Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to .
Commission File No. 333-26385
USURF America, Inc.
(Exact Name of Small Business Issuer
as Specified in its Charter)
NEVADA 72-1346591
(State or Other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8748 Quarters Lake Road, Baton Rouge, Louisiana 70809
(Address of Principal Executive Offices,
including Zip Code)
(225) 922-7744
(Issuer's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
Registrant as required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date:
Class Outstanding as of 10-8-99
Common Stock,
$.0001 par value 12,259,977
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
USURF America, Inc.
Consolidated Balance Sheets as of June 30,
1999 (unaudited), and December 31, 1998
Consolidated Statement of Operations for
the Three Months Ended June 30, 1999 and
1998 (unaudited), and the Six Months Ended
June 30, 1999 and 1998 (unaudited)
Consolidated Statement of Cash Flows for
the Six Months Ended June 30, 1999 and
1998 (unaudited)
Notes to Consolidated Financial Statements
<PAGE>
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
12/31/98 6/30/99
(audited) (unaudited)
ASSETS
CURRENT ASSETS
Cash $ 7,232 $ 180,036
Accounts receivable 1,033 76,060
Due from affiliate 0 1,614
Inventory 0 73,950
Prepaid expenses 0 22,135
Deposits 0 0
---------- ----------
Total current
assets 8,265 353,795
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation of $1,412
and $362,210,
respectively 247,267 926,656
INVESTMENTS 43,750 43,750
INTANGIBLES
Licenses and rights to
leases of licenses, net
of accumulated
amortization 34,207 50,418
Acquired customer base,
net of accumulated
amortization of $0
and $2,172,995,
respectively 0 13,787,621
Goodwill, net of
accumulated
amortization of $0
and $1,464,227,
respectively 0 6,900,657
---------- ----------
34,207 20,738,866
---------- ----------
Total assets $333,659 $22,063,067
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable -
current portion 0 20,452
Leases payable -
current portion 0 4,478
Accounts payable -
trade 0 77,400
Customer deposits 0 1,787
Accounts payable -
affiliate 10,069 10,069
Property dividends
payable 57,519 57,519
Taxes payable 0 731
Accrued expenses 19,652 68,175
Accrued interest -
majority stockholder 15,416 17,561
Notes payable to
majority stockholder 146,415 157,926
Deferred revenue 0 71,332
---------- ----------
Total current
liabilities 249,071 487,430
LONG-TERM LIABILITIES
Deferred tax liability 0 4,660,221
---------- ----------
Total
liabilities 249,071 5,147,651
STOCKHOLDERS' EQUITY
Common stock, $.0001
par value, 100,000,000
shares authorized,
8,497,259 and
11,692,259 shares
issued and
outstanding,
respectively 850 1,166
Additional paid-in
capital 2,874,189 24,508,377
Deficit accumulated
during the
development stage (1,686,667) (5,247,322)
Subscriptions
receivable (860) (860)
Deferred consulting (1,102,924) (2,345,945)
---------- ----------
84,588 16,915,416
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $333,659 22,063,067
<PAGE>
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
(unaudited) (unaudited)
Revenue $ 730,028 $ 0 $1,266,082 $ 0
Cost of
Goods Sold (270,274) 0 (471,874) 0
Gross
Profit 459,754 0 794,208 0
Operating
Expenses
Depreciation
and amorti-
zation 2,023,294 345 3,347,322 690
Professional
fees 429,648 127,592 830,487 288,766
Rent 34,394 0 52,917 115
Salary and
commissions 376,716 19,888 610,015 64,688
Contract
services 0 0 20,696 0
Advertising 36,937 0 53,249 0
Other 90,953 21,582 168,515 29,476
Total
Operating
Expenses 2,991,942 169,407 5,083,201 383,735
Loss from
opera-
tions (2,532,188) (169,407) (4,288,993) (383,735)
Other income
(expense)
Interest
expense (5,505) 0 (6,033) 0
Loss before
income tax (2,537,693) (169,407) (4,295,026) (383,735)
Income tax
benefit 442,110 0 734,371 0
Net loss $(2,095,583)$( 169,407)$(3,560,655) $(383,735)
Net loss
per
common
share (0.19) (.024) (0.33) (.035)
Weighted
average
number
of shares
out-
stand-
ing 11,135,666 6,839,626 10,650,657 6,839,626
<PAGE>
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended Six Months Ended
6/30/99 6/30/98
(unaudited) (unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(3,560,655) $(383,734)
Adjustment to
reconcile net loss
to net cash used
in operating
activities
Depreciation and
amortization 3,347,322 690
Recognition of
services per-
formed for
stock 756,979 315,615
Deferred income
taxes (734,370) 0
Due from
affiliate (1,614) 0
Loss on
disposal 280 0
Accounts
receivable (17,004) 0
