UNIVERSAL BROADBAND NETWORKS INC, 10-Q, 2000-11-14

UNIVERSAL BROADBAND NETWORKS INC
10-Q, 2000-11-14
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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 SEPTEMBER 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 November 8, 2000 there were 22,948,444 shares of Common Stock
outstanding.

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<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.
INDEX

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

Item 1. Financial Statements

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

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

Consolidated Condensed Statements of Cash Flows for the three months ended
September 30, 2000 (unaudited) and September 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............................................................. 17

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............................................................. 25

Item 4. Submission of Matters to a Vote of Security Holders......................................... 25

Item 5. Other Information........................................................................... 25

Item 6. Exhibits and Reports on Form 8-K............................................................ 26

SIGNATURES................................................................................................ 27
</TABLE>

* No information provided due to inapplicability of item.

<PAGE>

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

ITEM 1. FINANCIAL STATEMENTS

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

ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash.................................................................... $ 1,576 $ 1,176
Accounts receivable, net of allowance for doubtful accounts of $545
and $330, respectively................................................ 100 64
Prepaid expenses and other current assets............................... 537 645
------------- -------------
Total current assets......................................................... 2,213 1,885

Property and equipment, net of accumulated depreciation of $5,025
and $2,796, respectively.................................................. 15,160 15,235
Other assets, net............................................................ 1,137 3,216
------------- -------------
Total assets....................................................... $ 18,510 $ 20,336
============= =============

LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities................................ $ - $ 9,522
Accrued payroll, benefits and related costs............................. - 647
Secured vendor financing (Note 7)....................................... 13,042 -
Equipment financing and line of credit arrangement (Note 7)............. 4,044 14,222
Obligations under capital leases........................................ 2,675 402
Liabilities subject to compromise (Note 2).............................. 29,526 -
------------- -------------
Total current liabilities.................................................... 49,287 24,793

Obligations under capital leases, less current portion....................... - 788
------------- -------------

Total liabilities............................................................ 49,287 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............................... - -
Series B Convertible Preferred Stock, $.01 par value; authorized
150,000 shares; 100,000 and 0 issued and outstanding, liquidation
preference of $1,000 and $0........................................... 1 -
Common Stock, $.001 par value; authorized 50,000,000 shares;
21,347,833 and 20,283,508 issued and outstanding, respectively........ 21 20
Additional paid-in capital.............................................. 50,714 39,347
Accumulated deficit..................................................... (81,513) (44,612)
------------- -------------
Total shareholders' deficit.................................................. (30,777) (5,245)
------------- -------------
Total liabilities and shareholders' deficit.................................. $ 18,510 $ 20,336
============= =============
</TABLE>

See accompanying notes to consolidated condensed financial statements.

UNIVERSAL BROADBAND NETWORKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- ------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(as restated) (as restated)

<S> <C> <C> <C> <C>
Revenues............................... $ 634 $ 740 $ 1,317 $ 1,665
------------- ------------- ------------- -------------
Operating expenses:
Network expenses....................... 2,890 626 5,228 1,009
Payroll and related expenses........... 1,733 1,156 3,785 2,052
Selling, general and
administrative expenses............. 4,390 1,574 9,461 3,144
Depreciation and amortization.......... 1,240 230 2,770 397
------------- ------------- ------------- -------------
Total operating expenses....... 10,253 3,586 21,244 6,602
------------- ------------- ------------- -------------
Operating loss......................... (9,619) (2,846) (19,927) (4,937)

Interest income........................ 16 13 48 13
Interest expense, including
amortization of deferred
financing costs..................... (1,254) (350) (3,305) (350)
------------- ------------- ------------- -------------
Loss before reorganization items....... (10,857) (3,183) (23,184) (5,274)

Reorganization items................... (10,466) - (10,466) -
------------- ------------- ------------- -------------
Net Loss............................... (21,323) (3,183) (33,650) (5,274)

Preferred stock dividends.............. - (54) (23) (147)
Preferred stock beneficial
conversion feature.................. (249) - - (448)
------------- ------------- ------------- -------------
Net loss applicable to common
shareholders........................ $ (21,572) $ (3,237) $ (33,673) $ (5,869)
============= ============= ============= =============

Net loss per share, basic and
diluted............................. $ (1.03) $ (0.18) $ (1.62) $ (0.34)
============= ============= ============= =============
Weighted-average number of
shares, basic and diluted........... 20,960,323 17,621,965 20,794,140 17,292,108
============= ============= ============= =============
</TABLE>

See accompanying notes to consolidated condensed financial statements.

