UNIVERSAL BROADBAND NETWORKS INC, 10-Q, 2000-08-14

UNIVERSAL BROADBAND NETWORKS INC
10-Q, 2000-08-14
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

-----------------
FORM 10-Q
-----------------

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-24408

UNIVERSAL BROADBAND NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 33-0611753
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

2030 MAIN STREET, 5TH FLOOR
IRVINE, CALIFORNIA 92614
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 260-8100

-----------------

Indicate by check mark whether the 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
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /

As of August 8, 2000 there were 20,859,095 shares of Common Stock
outstanding.

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<TABLE>
UNIVERSAL BROADBAND NETWORKS, INC.
INDEX

<CAPTION>
PAGE NO.
--------
<S> <C>
PART I--FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Condensed Balance Sheets as of June 30, 2000 (unaudited) and
March 31, 2000......................................................................... 3

Consolidated Condensed Statements of Operations for the three months ended
June 30, 2000 (unaudited) and June 30, 1999 (unaudited)................................ 4

Consolidated Condensed Statements of Cash Flows for the three months ended
June 30, 2000 (unaudited) and June 30, 1999 (unaudited)................................ 5

Notes to Consolidated Condensed Financial Statements..................................... 6

Item 2. Management's Discussion and Analysis of Consolidated Condensed Financial
Condition and Results of Operations...................................................... 15

Item 3. Quantitative and Qualitative Disclosure About Market Risk............................ *

PART II--OTHER INFORMATION

Item 1. Legal Proceedings.................................................................... 25

Item 2. Changes In Securities and Use of Proceeds............................................ 25

Item 3. Defaults Upon Senior Securities...................................................... 26

Item 4. Submission of Matters to a Vote of Security Holders.................................. 26

Item 5. Other Information.................................................................... 27

Item 6. Exhibits and Reports on Form 8-K..................................................... 27

SIGNATURES......................................................................................... 28

* No information provided due to inapplicability of item.
</TABLE>

2
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UNIVERSAL BROADBAND NETWORKS, INC.
PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<CAPTION>
ASSETS
JUNE 30, MARCH 31,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash.................................................................... $ 358 $ 1,176
Accounts receivable, net of allowance for doubtful accounts of $330..... 92 64
Prepaid expenses and other current assets............................... 889 645
------------- -------------
Total current assets......................................................... 1,339 1,885

Property and equipment, net of accumulated depreciation of $4,185 and $2,796,
respectively.............................................................. 21,912 15,235
Other assets, net............................................................ 4,998 3,216
------------- -------------
Total assets....................................................... $ 28,249 $ 20,336
============= =============

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities................................ $ 11,280 $ 9,522
Accrued payroll, benefits and related costs............................. 731 647
Equipment financing and line of credit arrangement...................... 20,663 14,222
Current portion of obligations under capital leases..................... 682 402
Short-term debt......................................................... 1,005 -
------------- -------------
Total current liabilities.................................................... 34,361 24,793

Obligations under capital leases, less current portion....................... 1,577 788
Long term notes payable...................................................... 5,314 -
------------- -------------
Total liabilities............................................................ 41,252 25,581
------------- -------------
Shareholders' deficit:
Series A Convertible Preferred Stock, $.01 par value; authorized
1,000,000 shares; 0 and 2,000 issued and outstanding,
liquidation preference of $0 and $2,000............................... - -
Common Stock, $.001 par value; authorized 50,000,000 shares;
20,845,123 and 20,283,508 issued and outstanding, respectively........ 21 20
Additional paid-in capital.............................................. 43,938 39,347
Accumulated deficit..................................................... (56,962) (44,612)
------------- -------------
Total shareholders' deficit.................................................. (13,003) (5,245)
------------- -------------
Total liabilities and shareholders' deficit.................................. $ 28,249 $ 20,336
============= =============

See accompanying notes to consolidated condensed financial statements.
</TABLE>
3
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UNIVERSAL BROADBAND NETWORKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

THREE MONTHS ENDED
------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(as restated)

Revenues ....................................... $ 683 $ 925
------------- -------------
Operating expenses:
Network expenses ............................. 2,338 383
Payroll and related expenses ................. 2,052 896
Selling, general and administrative expenses . 5,072 1,570
Depreciation and amortization ................ 1,531 167
------------- -------------
Total operating expenses .................. 10,993 3,016
------------- -------------
Operating loss ................................. (10,310) (2,091)

Interest income .............................. 33 -
Interest expense, including amortization of
deferred financing costs ................... (2,050) -
------------- -------------
Net loss ....................................... (12,327) (2,091)

Preferred stock dividends ...................... (23) (93)
Preferred stock beneficial conversion feature .. - (448)
------------- -------------
Net loss applicable to common shareholders ..... $ (12,350) $ (2,632)
============= =============

Net loss per share, basic and diluted .......... $ (0.60) $ (0.16)
============= =============
Weighted-average number of shares,
basic and diluted ............................. 20,615,476 16,962,250
============= =============

See accompanying notes to consolidated condensed financial statements.

4
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<TABLE>
UNIVERSAL BROADBAND NETWORKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)

<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(as restated)
<S> <C> <C>
Cash flows used in operating activities:
Net loss.................................................................... $ (12,327) $ (2,091)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................... 1,531 167
Amortization of deferred financing costs................................ 1,231 -
Stock options and warrants issued as professional expense............... 954 -
Stock issued for services............................................... 407 140
Accrued interest........................................................ 710 -
Changes in current assets and liabilities...............................
Accounts receivable................................................. (28) (384)
Prepaid expenses and other current assets........................... 255 127
Other assets........................................................ 75 -
Account payable and accrued liabilities............................. 1,407 238
Accrued payroll, benefits and related costs......................... 83 (33)
------------- -------------
Net cash used in operating activities....................................... (5,702) (1,836)
------------- -------------

Cash flows used in investing activities:
Purchases of fixed assets................................................... (1,189) (676)
Receipt of loan from shareholder............................................ - 80
Purchase of licenses and other assets ...................................... - (153)
------------- -------------
Net cash used in investing activities....................................... (1,189) (749)
------------- -------------

Cash flows provided by financing activities:
Borrowings of short-term debt............................................... 1,000 -
Borrowings of long-term debt................................................ 5,250 6
Repayment of loan to shareholders........................................... - (157)
Repayment of capital leases................................................. (177) -
Proceeds from sale of preferred stock, net.................................. - 1,790
Proceeds from sale of common stock, net..................................... - 800
------------- -------------
Net cash provided by financing activities................................... 6,073 2,439
------------- -------------

Net decrease in cash........................................................... (818) (146)
Cash at beginning of period.................................................... 1,176 903
------------- -------------
Cash at end of period.......................................................... $ 358 $ 757
============= =============

Supplemental schedule of non-cash investing and financing activities:
Increase of liabilities relating to asset purchases......................... $ 6,899 $ -
============= =============
Issuance of warrants in conjunction with financing arrangements............. $ 2,706 $ -
============= =============
Preferred stock dividends paid in common stock.............................. $ 162 $ -
============= =============

Other disclosures:
Cash paid during the period for interest.................................... $ 94 $ 10
============= =============

See accompanying notes to consolidated condensed financial statements.
</TABLE>
5
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UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. BASIS OF PRESENTATION

Universal Broadband Networks, Inc. (the "Company") operates through several
wholly-owned subsidiaries: IJNT, Inc. ("IJNT"), Ubee Network Enterprises, Inc.
("UBEE"), Access Communications, Inc. ("Access"), Webit of Utah, Inc. ("Webit"),
UrJet Backbone Network, Inc. ("UBN"), Man Rabbit House Multimedia, Inc.
("MRHM"), GIjargon.com ("GI"), and Global Broadband Services, Inc. ("Global").
Certain of the subsidiaries are inactive, including Webit, GI and Global. The
accompanying consolidated condensed financial statements include the accounts of
the Company and the aforementioned subsidiaries. On July 25, 2000 the
shareholders of the Company ratified the proposal to change the name of the
Company from IJNT.net, Inc. to Universal Broadband Networks, Inc. and the stock
ticker was correspondingly changed to UBNT. All significant intercompany
balances and transactions have been eliminated in consolidation.