Inventory (3,225) 0
Deposits 0 0
Customer
deposits 1,787 0
Deferred income
taxes (734,370) 0
Taxes payable 731 0
Other assets (29,037) 0
Deferred revenue 6,990 0
Accounts payable -
trade (107,253) (65,106)
Prepaid expenses (8,655) 0
Accrued expenses 56,518 5,988
Net cash used
in operating
activities (291,206) (126,547)
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds on disposal
of fixed assets 15,090 0
Cash acquired in
acquisitions 180,812 0
Capital expenditures (389,822) (5,000)
Net cash used
in investing
activities (193,920) (5,000)
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments on notes
payable (50,826) 0
Payments on capital
lease obligations 3,756 0
Increase in note
payable to
stockholder 0 198,941
Issuance of common
stock for cash 395,000 0
Warrants exercised 310,000 0
Payment on note
payable - stockholder 0 (30,000)
Net cash provided
by financing
activities 657,930 168,941
Net increase
in cash 172,804 37,394
Cash, beginning of period 7,232 0
Cash, end of period 180,036 37,394
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
In January 1999, the Company acquired all of the stock of CyberHighway,
Inc. by issuing 2,000,000 shares of stock valued at approximately
$16,000,000. In addition, 325,000 shares were issued in payment of a
finder's fee arising out of this acquisition, which shares were valued at
approximately $2,600,000. This acquisition was accounted for as a purchase
business combination.
In June 1999, the Company entered into a five-year investor relations
consulting agreement by issuing 500,000 shares of stock valued at $2,000,000.
In June 1999, the Company acquired all of the stock of Santa Fe Trail
Internet Plus, Inc. by issuing 100,000 shares of stock valued at $400,000.
This acquisition was accounted for as a purchase business combination.
<PAGE>
USURF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999
(Unaudited)
Note 1. Nature of Business, Organization and
Basis of Presentation
USURF America, Inc. (USURF) was incorporated in the State of Nevada on
November 1, 1996, as Media Entertainment, Inc., changed its name to
Internet Media Corporation in July 1998, and again changed its name to the
current name in July 1999. USURF was incorporated 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. In 1998, the Company changed its focus to concentrate in the
Internet industry, including the Wireless Internet industry. The Company
has ceased efforts to develop the wireless cable and low power television
business areas and has announced that assets from the low power activities
will be distributed to shareholders in 1999. Therefore, management has not
provided separate segment information in these financial statements.
Effective December 31, 1996, IMC 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., a New
Mexico corporation (SFWI), to hold the assets acquired from Desert Rain
Internet Services. SFWI was organized to operate as an Internet Service
Provider (ISP). 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 DSRT was accounted for as a
purchase whereby the cost is allocated to the assets acquired.
In January 1999, the Company acquired all of the outstanding capital stock
of CyberHighway, Inc., an Idaho corporation, in exchange for shares of
Company common stock. This acquisition was accounted for as a purchase.
In June 1999, the Company acquired, by merger, Santa Fe Trail Internet
Plus, Inc., a New Mexico corporation ("Trail"), in exchange for shares of
Company common stock. This acquisition was accounted for as a purchase.
Note 2. Interim Consolidated Financial Statements
In the opinion of management, the accompanying consolidated financial
statements for the six months ended June 30, 1999 and 1998, reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial condition, results of operations and cash
flows of the Company, including subsidiaries, and include the accounts of
the Company and all of its subsidiaries. All material inter-company
transactions and balances are eliminated.
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. It is suggested that these
unaudited financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on
Form 10-KSB filed with the SEC. Certain reclassifications and adjustments
may have been made to the financial statements for the comparative period
of the prior fiscal year to conform with the 1998 presentation. The
results of operations for the interim periods are not necessarily
indicative of the results to be obtained for the entire year.