UNIVERSAL BROADBAND NETWORKS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999
---- ----
(as restated)

<S> <C> <C>
Cash flows used in operating activities:
Net loss........................................................................ $ (33,650) $ (5,274)
Adjustments to reconcile net loss to net cash used in operating activities:
Reorganization items........................................................ 9,023
Depreciation and amortization............................................... 2,770 397
Amortization and direct write-off of deferred financing costs............... 5,660 350
Stock options and warrants issued as professional expense................... 1,101 -
Stock issued for services................................................... 554 748
Accrued interest............................................................ 821 -
Provision for doubtful accounts............................................. 260 -
Changes in current assets and liabilities
Accounts receivable..................................................... (297) (402)
Prepaid expenses and other current assets............................... 108 335
Other assets............................................................ (314) -
Account payable and accrued liabilities................................. (995) 3,387
Accrued payroll, benefits and related costs............................. 40 17
-------------- ------------
Net cash used in operating activities........................................... (14,919) (442)
-------------- ------------

Cash flows used in investing activities:
Purchases of fixed assets....................................................... (1,360) (4,073)
Receipt of loan due from shareholder............................................ - (80)
Purchase of licenses and other assets .......................................... - (70)
-------------- ------------
Net cash used in investing activities........................................... (1,360) (4,223)
-------------- ------------

Cash flows provided by financing activities:
Borrowings of short-term debt................................................... 19,545 7,000
Repayment of short-term debt.................................................... (4,000) -
Repayment of long-term debt..................................................... - (222)
Repayment of loan to shareholders............................................... - (157)
Repayment of capital leases..................................................... (375) -
Proceeds from exercise of warrants.............................................. 225 -
Proceeds from sale of preferred stock, net...................................... 834 1,790
Proceeds from sale of common stock, net......................................... 450 800
-------------- ------------
Net cash provided by financing activities....................................... 16,679 9,211
-------------- ------------

Net increase in cash.............................................................. 400 4,546
Cash at beginning of period....................................................... 1,176 903
-------------- ------------
Cash at end of period............................................................. $ 1,576 $ 5,449
============== ============

Supplemental schedule of non-cash investing and financing activities:
Increase of liabilities relating to asset purchases............................. $ 8,131 $ -
============== ============
Issuance of warrants in conjunction with financing arrangements................. $ 2,985 $ 1,944
============== ============
Issuance of warrants in conjunction with preferred stock ....................... $ 2,978 $ -
============== ============
Beneficial conversion feature of preferred stock................................ $ 249 $ -
============== ============
Preferred stock dividends paid in common stock.................................. $ 162 $ -
============== ============
Other disclosures:
Cash paid during the period for interest........................................ $ 176 $ 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

On October 31, 2000 (the "Petition Date"), Universal Broadband Networks, Inc.,
and four of its wholly-owned subsidiaries (collectively the "Company") filed a
petition for relief (the "Chapter 11 Case") under chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the Central District of California (the "Bankruptcy Court") Case Nos.
SA 00-18281 JB, SA 00-18282 JB, SA 00-18283 JB, SA 00-18284 JB and SA 00-18286
JB. Since the Petition Date, the Company has conducted limited activities as a
debtor-in-possession under the Bankruptcy Code. See Note 2 for additional
information.

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 Access, 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 financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the normal course of business. As a result
of the Chapter 11 Case, such realization of assets and liquidation of
liabilities are subject to uncertainty. In the Chapter 11 Case, a substantial
portion of the Company's liabilities as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization. For financial
reporting purposes, those unsecured liabilities and obligations whose
disposition is dependent on the outcome of the Chapter 11 Case have been
segregated and classified as liabilities subject to compromise in the September
30, 2000 balance sheet. Generally, actions to enforce or otherwise effect
repayment of all pre-chapter 11 liabilities as well as all pending litigation
against the Company are stayed while the Company continues as a
debtor-in-possession during bankruptcy proceedings. Schedules have been filed by
the Company with the Bankruptcy Court setting forth the assets and liabilities
of the Company as of the Petition Date as reflected in the Company's accounting
records. Differences between amounts reflected in such schedules and claims
filed by creditors are currently being investigated and will be either amicably
resolved or adjudicated by the Bankruptcy Court. The ultimate amount of and
settlement terms for such liabilities are not presently determinable.