The accompanying consolidated condensed balance sheet at June 30, 2000, and the
consolidated condensed statements of operations and cash flows for the three
months ended June 30, 2000 and 1999 are unaudited. These statements have been
prepared on the same basis as the Company's audited consolidated financial
statements and in the opinion of management reflect all adjustments, which are
only of a normal recurring nature, necessary for a fair presentation of the
consolidated financial position and results of operations for such periods.
These unaudited consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements included in the
Company's Form 10-K as filed with the Securities and Exchange Commission on July
10, 2000.

Certain reclassifications have been made to the June 30, 1999 and March 31, 2000
information to conform to the June 30, 2000 presentation.

2. GOING CONCERN

The accompanying consolidated condensed financial statements have been prepared
assuming the Company will continue as a going concern. During the quarter ended
June 30, 2000, the Company experienced a net loss of $12,327 and had negative
cash flows from operations of $5,702. In addition, the Company had substantial
working capital and shareholders' deficits at June 30, 2000. Lastly, the Company
has significant present and future working capital demands, which will require
substantial equity and debt financing which have not yet been secured. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated condensed financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

In an effort to reverse the negative financial conditions noted above,
management of the Company intends to secure a series of debt and equity
financings during 2000 expected to exceed $200,000. Additionally, the Company
intends to expand its operations through the establishment of switch-based
telecommunications facilities in pre-designated markets, and develop its
management and sales teams, and its corporate infrastructure. Management of the
Company believes these events will provide the working capital required to
purchase necessary equipment, establish the requisite infrastructure and fund
operations until such time as the Company becomes profitable.

There can be no assurances that the Company will be able to successfully
implement its plans, including generating profitable operations, generating
positive cash flows from operations and obtaining additional debt and equity
capital to meet present and future working capital demands.

6
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UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

3. SHAREHOLDERS' EQUITY

STOCK GRANTS

For the three months ended June 30, 2000, the Company issued 18,679 shares of
common stock in exchange for various professional services. The fair value of
the stock issued of $107 has been charged to operations.

Effective for the fiscal year beginning April 1, 2000, non-employee directors
receive an annual fee in the form of shares of the Company's common stock with a
fair market value of $60 as of the 31st of May each year. Accordingly, on May
31, 2000, the Company's non-employee directors, Messrs. Torney, Charles, Cubley,
Kramer and Pazian, received $60 of the Company's common stock valued at the fair
market price of $2.88 a share, a total of 20,833 shares each, or a total of
104,165 shares issued. The total fair value of the stock issued of $300 has been
charged to operations.

On March 31, 2000, the Company executed a severance and purchase agreement with
an employee. The agreement provided for the issuance of 75,000 shares of common
stock valued at $602 for the purchase of such employee's 5% ownership interest
in UBN. The Company was owed $241 by the employee, which was offset against the
amount ultimately paid. Net shares totaling 45,040 were issued to the employee
during the quarter ended June 30, 2000. The $602 was recorded by the Company as
goodwill during the year ended March 31, 2000, which was determined to be
impaired as of March 31, 2000.

CONVERTIBLE PREFERRED STOCK

In December 1998, the Company entered into an agreement with private investors
(the "Investors") whereby the Investors purchased 2,000 shares of the Company's
convertible Preferred Series A Stock (the "Preferred Stock") for a gross price
of $2,000, net of commissions of $200. In May 1999, the Agreement was amended to
include an additional 2,000 shares of Preferred Stock, which netted $1,790 (net
of $210 expenses) to the Company. The Preferred Stock is convertible at a
discount of 20% below the average closing price of the Company's common stock
for the five business days preceding the conversion request.

A dividend of 8% per year accrues on unconverted Preferred Stock held by the
Investors. The dividend is not paid in cash but is converted into additional
shares of the Company's common stock at the time of the Preferred Stock
conversion. As of June 30, 2000, all the Preferred Stock and related dividends
had been converted to common stock. Dividends incurred for the three months
ended June 30, 2000 were $23.

During the three months ended June 30, 2000, the remaining 2,000 shares of
Preferred Stock were converted into 364,299 shares of common stock and $162 in
related dividends was converted into 29,432 shares of common stock, for a total
of 393,731 shares of common stock issued in connection with the Preferred Stock
conversions.

7
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UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

3. SHAREHOLDERS' EQUITY (CONTINUED)

WARRANTS GRANTED TO PURCHASE COMMON STOCK

During the three months ended June 30, 2000, in conjunction with the issuance of
various debt obligations, the Company issued warrants to purchase 644,541 shares
of common stock (see Note 7 on debt arrangements).

In connection with execution of a financial advisory services agreement on May
22, 2000 with a national investment banking firm, the Company granted warrants
to purchase 250,000 share of common stock at a price of $6.06 per share. The
warrants expire five years from the date of grant. The Company valued the
warrants at $801 using the Black-Scholes Option Pricing Model. The warrant
agreement requires the Company to obtain effective registration of the shares
underlying the warrants by November 22, 2000. The Company has expensed the
entire value of the warrant during the quarter ended June 30, 2000.

The Company is involved in a dispute with a third party consultant concerning
consideration the Company was allegedly expected to pay with respect to various
financial advisory services. The Company has reached a settlement with the
consultant whereby it has agreed to issue warrants to purchase 75,000 shares of
the Company's common stock with an exercise price of $5.00. The Company valued
the warrants at $146 using the Black-Scholes Option Pricing Model. Such warrants
were issued in August 2000 and have been accrued as of June 30, 2000.

At June 30, 2000, there were warrants to purchase shares of the Company's common
stock as shown in the table below. The weighted average exercise price of all
warrants below is $6.10 per share. All the warrants below are immediately
exercisable.

The following represents all warrants outstanding as of June 30, 2000:

GRANT DATE EXERCISE PRICE NUMBER OF SHARES
---------- -------------- ----------------
May 27, 1999 $ 3.24 25,000
May 27, 1999 $ 3.24 25,000
July 16, 1999 $ 2.50 75,000
July 30, 1999 $ 4.97 492,094
January 4, 2000 $ 9.88 560,938
April 6, 2000 $ 1.95 100,000
April 17, 2000 $ 6.06 412,541
May 22, 2000 $ 6.06 250,000
May 23, 2000 $ 3.91 32,000
June 5, 2000 $ 2.88 200,000
-----------
2,172,573
===========

OPTIONS GRANTED TO PURCHASE COMMON STOCK

The Company's Board of Directors adopted the 2000 Management Equity Incentive
Plan (the "Management Plan") and the 2000 Equity Incentive Plan (the "Equity
Plan") during the year ended March 31, 2000. Both of the Plans require
shareholder approval, which was obtained on July 25, 2000 at the 2000 Annual
Meeting of Stockholders.