Note 3. Acquisitions
Effective December 31, 1996, the Company acquired WEI and MCTV by issuing
2,157,239 shares of common stock in exchange for all the common stock of
each company. The majority shareholder of the Company was also the sole
shareholder of WEI and the majority shareholder of MCTV. Therefore, the
acquisitions have been accounted for at historical cost in a manner similar
to a pooling of interests. The consolidated statement of operations
includes the Company and its predecessors WEI and MCTV from inception of WEI.
Effective January 29, 1999, the Company acquired CyberHIghway, which
acquisition has been accounted for as a purchase and not as a pooling of
interests.
Effective June 2, 1999, the Company acquired Trail, which acquisition has
been accounted for as a purchase and not as a pooling of interests.
Note 4. Notes Payable to Shareholder
June 30, 1999
(unaudited)
Notes payable to majority
stockholder, interest
accrues at 8%, due on
demand and unsecured $157,926
Note 5. Stock Issuances
During the six months ended June 30, 1999, the Company issued shares of
common stock, as follows:
A. In January 1999, 60,000 shares were issued in a private offering, which
shares were sold for cash at a price of $4.50 per share, or $270,000 in the
aggregate.
B. In January 1999, 2,000,000 shares were issued in exchange for all of
the capital stock of CyberHighway, which shares were valued at $7.97 per
share, or $16,000,000 in the aggregate.
C. In February 1999, 325,000 shares were issued in payment of a finder's
fee arising out of the Company's acquisition of CyberHighway, which shares
were valued at $7.97 per share, or $2,600,000 in the aggregate.
D. In May 1999, 35,000 shares were issued in a private offering, which
shares were sold for cash at a price of $3.00 per share, or $105,000.
E. In June 1999, the Company received $310,000 from the exercise of
warrants, whereby the Company issued 155,000 shares of common stock upon
such warrant exercise. The warrant exercise price of the warrants exercised
was $2.00 per share.
F. In June 1999, the Company entered into an Investor Relations Agreement
with a consultant to the Company. Under its agreement with the consultant,
the Company has issued 500,000 shares of common stock, which shares were
valued at $4.00 per share, or $2,000,000 in the aggregate. The term of the
agreement is five years. The $2,000,000 in compensation is to be amortized
over the entire term of the agreement.
G. In June 1999, 100,000 shares were issued in the acquisition of Trail,
which shares were valued at $4.00 per share, or $400,000 in the aggregate.
Note 6. Subsequent Events
In July 1999, the Company issued 150,000 shares pursuant to a Business
Acquisition Agreement, which shares were valued at $4.00 per share.
In August 1999, the Company issued 127,000 shares pursuant to an Agreement
and Plan of Reorganization, which shares were valued at $4.00 per share.
Also in August 1999, the Company issued 250,000 shares pursuant to an
Agreement and Plan of Reorganization, which shares were valued at $4.00 per
share. The Company intends to institute arbitration proceedings to rescind
this transaction. No prediction as to the outcome of such arbitration can
be made.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Background
In July 1999, the Company changed its name to "USURF America, Inc.", from
"Internet Media Corporation". The Company was 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 and acquired Winter Entertainment, Inc., a Delaware corporation
("WEI"), and Missouri Cable TV Corp., a Louisiana corporation ("MCTV"), to
this end. Due to current market conditions in the wireless cable industry,
the Company has abandoned its efforts to develop its wireless cable
properties. In furtherance of its plan to focus on the exploitation of its
Wireless Internet access products and expansion of its other Internet
services, the Company has assigned all of its community (low power)
television properties to New Wave Media Corp., in exchange for 1,500,000
shares of such entity's common stock. The Company's Board of Directors has
declared a dividend with respect to all 1,500,000 New Wave Media Corp. shares.
In September 1998, the Company, through its subsidiary, Santa Fe Wireless
Internet, Inc., a New Mexico corporation ("SFWI"), acquired the assets and
going business of Desert Rain Internet Services ("DSRT"), a Santa Fe, New
Mexico-based Internet Service Provider (ISP), for $25,000 in cash. In June
1999, the Company, through SFWI, acquired Santa Fe Trail Internet Plus,
Inc., a New Mexico corporation ("Trail"), another Santa Fe, New
Mexico-based ISP, for 100,000 shares of Company Common Stock. The
acquisition of Trail is reflected in the discussion below, with Trail's
operating results from the date of its acquisition, June 2, 1999, through
June 30, 1999, being included in this discussion. Until the acquisition of
Trail, the Company continued to operate DSRT under the "Desert Rain
Internet Services" trade name. Upon consummating the acquisition of Trail,
the operations of DSRT were combined with those of Trail, and the Santa Fe,
New Mexico, operations of the Company operate under Trail's trade name.