Financial accounting and reporting during a Chapter 11 Case is prescribed in
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Accordingly, unsecured
pre-petition liabilities, which may be subject to settlement, have been
classified as liabilities subject to compromise in the accompanying balance
sheet at September 30, 2000. In addition, the Company has reported all
transactions (other than interest expense) directly related to the Chapter 11
Case as reorganization items in the statement of operations for the six month
period ended September 30, 2000. Certain additional disclosures including (1)
claims not subject to reasonable estimation of the amount to be allowed and (2)
any significant difference between reported interest expense and stated
contractual interest (also required by SOP 90-7) will be provided in future
financial statements when such amounts are determinable and/or when the related
transactions occur.

The accompanying consolidated condensed balance sheets at September 30, 2000,
and the consolidated condensed statements of operations and cash flows for the
three and six months ended September 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 (except as described in Notes 7 and 8) are only of a normal
recurring nature, necessary for a fair presentation of the consolidated
financial position and results of operations for such periods. However, the
accompanying financial statements do not include any adjustments that may be
required in connection with restructuring the Company, as it proposes to
reorganize under chapter 11 of the Bankruptcy Code. 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.

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

2. BANKRUPTCY FILING AND OTHER SUBSEQUENT EVENTS

Bankruptcy Filing

As discussed in Note 1, the Company is currently a debtor-in-possession pursuant
to the Bankruptcy Code. As such, management of the Company continues to conduct
limited activities under the supervision of the Bankruptcy Court and, among
other things, is granted a 120-day exclusive right to propose a plan of
reorganization which must be approved by the creditors and confirmed by the
Bankruptcy Court. In accordance with the provisions of the Bankruptcy Code, an
automatic stay provides that creditors of the Company and other parties in
interest are prevented from seeking repayment of pre-petition debts.
Additionally, the Company must, unless otherwise approved by the Bankruptcy
Court, refrain from payment of pre-petition indebtedness.

The Company's bankruptcy filing resulted in non-payment of $4.1 million payable
on November 1, 2000 to a secured creditor (see Note 6). Because of the
combination of this event and cross-default provisions included in the Company's
other debt agreements (see Note 7) and in certain lease agreements,
substantially all of the Company's indebtedness is in default and is now due and
payable. The repayment of such indebtedness, if any, will be the subject of the
Company's plan of reorganization. An important element in successfully
reorganizing the Company will be the ability to sell certain assets to reduce
indebtedness and provide funding for operations (see Note 8).

Subsequent to the Petition Date, the Company has rejected substantially all of
its lease obligations. This rejection will result in lease rejection claims
pursuant to the Bankruptcy Code. These claims have not yet been adjudicated by
the Bankruptcy Court or estimated by the Company. As such, no expenses for these
claims have been reflected in the financial statements of the Company.

As of the Petition Date, substantially all of the employees of the Company had
been terminated. A substantial portion of the employees were terminated without
salaries being paid in full for the final two weeks' employment. This
corresponding expense and liability have been reflected in the Company's
financial statements. This claim will be adjudicated through the bankruptcy
proceedings.

As part of the process of attempting reorganization, the Company is pursuing
various financing alternatives that may be available, although there can be no
assurance that the Company will be able to successfully implement such
alternatives. Though the Company intends to make efforts to increase revenues to
improve operations, the Company's losses are expected to continue for the
foreseeable future and the Company will require additional funding and financial
support from a third party. There can be no assurance that such additional
financing will be available on acceptable terms, that such funds, if available,
would enable the Company to continue operating, or that the Company will be
successful in increasing revenues. In addition, there is no assurance that the
creditors and the Court will approve a reorganization plan that will allow the
Company to survive.

Independent Certified Public Accountants

Effective as of October 31, 2000, the Company accepted the resignation of BDO
Seidman, LLP as the Company's independent certified public accountant, which was
tendered on that same date. No disagreements exist between the Company and BDO
Seidman, LLP with respect to any financial statement of the Company or the
presentation of any financial statement for which BDO Seidman, LLP, issued a
report. The Company has not yet engaged another accountant to replace BDO
Seidman, LLP. Accordingly, the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 (the "Next Quarterly Report"), has not been
reviewed by an independent accountant. As the Company has been unable to prepare
the Next Quarterly Report under the Company's normal review standards, the
Company subsequently may be required to amend the Next Quarterly Report
following its review by the Company's new accountants.

Trading Market

The Company's common stock ceased trading on the Nasdaq National Market on
October 17, 2000 at the Company's request. Since the Company no longer satisfies
the requirements for continued listing on the Nasdaq National Market, by letter
dated November 3, 2000, the Company requested that its securities be delisted
from the Nasdaq National Market. On November 9, 2000, the Company's common stock
resumed trading on the "Pink Sheets". No assurance can be given as to the
continuing existence or liquidity of any trading market for the Company's common
stock.

