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 September 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. 1-15383
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 11-19-99
Common Stock,
$.0001 par value 12,370,977
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
USURF America, Inc.
Consolidated Balance Sheets as of September 30,
1999 (unaudited), and December 31, 1998
Consolidated Statement of Operations for
the Three Months Ended September 30, 1999 and
1998 (unaudited), and the Nine Months Ended
September 30, 1999 and 1998 (unaudited)
Consolidated Statement of Cash Flows for
the Nine Months Ended September 30, 1999 and
1998 (unaudited)
Notes to Consolidated Financial Statements
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
12/31/98 9/30/99
(audited) (unaudited)
ASSETS
CURRENT ASSETS
Cash $ 7,232 $ 87,456
Accounts receivable 1,033 221,576
Due from affiliate 0 1,614
Inventory 0 32,150
Prepaid expenses 0 22,253
Deposits 0 0
---------- ----------
Total current
assets 8,265 365,049
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation of $1,412
and $472,234,
respectively 247,267 1,425,253
INVESTMENTS 43,750 54,260
INTANGIBLES
Licenses and rights to
leases of licenses, net
of accumulated
amortization 34,207 76,932
Acquired customer base,
net of accumulated
amortization of $0
and $3,526,211
respectively 0 12,851,404
Goodwill, net of
accumulated
amortization of $0
and $1,770,263
respectively 0 6,368,172
---------- ----------
34,207 19,296,678
---------- ----------
Total assets $333,659 $20,669,006
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable -
current portion 0 15,605
Leases payable -
current portion 0 0
Accounts payable -
trade 0 93,069
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 73,357
Accrued interest -
majority stockholder 15,416 20,561
Notes payable to
majority stockholder 146,415 209,926
Deferred revenue 0 73,788
---------- ----------
Total current
liabilities 249,071 556,412
LONG-TERM LIABILITIES
Deferred tax liability 0 4,352,451
---------- ----------
Total
liabilities 249,071 4,908,863
STOCKHOLDERS' EQUITY
Common stock, $.0001
par value, 100,000,000
shares authorized,
8,497,259 and
11,819,259 shares
issued and
outstanding,
respectively 850 1,182
Additional paid-in
capital 2,874,189 25,043,684
Deficit accumulated
during the
development stage (1,686,667) (7,306,112)
Subscriptions
receivable (860) (860)
Deferred consulting (1,102,924) (1,977,751)
---------- ----------
84,588 15,760,143
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $333,659 $20,669,006
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
(unaudited) (unaudited)
Revenue $ 781,282 $ 3,200 $2,047,364 $ 3,200
Cost of
Goods Sold (216,021) 0 (687,895) 0
Gross
Profit 565,261 3,200 1,359,469 3,200
Operating
Expenses
Depreciation
and amorti-
zation 2,086,017 345 5,433,339 1,035
Professional
fees 381,879 108,205 1,212,366 393,349
Rent 35,920 7,203 88,837 7,318
Salary and
commissions 369,276 113,128 979,291 113,816
Contract
services 64,839 0 64,839 0
Advertising 35,024 0 88,273 0
Other 95,718 199,888 284,929 334,765
Total
Operating
Expenses 3,068,673 428,769 8,151,874 850,283
Loss from
opera-
tions (2,503,417) (425,569) (6,792,405) (847,083)
Other income
(expense)
Interest
expense (3,725) 0 (9,758) 0
Loss before
income tax (2,507,137) (425,569) (6,802,163) (847,083)
Income tax
benefit 448,347 0 1,182,718 0
Net loss $(2,058,790) $(425,569)$(5,619,445) $(847,083)
Net loss
per
common
share (0.17) (.059) (0.51) (.12)
Weighted
average
number
of shares
out-
stand-
ing 11,784,748 7,201,922 11,034,764 7,057,000
USURF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended Nine Months Ended
9/30/99 9/30/98
(unaudited) (unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(5,619,445) $(847,083)
Adjustment to
reconcile net loss
to net cash used
in operating
activities
Depreciation and
amortization 5,433,339 1,035
Recognition of
services per-
formed for
stock 1,125,173 553,874
Deferred income
taxes (1,183,920) 0
Due from
affiliate (1,614) 0
Loss on
disposal 280 0
Accounts
receivable (126,941) 0
Inventory 38,575 0
Deposits 0 0
Customer
deposits 1,787 0
Taxes payable 731 0
Other assets (38,420) 0
Deferred revenue 9,446 0
Accounts payable -
trade (91,584) (65,106)
Prepaid expenses (8,773) 0
Accrued expenses 35,551 5,988
Net cash used
in operating
activities (425,815) (341,484)
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds on disposal
of fixed assets 15,090 0
Purchase of business 0 (25,000)
Cash acquired in
acquisitions 186,318 0
Capital expenditures (423,295) (5,000)
Net cash used
in investing
activities (221,887) (30,000)
CASH FLOWS FROM
FINANCING ACTIVITIES
Payments on notes
payable (55,673) 0
Payments on capital
lease obligations (722) 0
Increase in note
payable to
stockholder 62,000 8,941
Issuance of common
stock for cash 395,000 340,000
Warrants exercised 337,321 0
Payment on note
payable - stockholder (10,000) (30,000)
Net cash provided
by financing
activities 727,926 348,941
Net increase
(decrease)
in cash 80,224 (22,543)
Cash, beginning of period 7,232 37,394
Cash, end of period 87,456 14,852
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.