8
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UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

3. SHAREHOLDERS' EQUITY (CONTINUED)

Under terms of the Management Plan and the Equity Plan, on May 17, 2000 the
Company granted options to purchase 36,750 shares of common stock to certain
employees at $4.63 per share, on May 23, 2000, the Company granted options to
purchase 402,000 shares of common stock to various officers and employees at
$3.91, and on May 31, 2000, the Company granted options to purchase 575,000
shares of common stock to certain executives at $2.88 per share, the closing
stock price of the Company's common stock on such grant dates. In addition,
pursuant to terms of an employment contract with the Company's Chief Executive
Officer ("CEO"), on June 19, 2000 the Company granted options to purchase one
million shares of common stock to it's CEO at $5.28 per share, the closing stock
price of the Company's common stock on such grant date. These plans are
"non-compensatory" under APB No. 25, and accordingly, no compensation expense
was recorded in connection with these grants.

On April 13, 2000, the Company granted various service providers options to
purchase 20,500 common shares of stock at a price of $8.03 per share. The
exercise price equaled the closing price of the Company's common stock at the
date of grant. The Company valued the options at $153 using the Black-Scholes
Option Pricing Model and recorded the expense to operations during the quarter
ended June 30, 2000.

4. EARNINGS PER SHARE DISCLOSURE

Basic earnings per share is computed by dividing net loss applicable to common
shareholders by the weighted average number of shares of the Company's common
stock, after giving consideration to shares subject to repurchase that are
outstanding during the period. Net loss applicable to common shareholders has
been increased for the effect of the preferred stock dividends and beneficial
conversion features (see Note 3).

Diluted earnings per share is determined in the same manner as basic earnings
per share except that the number of shares is increased assuming exercise of
dilutive stock options and warrants using the treasury stock method. Shares
issuable upon conversion of Preferred Stock of 0 and 1,052,155, respectively,
exercise of stock options of 600,490 and 0 respectively, and upon the exercise
of outstanding warrants totaling 2,172,573 and 50,000 as of June 30, 2000 and
1999, respectively, have been excluded from the computation since their effect
would be antidilutive.

5. RELATED PARTY TRANSACTION

At June 30 and March 31, 2000, the Company was owed $98 from J.R. Marple. Mr.
Marple is the son of Jon Marple, the Chairman of the Board of Directors of the
Company. Of this amount, $50 represents the amount J.R. Marple has agreed to pay
to purchase the JustWebit domain name from the Company. Such domain name was
acquired in the Webit of Utah purchase during a prior year. Such amount is to be
repaid to the Company through the issuance of 84,700 shares of stock of
JustWebit, which are traded over-the-counter, having a fair value approximating
$50. The remainder represents $31 due to the Company in connection with an
acquisition during the year ended March 31, 1999 and $17 cash funds advanced
during the year ended March 31, 2000. Such amounts are to be repaid to the
Company through the issuance of 68,600 shares of stock of JustWebit, having a
fair value approximating $60. The shares issued to the Company are restricted
pursuant to Rule 144. Such shares are to be issued subsequent to the quarter
ended June 30, 2000.

9
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UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

6. EQUIPMENT FINANCING AND LINE OF CREDIT ARRANGEMENT

In July 1999, UBN, a subsidiary of UBEE, entered into a credit agreement (the
"Agreement") with Nortel Networks, Inc. ("Nortel") which provides for a
line-of-credit of up to $7,000 ("Tranche A") as well as a term loan of up to
$37,000 ("Tranche B"). However, the maximum combined borrowing under the
Agreement cannot exceed $37,000. Furthermore, the Company is not able to borrow
under Tranche B until a $30,000 equity infusion to UBN has been completed. If
such infusion is not completed by October 30, 2000, the Tranche B commitment
will terminate. The Agreement is collateralized by all of the assets and the
common stock of UBN. A substantial portion of the Company's assets are located
in its UBN subsidiary. The Agreement further restricts UBN from dividending or
loaning funds to IJNT or its other subsidiaries.

Borrowings under Tranche A can be used for working capital and general corporate
purposes, bear interest at 13% and matured on July 31, 2000. As of June 30,
2000, $7,883 (including interest) was outstanding under Tranche A and no
additional borrowings were available. The Company has obtained an amendment to
the Agreement from Nortel to extend the maturity date of Tranche A as follows:
$4,000 due August 15, 2000 and the remaining balance due October 1, 2000.

Borrowings under Tranche B can only be used to finance purchases of Nortel goods
and services and bear interest at the prime rate (9.5% at June 30, 2000) plus
3.75%. Tranche B is payable in twelve equal quarterly payments beginning in
October 2000. As of June 30, 2000, no borrowings were outstanding under Tranche
B as the Company had not completed the required equity infusion. However, as of
June 30, 2000, the Company owes Nortel $12,780 for purchases of equipment and
services. If the Company is able to complete the required equity infusion, these
borrowings will be classified as Tranche B borrowings. If the required equity
infusion is not completed, the Company will be required to pay for these
purchases pursuant to normal vendor terms.

A summary of the borrowings under the Agreement follows:

June 30, 2000 March 31, 2000
------------- --------------

Tranche A $ 7,883 $ 7,646
Tranche B -- --
Unfinanced purchases 12,780 6,576
------------- --------------

Total $ 20,663 $ 14,222
============= ==============

In connection with the Agreement, the Company issued a warrant to purchase
492,094 shares of the Company's common stock (see Note 3). The fair value of the
warrants of approximately $1,943, as well as certain other costs related to the
Agreement, were capitalized as deferred financing costs during the year ended
March 31, 2000 and are being amortized over the life of the Tranche A loan.

The Agreement has certain restrictive financial covenants. Such covenants
include minimum tangible net worth requirements, maximum asset to net worth
ratios, minimum net income requirements and other restrictions with respect to
financial ratios. At March 31, 2000, the Company was substantially not in
compliance with all such covenants, but has subsequently entered into an
amendment to the Agreement which revised all such covenants effective March 31,
2000 and for all future periods.

10
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

6. EQUIPMENT FINANCING AND LINE OF CREDIT ARRANGEMENT (CONTINUED)

Furthermore, the Agreement has restrictions related to specific activities,
including, but not limited to, limitations on leases, timely payment of accounts
payable and timely submission of certain reports to Nortel. At March 31, 2000,
the Company was in not in compliance with several of such covenants, but has
subsequently entered into an amendment to the Agreement which revised all such
covenants effective March 31, 2000 and for all future periods.

7. OTHER DEBT

On April 17, 2000, the Company entered into a Note and Warrant Purchase
Agreement to borrow $5,000. The agreement provides for interest at 6% per annum,
with any unconverted principal and accrued interest due October 17, 2001. The
interest is payable by the Company in cash or common stock, at the election of
the Company, upon conversion of principal or October 17, 2001, whichever is
earlier. The agreement provides for the conversion of the principal balance of
the convertible note into shares of common stock, at the election of the holder,
at a price of $6.06 per share. The conversion price equaled the closing price of
the Company's common stock on April 17, 2000. The agreement provides for an
adjustment of the conversion price to the closing price of the Company's common
stock on April 17, 2001, if the Company's common stock is lower than $6.06 on
such date. However, the conversion price cannot be adjusted to lower than $3.94
per share. The agreement requires the Company to obtain effective registration
of the shares underlying the convertible note and the warrant (see discussion
below) by October 17, 2000. The agreement provides for a 2% per month cash
penalty if such registration is not effective on said date.

In conjunction with the agreement, the Company issued warrants to the holder of
the convertible note to purchase 412,541 shares of common stock at a price of
$6.06 per share. The warrants expire three years from the date of grant. The
Company valued the warrants at $1,689 using the Black-Scholes Option Pricing
Model and is amortizing such amount over the 18 month life of the debt.