LIABILITIES SUBJECT TO COMPROMISE AND REORGANIZATION ITEMS

The September 30, 2000 balances of liabilities that became subject to compromise
on October 31, 2000 are as follows:

September 30, 2000
------------------

Accounts payable $ 8,918
Accrued payroll, benefits and related costs 687
Unsecured short term debt (Note 7) 19,921
----------------

Total liabilities subject to compromise $ 29,526
================

<PAGE>

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

2. SUBSEQUENT EVENT (CONTINUED)

Whether any secured claims may be undersecured or impaired by any reorganization
plan that might be confirmed by the Bankruptcy Court is not presently
determinable.

Reorganization items reported in the statement of operations include the
following for the six month period ended September 30, 2000:

September 30, 2000
------------------

Fixed asset impairment $ 6,995
Other asset impairment 990
Professional fees 150
Accelerated amortization of deferred
financing costs (Note 7) 3,187
Other liabilities (856)
----------------

Total reorganization items $ 10,466
================

3. SHAREHOLDERS' EQUITY

STOCK GRANTS

For the three and six months ended September 30, 2000, the Company issued 18,556
and 37,235, respectively, shares of common stock in exchange for various
professional services. The fair value of the stock issued of $145 and $252,
respectively, has been charged to operations. In addition, 821 shares of common
stock were issued to an employee due to terms of an employment agreement for the
three months ended September 30, 2000. The fair value of the stock issued of $2
has been charged to operations as compensation expense.

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 was
charged to operations in June 2000. Effective October 18, 2000, the Company
recinded the grant of the S-8 shares to the non-employee Directors. In lieu of
receiving stock, the Directors will be compensated commencing November 1, 2000
on a quarter annual basis in the amount of $3 cash per quarter and $1 per
meeting plus reimbursement of out of pocket expenses.

<PAGE>

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

3. SHAREHOLDERS' EQUITY (CONTINUED)

PRIVATE PLACEMENT

In September 2000, the Company sold shares of its common stock through a private
placement. The Company issued 333,333 shares for net consideration of $450 (net
of commissions of $50).

SERIES A 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 "Series A 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 Series A Preferred Stock,
which netted $1,790 (net of $210 expenses) to the Company. The Series A
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 September 30, 2000, all the Series A Preferred Stock and
related dividends had been converted to common stock. Dividends incurred for the
six months ended September 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 Series A
Preferred Stock conversions.

SERIES B CONVERTIBLE PREFERRED STOCK

On July 21, 2000, the Company entered into an agreement with a private investor
whereby the investor purchased 100,000 shares of the Company's convertible
Preferred Series B Stock (the "Series B Preferred Stock") at a price of $10.00
per share for a gross price of $1,000, net of commissions of $166.

The convertible feature of the Series B Preferred Stock provides for a rate of
conversion that is below market value. Under terms of the Agreement, the
investors have the right to convert the Preferred Stock into common stock at a
25% discount from the average closing price of the Company's common stock for
the five business days immediately preceding a request for conversion. Such
feature represents a beneficial conversion feature which the Company has valued
at $249.

In conjunction with the sale of the Preferred Stock, the Company granted the
investors warrants to purchase 1,000,000 shares of common stock at a price of
$2.00 per share and granted the placement agent warrants to purchase 150,000
shares of common stock at a price of $1.50 per share (see discussion below). In
the calculation of basic and diluted net loss per share, the value of the
beneficial conversion feature and the value of the placement agent warrants have
increased the net loss applicable to common shareholders.

During the six months ended September 30, 2000, no shares of the Series B
Preferred Stock were converted to common stock of the Company. Subsequent to
September 30, 2000, 41,581 shares of Series B Preferred Stock were converted
into 737,300 shares of common stock.

<PAGE>

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 and six months ended September 30, 2000, in conjunction with
the issuance of various debt obligations, the Company issued warrants to
purchase 100,000 and 744,541, respectively, shares of common stock (see Notes 6
and 7 on debt arrangements).

Subsequent to September 30, 2000, the Company issued a warrant to purchase
100,000 shares of common stock at $1.50 to a consultant under terms of a
consulting contract dated September 18, 2000. The Company valued the warrant at
$140 using the Black-Scholes Option Pricing Model, and accrued the expense as of
September 30, 2000.

In connection with the issuance of Series B Preferred Stock on July 21, 2000,
the Company granted 1,000,000 warrants to the investors at $2.00 and 150,000
warrants to the placement agent at $1.50 to purchase shares of the Company's
common stock. The Company valued the warrants at $2,079 and $397, respectively,
using the Black-Scholes Option Pricing Model.

