 23, 1999, 250,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Knud Nielsen, III (127,500 shares) and Gary Stanley (122,500
shares).
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Agreement and Plan of Reorganization, at a price of $4.00 per share,
or $1,000,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
33. (a) Securities Sold. On August 30, 1999, 127,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Alan L. Taylor (122,405 shares), Brent Bates (518 shares),
Kim Jorgensen (475 shares), Chris Allison (472 shares), Robert Carlson
(1,423 shares) and Lane Virgin (1,707 shares).
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Agreement and Plan of Reorganization, at a price of $4.00 per share,
or $508,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
34. (a) Securities Sold. On September 24, 1999, 11,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Alonzo B. See, III.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Employment Agreement, at a price of $5.00 per share, or $40,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
35. (a) Securities Sold. On November 12, 1999, 25,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Cyber Mountain, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Letter Agreement, at a price of $4.00 per share, or $100,000, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
36. (a) Securities Sold. On December 9, 1999, a total of 340,000 shares
of Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Julius W. Basham, II (215,000 shares), Wm. Kim Stimpson
(34,000 shares) and David W. Brown (91,000 shares).
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Settlement Agreement and Mutual Release, at a price of $2.6875 per
share, or $913,750, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
37. (a) Securities Sold. On December 9, 1999, 30,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $3.00 per share, or $90,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
38. (a) Securities Sold. On December 13, 1999, 30,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Nostas/Faesel Group.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $3.00 per share, or $90,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
39. (a) Securities Sold. On December 13, 1999, 53,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to CyberHighway of North Georgia, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Asset Acquisition Agreement, at a price of $4.00 per share, or
$212,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
40. (a) Securities Sold. On December 1, 1999, 60,000 common stock
purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
The Research Works, Inc.
(c) Consideration. Such warrants were issued pursuant to a
Consulting Agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $3.50 per share and the warrants are exercisable for a period of two
years from issuance.
41. (a) Securities Sold. On January 1, 2000, 60,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to The Humbolt Corporation.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Business and Communications Consulting Services Agreement, at a price
of $3.00 per share, or $180,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
42. (a) Securities Sold. On January 1, 2000, 42,166 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan, Attorneys at Law.
(c) Consideration. Such shares of Common Stock were issued for
services rendered, at a price of $3.00 per share, or $126,500, in the
aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
43. (a) Securities Sold. On January 1, 2000, 100,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan, Attorneys at Law.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Legal and Consulting Services Agreement, at a price of $3.00 per
share, or $300,000, in the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Section 4(2) thereof, as a transaction not involving a
public offering.
44. (a) Securities Sold. On February 1, 2000, 81,063 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to the owners of The Spinning Wheel, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Agreement and Plan of Reorganization, at a price of $4.00 per share,
or $324,252, in the aggregate.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
45. (a) Securities Sold. On February 18, 2000, 50,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to the owners of Internet Innovations, L.L.C.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Agreement and Plan of Reorganization, at a price of $4.00 per share,
or $200,000, in the aggregate.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
46. (a) Securities Sold. In April 2000, 30,000 shares of Company Common
Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $3.00 per share, or $90,000, in
the aggregate.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
47. (a) Securities Sold. In April 2000, 30,000 shares of Company Common
Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Nostas/Faesel Group.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $3.00 per share, or $90,000, in
the aggregate.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
48. (a) Securities Sold. In April 2000, 100,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Fair Market, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a Consulting Agreement, at a price of $7.125 per share, or $712,500, in
the aggregate.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
49. (a) Securities Sold. In April 2000, a total of 65,000 shares of
Company Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to ten individual investors.
(c) Consideration. Such shares of Common Stock were sold for cash
pursuant to a private offering, at a price of $5.00 per share, or $325,000,
in the aggregate.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
50. (a) Securities Sold. In April 2000, a total of 65,000 common stock
purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
ten individual investors.
(c) Consideration. Such warrants were issued for no additional
consideration as part of units of securities in a private offering.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $7.50 per share and exercisable for a period of two years from issuance.