In August 1999, the Company acquired all of the stock of Premier Internet
Services, Inc. by issuing 127,000 shares of stock valued at $508,000. This
acquisition was accounted for as a purchase business combination.
In August 1999, the Company acquired the going business known as
www.usurf.com by issuing 150,000 shares of stock valued at $600,000. This
acquisition was accounted for as a purchase business combination.
In August 1999, the Company acquired all of the stock of Net 1, Inc. by
issuing 250,000 shares of stock valued at $1,000,000. Because the Company
has tendered the stock of Net 1, Inc. for rescission of the acquisition
transaction, none of the operating data or balance sheet data associated
with Net 1, Inc. is presented.
USURF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 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. 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. 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 (DSRT), an Internet
Service Provider (ISP). SFWI was organized to operate as an Internet
Service Provider (ISP). 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.
In August 1999, the Company acquired, by merger, Premier Internet Services,
Inc., an Idaho corporation ("PISI"), in exchange for shares of Company
common stock. This acquisition was accounted for as a purchase.
In August 1999, the Company acquired the going business known as
www.usurf.com ("usurf.com"), in exchange for shares of Company common
stock. This acquisition was accounted for as a purchase.
In August 1999, the Company acquired, by merger, Net 1, Inc., an Alabama
corporation ("Net 1"), in exchange for shares of Company common stock.
Because the Company has tendered the stock of Net 1, Inc. for rescission of
the acquisition transaction, none of the operating data or balance sheet
data associated with Net 1, Inc. is presented. The Company is involved in
arbitration of its demand for rescission.
Note 2. Interim Consolidated Financial Statements
In the opinion of management, the accompanying consolidated financial
statements for the nine months ended September 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.
Effective August 14, the Company acquired usurf.com, which acquisition has
been accounted for as a purchase and not as a pooling of interests.
Effective August 30, 1999, the Company acquired PISI, which acquisition has
been accounted for as a purchase and not as a pooling of interests.
Effective August 20, 1999, the Company acquired Net 1. Because the Company
has tendered the stock of Net 1, Inc. for rescission of the acquisition
transaction, none of the operating data or balance sheet data associated
with Net 1, Inc. is presented. The Company is involved in arbitration of
its demand for rescission.
Note 4. Notes Payable to Shareholder
September 30, 1999
(unaudited)
Notes payable to majority
stockholder, interest
accrues at 8%, due on
demand and unsecured $209,926
Note 5. Stock Issuances
During the nine months ended September 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.
H. In July 1999, 150,000 shares were issued in the acquisition of
usurf.com, which shares were valued at $4.00 per share, or $600,000 in the
aggregate.
I. In August 1999, 127,000 shares were issued in the acquisition of PISI,
which shares were valued at $4.00 per share, or $508,000 in the aggregate.
J. Also in August 1999, 250,000 shares were issued in the acquisition of
Net 1, which shares were valued at $4.00 per share. However, because the
Company has tendered the stock of Net 1 for rescission of the acquisition
transaction, none of the operating data or balance sheet data associated
with Net 1 is presented. The Company is involved in arbitration of its
demand for rescission. Although the Company believes it will be successful
on the merits of its claims, no prediction as to the outcome of such
arbitration can be made.
Note 6. Subsequent Events
In November 1999, the Company issued 50,000 shares in a private offering,
which shares were sold for $3.00 per share. A like number of warrants,
exercisable at $6.00 per share, were issued to the purchaser of such
shares. Michael Cohn, a director of the Company, purchase such securities.
Mr. Cohn's purchase was made in connection with a private offering of
securities made by the Company to other persons who have no affiliation
with the Company.