In September 2000, the placement agent exercised the warrant for 150,000 shares
of the Company's common stock at a price of $1.50 per share.

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 expensed the entire
value of the warrant during the quarter ended June 30, 2000.

The Company was 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 reached a settlement with the
consultant whereby it 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, although the expense was recognized during the
quarter ended June 30, 2000.

At September 30, 2000, there were warrants to purchase shares of the Company's
common stock as shown in the table following. The weighted average exercise
price of all warrants is $4.69 per share. All the warrants are immediately
exercisable.

<PAGE>

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

3. SHAREHOLDERS' EQUITY (CONTINUED)

The following represents all warrants outstanding as of September 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
July 3, 2000 $ 4.06 100,000
August 4, 2000 $ 5.00 75,000
August 4, 2000 $ 2.00 1,000,000
August 4, 2000 $ 3.00 200,000
----------
3,547,573
==========
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.

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, on May 30, 2000, the Company granted options to purchase 10,000 shares of
common stock to an employee at $3.09, on May 31, 2000, the Company granted
options to purchase 575,000 shares of common stock to certain executives at
$2.88 per share, and on August 1, 2000, the Company granted options to purchase
200,000 shares of common stock to an executive at $2.94 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 September 30, 2000.

<PAGE>

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

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 927,859 and 1,151,316,
respectively, conversion of convertible debt of 8,267,513 and 0, respectively,
exercise of stock options of 571,530 and 0 respectively, and upon the exercise
of outstanding warrants totaling 3,547,573 and 617,094 as of September 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 JustWebit, a
company whose CEO and principal shareholder is J.R. Marple. Mr. Marple is the
son of Jon Marple, the former 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 was 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 were to be repaid to the
Company through the issuance of 68,600 shares of stock of JustWebit, having a
fair value approximating $60. Such shares were issued during the quarter ended
September 30, 2000 and are restricted pursuant to Rule 144. The Company has
determined the shares to be without value and has written-off such balance in
the accompanying statement of operations for the quarter ended September 30,
2000.

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, under terms of the original
Agreement, the Company was not able to borrow under Tranche B until a $30,000
equity infusion to UBN had been completed. If such infusion was not completed by
October 30, 2000, the Tranche B commitment would terminate. On September 20,
2000 Nortel amended the Agreement, waiving the equity infusion requirement of
the Agreement and allowing the Company to draw down $13,042 under Tranche B.
However, in connection with the amendment, no further borrowings under Tranche B
will be allowed. 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.

<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)

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 September 30,
2000, $4,069 (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 to November
1, 2000, however, the Company did not make the payment to Nortel for the
outstanding balance due on Tranche A. See further discussion in Note 2.

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 September 30, 2000)
plus 3.75%. Tranche B is payable in twelve equal quarterly payments beginning
November 15, 2000. As of June 30, 2000, no borrowings were outstanding under
Tranche B, and the Company owed Nortel $12,780 for purchases of equipment and
services. Effective September 20, 2000, Nortel allowed the Company to convert
the unfinanced purchases into borrowings under Tranche B. As of September 30,
2000, $13,042 (including interest) was outstanding under Tranche B.

A summary of the borrowings under the Agreement follows:

September 30, March 31,
------------- ---------
2000 2000
---- ----

Tranche A $ 4,069 $ 7,646
Tranche B 13,042 --
Unfinanced purchases -- 6,576
----------- -----------

Total $ 17,111 $ 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 were amortized over the life of the Tranche A loan, completed
in July 2000.

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.

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. However, in
connection with the Chapter 11 Case, the Company is not in compliance with any
of the covenants, and such non-compliance will be processed by the Bankruptcy
Court throughout the Chapter 11 proceedings.

<PAGE>

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

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.

<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 Agreement
to borrow $1,000. On July 7, 2000, this agreement was amended to include an
additional $500. The agreement provides for interest at 6% per annum, with
principal and accrued interest originally 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
former Chairman of the Board of Directors of the Company and collateralized by
trust deeds on two of his residences. The lender agreed to extend the maturity
date to January 2, 2001. 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 and 100,000 shares at a price of $4.06. The warrants expire three years
from the date of grant. The Company valued the warrants at $933 and $279,
respectively, using the Black-Scholes Option Pricing Model and is amortizing
such amounts over the life of the debt.

On August 15, 2000, the Company entered into an unsecured Note Agreement to
borrow $4,000. The agreement provides for interest at 13.73% per annum, with
principal and accrued interest due December 15, 2000.

On August 2, 2000, the Company entered into a 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 10-K which was filed with
the SEC on July 10, 2000. The remaining $7,500 was received during the quarter
ended September 30, 2000 in three equal tranches.