51. (a) Securities Sold. In May 2000, 250,000 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Robert A. Hart IV.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Employment Agreement, at a price of $3.00 per share, or $750,000, in
the aggregate.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
52. (a) Securities Sold. In July 2000, 250,000 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Gruntal & Co., LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an investment banking agreement, at a price of $1.50 per share, or
$375,000, in the aggregate.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
53. (a) Securities Sold. In July 2000, 5,880 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Ryan G. Campanile.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Employment Agreement, at prices ranging rom $9.44 per share to $2.06
per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
54. (a) Securities Sold. In July 2000, 5,880 shares of Company Common
Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Ryan D. Thibodeaux.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Employment Agreement, at prices ranging rom $9.44 per share to $2.06
per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
55. (a) Securities Sold. In August 2000, 774,162 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to David M. Lofin.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a letter agreement, at a price of $1.25 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
56. (a) Securities Sold. In September 2000, 450,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Centex Securities, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement, at a price of $.875 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
57. (a) Securities Sold. In October 2000, a total 250,000 shares of
Company Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Knud Nielsen, III (202,500 shares) and Gary Stanley (47,500
shares).
(c) Consideration. Such shares of Common Stock were issued pursuant
to a settlement agreement, at a price of $.875 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
58. (a) Securities Sold. In October 2000, 2,282 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Ryan G. Campanile.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Employment Agreement, at prices ranging rom $2.00 per share to $1.56
per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
59. (a) Securities Sold. In October 2000, 2.282 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Ryan D. Thibodeaux.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an Employment Agreement, at prices ranging rom $2.00 per share to $1.56
per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
60. (a) Securities Sold. In October 2000, 35,536 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to James Kaufman.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an employment agreement, at prices ranging from $9.36 to $2.25 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
61. (a) Securities Sold. In November 2000, 10,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Slade S. Mauer.
(c) Consideration. Such shares of Common Stock were issued pursuant
to an employment agreement, at a price of $.625 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
62. (a) Securities Sold. In November 2000, 100,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to de Jong & Associates, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement, at a price of $.5625 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
63. (a) Securities Sold. In November 2000, 35,000 common stock purchase
warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to de
Jong & Associates, Inc.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to a consulting agreement.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $1.00 per share and exercisable for a period of three years from issuance.
64. (a) Securities Sold. In December 2000, 40,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Shelter Capital Ltd.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a finder's fee agreement, at a price of $.20 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
65. (a) Securities Sold. In December 2000, 380,000 common stock
purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to a finder's fee agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.20 per share and exercisable for a period of three years from issuance.
66. (a) Securities Sold. In December 2000, 100,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Gestalt Corporation.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting services letter agreement, at a price of $.3125 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
67. (a) Securities Sold. In December 2000, 300,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to James Kaufman.
(c) Consideration. Such shares of Common Stock were issued as a
bonus, at a price of $.25 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
68. (a) Securities Sold. In December 2000, 200,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Waddell D. Loflin.
(c) Consideration. Such shares of Common Stock were issued as a
bonus, at a price of $.25 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
69. (a) Securities Sold. In December 2000, 300,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Peter Rochow.
(c) Consideration. Such shares of Common Stock were issued for
consulting services, at a price of $.25 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
70. (a) Securities Sold. In December 2000, 100,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Patrick F. McGrew.
(c) Consideration. Such shares of Common Stock were issued for
legal services, at a price of $.25 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
71. (a) Securities Sold. In December 2000, 500,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Newlan & Newlan.
(c) Consideration. Such shares of Common Stock were issued for
legal services, at a price of $.25 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
72. (a) Securities Sold. In December 2000, 400,000 shares of Company
Common Stock were sold.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Anchor House Ltd.
(c) Consideration. Such shares of Common Stock were sold for cash,
at a price of $.20 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
73. (a) Securities Sold. In January 2001, 800,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Fusion Capital Fund II, LLC.
(c) Consideration. Such shares of Common Stock were issued as a
commitment fee under a common stock purchase agreement, at a price of $.25
per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
74. (a) Securities Sold. In January 2001, 200,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Gruntal & Co., LLC.