<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
September 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. In August 1999, the Company acquired the going
business known as www.usurf.com ("usurf.com"), in consideration of 150,000
shares of Company common stock. The acquisition of usurf.com is reflected
in the discussion below, with usurf.com's operating results from the date
of its acquisition, August 14, 1999, through September 30, 1999. In August
1999, the Company, through its subsidiary, CyberHighway, Inc., acquired
Premier Internet Services, Inc. ("PISI"), an Idaho-based ISP, in
consideration of 127,000 shares of Company common stock. The acquisition of
usurf.com is reflected in the discussion below, with usurf.com's operating
results from the date of its acquisition, August 30, 1999, through
September 30, 1999. In August 1999, the Company acquired Net 1, Inc. ("Net
1"), an Alabama-based ISP, in consideration of 250,000 shares of Company
common stock. Because the Company has tendered the stock of Net 1 for
rescission of the acquisition transaction, none of the operating data or
balance sheet data associated with Net 1 is presented in the discussion
below. The Company is involved in arbitration of its demand for
rescission. Although the Company believes it will be successful on the
merits of its claims, no prediction as to the outcome of such arbitration
can be made (see "Part II Other Information, Item 1. Legal Proceedings").
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 September 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.
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.
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, Trail,
usurf.com and PISI 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
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
personnel reductions will be made during the remainder of Fiscal 99 and
during the first quarter of 2000. 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.
Present Business Focus
In October 1999, the Company's management determined to commit, for the
foreseeable future, all available capital to the exploitation of its US.RF
Wireless Internet access products. Also, the Company intends to continue
its pursuit of acquisitions of relatively small, local ISPs by which to
expand its customer base, as well as the acquisition of businesses
complimentary to the Company's core Internet access business.
Results of Operations
Nine Months Ended September 30, 1999, versus
Nine Months Ended September 30, 1998.
General. During the nine months ended September 30, 1998 ("Interim 98"),
the Company had nominal revenues. During the nine months ended September
30, 1999 ("Interim 99"), the Company had revenues of $2,047,364
(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 $5,619,445 (unaudited)
compared to a net loss of $847,083 (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, as well as the payment of accounts payable. 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
($5,433,339 [unaudited]), while $1,212,366 (unaudited) in professional
fees, substantially all of which is attributable to stock issuances under
various consulting agreements and $979,291 (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.
Subsequent to September 30, 1999, the Company has issued a total of
______ shares to three consultants, all of which shares were valued at
$3.00 per share. These consulting agreements are short-term in nature, two
being for a period of four months and one being for a period of six months.
The values of these consulting agreements will be expensed in equal
monthly amounts over their respective terms.
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
September 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 September 30, 1999, the Company's
working capital deficit was $191,363 (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 $730,000 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. In August 1999, the Company received
$27,321 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
$4,352,451 (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 $249,000, which
funds were used primarily for operating expenses of the Company, $40,000 of
which has been repaid. During the three months ended September 30, 1999,
Mr. Loflin has loaned the Company a total of $62,000, 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 $209,926. 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. In August 1999,
the Company received 27,321 from the exercise of certain warrants, which
funds were used for working capital.
Subsequent to September 30, 1999, the Company obtained $150,000 in a
private offering of its securities. In such offering, 50,000 shares were
sold for $3.00 per share. Such funds were used for operating expenses and
for the purchase of equipment needed in its Wireless Internet operations.
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 first
quarter of 2000, warrants representing an additional approximately
$1,700,000 will be exercised, although there is no assurance that such will
be the case.
Commitment to Wireless Internet Business. In October 1999, the Company's
management determined to apply, for the foreseeable future, all available
capital to the exploitation of the Company's US.RF Wireless Internet access
products. However, there is no assurance that the Company will obtain
sufficient capital with which to exploit fully its plan of business.
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 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 Strategy. The Company is attempting to
implement, on a broad basis, a plan designed to establish its Wireless
Internet access systems in 25 selected markets. The Company is currently
negotiating for a nation-wide agreement with a well-known Internet backbone
provider, that would provide the Company with an extremely cost-effective
connection to the Internet, into which its US.RF Wireless Internet access
systems would connect. 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 will soon launch 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. Sue to
unexpected delays in the national launch of this National Reseller Program,
the Company expects its program to yield minor subscriber growth during the
forth quarter of 1999, while it expects, based on the initial reaction of
prospective resellers, its National Reseller Program to yield significant
subscriber growth 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 subsumed into the Company's
national Internet network 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 Company-owned
ISPs, who would, through telephone-line connections, be spokes in the
Company's national Internet network. 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, in the first quarter of 2000, 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 $425,815 (unaudited). The use of cash in the
current period is primarily due to the Company's net loss of $5,619,445
(unaudited), primarily resulting from depreciation and amortization of
$5,433,339 (unaudited). The Company also recognized non-cash consulting
fees of $1,125,1773 (unaudited) on stock issued for services. The Company
also suffered deferred income taxes associated with its acquisition of
CyberHighway of $1,183,920 (unaudited). During Interim 98, the Company's
operations used cash of $341,484 (unaudited). The use of cash in the prior
period was primarily due to the Company's net loss of $847,083 (unaudited),
which includes non-cash consulting fees of $553,874 (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 and
the first quarter of 2000, though not at levels that would offset the
recognition of non-cash consulting fees. No prediction in this regard can
be made.