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. This amount has been charged to operations as part of the
reorganization items (see Note 2) due to accelerated amortization of deferred
financing costs. The note bears interest at the rate of 8% per annum, and is due
and payable, if not converted, on August 2, 2003.

No amount of the debt was converted during the quarter ended September 30, 2000.
Subsequent to the quarter end, principal of $505 was converted into 849,688
shares and interest of $8 was converted into 13,624 shares for a total of
863,311 shares of the Company's common stock issued in connection with
conversion of the debt.

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.

<PAGE>

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

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 expected to
continue, although to a lesser extent, to provide such services after the
successful disposition of MRHM. Management of the Company did not identify MRHM
as a separate business line which required discontinued operations accounting.

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
provided for the orderly transition of hosting operations to alternative
providers and the windup of development projects. In connection with such
termination, the Company recognized the impairment of $290 of fixed assets and
various other current assets and deposits. MRHM had two office leases, which
require minimum lease payments aggregating $1,618 over the next five years. The
leases were rejected as part of the bankruptcy proceedings, see further
discussion at Note 2.

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 instructed management
to evaluate such offices to determine whether they should be retained and
restructured, or sold. The satellite offices have various office leases, which
require minimum lease payments aggregating $1,536 over the next five years.
Substantially all of the leases were rejected as part of the bankruptcy
proceedings, see further discussion in Note 2. Management had concluded to sell
the satellite offices. Since a sale was not effected in a timely manner, such
offices were closed during September 2000. A reduced staff is providing for the
continuing operation of the network in order to provide service to the
customers, however no new customers are being added to the network. 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 Company has
recognized the impairment of $1,216 of fixed assets in order to approximate
their fair realizable value.

<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.

REORGANIZATION

Due to overall market conditions, the Company has been unsuccessful in its
efforts to secure new vendor financing. As a result, on October 31, 2000,
Universal Broadband Networks, Inc., and four of its wholly-owned subsidiaries
(collectively the "Company") filed a voluntary petition of protection and
reorganization under Chapter 11 of the Federal Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California, Santa Ana
Division. Since the Petition Date, the Company has conducted limited activities
as a debtor-in-possession under the Bankruptcy Code. See further discussion in
Notes 1 and 2 of the Consolidated Condensed Financial Statements.

The Company's management is in the process of developing a reorganization
strategy and is evaluating its operations. Until a reorganization plan is
confirmed by the Court, payments of prepetition liabilities are limited to those
approved by the Court.

In its Chapter 11 case, the Company may sell assets and settle liabilities for
amounts other than those reflected in the financial statements. The
administrative and reorganization expense resulting from the Chapter 11 filing
will unfavorably affect results. Moreover, future results may be adversely
affected by other claims and factors resulting from the Chapter 11 filing.

In addition, the Company has defaulted on certain indebtedness. See "Part II -
Item 3 - Defaults Upon Senior Securities."

RESULTS OF OPERATIONS

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

Total revenues decreased 14% or $0.1 million to $0.6 million for the three
months ending September 30, 2000 compared to revenues of $0.7 million for the
three months ending September 30, 1999. The decrease was caused in part by the
closure of the web development subsidiary in August 2000, as discussed below.

The Company incurred network expenses totaling $2.9 million for the three months
ended September 30, 2000 compared to $0.6 million for the three months ended
September 30, 1999, an increase of 362% or $2.3 million. The Company's main
subsidiary, UBN, generated $1.6 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.

<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

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

The Company incurred payroll and related expenses of $1.7 million for the three
months ended September 30, 2000 compared to $1.2 million for the three months
ended September 30, 1999, an increase of 50% or $0.5 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 $4.4 million for the three months ended September 30, 2000, compared with
$1.6 million for the three months ended September 30, 1999, an increase of $2.8
million or 179%. 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 September 30, 2000, the Company issued 18,556 shares of its common stock
in exchange for professional services. The fair value of the shares issued of
$0.1 million has been charged to operations.

The Company incurred depreciation and amortization costs of $1.2 million for the
three months ended September 30, 2000 compared to $0.2 million for the
corresponding period of the previous year, an increase of $1.0 million or 439%.
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 $1.3 million in the three months ended
September 30, 2000. Of this amount, $1.2 represented the amortization of
deferred financing costs on various notes payable, including Nortel Networks.
See further discussion in Notes 6 and 7 in the Consolidated Condensed Financial
Statements.