Currently, the Company is negotiating for the acquisition of numerous other
ISPs located throughout the United States. There is no assurance that any
such proposed acquisition will be consummated.
Subsequent to June 30, 1999, the Company has made the following
acquisitions, none of which is reflected in the discussion below: (1) in
July 1999, the Company acquired the going business known as www.usurf.com,
in consideration of 150,000 shares of Company common stock; (2) in August
1999, the Company acquired Net 1, Inc., an Alabama-based ISP, in
consideration of 250,000 shares of Company common stock the Company
intends to institute an arbitration proceeding to rescind this acquisition
(see "Part II Other Information, Item 1. Legal Proceedings"); (3) in
August 1999, the Company acquired Premier Internet Services, Inc., an
Idaho-based ISP, in consideration of 127,000 shares of Company common
stock. The operating results of these acquisitions will appear in the
Company's Quarterly Report on Form 10-QSB for the nine months ended
September 30, 1999.
On January 29, 1999, the Company acquired all of the outstanding capital
stock of CyberHighway, Inc. ("CyberHighway"), a Boise, Idaho-based ISP with
approximately 27,000 subscribers, in exchange for 2,000,000 shares of
Company Common Stock. The results of operations discussed below include
the operations of CyberHighway from January 29, 1999 through June 30, 1999.
The Company's acquisition of CyberHighway fundamentally altered the
Company's outlook. Prior to this acquisition, the Company's growth plan
called for either (1) the acquisition of small, local ISPs located in
certain key cities, then essentially "plugging-in" the Company's US.RFTM
Wireless Internet access system into the acquired ISP's network system and
marketing the Wireless Internet access system or (2) the establishment of
strategic relationships by licensing local ISPs in certain key cities to
exploit the Company's US.RF Wireless Internet access products. This growth
strategy, while proving effective, proved also to be slow and relatively
expensive.
With the acquisition of CyberHighway, not only did the Company acquire
approximately 27,000 dial-up Internet access subscribers and a
state-of-the-art Network Operations Center, the Company also gained
immediate access to customers in over 230 markets in which a
CyberHighway-owned or affiliate-ISP provides Internet services. Should
needed capital be available, the Company intends to establish a Wireless
Internet access system in nearly 50 of these CyberHighway markets by the
end of Fiscal 1999. The Company continues to pursue aggressively the
acquisition of independent ISPs and licensing of independent ISPs who would
exploit the Company's US.RF Wireless Internet access products.
Because the Company, WEI and MCTV were combined in a reorganization of
entities under common control, the presentation contained in the financial
statements of the Company has been prepared in a manner similar to the
pooling-of-interests method. The acquisitions of CyberHighway and Trail
were accounted for as purchases, not as pooling of interests. In this
regard, reference is made to the notes to the Company's financial
statements appearing elsewhere herein. The following discussion reflects
such financial statement presentation.
Recent Restructuring
Subsequent to June 30, 1999, in July 1999, the Company made sweeping
changes to the management of its largest subsidiary, CyberHighway. These
changes included completely replacing the board of directors and officers
of CyberHighway, as well as a workforce reduction from 33 to 22. It is
expected that additional minor personnel reductions will be made during the
remainder of Fiscal 99. The changes in the management of CyberHighway were
made due to differing managerial philosophies. Under the prior management,
CyberHighway had, during May 1999, begun to sustain operating losses,
primarily due to the addition of numerous salaried salespersons, who failed
to produce sales revenues. The new management of CyberHighway instituted
the restructuring and personnel reductions as the only means by which it
could return CyberHighway to a positive cash flow position. In September
1999, CyberHighway's cash flow returned to a positive status, in line with
its 1998 cash flow results.
Results of Operations
Six Months Ended June 30, 1999, versus
Six Months Ended June 30, 1998.