On May 23, 2000, the Company entered into a Note and Warrant Purchase Agreement
to borrow $250. The agreement provides for interest at 6% per annum, with any
unconverted principal and accrued interest due November 23, 2001. The interest
is payable by the Company in cash or common stock, at the election of the
Company, upon conversion of principal or November 23, 2001, whichever is
earlier. The agreement provides for the conversion of the principal balance of
the convertible note into shares of common stock, at the election of the holder,
at a price of $3.91 per share. The conversion price equaled the closing price of
the Company's common stock on May 23, 2000. The agreement provides for an
adjustment of the conversion price to the closing price of the Company's common
stock on May 23, 2001, if the Company's common stock is lower than $3.91 on such
date. However, the conversion price cannot be adjusted to lower than $2.54 per
share. The agreement requires the Company to obtain effective registration of
the shares underlying the convertible note and the warrant (see discussion
below) by November 23, 2000. The agreement provides for a 2% per month cash
penalty if such registration is not effective on said date.

In conjunction with the agreement, the Company issued warrants to the holder of
the convertible note to purchase 32,000 shares of common stock at a price of
$3.91 per share. The warrants expire three years from the date of grant. The
Company valued the warrants at $84 using the Black-Scholes Option Pricing Model
and is amortizing such amount over the 18 month life of the debt.

11
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

7. OTHER DEBT (CONTINUED)

On June 5, 2000, the Company entered into a Note and Warrant Purchase Agreements
to borrow $1,000. Subsequent to June 30, 2000, this agreement was amended to
include an additional $500 (see Note 9). The agreement provides for interest at
6% per annum, with principal and accrued interest due in August 2000. The
agreement provides for default interest at a rate of 24% per annum. The
agreement requires the Company to obtain effective registration of the shares
underlying the warrants issued in connection with the note (see discussion
below) by August 21, 2000, and provides for a 2% per month cash penalty if such
registration is not effective on said date. The agreement has been personally
guaranteed by the Chairman of the Board of Directors of the Company. The lender
has agreed to extend the maturity date to August 15, 2000. However, the note
will continue to accrue interest at the default rate until repaid.

In conjunction with the agreement, the Company issued warrants to the holder of
the note to purchase 200,000 shares of common stock at a price of $2.875 per
share. The warrants expire three years from the date of grant. The Company
valued the warrants at $933 using the Black-Scholes Option Pricing Model and is
amortizing such amount over the life of the debt.

8. COMMITMENTS AND CONTINGENCIES

DISPOSITION OF MRHM

During the quarter ended June 30, 2000, the Company's Board of Directors
directed management to effect the disposition of MRHM. MRHM had total assets and
net assets approximating $538 and $29, respectively, as of June 30, 2000, and a
net loss from operations approximating $745 for the quarter ended June 30, 2000,
before any accruals related to office closing costs. MRHM provides a variety of
web design and web hosting services. Management of the Company expects to
continue, although to a lesser extent, to provide such services after the
successful disposition of MRHM. Management of the Company has not identified
MRHM as a separate business line which requires discontinued operations
accounting. MRHM has two office leases, which require minimum lease payments
aggregating $1,618 over the next five years.

On July 31, 2000 negotiations for the sale of MRHM were discontinued, and the
operations of MRHM were largely terminated on August 1, 2000. A reduced staff is
providing for the orderly transition of hosting operations to alternative
providers and the windup of development projects. In connection with such
termination, the Company has recognized the impairment of $290 of fixed assets
and various other current assets and deposits. The Company is reviewing MRHM's
real estate leases to determine whether to sublet the premises or terminate the
leases. The net termination obligation, if any, associated with these leases has
not yet been determined by management.

12
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UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

8. COMMITMENTS AND CONTINGENCIES (CONTINUED)

DISPOSITION OF SATELLITE OFFICES

The Company has wireless and dial-up internet service operations in five
satellite offices located in Concord and Petaluma, California, Beaumont and
Houston, Texas and Salt Lake City, Utah. The satellite offices have incurred
substantial losses from operations. The Board of Directors has instructed
management to evaluate such offices to determine whether they should be retained
and restructured, or sold. The net book value of the fixed assets of the
satellite offices approximated $1,195 at June 30, 2000. The satellite offices
have various office leases, which require minimum lease payments aggregating
$1,536 over the next five years. Management has concluded to sell the satellite
offices. If a sale is not effected by September 1, 2000, such offices will be
closed. There is an uncertainty as to the actual amount the Company will
ultimately receive in its realization of the assets of the satellite offices, if
they are sold. As a result, such assets may ultimately be determined to be
impaired. The accompanying consolidated condensed financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Furthermore, the net termination obligation, if any, associated with the
satellite office facilities and equipment operating leases has not yet been
determined by management.

9. SUBSEQUENT EVENTS

PREFERRED STOCK ISSUANCE

On July 21, 2000, 100,000 shares of Series B Convertible Preferred Stock were
issued to an investor at the rate of $10.00 per share. The shares are
convertible into common stock of the Company at a rate equal to 65% of the lower
of the following: (a) the average quoted closing price of the common stock of
the twenty trading days immediately prior to the conversion, or (b) the last
quoted bid price of the common stock at the time of the conversion; provided,
however, that the conversion price shall in neither case be higher than 110% nor
lower than 50% of the price of the common stock at the close of business on July
7, 2000, which was $4.00. The reduced conversion price represents a beneficial
conversion feature which the Company has valued at $394. Commensurate with this
transaction, the Company issued 1,000,000 warrants to purchase common stock of
the Company. The exercise price will be determined using the same calculation
noted above for the Preferred Stock. The Company valued the warrants at $2,079
using the Black-Scholes Option Pricing Model. No shares have been converted as
of the date of this report.

In conjunction with the agreement, the Company issued warrants to the placement
agent to purchase 100,000 shares of common stock. The exercise price will be
determined using the same calculation noted above for the Preferred Stock. The
Company valued the warrants at $259 using the Black-Scholes Option Pricing
Model.

DEBT FINANCING

On August 2, 2000, the Company entered into a Secured Convertible Promissory
Note Agreement to borrow $8,795. Of this amount, $1,295 was received on July 7,
2000 and previously disclosed in the Company's Form 10K which was filed with the
SEC on July 10, 2000. An additional $2,500 was received on August 3, 2000. The
receipt of the remaining funds is contingent upon the Company's registration of
the underlying common stock with the SEC. This registration statement must be
effective no later than October 31, 2000 and the Company could incur substantial
increased costs and liquidated damages if the registration statement is not
filed and declared effective on a timely basis.

13
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

9. SUBSEQUENT EVENTS (CONTINUED)

The entire note becomes convertible 91 days after the date of original issuance.
Prior to the date on which the note becomes convertible, the Company may repay
the note at an optional prepayment price of 133% of the principal amount of the
note plus accrued interest. The entire note is convertible into shares of the
Company's common stock at a price equal to 75% of the average of the five per
share market values immediately preceding the conversion date. The reduced
conversion price represents a beneficial conversion feature which the Company
has valued at $1,470. The note bears interest at the rate of 8% per annum, and
is due and payable, if not converted, on August 2, 2003.

In connection with the above agreement, the Company issued warrants to a broker
for services rendered to purchase 200,000 shares of common stock at a price of
$3.00 per share. The Company valued the warrants at $502 using the Black-Scholes
Option Pricing Model.