The Company reflected reorganization items of $10.5 million for the three months
ended September 30, 2000 due to asset impairment and other charges in connection
with the Chapter 11 Case. The Company recognized $8.0 million in asset
impairment, $0.1 in professional fees, $3.2 million in
accelerated amortization of deferred financing costs and adjustments of other
liabilities of $(0.9) million. See further discussion in Notes 2, 6 and 7 in the
Consolidated Condensed Financial Statements.

SIX MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER
30, 1999

Total revenues decreased 21% or $0.3 million to $1.3 million for the six months
ending September 30, 2000 compared to revenues of $1.6 million for the six
months ending September 30, 1999. The decrease was caused in part by the closure
of the web development subsidiary in August 2000, as discussed below.

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 had expected
to continue, although to a lesser extent, to provide such services after the
successful disposition of MRHM. Management of the Company had not identified
MRHM as a separate business line which requires discontinued operations
accounting.

<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

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

On July 31, 2000 negotiations for the sale of MRHM were discontinued, and the
operations of MRHM were largely terminated on August 1, 2000. 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. MRHM had two office
leases, which require minimum lease payments aggregating $1.6 million over the
next five years. The leases were rejected as part of the bankruptcy proceedings,
see further discussion at Note 2 of the Condensed Consolidated Financial
Statements.

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 instructed management
to evaluate such offices to determine whether they should be retained and
restructured, or sold. The satellite offices have various office leases, which
require minimum lease payments aggregating $1.5 million over the next five
years. Substantially all of the leases were rejected as part of the bankruptcy
proceedings, see further discussion at Note 2 of the Condensed Consolidated
Financial Statements. Management had concluded to sell the satellite offices.
Since a sale was not effected in a timely manner, such offices were closed
during September 2000. A reduced staff is providing for the continuing operation
of the network in order to provide service to the customers, however no new
customers are being added to the network. 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 Company has recognized the
impairment of $1.2 million of fixed assets in order to approximate their fair
realizable value.

The Company incurred network expenses totaling $5.2 million for the six months
ended September 30, 2000 compared to $1.0 million for the six months ended
September 30, 1999, an increase of 418% or $4.2 million. The Company's main
subsidiary, UBN, generated $3.0 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.

The Company incurred payroll and related expenses of $3.8 million for the six
months ended September 30, 2000 compared to $2.1 million for the six months
ended September 30, 1999, an increase of 84% or $1.7 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. Pursuant to the Company's Chapter 11 Case,
substantially all of the Company's workforce was terminated on October 18,
except for a few key employees which are essential to the reorganization
process. Certain employees have claims against the Company for unpaid salary,
such claims are included in reorganization items in the Consolidated Condensed
Financial Statements (see Note 2).

<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

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

The Company incurred total selling, general and administrative expenses ("SG&A")
of $9.5 million for the six months ended September 30, 2000, compared with $3.1
million for the six months ended September 30, 1999, an increase of $6.4 million
or 201%. 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 six months ended
September 30, 2000, the Company issued 37,235 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 $0.3 million and $0.3 million,
respectively, has been charged to operations.

The Company incurred depreciation and amortization costs of $2.8 million for the
six months ended September 30, 2000 compared to $0.4 million for the
corresponding period of the previous year, an increase of $2.4 million or 597%.
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 $3.3 million in the six months ended
September 30, 2000. Of this amount, $0.1 million was cash paid on various notes
and leases payable, $0.8 million was accrued on various notes, including the
obligations to Nortel Networks and $2.4 represented the amortization of deferred
financing costs on various notes payable, including Nortel Networks. See further
discussion in Notes 6 and 7 in the Consolidated Condensed Financial Statements.

The Company reflected reorganization items of $10.5 million for the six months
ended September 30, 2000 due to asset impairment and other charges in connection
with the Chapter 11 Case. The Company recognized $8.0 million in asset
impairment, $0.1 in professional fees, $3.2 million in accelerated amortization
of deferred financing costs and adjustments of other liabilities of $(0.9)
million. See further discussion in Notes 2, 6 and 7 in the Consolidated
Condensed Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

As previously mentioned, subsequent to the Petition Date, the Company is
operating as a debtor-in-possession under provisions of Chapter 11 of the
Bankruptcy Code. The Company has sufficient cash reserves to continue to operate
on a limited basis pending submission of its Plan of Reorganization to the
Bankruptcy Court. The Company is currently developing its plan.

CASH FLOWS

Cash used in operating activities was $14.9 million for the six months ended
September 30, 2000 compared to $0.5 million for the six months ended September
30, 1999. Cash was impacted primarily by the Company's operating loss for the
six months ended September 30, 2000, partially offset through the payment of
certain expenses with stock ($0.5 million) and warrants and options ($1.1
million), depreciation and amortization ($2.8 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 $9.5 million (including amounts financed through capital leases
and other liabilities) for the six months ended September 30, 2000 and $4.1
million for the six months ended September 30, 1999.