General. During the six months ended June 30, 1998 ("Interim 98"), the
Company had no revenues. During the six months ended June 30, 1999
("Interim 99"), the Company had revenues of $1,266,082 (unaudited). This
increase in revenues is primarily attributable to the Company's acquisition
of CyberHighway. As discussed above, during Interim 98, the Company
determined to cease, for the foreseeable future, activities in its Wireless
Cable Segment, in addition to agreeing to dispose of all
community-television-related assets.
For Interim 99, the Company suffered a net loss of $3,560,655 (unaudited)
compared to a net loss of $383,735 (unaudited) for Interim 98. The
Company's net loss for Interim 98 is attributable in large measure to the
issuance of shares of Company common stock pursuant to various consulting
agreements. During Interim 99, however, the Company's net loss is
attributable in large measure to the amortization and depreciation of
acquired customer bases and goodwill ($3,347,322 [unaudited]), while
$830,487 (unaudited) in professional fees, substantially all of which is
attributable to stock issuances under various consulting agreements and
$610,015 (unaudited) in salary and commissions was expensed. For the
remainder of the year to end December 31, 1999 ("Fiscal 99"), the Company
expects to expense approximately $670,000 of amortization of acquired
customer bases and goodwill per month and approximately $120,000 each
month, due to stock issuances under various consulting agreements. During
Interim 99, the Company issued 500,000 shares of common stock under a
consulting agreement, which shares were valued at $4.00 per share, or
$2,000,000, in the aggregate. Approximately $33,000 will be expensed each
month during the five year term of such consulting agreement.
For the remainder of Fiscal 99, the Company expects that it will, due to
intangible asset amortization and stock-for-services agreements, report a
loss in line with the loss sustained for Interim 99, while cash flow from
operations is expected to improve modestly.
Internet Segment. During Interim 98, this segment generated no material
revenues and operated at a small loss. During Interim 99, this segment
generated all of the Company's revenues and is expected to do so for the
foreseeable future.
Community Television and Wireless Cable Segments. As described above,
the Company has, effective July 1, 1999, assigned all of its community
television properties to New Wave Media Corp. For Interim 98 and Interim
99, the Wireless Cable Segment had no activity. As described above, the
Company has determined to cease, for the foreseeable future, its Wireless
Cable activities.
Liquidity and Capital Resources
June 30, 1999. From its inception (November 1996) through June 1998, the
Company required little capital with which to operate and had, throughout
such period of time, a significant working capital deficit. In June 1998,
the Company obtained the first funds of a total of $340,000 in a private
offering of its securities, which drastically improved the Company's
financial condition. At June 30, 1999, the Company's working capital
deficit was $133,635 (unaudited) compared to a working capital deficit of
$240,806 at December 31, 1998. This improvement in the Company's liquidity
position is attributable to its acquisition of CyberHighway and, more
significantly, to its ability to obtain approximately $700,000 from private
sales of equity securities, during Interim 99. In January 1999, the
Company obtained $270,000 from the sale of its securities; in May 1999, the
Company obtained $105,000 from the sale of its securities. Also, in June
1999, the Company received $310,000 from the exercise of certain warrants.
Given the recent personnel reductions and other restructuring at
CyberHighway, currently, the Company is relatively liquid as it conducts is
operations. However, as discussed below, the Company continues to attempt
to secure additional capital with which to pursue fully its business
objectives.
The Company's only long-term liability, a deferred tax liability item of
$4,660,221 (unaudited), arose upon the acquisition of CyberHighway. It is
possible that similar liability items may be added to the Company's balance
sheet, upon future acquisitions, although no prediction in this regard can
be made.
From inception through June 30, 1999, the Company's President, David M.
Loflin, loaned to the Company a total of approximately $187,000, which
funds were used primarily for operating expenses of the Company,$30,000 of
which has been repaid. Since June 30, 1999, Mr. Loflin has loaned the
Company a total of $37,000, which funds were used primarily for
one-time-only expenses associated with the restructuring of CyberHighway,
including legal fees. Currently, the Company owes Mr. Loflin a total of
$194,926 The loans from Mr. Loflin bear interest at 8% per annum and are
payable on demand. The Company does not currently have funds available to
repay any of the amounts owed to Mr. Loflin. Mr. Loflin has advised the
Company that he does not intend to make further demand for repayment of
such loans for the foreseeable future. Nevertheless, should Mr. Loflin
make such demand for repayment, the Company could be unable to satisfy such
demand, which would have a materially adverse affect on the Company.