On July 7, 2000, the Company amended the Note and Warrant Purchase Agreement
which was originally dated June 5, 2000, to borrow an additional $500. The
agreement provides for interest at 6% per annum, with principal and accrued
interest due August 3, 2000. The agreement provides for default interest at a
rate of 24% per annum. The agreement requires the Company to obtain effective
registration of the shares underlying the warrants issued in connection with the
note (see discussion below) by August 21, 2000, and provides for a 2% per month
cash penalty if such registration is not effective on said date. The agreement
has been personally guaranteed by the Chairman of the Board of Directors of the
Company. The lender has agreed to extend the maturity date to August 15, 2000.
However, the note will continue to accrue interest at the default rate until
repaid.

In conjunction with the agreement, the Company issued warrants to the holder of
the note to purchase 100,000 shares of common stock at a price of $4.06 per
share. The warrants expire three years from the date of grant. The Company
valued the warrants at $279 using the Black-Scholes Option Pricing Model.

10. CHANGES TO JUNE 1999 CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The consolidated financial statements as of and for the three months ended June
30, 1999 have been restated to correct the following errors:

During the three months ended June 30, 1999, 62,690 shares of common stock were
issued for services. The Company has recorded the value of the shares tendered
using the free-trading market price on the date of transfer as the basis for all
such issuances. Such entries resulted in additional expense of $140 for the
three months ended June 30, 1999.

In connection with the convertible Preferred Stock, the Company has recognized a
beneficial conversion feature in the amount of $448. In addition, the Company
has recognized a total of $93 in dividends related to the Preferred Stock.

The Company has restated revenue to comply with SEC guidelines for accounting
issues related to Internet operations to the net method for revenues related to
the Fair Auction subsidiary. This change resulted in a $228 decrease to revenue
but had no impact on operations.

14
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

IN ADDITION TO HISTORICAL INFORMATION, MANAGEMENT'S DISCUSSION AND ANALYSIS
INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT LIMITED TO,
THOSE RELATED TO THE GROWTH AND STRATEGIES, FUTURE OPERATING RESULTS AND
FINANCIAL POSITION AS WELL AS ECONOMIC AND MARKET EVENTS AND TRENDS OF THE
COMPANY. ALL FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY, INCLUDING SUCH
STATEMENTS HEREIN, INCLUDE MATERIAL RISKS AND UNCERTAINTIES AND ARE SUBJECT TO
CHANGE BASED ON FACTORS BEYOND THE CONTROL OF THE COMPANY. ACCORDINGLY, THE
COMPANY'S ACTUAL RESULTS AND FINANCIAL POSITION COULD DIFFER MATERIALLY FROM
THOSE EXPRESSED OR IMPLIED IN ANY FORWARD-LOOKING STATEMENT AS A RESULT OF
VARIOUS FACTORS, INCLUDING WITHOUT LIMITATION FACTORS DESCRIBED IN THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION REGARDING RISKS AFFECTING
THE COMPANY'S FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.

OVERVIEW

The Company's operating results may continue to fluctuate significantly in the
future, depending on a variety of factors, including the timely deployment and
expansion of new network architectures, the incurrence of related capital costs
and the introduction of new services by the Company and its competitors.
Additional factors that may contribute to variability of the operating results
include: the pricing and mix of services offered by the Company, customer
retention rate, market acceptance of new and enhanced offerings of the Company,
user demand for network and internet access services, ability to manage
potential growth and expansion and the ability to identify, acquire and
integrate successfully suitable acquisition candidates. In response to
competitive pressures, the Company may take certain pricing or marketing actions
that could have an adverse affect on the Company's business. As a result,
variations in the timing and amounts of revenue could have a material adverse
affect on the Company's quarterly operating results. Due to the foregoing
factors, the Company believes the period-to-period comparisons of its operating
results are not necessarily meaningful and that such comparisons cannot be
relied upon as indicators of future performance.

The majority of the Company's revenues were derived from its wireless and
dial-up ISP operations under the name of "UrJet Internet" for the three months
ending June 30, 2000 and 1999. The Company currently operates in five markets:
Salt Lake City, Utah; Beaumont, Texas; Houston, Texas; San Francisco Bay Area,
California; and Irvine/Orange County, California.

The Company's main subsidiary, UBN, was formed in the last calendar quarter of
1998 in order to provide telecommunication services to small and medium-sized
businesses in the continental United States west of the Mississippi River.
Through UBN, the Company intends to build a super-regional network focusing on
Tier II and III markets commencing with Southern California and then expanding
to the remainder of California, Oregon and Washington, followed by a general
eastward expansion to the Mississippi. The rollout will systematically target
strategic markets and will emphasize underserved markets in Tiers II and III.
The Company's network will be exclusively carrier grade, and will integrate
traditional Class V voice switching technology, Soft-Switches, xDSL service
platforms, VoDSL and VoIP gateways and ATM network transport, enabling the
Company to offer a broad range of products and services, efficient delivery
mechanisms and bundled solutions. The Company plans to focus its sales strategy
on retail sales channels, including a direct hire sales force, telemarketing,
and other targeted marketing approaches. Additionally, the Company intends to
widen its value proposition by not only providing carrier services for the
delivery of voice and data content, but enhanced application services based on a
transactional-level sales model.

15
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

As of June 30, 2000, the Company has installed a Class V voice switch and
redundant IP and ATM network core, received approval for 16 Pacific Bell Central
Office co-locations, executed several multiple tenant units ("MTU") contracts,
built a fiber network connecting Orange County, San Francisco, and Silicon
Valley, California with, Houston and Beaumont, Texas, and Salt Lake City, Utah
and has received competitive local exchange carrier ("CLEC") operating authority
in four states in the target markets. The Company also has applications for CLEC
operating authority pending in 11 additional states in its target markets.

The Man Rabbit House Multimedia ("MRHM") subsidiary provides high-end web site
design and development for a diverse range of clients. See discussion below
regarding the closure of MRHM.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999

Total revenues decreased 26% or $0.2 million to $0.7 million for the three
months ending June 30, 2000 compared to revenues of $0.9 million for the three
months ending June 30, 1999. Revenue contributed by wireless and dialup services
was 61% of the total revenue for the three months ended June 30, 2000 compared
to 60% of total revenue for the previous year. Revenue contributed by the UBN
subsidiary was 10% for the quarter ended June 20, 2000 compared to 2% for the
previous year's quarter.

Revenue contributed by the MRHM subsidiary was 29% for the current quarter,
compared to 38% of total revenue for the quarter ended June 30, 1999. During the
quarter ended June 30, 2000, the Company's Board of Directors directed
management to effect the disposition of MRHM. MRHM had total assets and net
assets approximating $0.5 million and $29,415, respectively, as of June 30,
2000, and a net loss from operations approximating $0.7 million for the quarter
ended June 30, 2000, before accruals for closing costs. MRHM provides a variety
of web design and web hosting services. Management of the Company expects to
continue, although to a lesser extent, to provide such services after the
successful disposition of MRHM. Management of the Company has not identified
MRHM as a separate business line which requires discontinued operations
accounting. MRHM has two office leases, which require minimum lease payments
aggregating $1.6 million over the next five years.

On July 31, 2000 negotiations for the sale of MRHM were discontinued, and the
operations of MRHM were largely terminated on August 1, 2000. A reduced staff is
providing for the orderly transition of hosting operations to alternative
providers and the windup of development projects. In connection with such
termination, the Company has recognized the impairment of $0.3 million of fixed
assets and various other current assets and deposits. The Company is reviewing
MRHM's real estate leases to determine whether to sublet the premises or
terminate the leases. The net termination obligation, if any, associated with
these leases has not yet been determined by management.