(c) Consideration. Such shares of Common Stock were issued as a
finder's fee pursuant to an investment banking agreement, at a price of
$.25 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
75. (a) Securities Sold. In January 2001, 200,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Fair Market, Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a letter agreement, at a price of $.375 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
76. (a) Securities Sold. In January 2001, 20,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to CyberHighway of North Georgia.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a letter agreement, at a price of $.375 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
77. (a) Securities Sold. In January 2001, 10,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Fusion Capital Fund II, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a letter agreement, at a price of $.375 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
78. (a) Securities Sold. In February 2001, 840,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Claymore Asset Management Group Ltd.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a securities purchase agreement, at a price of $.15 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
79. (a) Securities Sold. In February 2001, 840,000 common stock
purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Claymore Asset Management Group Ltd.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to a securities purchase agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.15 per share and exercisable for a period of three years from issuance.
80. (a) Securities Sold. In February 2001, 84,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Shelter Capital Ltd.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a finder's fee agreement, at a price of $.15 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
81. (a) Securities Sold. In February 2001, 336,000 common stock
purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to a finder's fee agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.15 per share and exercisable for a period of three years from issuance.
82. (a) Securities Sold. In March 2001, 500,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Atlas Securities Inc.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a securities purchase agreement, at a price of $.25 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
83. (a) Securities Sold. In March 2001, 500,000 common stock purchase
warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Atlas Securities Inc.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to a securities purchase agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.25 per share and exercisable for a period of three years from issuance.
84. (a) Securities Sold. In December 2000, 50,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to Shelter Capital Ltd.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a finder's fee agreement, at a price of $.25 per share.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
85. (a) Securities Sold. In December 2000, 200,000 common stock
purchase warrants of the Company were issued.
(b) Underwriter or Other Purchasers. Such warrants were issued to
Shelter Capital Ltd.
(c) Consideration. Such warrants were issued for no additional
consideration pursuant to a finder's fee agreement.
(d) Exemption from Registration Claimed. These securities are exempt
from registration under the Securities Act of 1933, as amended, pursuant to
the provisions of Regulation S thereunder.
(e) Terms of Conversion or Exercise. Exercise price of the warrants
is $.25 per share and exercisable for a period of three years from issuance.
86. (a) Securities Sold. In April 2001, 300,000 shares of Company
Common Stock were issued.
(b) Underwriter or Other Purchasers. Such shares of Common Stock
were issued to IBC.TV, LLC.
(c) Consideration. Such shares of Common Stock were issued pursuant
to a consulting agreement, at a price of $.50 per share.
(d) Exemption from Registration Claimed. The Company relied upon the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933, as amended, but this exemption may not have been available.
Item 16. Exhibits and Financial Statements Schedules.
1. Exhibits.
Exhibit No. Description
# 3.1 Articles of Incorporation of Registrant.
+ 3.2 Bylaws of Registrant, as amended.
+ 3.3 Bylaws of Executive Committee of the Board of Directors of
Registrant.
+ 3.4 Bylaws of Audit Committee of the Board of Directors of
Registrant.
* 3.5 Articles of Amendment to Articles of Incorporation of
Registrant.
** 3.6 Articles of Amendment to Articles of Incorporation of
Registrant.
+ 4.1 Specimen Common Stock Certificate.
@ 5.1 Opinion of Newlan & Newlan, Attorneys at Law, re: Legality.
+ 10.1 Registration Rights Letter Agreement between Registrant and
Centex
Securities, Inc., dated May 20, 1998.
+ 10.2 Finder's Fee Letter between Registrant and H+N Partners,
dated March 27, 1998.
+ 10.3 Registration Rights Letter Agreement between Registrant and
Dennis A. Faker,
dated June 19, 1998.
+ 10.4 Registration Rights Letter Agreement between Registrant and
Delaware Charter
Guaranty and Trust Company, f/b/o R. Logan Kock IRA, dated
June 19, 1998.
+ 10.5 Registration Rights Letter Agreement between Registrant and
Alvin Gottlieb,
dated June 19, 1998.
+ 10.6 Registration Rights Letter Agreement between Registrant and
Rogers Family
Trust, dated June 19, 1998.
+ 10.7 Registration Rights Letter Agreement between Registrant and
Jeanne Rowzee,
dated June 19, 1998.
+ 10.8 Registration Rights Letter Agreement between Registrant and
Barbara V. Schiller, dated June 19, 1998.
+ 10.9 Registration Rights Letter Agreement between Registrant and
Delaware Charter
Guarantee and Trust Company f/b/o Clarence Yim IRA, dated
June 19, 1998.