The Company suffered an extreme lack of liquidity, and attendant working
capital deficit, until June 1998, when it obtained the first funds of a
total of $340,000 received under a private offering of its equity
securities. With the infusion of funds, the Company was able to bring its
accounts current and to proceed with the acquisition of DSRT in Santa Fe,
New Mexico, which was acquired for $25,000 in cash. Until the acquisition
of CyberHighway in January 1999, the Company was unable to accumulate
working capital through operations; rather, the funds obtained in the June
1998 private offering provided working capital to the Company for the last
half of Fiscal 98.
Prior to the acquisition of CyberHighway and in January 1999, the Company
obtained $270,000 in a private offering of its equity securities. This
infusion of funds allowed the Company again to bring its accounts current
and to purchase needed US.RF Wireless Internet equipment for use in the
Company's growth strategy. In May 1999, the Company obtained $105,000 in a
private offering of its equity securities, which funds were applied to
operating expenses of the Company and the purchase of needed US.RF Wireless
Internet equipment. In June 1999, the Company received $310,000 from the
exercise of certain warrants. Approximately 40% of the funds received from
the exercise of the warrants was used for working capital and the balance
of such funds was utilized for the purchase of needed US.RF Wireless
Internet equipment and other Internet-related equipment. Even with the
recent influx of cash, the Company continues to seek capital with which to
implement, on a full-scale basis, its growth strategy. Without access to
additional capital, the Company's expected growth will be significantly
impeded.
In addition, the Company expects that, prior to the end of the Fiscal 99,
warrants representing an additional approximately $1,300,000 will be
exercised, although there is no assurance that such will be the case.
Growth Strategy; Proposed Acquisitions. During the past year, as the
Company has refined its growth strategy, it has determined that, for a
purveyor of Internet access to achieve the greatest growth and economies of
scale, it is necessary to offer traditional dial-up Internet access and the
Company's US.RF Wireless Internet access products. Thus, to reach more
Internet users, the Company will continue to provide high quality dial-up
Internet access service, through CyberHighway, as it deploys its Wireless
Internet products in its markets. The Company's growth strategy is based
on its ability to offer high quality Internet access through traditional
means, telephone-line based dial-up service, and through its Wireless
Internet access products.
US.RF Wireless Internet/CyberHighway Strategy. In addition to
establishing Wireless Internet access in certain CyberHighway markets, the
Company is attempting to expand its Wireless Internet access system market
penetration by licensing local, independent ISPs to utilize the Company's
US.RF Quick-Cell Wireless Internet System in their particular markets.
Initial reaction to this growth strategy from local, independent ISPs has
been very positive. However, there is no assurance that the Company will
possess sufficient capital with which to accomplish its objectives.
Currently, the Company is in need of capital, in order to implement
completely its growth plan.
USURF America National Reseller Program. With recently secured local
dial-up Internet access agreements with national backbone providers, the
Company expects to launch, in October 1999, its national roll out of its
USURF America high-quality dial-up Internet access service. The launch
will be made, initially, in 10 as-yet-unidentified-cities through the
efforts of resellers, through the Company's National Reseller Program. The
resellers of the Company's dial-up Internet access services will receive
continuing commissions for customers obtained through their efforts. Based
on the initial reaction of prospective resellers, the Company expects its
program to yield significant subscriber growth during the forth quarter of
1999 and continuing through 2000, as the Internet continues its growth.
There is no assurance that these efforts in expanding its customer base
will be successful.
ISP Acquisitions; Hub and Spoke Concept. The Company's growth strategy
includes the acquisition of relatively small local, independent ISPs in a
certain key city (or cities, depending on the size of a state) in each
state. Each of these acquired ISPs would be converted into a CyberHighway
affiliate-ISP and would serve as a hub for the Company's operations in a
particular state. For example, in a state with a small population, the
Company would acquire a single ISP to serve as the hub in that particular
state, whereas, in a heavily populated state with several urban centers,
the Company would likely acquire an ISP in each urban center. An acquired
ISP would serve as a hub to same-state CyberHighway affiliate-ISPs, who
would, through telephone-line connections, be spokes in the CyberHighway
network system of affiliate-ISPs. The Company believes that this hub and
spoke concept is one which will afford the Company the greatest opportunity
to achieve needed economies of scale in each of its markets.