16
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

offices will be closed. There is an uncertainty as to the actual amount the
Company will ultimately receive in its realization of the assets of the
satellite offices, if they are sold. As a result, such assets may ultimately be
determined to be impaired. The accompanying consolidated condensed financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. Furthermore, the net termination obligation, if any,
associated with the satellite office facilities and equipment operating leases
has not yet been determined by management.

The Company incurred network expenses totaling $2.3 million for the three months
ended June 30, 2000 compared to $0.3 million for the three months ended June 30,
1999, an increase of 511% or $2.0 million. The Company's main subsidiary, UBN,
generated $1.4 million of this increase, comprised of significant network
development costs incurred to install circuit lines and establish co-location
sites to deploy the Los Angeles market-area network in preparation for offering
high speed data and voice communication services. It is anticipated that total
network expenses will continue to increase for the foreseeable future, although
the Company plans to generate additional revenue to offset, or partially offset,
such costs.

The Company incurred payroll and related expenses of $2.0 million for the three
months ended June 30, 2000 compared to $0.9 million for the three months ended
June 30, 1999, an increase of 129% or $1.1 million. The increase is due to
growth in headcount in all areas of the Company to support its growth
objectives. The increase in headcount has occurred primarily in the UBN
subsidiary as the Company added staff to support its network deployment and
business expansion objectives.

The Company incurred total selling, general and administrative expenses ("SG&A")
of $5.1 million for the three months ended June 30, 2000, compared with $1.6
million for the three months ended June 30, 1999, an increase of $3.5 million or
223%. The increase is due to continued expansion of the sales and marketing
efforts, professional fees and the increases in operating costs of the Company's
offices throughout the United States. Also, during the three months ended June
30, 2000, the Company issued 18,679 shares of its common stock in exchange for
professional services and 104,165 shares to its non-employee Directors. The fair
value of the shares issued of $0.1 million and $0.3 million, respectively, has
been charged to operations. In addition, the Company issued 250,000 warrants and
20,500 options to purchase common stock various professional consultants.
Management valued the warrants and options using the Black-Scholes Option
Pricing Model and recorded professional expense of $0.8 and $0.2 million,
respectively, during the quarter ended June 30, 2000.

The Company incurred depreciation and amortization costs of $1.5 million for the
three months ended June 30, 2000 compared to $0.2 million for the corresponding
period of the previous year, an increase of $1.3 million or 815%. The increase
is due to the large amounts of fixed assets placed into service during fiscal
2000, particularly for computer equipment and network equipment.

The Company incurred interest expense of $2.1 million in the three months ended
June 30, 2000. Of this amount, $0.1 million was cash paid on various notes and
leases payable, $0.7 million was accrued on various notes, including the
obligations to Nortel Networks and $1.2 represented the amortization of deferred
financing costs on various notes payable, including Nortel Networks. See further
discussion in Notes 2 and 7 in the Consolidated Condensed Financial Statements.

The Company incurred a net loss of $12.3 million for the three months ended June
30, 2000, compared to a net loss of $2.1 million for the three months ended June
30, 1999. The Company plans to increase revenues and gross profit in the
upcoming fiscal year while controlling the growth of SG&A expenses. The Company
does not anticipate generating net income in the near future, although a
decrease in the net loss is expected.

17
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

Cash used in operating activities was $5.7 million for the three months ended
June 30, 2000 compared to $1.8 million for the three months ended June 30, 1999.
Cash was impacted primarily by the Company's operating loss for the three months
ended June 30, 2000 partially offset through the payment of certain expenses
with stock ($0.4 million) and warrants and options ($1.0 million), depreciation
and amortization ($1.5 million) and delaying the payment of certain accounts
payable.

The Company's operations have required substantial capital investment for the
procurement, design and construction of the voice and data network
infrastructure, the purchase of telecommunications equipment, and the design and
development of the operational support system. Capital expenditures were
approximately $8.1 million (including amounts financed through capital leases
and other liabilities) for the quarter ended June 30, 2000 and $0.7 million for
the quarter ended June 30, 1999. The Company expects that the capital
expenditures and working capital requirements will be substantially higher in
future periods in connection with the purchase of infrastructure equipment, the
development and expansion of the network, and the development of new markets.

Cash was provided primarily by borrowing of short and long term debt. See
further discussion below of stock transactions and financing proceeds for the
quarter ended June 30, 2000.

GOING CONCERN

The Company's consolidated financial statements have been prepared assuming the
Company will continue as a going concern. During the three months ended June 30,
2000, the Company experienced a net loss of $12.3 million and had negative cash
flows from operations of $5.7 million. In addition, the Company had substantial
working capital and shareholders deficits at June 30, 2000. Lastly, the Company
has significant present and future working capital demands, which will require
substantial equity and debt financing which have not yet been secured. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements included
elsewhere herein do not include any adjustments that might result from the
outcome of this uncertainty.

In an effort to reverse the negative financial conditions noted above,
management of the Company intends to secure a series of debt and equity
financings during 2000 expected to exceed $200 million. Additionally, the
Company intends to expand its operations through the establishment of
switch-based telecommunications facilities in pre-designated markets, and
develop its management and sales teams, and its corporate infrastructure.
Management of the Company believes these events will provide the working capital
required to purchase necessary equipment, establish the requisite infrastructure
and fund operations until such time as the Company becomes profitable.

18
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

EQUIPMENT FINANCING AND LINE OF CREDIT ARRANGEMENT

In July 1999, UBN, a subsidiary of UBEE, entered into a credit agreement (the
"Agreement") with Nortel Networks, Inc. ("Nortel") which provides for a
line-of-credit of up to $7 million ("Tranche A") as well as a term loan of up to
$37 million ("Tranche B"). However, the maximum combined borrowing under the
Agreement cannot exceed $37 million. Furthermore, the Company is not able to
borrow under Tranche B until a $30 million equity infusion to UBN has been
completed. If such infusion is not completed by October 30, 2000, the Tranche B
commitment will terminate. The Agreement is collateralized by all of the assets
and the common stock of UBN. A substantial portion of the Company's assets are
located in its UBN subsidiary. The Agreement further restricts UBN from
dividending or loaning funds to IJNT or its other subsidiaries.

Borrowings under Tranche A can be used for working capital and general corporate
purposes, bear interest at 13% and matured on July 31, 2000. As of June 30,
2000, $7.9 million (including interest) was outstanding under Tranche A and no
additional borrowings were available. The Company has obtained an amendment to
the Agreement from Nortel to extend the maturity date of Tranche A as follows:
$4.0 million due August 15, 2000 and the remaining balance due October 1, 2000.

Borrowings under Tranche B can only be used to finance purchases of Nortel goods
and services and bear interest at the prime rate (9.5% at June 30, 2000) plus
3.75%. Tranche B is payable in twelve equal quarterly payments beginning in
October 2000. As of June 30, 2000, no borrowings were outstanding under Tranche
B as the Company had not completed the required equity infusion. However, as of
June 30, 2000, the Company owes Nortel $12.8 million for purchases of equipment
and services. If the Company is able to complete the required equity infusion,
these borrowings will be classified as Tranche B borrowings. If the required
equity infusion is not completed, the Company will be required to pay for these
purchases pursuant to normal vendor terms.

In connection with the Agreement, the Company issued a warrant to purchase
492,094 shares of the Company's common stock (see Note 3 to the consolidated
condensed financial statements). The fair value of the warrants of approximately
$1.9 as well as certain other costs related to the Agreement, were capitalized
as deferred financing costs during the year ended March 31, 2000 and are being
amortized over the life of the Tranche A loan.