Cash Flows from Investing Activities. Investing activities of the
Company during Interim 99 used $221,887 (unaudited), all of which is
attributable to capital expenditures ($423,295 [unaudited]), which is
offset by cash acquired in acquisitions of $186,318 (unaudited) and
proceeds from the disposal of fixed assets of $15,090 (unaudited). The
Company's investing activities during Interim 98 used $30,000 (unaudited),
$25,000 of which was used to acquire DSRT and $5,000 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
and the first quarter of 2000, the Company's management is unable to
predict the level of such equipment purchases, due to its inability to
predict levels of available capital for such use. It is not expected that
investing activities will provide cash during the remainder of Fiscal 99
and the first quarter of 2000.
Cash Flows from Financing Activities. Financing activities of the
Company provided $727,926 (unaudited) in cash during Interim 99, compared
to Interim 98 when financing activities provided $348,941 (unaudited) in
cash. In the current period, the sale of equity securities for $732,321
(unaudited) in cash provided the great majority of the cash provided by the
Company's financing activities, while $62,000 in cash was derived from
shareholder loans. Substantially all of the cash during the prior period
was the result of sales of Company common stock in a private offering. 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 $337,321 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 the first quarter of
2000, warrants representing an additional approximately $1,700,000 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 sufficient, 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 the construction of local US.RF Wireless
Internet access systems and/or (2) the acquisition of one or more existing
local, independent ISPs, 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.
CERTAIN STATEMENTS CONTAINED IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND ARE, THUS, PROSPECTIVE. SUCH FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR
IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH
RISKS, UNCERTAINTIES AND OTHER FACTORS IS THE COMPANY'S ABILITY TO OBTAIN
CAPITAL IN AMOUNTS NECESSARY FOR IT TO ACCOMPLISH ITS PLAN FOR THE
EXPLOITATION OF ITS US.RF WIRELESS INTERNET ACCESS PRODUCTS, AS WELL AS
CONSUMER ACCEPTANCE OF SUCH PRODUCTS.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has received a notice of intent to arbitrate from Mr. Knud
Nielsen, III. Mr. Nielsen received shares of Company common stock in
connection with the Company's acquisition of Net 1, Inc. Mr. Nielsen is
seeking to enforce rights of registration with respect to certain of the
shares of Company common stock received by him in the Net 1, Inc.
acquisition transaction.
In September 1999, the Company tendered the acquired shares of capital
stock of Net 1, Inc. for rescission. The Company made such tender of
rescission, due to numerous and material misrepresentations made by Net 1,
Inc. and its principals. The Company had intended to commence arbitration
to pursue its rescission claim.
Now, the Company will present its rescission claim as a counterclaim in the
pending arbitration proceeding. The counterclaim will be made against Net
1, Inc. and its former owners, including Mr. Nielsen, wherein the Company
will seek to rescind the acquisition transaction that occurred 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 in
the near future, 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 September 30, 1999, the Company issued
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.
4.(a) Securities Sold. In August 1999, the Company issued 27,321
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Terry Lewis.
(c) Consideration. Such shares were issued for cash in the amount
of $1.00 per share, pursuant to the terms of exercise of certain 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. Not applicable.
Subsequent to September 30, 1999, the Company has issued unregistered
securities, as follows:
1.(a) Securities Sold. In November 1999, the Company issued 50,000
shares of its Common Stock and 50,000 warrants to purchase shares of its
Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Michael Cohn.
(c) Consideration. Such shares were sold for cash in the amount of
$3.00 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. The warrants may be exercised
for a period of two years from their date of issue at an exercise price of
$6.00 per share. Such warrants are redeemable by the Company at any time
that the price for the Company's Common Stock has closed at a price in
excess of $7.50 for five consecutive trading days.
2.(a) Securities Sold. In October 1999, the Company issued 30,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
Peter Rochow.
(c) Consideration. Such shares were issued under a consulting
agreement, and were valued at $3.00 per share pursuant to the terms of such
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 October 1999, the Company issued 25,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
F/S Partners.
(c) Consideration. Such shares were issued under a consulting
agreement, and were valued at $3.00 per share pursuant to the terms of such
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.
4.(a) Securities Sold. In October 1999, the Company issued 6,000
shares of its Common Stock.
(b) Underwriters and Other Purchasers. Such shares were issued to
JF Mills/Worldwide.
(c) Consideration. Such shares were issued under a consulting
agreement, and were valued at $3.00 per share pursuant to the terms of such
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.
During the three months ended September 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: November 23, 1999.
USURF AMERICA, INC.
By: /s/ David M. Loflin
David M. Loflin
President and
Principal Financial Officer
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