To facilitate anticipated ISP acquisitions, as well as other potential
Internet-related acquisitions, the Company intends to file with the ("SEC")
a shelf registration statement, wherein the Company would register up to
2,000,000 shares of its Common Stock for use in acquisitions. There is no
assurance that this shelf registration statement will ever be declared
effective or that the Company will be able to negotiate successfully any
business acquisition.
Currently, the Company is negotiating for the acquisition of several
other ISPs located across the United States. There is no assurance that
any of such proposed acquisitions will be consummated.
Wireless Internet Joint Venture Monroe, Louisiana. During the second
quarter of 1998, the Company entered into a joint venture agreement to
implement the Company's US.RF Wireless Internet access system in Monroe,
Louisiana. Because of internal problems with the Company's joint venture
partner, no joint venture operations have commenced. It is the Company's
expectation that, later in 1999, it will take over the joint venture
operations and begin Wireless Internet service in Monroe. However, no
prediction in this regard can be made.
Community Television Stations. In furtherance of its plan to focus on the
exploitation of its Wireless Internet access products and expansion of its
other Internet services, the Company has assigned all of its community (low
power) television properties to New Wave Media Corp., in exchange for
1,500,000 shares of such entity's common stock. The Company's Board of
Directors has declared a dividend with respect to all 1,500,000 New Wave
Media Corp. shares.
Cash Flows from Operating Activities. During Interim 99, the Company's
operating activities used $291,206 (unaudited). The use of cash in the
current period is primarily due to the Company's net loss of $3,560,655
(unaudited), primarily resulting from depreciation and amortization of
$3,347,322 (unaudited). The Company also recognized non-cash consulting
fees of $756,979 (unaudited) on stock issued for services. The Company
also suffered deferred income taxes associated with its acquisition of
CyberHighway of $734,370 (unaudited). During Interim 98, the Company's
operations used cash of $126,547 (unaudited). The use of cash in the prior
period was primarily due to the Company's net loss of $383,734 (unaudited),
which includes non-cash consulting fees of $315,615 (unaudited) on stock
issued for services. The Company expects to recognize approximately
$120,000 for consulting services performed for stock each month during the
remainder of Fiscal 99. The Company expects that its operations will
provide a modest of amount of cash during the remainder of Fiscal 99,
although no prediction in this regard can be made.
Cash Flows from Investing Activities. Investing activities of the
Company during Interim 99 used $193,920 (unaudited), all of which is
attributable to capital expenditures ($389,822 [unaudited]), which is
offset by cash acquired in acquisitions of $180,812 (unaudited) and
proceeds from the disposal of fixed assets of $15,090 (unaudited). The
Company's investing activities during Interim 98 used $5,000 (unaudited),
all of which was for the purchase of equipment. Although significant
purchases of equipment are expected to be made by the Company throughout
the remainder of Fiscal 99, the Company's management is unable to predict
the level of such equipment purchases. It is not expected that investing
activities will provide cash during the remainder of Fiscal 99.
Cash Flows from Financing Activities. Financing activities of the
Company provided $657,930 (unaudited) in cash during Interim 99, compared
to Interim 98 when financing activities provided $168,941 (unaudited) in
cash. In the current period, the sale of equity securities for $705,000 in
cash provided substantially all of the cash provided by the Company's
financing activities. All of the cash during the prior period was the
result of advances to the Company by a shareholder on open account. The
Company continues to seek additional capital with which to pursue its
entire business objectives. However, no prediction as to the level of such
cash can be made by management, nor can any assurance be made that any cash
will be provided by financing activities.
Management's Plans Relating to Future Liquidity
With the recent restructuring of CyberHighway, the receipt of $395,000
under private offerings during Interim 99, and the receipt of $310,000 from
the exercise of warrants, the Company has become relatively liquid and
current operations will be sufficient to maintain the Company's liquidity.
Also, the Company expects that, prior to the end of Fiscal 99, warrants
representing an additional approximately $1,300,000 will be exercised,
although there is no assurance that such will be the case. However, the
Company's current operations, including the operations of its subsidiaries,
will not be insufficient, on their own, to provide expansion capital with
which the Company would be able to pursue its growth strategy on a
full-scale basis. Although the Company continues to seek capital with
which to implement its complete business objectives, there is no assurance
that the Company will ever secure capital necessary for its planned expansion.