Furthermore, the Agreement has restrictions related to specific activities,
including, but not limited to, limitations on leases, timely payment of accounts
payable and timely submission of certain reports to Nortel. At March 31, 2000,
the Company was not in compliance with several of such covenants, but has
subsequently entered into an amendment to the Agreement which revised all such
covenants effective March 31, 2000 and for all future periods.

19
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

OTHER DEBT

On April 17, 2000, the Company entered into a Note and Warrant Purchase
Agreement to borrow $5.0 million. The agreement provides for interest at 6% per
annum, with any unconverted principal and accrued interest due October 17, 2001.
The interest is payable by the Company in cash or common stock, at the election
of the Company, upon conversion of principal or October 17, 2001, whichever is
earlier. The agreement provides for the conversion of the principal balance of
the convertible note into shares of common stock, at the election of the holder,
at a price of $6.06 per share. The conversion price equaled the closing price of
the Company's common stock on April 17, 2000. The agreement provides for an
adjustment of the conversion price to the closing price of the Company's common
stock on April 17, 2001, if the Company's common stock is lower than $6.06 on
such date. However, the conversion price cannot be adjusted to lower than $3.94
per share. The agreement requires the Company to obtain effective registration
of the shares underlying the convertible note and the warrant (see discussion
below) by October 17, 2000. The agreement provides for a 2% per month cash
penalty if such registration is not effective on said date.

In conjunction with the agreement, the Company issued warrants to the holder of
the convertible note to purchase 412,541 shares of common stock at a price of
$6.06 per share. The warrants expire three years from the date of grant. The
Company valued the warrants at $1.7 million using the Black-Scholes Option
Pricing Model and is amortizing such amount over the 18 month life of the debt.

On May 23, 2000, the Company entered into a Note and Warrant Purchase Agreement
to borrow $0.3 million. The agreement provides for interest at 6% per annum,
with any unconverted principal and accrued interest due November 23, 2001. The
interest is payable by the Company in cash or common stock, at the election of
the Company, upon conversion of principal or November 23, 2001, whichever is
earlier. The agreement provides for the conversion of the principal balance of
the convertible note into shares of common stock, at the election of the holder,
at a price of $3.91 per share. The conversion price equaled the closing price of
the Company's common stock on May 23, 2000. The agreement provides for an
adjustment of the conversion price to the closing price of the Company's common
stock on May 23, 2001, if the Company's common stock is lower than $3.91 on such
date. However, the conversion price cannot be adjusted to lower than $2.54 per
share. The agreement requires the Company to obtain effective registration of
the shares underlying the convertible note and the warrant (see discussion
below) by November 23, 2000. The agreement provides for a 2% per month cash
penalty if such registration is not effective on said date.

In conjunction with the agreement, the Company issued warrants to the holder of
the convertible note to purchase 32,000 shares of common stock at a price of
$3.91 per share. The warrants expire three years from the date of grant. The
Company valued the warrants at $.1 million using the Black-Scholes Option
Pricing Model and is amortizing such amount over the 18 month life of the debt.

On June 5, 2000, the Company entered into a Note and Warrant Purchase Agreements
to borrow $1.0 million. Subsequent to June 30, 2000, this agreement was amended
to include an additional $0.5 million (see Note 9 to the consolidated condensed
financial statements). The agreement provides for interest at 6% per annum, with
principal and accrued interest due in August 2000. The agreement provides for
default interest at a rate of 24% per annum. The agreement requires the Company
to obtain effective registration of the shares underlying the warrants issued in
connection with the note (see discussion below) by August 21, 2000, and provides
for a 2% per month cash penalty if such registration is not effective on said
date. The agreement has been personally guaranteed by the Chairman of the Board
of Directors of the Company. The lender has agreed to extend the maturity date
to August 15, 2000. However, the note will continue to accrue interest at the
default rate until repaid.

20
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

In conjunction with the agreement, the Company issued warrants to the holder of
the note to purchase 200,000 shares of common stock at a price of $2.875 per
share. The warrants expire three years from the date of grant. The Company
valued the warrants at $0.9 million using the Black-Scholes Option Pricing Model
and is amortizing such amount over the life of the debt.

CONVERTIBLE PREFERRED STOCK

In December 1998, the Company entered into an agreement with private investors
(the "Investors") whereby the Investors purchased 2,000 shares of the Company's
convertible Preferred Series A Stock (the "Preferred Stock") for a gross price
of $2.0 million, net of commissions of $0.2 million. In May 1999, the Agreement
was amended to include an additional 2,000 shares of Preferred Stock, which
netted $1.8 million (net of $0.2 million expenses) to the Company. The Preferred
Stock is convertible at a discount of 20% below the average closing price of the
Company's common stock for the five business days preceding the conversion
request.

During the three months ended June 30, 2000, the remaining 2,000 shares of
Preferred Stock were converted into 364,299 shares of common stock and $0.2
million in related dividends was converted into 29,432 shares of common stock,
for a total of 393,731 shares of common stock issued in connection with the
Preferred Stock conversions.

OPTIONS GRANTED TO PURCHASE COMMON STOCK

On April 13, 2000, the Company granted various service providers options to
purchase 20,500 common shares of stock at a price of $8.03 per share. The
exercise price equaled the closing price of the Company's common stock at the
date of grant. The Company valued the options at $0.2 million using the
Black-Scholes Option Pricing Model and recorded the expense to operations during
the quarter ended June 30, 2000.

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UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

WORKING CAPITAL DEMANDS

The Company believes that current cash and cash equivalents and short-term
investments are not sufficient to meet anticipated cash needs for working
capital and capital expenditures.

The Company expects to experience substantial negative cash flows from operating
activities and negative cash flows before financing activities for at least the
next several years due to continued development, commercial deployment and
expansion of the network. Future cash requirements for developing, deploying and
enhancing our network and operating our business, as well as the Company's
revenues, will depend on a number of factors including:

o The number of regions entered, the timing of entry and services
offered;
o The speed of the network development schedules and associated costs;
o The rate at which customers and end-users purchase the Company's
services and the pricing of such services;
o The level of marketing required to acquire and retain customers and to
attain a competitive position in the marketplace;
o The rate at which the Company invests in engineering; and
o Unanticipated opportunities.

The Company will be required to raise additional capital, the timing and amount
of which cannot be predicted. The Company expects to raise additional capital
through debt or equity financings, depending on market conditions, to finance
the continued development, commercial deployment and expansion of the network
and for funding operating losses or to take advantage of unanticipated
opportunities. If the Company is unable to obtain required additional capital or
is required to obtain it on terms less satisfactory than it desires, the Company
may be required to delay the expansion of its business or take or forego
actions, any or all of which could harm the business. If the Company fails to
raise sufficient funds, the Company may need to modify, delay or abandon some of
the planned future expansion or expenditures, which could have a material
adverse effect on the business, prospects, financial condition and results of
operations.

COMMITMENTS AND CONTINGENCIES

REGISTRATION RIGHTS

As disclosed elsewhere herein, the Company is subject to various requirements to
register common stock and the common stock underlying convertible preferred
stock and various warrants. The Company is subject to various penalties for
failure to register such securities, the amount of which could be material to
the Company's consolidated financial condition, results of operations and cash
flows. The Company intends to file a registration statement on Form S-3 in
August, 2000 to register the necessary securities.

INFLATION

The Company's management does not believe that inflation has had or is likely to
have any significant impact on the Company's operations. Management believes
that the Company will be able to increase subscriber rates after its systems are
launched, if necessary, to keep pace with inflationary increases in costs.