+ 10.9.1 Warrant Agreement between Registrant and Securities
Transfer Corporation,
dated May 18, 1998.
+ 10.10 Warrant Agreement between Registrant and Securities
Transfer Corporation,
dated May 20, 1998.
+ 10.11 Warrant Agreement between Registrant and Securities
Transfer Corporation,
dated May 20, 1998.
+ 10.12 Warrant Agreement between Registrant and Securities
Transfer Corporation dated
January 19, 1999.
+ 10.13 Registration Rights Letter Agreement between Registrant and
Michael Cohn,
dated January 19, 1999.
+ 10.14 Registration Rights Letter Agreement between Registrant and
Walter C.
Schiller, dated January 19, 1999.
+ 10.15 Registration Rights Letter Agreement between Registrant and
Michael R. Van
Geons, dated January 19, 1999.
+ 10.16 Registration Rights Letter Agreement between Registrant and
Harry P. Kunecki
Trust, dated January 19, 1999.
+ 10.17 Registration Rights Letter Agreement between Registrant and
Frank L. Leyba,
dated January 19, 1999.
+ 10.18 Warrant Agreement between Registrant and Securities
Transfer Corporation,
dated May 3, 1999.
+ 10.19 Registration Rights Letter Agreement between Registrant and
Shelter Capital,
Ltd., dated May 28, 1999.
+ 10.20 Registration Rights Letter Agreement between Registrant and
Walter Engler,
dated May 28, 1999.
+ 10.21 Agreement and Plan of Reorganization, dated April 28, 1999,
among Registrant,
Santa Fe Wireless Internet, Inc., Santa Fe Trail Internet
Plus, Inc., and
Darrell Davis.
+ 10.21.1 Agreement of Merger, dated June 2, 1999, among Registrant,
Santa Fe Wireless
Internet, Inc. and Santa Fe Trail Internet Plus, Inc.
+ 10.22 Registration Rights Letter Agreement between Registrant and
Darrell Davis and
Deanna Davis, dated June 2, 1999.
+ 10.23 Registration Rights Letter Agreement between Registrant and
Roger Davis and
Gloria C. Davis, dated June 2, 1999.
+ 10.24 Business Acquisition Agreement between Registrant and Mark
Bove, dated July
14, 1999.
+ 10.25 Registration Rights Letter Agreement between Registrant and
Mark Bove, dated
August 11, 1999.
+ 10.26 Agreement and Plan of Reorganization, dated August 24,
1999, among Registrant,
CyberHighway, Inc., Premier Internet Services, Inc. and
Alan Taylor.
+ 10.27 Agreement of Merger among Registrant, CyberHighway, Inc.
and Premier Internet
Services, Inc., dated August 30, 1999.
+ 10.28 Confidentiality Agreement between Registrant and Alan
Taylor, dated August 30,
1999.
+ 10.29 Agreement Not to Compete between Registrant and Alan
Taylor, dated August 30,
1999.
+ 10.30 Registration Rights Letter Agreement between Registrant and
Alan Taylor, dated
August 30, 1999.
+ 10.31 Asset Purchase Agreement between Registrant and
CyberHighway of North Georgia,
Inc., dated October 29, 1999.
+ 10.32 Confidentiality Agreement among Registrant, CyberHighway of
North Georgia,
Inc., Grady E. Brooks, Jr. and Anthony Woodall, dated
December 20, 1999.
+ 10.33 Agreement Not to Compete among Registrant, CyberHighway of
North Georgia,
Inc., Grady E. Brooks, Jr., and Anthony Woodall, dated
December 20, 1999.
+ 10.34 Registration Rights Letter Agreement between Registrant and
CyberHighway of
North Georgia, Inc., dated December 20, 1999.
+ 10.35 Employment Agreement between Registrant and James Kaufman,
dated March 22,
1999.
+ 10.36 Confidentiality Agreement between Registrant and James
Kaufman, dated March
22, 1999.
+ 10.37 Agreement Not to Compete between Registrant and James
Kaufman, dated March 22,
1999.
+ 10.38 Employment Agreement between Registrant and Darrell Davis,
dated October 4,
1999.