Capital Expenditures
During the remainder of Fiscal 99, the Company expects to apply
substantially all of its available capital to (1) the purchase of US.RF
Wireless Internet equipment and/or (2) the acquisition of one or more
existing local, independent ISPs, to convert to a CyberHighway
affiliate-ISP into which the Company can essentially "plug-in" its US.RF
Wireless Internet access system. The Company currently is seeking between
two and three million dollars with which to implement, on a full-scale
basis, its growth strategy. Although the Company expects that it will be
able to secure sufficient expansion capital, there is no assurance that
such will be the case.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company intends to institute arbitration proceedings against Net 1,
Inc. and its former owners, wherein the Company will seek to rescind the
acquisition transaction occurring in August 1999, and recover the 250,000
shares of common stock issued by it in connection with such acquisition.
The Company will allege fraud and the failure to make statements necessary
to make statements made not misleading. Although the Company believes it
will be successful on the merits of such action, no prediction in this
regard can be made.
The Company and/or CyberHighway are currently defendants in the following
styled lawsuits and administrative proceeding: (1) David W. Brown v. USURF
America, Inc. and CyberHighway, Inc., Civil Case No. CV OC 9904230D,
District Court of the Fourth Judicial District of the State of Idaho, in
and for the County of Ada; (2) Julius W. Basham, II, and David W. Brown and
Wm. Kim Stimpson, Involuntary Plaintiffs, v. USURF America, Inc., a Nevada
corporation, formerly known as Internet Media, Inc.; and (3) Unemployment
Claim, David W. Brown v. CyberHighway, Inc., before the Industrial
Commission of the State of Idaho, IDOL 3362-1999.
A tentative settlement has been reached as to all of the foregoing legal
proceedings. A formal Settlement Agreement is expected to be executed
within three days of the date of this Quarterly Report on Form 10-QSB,
whereby all claims would be dismissed, with prejudice. All of the claims
arise out of the change of management of CyberHighway, which occurred in
July 1999. Upon execution of the formal Settlement Agreement, the Company
intends to file a Current Report on Form 8-K.
Item 2. Changes in Securities.
During the three months ended June 30, 1999, the Company issued securities
as follows:
1.(a) Securities Sold. In May 1999, the Company issued 35,000 shares
of its Common Stock and 35,000 warrants.
(b) Underwriters and Other Purchasers. Such shares were issued to
Walter Engler (10,000) and Shelter Capital Ltd. (25,000).
(c) Consideration. Such shares were sold for $3.00 per share, with
no consideration being attached to the warrants.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. The warrants issued are
exercisable for a period of one year from their date of issuance, at an
exercise price of $7.00.
2.(a) Securities Sold. In June 1999, the Company issued 155,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
investors in an earlier private offering.
(c) Consideration. Such shares were sold for $2.00 per share.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
3.(a) Securities Sold. In June 1999, the Company issued 500,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
IB Channel, pursuant to an Financial Public Relations Agreement.
(c) Consideration. Such shares were valued at $4.00 per share.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
Subsequent to June 30, 1999, the Company has issued unregistered
securities, as follows:
1.(a) Securities Sold. In July 1999, the Company issued 150,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Mark Bove.
(c) Consideration. Such shares were valued at $4.00, pursuant to a
Business Acquisition Agreement.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
2.(a) Securities Sold. In August 1999, the Company issued 127,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Premier Internet Services, Inc.
(c) Consideration. Such shares were issued under a reorganization
agreement.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
3.(a) Securities Sold. In August 1999, the Company issued 250,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Net 1, Inc.
(c) Consideration. Such shares were issued under a reorganization
agreement.
(d) Exemption from Registration Claimed. These securities are
exempt from registration under the Securities Act of 1933, as amended,
pursuant to the provision of Section 4(2) thereof, as a transaction not
involving a public offering.
(e) Terms of Conversion or Exercise. Not applicable.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote
of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None.
(b) Reports on From 8-K.
No Current Report on Form 8-K was filed during the
three months ended June 30, 1999.
Subsequent to June 30, 1999, on or about July 21,
1999, the Company filed a Current Report on Form
8-K in which the Company reported a change of
corporate name.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: October 11, 1999.
USURF AMERICA, INC.
By: /s/ David M. Loflin
David M. Loflin
President and
Principal Financial Officer
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