22
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UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

SUBSEQUENT EVENTS

PREFERRED STOCK ISSUANCE

On July 21, 2000, 100,000 shares of convertible preferred stock were issued to
an investor at the rate of $10.00 per share. The shares are convertible into
common stock of the Company at a rate equal to 65% of the lower of the
following: (a) the average quoted closing price of the common stock of the
twenty trading days immediately prior to the conversion, or (b) the last quoted
bid price of the common stock at the time of the conversion; provided, however,
that the conversion price shall in neither case be higher than 110% nor lower
than 50% of the price of the common stock at the close of business on July 7,
2000, which was $4.00. The reduced conversion price represents a beneficial
conversion feature which the Company has valued at $0.4 million. Commensurate
with this transaction, the Company issued 1,000,000 warrants to purchase common
stock of the Company. The exercise price will be determined using the same
calculation noted above for the Preferred Stock. The Company valued the warrants
at $2.1 million using the Black-Scholes Option Pricing Model. No shares have
been converted as of the date of this report.

DEBT FINANCING

On August 2, 2000, the Company entered into a Secured Convertible Promissory
Note Agreement to borrow $8.8 million. Of this amount, $1.3 million was received
on July 7, 2000 and previously disclosed in the Company's Form 10K which was
filed on July 10, 2000. An additional $2.5 million was received on August 3,
2000. The receipt of the remaining funds is contingent upon the Company's
registration of the underlying common stock with the SEC. This registration
statement must be effective no later than October 31, 2000 and the Company could
incur substantial increased costs and liquidated damages if the registration
statement is not filed and declared effective on a timely basis.

The entire note becomes convertible 91 days after the date of original issuance.
Prior to the date on which the note becomes convertible, the Company may repay
the note at an optional prepayment price of 133% of the principal amount of the
note plus accrued interest. The entire note is convertible into shares of the
Company's common stock at a discount of 25% below the average closing price of
the Company's common stock for the five business days preceding the conversion
request. The reduced conversion price represents a beneficial conversion feature
which the Company has valued at $1.5 million. The note bears interest at the
rate of 8% per annum, and is due and payable, if not converted, on August 2,
2003.

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<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)

On July 7, 2000, the Company amended the Note and Warrant Purchase Agreement
which was originally dated June 5, 2000, to borrow an additional $0.5 million.
The agreement provides for interest at 6% per annum, with principal and accrued
interest due August 3, 2000. The agreement provides for default interest at a
rate of 24% per annum. The agreement requires the Company to obtain effective
registration of the shares underlying the warrants issued in connection with the
note (see discussion below) by August 21, 2000, and provides for a 2% per month
cash penalty if such registration is not effective on said date. The agreement
has been personally guaranteed by the Chairman of the Board of Directors of the
Company. The lender has agreed to extend the maturity date to August 15, 2000.
However, the note will continue to accrue interest at the default rate until
repaid.

24
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.
PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to routine litigation incidental to its business which
are not expected to have a material impact on the Company's assets, operations
or financial condition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The following sets forth a description of all sales and issuances of the
Company's securities during the period covered by this report and through the
date of filing. With respect to each issuance, the Company relied upon one or
more exemptions from registration under the Securities Act of 1933, including
Section 4(2) of the Securities Act, Rule 506 of Regulation D and Regulation S
with respect to certain sales to non-U.S. Persons, as defined by Regulation S.

On August 2, 2000, the Company entered into a Secured Convertible Promissory
Note Agreement to borrow $8.8 million from one accredited investor that is a
non-United States person. The entire note is convertible into shares of the
Company's common stock at a discount of 25% below the average closing price of
the Company's common stock for the five business days preceding the conversion
request.

On July 21, 2000, 150,000 shares of Series B Convertible Preferred Stock were
issued to one accredited investor at the purchase price of $10.00 per share. The
shares are convertible into common stock of the Company at a rate equal to 65%
of the lower of the following: (a) the average quoted closing price of the
common stock of the twenty trading days immediately prior to the conversion, or
(b) the last quoted bid price of the common stock at the time of the conversion;
provided, however, that the conversion price shall in neither case be higher
than 110% nor lower than 50% of the price of the common stock at the close of
business on July 7, 2000, which was $4.00. Commensurate with this transaction,
the Company issued warrants to purchase 1,500,000 shares of common stock of the
Company. The exercise price will be determined using the same calculation noted
above for the Preferred Stock. The warrants expire two years from the date of
grant. In conjunction with the sale of the Series B Convertible Preferred Stock,
the Company issued warrants to the placement agent to purchase 150,000 shares of
common stock. The exercise price will be determined using the same calculation
noted above for the Preferred Stock. The warrants expire five years from the
date of grant.

In conjunction with the sale of the Series A Convertible Preferred Stock, the
Company gave two investors warrants to purchase an aggregate of 50,000 shares of
common stock at a price of $3.24 per share. Such warrants expire five years from
the date of grant. The warrants have an adjustment provision, as defined, should
the Company sell shares of common stock at a price below $3.24 per share.

In conjunction with the sale of the Series A Preferred Stock, the Company gave
the placement agent warrants to purchase 75,000 shares of common stock at a
price of $2.50 per share. In conjunction with the sale of Series B Preferred
Stock, the Company gave the placement agent warrants to purchase 200,000 shares
of common stock at a price of $3.00 per share. Such warrants expire five years
from the date of grant. The warrants retain "piggy-back" registration rights.

In conjunction with a Note and Warrant Purchase Agreement, on June 5, 2000, the
Company issued warrants to the holder of the note to purchase 200,000 shares of
common stock at a price of $2.875 per share. In conjunction with an amendment to
the Note and Warrant Purchase Agreement, on July 7, 2000, the Company issued
additional warrants to the holder of the note to purchase 100,000 shares of
common stock at a price of $4.06 per share. The warrants expire three years from
the date of grant.

25
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

On July 25, 2000, the Company held its Annual Meeting of Shareholders ("the
Annual Meeting"). The Company's shareholders voted in favor of the matters voted
upon at the Annual Meeting according to the following vote tabulation:

Proposal One: Election of Directors.

Abstentations and Broker
For Withheld Non-Votes
--- -------- ---------
Jon H. Marple 18,320,862 238,570 27,969
Mary E. Blake 18,320,862 251,215 27,969
Michael A. Sternberg 18,320,862 175,000 27,969
Richard W. Torney 18,320,862 226,345 27,969
Richard F. Charles 18,320,862 247,345 27,969
H. Dean Cubley 18,320,862 1,500 27,969
Terry D. Kramer 18,320,862 1,000 27,969
Stephen E. Pazian 18,320,862 - 27,969

Proposal Two: Amendments to Certificate of Incorporations and Bylaws, including
name change to Universal Broadband Networks, Inc. ("UB Networks") and various
other provisions.

For: 10,140,742
Against: 683,029
Abstain: 56,256

Proposal Three: Ratification of the 2000 Management Equity Incentive Plan and
the 2000 Equity Incentive Plan employee stock option plans.

For: 11,099,968
Against: 548,050
Abstain: 232,199

Proposal Four: Ratification of BDO Seidman, LLP as independent accountants for
the Company until revoked by further action.

For: 18,297,052
Against: 17,900
Abstain: 34,879

26
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(1) Exhibits:

27.1 Financial Data Schedule

(2) Reports on Form 8-K:

The Company filed a report on Form 8-K on April 10, 2000 to
report the change in registrant's certifying accountant.

27
<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Dated: August 14, 2000

UNIVERSAL BROADBAND NETWORKS, INC.

/S/ MICHAEL A. STERNBERG
------------------------------------
Michael A. Sternberg
Chief Executive Officer and Director

/S/ KIM MARCUS
------------------------------------
Kim Marcus
Interim Chief Financial Officer
(Principal Accounting Officer)