+ 10.39 Confidentiality Agreement between Registrant and Darrell
Davis, dated October
4, 1999.
+ 10.40 Agreement Not to Compete between Registrant and Darrell
Davis, dated October
4, 1999.
+ 10.41 Employment Agreement between Registrant and David M.
Loflin, dated August 1,
1999.
+ 10.42 Confidentiality Agreement between Registrant and David M.
Loflin, dated August
1, 1999.
+ 10.43 Agreement Not to Compete between Registrant and David M.
Loflin, dated August
1, 1999.
+ 10.44 Employment Agreement between Registrant and Waddell D.
Loflin, dated August 1,
1999.
+ 10.45 Confidentiality Agreement between Registrant and Waddell D.
Loflin, dated
August 1, 1999.
+ 10.46 Agreement Not to Compete between Registrant and Waddell D.
Loflin, dated
August 1, 1999.
*** 10.47 Settlement Agreement and Mutual Release, dated November 30,
1999, among
Registrant, CyberHighway, Inc., Julius W. Basham, II, Wm.
Kim Stimpson and
David W. Brown.
+ 10.48 Wholesale Customer - Dial Access Agreement between
Registrant and ioNET, Inc.
(a division of PSINet, Inc.), dated July 21, 1999.
+ 10.49 ISP Agreement between Registrant and NaviNet, Inc., dated
August 2, 1999.
+ 10.50 Warrant Agreement between Registrant and Securities
Transfer Corporation,
dated November 1, 1999.
+ 10.50.1 Registration Rights Letter Agreement between Registrant and
Michael Cohn,
dated November 1, 1999.
+ 10.51 Letter Agreement between Registrant and The Research Works,
Inc., dated
December 1, 1999.
+ 10.51.1 Warrant Agreement between Registrant and Securities
Transfer Corporation,
dated December 1, 1999.
+ 10.52 Financial Public Relations and Investor Relations Services
Agreement between
Registrant and Peter Rochow, dated October 27, 1999.
+ 10.53 Consultation Agreement - Investor Relations between
Registrant and
Nostas/Faessel Group, dated October 23, 1999.
+ 10.54 Corporate Communications Services Agreement between
Registrant and JFMills/
Worldwide, dated November 1, 1999.
+ 10.55 Agreement and Plan of Reorganization, dated July 23, 1999,
among Registrant,
USURF America (Alabama), Inc., Net 1, Inc. and Gary Stanley.
+ 10.56 Agreement of Merger, dated August 23, 1999, among
Registrant, USURF America
(Alabama), Inc. and Net 1, Inc.
+ 10.57 Registration Rights Letter Agreement between Registrant and
Kund Nielsen, III,
dated August 23, 1999.
+ 10.58 Registration Rights Letter Agreement between Registrant and
Gary Stanley,
dated August 23, 1999.
+ 10.59 Confidentiality Agreement between Registrant and Kund
Nielsen, III, dated
August 23, 1999.
+ 10.60 Agreement Not to Compete between Registrant and Kund
Nielsen, III, dated
August 23, 1999.
+ 10.61 Agreement and Plan of Reorganization, dated February 1,
2000, among
Registrant, USURF America Internet Design, Inc., Internet
Innovations, L.L.C.,
Ryan D. Thibodeaux and Ryan G. Campanile.
+ 10.62 Agreement of Merger, dated February 16, 2000, among
Registrant, USURF America
Internet Design, Inc. and Internet Innovations, L.L.C.
+ 10.63 Registration Rights Letter Agreement, dated February 16,
2000, between
Registrant and Ryan D. Thibodeaux.
+ 10.64 Registration Rights Letter Agreement, dated February 16,
2000, between
Registrant and Ryan G. Campanile.
+ 10.65 Employment Agreement, dated February 16, 2000, between
Registrant, USURF
America Internet Design, Inc. and Ryan D. Thibodeaux.
+ 10.66 Employment Agreement, dated February 16, 2000, between
Registrant, USURF
America Internet Design, Inc. and Ryan G. Campanile.
+ 10.67 Business and Communications Consulting Services Agreement,
dated as of January
1, 2000, between Registrant and The Humbolt Corporation.
+ 10.68 Legal and Consulting Services Agreement, dated as of
January 1, 2000, between
Registrant and Newlan & Newlan, Attorneys at Law.
+ 10.69 Agreement and Plan of Reorganization, dated October 26,
1999, among
Registrant, CyberHighway, Inc., The Spinning Wheel, Inc.
and Diggs W. Lewis,
Jr.
+ 10.70 Agreement of Merger, dated February 1, 2000, among
Registrant, CyberHighway,
Inc. and The Spinning Wheel, Inc.
+ 10.71 Registration Rights Letter Agreement, dated February 1,
2000, between
Registrant and Diggs W. Lewis, Jr.
+ 10.72 Agreement Not to Compete, dated February 1, 2000, between
Registrant and Diggs
W. Lewis, Jr.
+ 10.73 Confidentiality Agreement, dated February 1, 2000, between
Registrant and
Diggs W. Lewis, Jr.
+ 10.74 Warrant Agreement between Registrant and Securities
Transfer Corporation,
dated as of March 29, 2000.
+ 10.75 Employment Agreement between Registrant and Christopher L.
Wiebelt, dated
February 15, 2000.
+ 10.76 Confidentiality Agreement between Registrant and
Christopher L. Wiebelt, dated
February 15, 2000.
+ 10.77 Agreement Not to Compete between Registrant and Christopher
L. Wiebelt, dated
February 15, 2000.
+ 10.78 Management/Financial Consulting Agreement between
Registrant and Fair
Market, Inc., dated March 15, 2000.
+ 10.79 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Shelter Capital Ltd.
+ 10.80 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Gordon Engler.
+ 10.81 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Annie Rochow.
+ 10.82 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Eden Park Homes Ltd.
+ 10.83 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and G. Paul Dumas.
+ 10.84 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Daniel E. Pisenti.
+ 10.85 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Wolfgang and Helga Rochow.
+ 10.86 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Geoffrey Page Flett.
+ 10.87 Registration Rights Letter Agreement, dated March 29, 2000,
between Registrant
and Donald Rayburn.
+ 10.88 Employment Agreement, dated May 25, 2000, between
Registrant and Robert A.
Hart IV.
+ 10.89 Confidentiality Agreement, dated May 25, 2000, between
Registrant and Robert
A. Hart IV.
+ 10.90 Agreement Not to Compete, dated May 25, 2000, between
Registrant and Robert A.
Hart IV.
+ 10.91 Investment Banking Letter Agreement, dated July 19, 2000,
between Registrant
and Gruntal & Co., LLC.
+ 10.92 Letter Agreement, dated August 21, 2000, between Registrant
and David M.
Loflin.
+ 10.93 Consulting Agreement, dated September 21, 2000, between
Registrant and Centex
Securities, Inc.
+ 10.94 Settlement Agreement, dated October 13, 2000, among
Registrant, Knud Nielsen,
III and Gary Stanley.
+ 10.95 Employment Agreement, dated November 6, 2000, between
Registrant and Slade S.
Maurer.
+ 10.96 Confidentiality Agreement, dated November 6, 2000, between
Registrant and
Slade S. Maurer.
+ 10.97 Agreement Not to Compete, dated November 6, 2000, between
Registrant and Slade
S. Maurer
+ 10.98 Consulting Agreement, dated November 8, 2000, between
Registrant and de Jong &
Associates, Inc.
+ 10.99 Warrant Agreement, dated November 8, 2000, between
Registrant and de Jong &
Associates, Inc.
+ 10.100 Settlement Agreement, dated November 29, 2000, among
Registrant, CyberHighway,
Inc., and CTC Telecom, Inc.
+ 10.101 Consulting Services Agreement, dated December 12, 2000,
between Registrant and
Gestalt Corporation.
+ 10.102 Stock Purchase Agreement, dated December 12, 2000, between
Registrant and
Anchor House Ltd.
+ 10.103 Warrant Agreement, dated December 12, 2000, between
Registrant and Shelter
Capital Ltd.
+ 10.104 REPLACED BY EXHIBIT 10.121 (Common Stock Purchase
Agreement, dated October 9,
2000, between Registrant and Fusion Capital Fund II, LLC).
+ 10.105 REPLACED BY EXHIBIT 10.121 (Letter Agreement, dated
December 27, 2000, between
Registrant and Fusion Capital Fund II, LLC).
+ 10.106 REPLACED BY EXHIBIT 10.122 (Registration Rights Agreement,
dated October 9,
2000, between Registrant and Fusion Capital Fund II, LLC).
+ 10.107 REMOVED-Form of Warrant Agreement never executed.
+ 10.108 REMOVED-Form of Warrant never executed.
+ 10.109 REMOVED-Form of Warrant never executed
+ 10.110 REMOVED-Form of Warrant never executed.
+ 10.111 Letter Agreement, dated January 8, 2001, between Registrant
and Fair Market,
Inc.
+ 10.112 Letter Agreement, dated as of January 5, 2001, between
Registrant and Fusion
Capital Fund II, LLC.
@ 10.113 Securities Purchase Agreement, dated February 20, 2001,
between Registrant and
Claymore Asset Management Group Ltd.
@ 10.114 Warrant Agreement, dated February 20, 2001, between
Registrant and Claymore
Asset Management Group Ltd.
@ 10.115 Warrant Agreement, dated February 20, 2001, between
Registrant and Shelter
Capital Ltd.
@ 10.116 Securities Purchase Agreement, dated March 20, 2001,
between Registrant and
Atlas Securities Inc.
@ 10.117 Warrant Agreement, dated March 20, 2001, between Registrant
and Atlas
Securities Inc.
@ 10.118 Warrant Agreement, dated March 20, 2001, between Registrant
and Shelter
Capital Ltd.
@ 10.119 USURF America Reseller License Agreement, dated April 4,
2001, between
Registrant and Wireless WebConnect!, Inc.
@ 10.120 Consulting Agreement, dated April 10, 2001, between
Registrant and IBC.TV,
LLC.
@ 10.121 Common Stock Purchase Agreement, dated April 25, 2001,
between Registrant and
Fusion Capital Fund II, LLC.
@ 10.122 Registration Rights Agreement, dated April 25, 2001,
between Registrant and
Fusion Capital Fund II, LLC.
@ 10.123 $.25 Warrant Agreement between Registrant and Fusion
Capital Fund II, LLC.
@ 10.124 $.35 Warrant Agreement between Registrant and Fusion
Capital Fund II, LLC.
@ 10.125 $.45 Warrant Agreement between Registrant and Fusion
Capital Fund II, LLC.
@ 10.126 $.25 Warrant Agreement between Registrant and Gruntal &
Co., L.L.C.
@ 10.127 $.35 Warrant Agreement between Registrant and Gruntal &
Co., L.L.C.
@ 10.128 $.45 Warrant Agreement between Registrant and Gruntal &
Co., L.L.C.
+ 22.1 Subsidiaries of Registrant.
@ 23.1 Consent of Weaver and Tidwell, L.L.P., independent auditor.
@ 23.2 Consent of Postlethwaite & Netterville, independent auditor.
@ 23.3 Consent of Newlan & Newlan, Attorneys at Law.
@ 23.4 Consent of Patrick F. McGrew, Esquire.
------------------------
@ Filed herewith.
+ Filed previously
# Incorporated by reference from Registrant's Registration Statement on
Form S-1, Commission File No. 333-26385.
* Incorporated by reference from Registrant's Current Report on Form
8-K, date of event: July 21 1998.
** Incorporated by reference from Registrant's Current Report on Form
8-K, date of event: July 6, 1999.
*** Incorporated by reference from Registrant's Current Report on Form
8-K, date of event: November 30, 1999.
2. Financial Statement Schedules.
All schedules are omitted since they are furnished elsewhere in the
Prospectus.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To included any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act);
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Pre-effective Amendment No. 5 to the
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baton Rouge, State
of Louisiana, on April 26, 2001.
USURF AMERICA, INC.
By: /s/ David M. Loflin
David M. Loflin
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:
Signatures Title
Date
/s/ David M. Loflin President (Principal Executive
April 26, 2001
David M. Loflin Officer and Acting Principal
Financial Officer) and Director
/s/ Waddell D. Loflin Vice President, Secretary and Director
April 26, 2001
Waddell D. Loflin
/s/ Ross S. Bravata Director
April 26, 2001
Ross S. Bravata
/s/ Michael Cohn Director
April 26, 2001
Michael Cohn