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

<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 $7.0 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, under terms of the original
Agreement, the Company was not able to borrow under Tranche B until a $30
million equity infusion to UBN had been completed. If such infusion was not
completed by October 30, 2000, the Tranche B commitment would terminate. On
September 20, 2000 Nortel amended the Agreement, waiving the equity infusion
requirement of the Agreement and allowing the Company to draw down $13 million
under Tranche B. However, in connection with the amendment, no further
borrowings under Tranche B will be allowed. 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 September 30,
2000, $4.1 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 to November
1, 2000. As previously disclosed, the Company did not make the payment to Nortel
for the outstanding balance due on Tranche A. See further discussion in Note 2
of the Condensed Consolidated Financial Statements.

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 September 30, 2000)
plus 3.75%. Tranche B is payable in twelve equal quarterly payments beginning
November 15, 2000. As of June 30, 2000, no borrowings were outstanding under
Tranche B, and the Company owed Nortel $12.8 million for purchases of equipment
and services. Effective September 20, 2000, Nortel allowed the Company to
convert the unfinanced purchases into borrowings under Tranche B. As of
September 30, 2000, $13.0 million (including interest) was outstanding under
Tranche B.

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. However, in
connection with the Chapter 11 Case, the Company is not in compliance with any
of the covenants, and such non-compliance will be processed by the Bankruptcy
Court through the Chapter 11 proceedings.

<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 $0.1 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. On July 7, 2000, this agreement was amended to include
an additional $0.5 million. The agreement provides for interest at 6% per annum,
with principal and accrued interest due August 15, 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
former Chairman of the Board of Directors of the Company and collateralized by
trust deeds on two of his residences. The lender has agreed to extend the
maturity date to January 2, 2001. However, the note will continue to accrue
interest at the default rate until repaid.

<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.

On August 15, 2000, the Company entered into an unsecured Note Agreement to
borrow $4.0 million. The agreement provides for interest at 13.73% per annum,
with principal and accrued interest due December 15, 2000.

On August 2, 2000, the Company entered into a 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 10-K which was
filed with the SEC on July 10, 2000. The remaining $7.5 million was received
during the quarter ended September 30, 2000 in three equal tranches.

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 $1.5 million. This amount has been charged to operations under
reorganization items (see Note 2) due to accelerated amortization of deferred
financing costs. The note bears interest at the rate of 8% per annum, and is due
and payable August 2, 2003.

PRIVATE PLACEMENT

In September 2000, the Company sold shares of its common stock through a private
placement. The Company issued 333,333 shares for net consideration of $0.4
million (net of $0.1 million commissions).

SERIES B CONVERTIBLE PREFERRED STOCK

In conjunction with the sale of the Preferred Stock, the Company granted the
investors warrants to purchase 1.0 million shares of common stock at a price of
$2.00 per share and granted the placement agent warrants to purchase 150,000
shares of common stock at a price of $1.50 per share (see discussion below). In
the calculation of basic and diluted net loss per share, the value of the
beneficial conversion feature and the value of the placement agent warrants have
increased the net loss applicable to common shareholders.

<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

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

OPTIONS GRANTED TO PURCHASE COMMON STOCK

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 $0.2 million using the
Black-Scholes Option Pricing Model and recorded the expense to operations during
the quarter ended September 30, 2000.

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 filed a registration statement on Form S-3 in August, 2000 to
register the necessary securities, and such registration was deemed effective by
the Securities and Exchange Commission on September 13, 2000. Subsequent to
September 30, 2000, the Company defaulted on certain registration obligations.
These defaults will be processed through the Chapter 11 Case.

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.

<PAGE>

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

ITEM 1. LEGAL PROCEEDINGS

On the petition Date, the Company filed a petition for relief under the
Bankruptcy Code in the United States Bankruptcy Court for the Central District
of California. For more information, see Note 2 - "Bankruptcy Filing and
Subsequent Events"

The Company has been named the defendant in certain legal proceedings,
principally with regard to enforcement of contractual obligations for payment
for services or products. Moreover, there are other threatened claims of a
substantial nature which have been asserted against the Company. All lawsuits
have been stayed with respect to the Company as a result of the Company's filing
a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Under terms of the credit agreement with Nortel, $4.1 million in principal and
interest under Tranche A became due and payable on November 1, 2000. As
previously disclosed, the Company did not make the payment on the Nortel credit
agreement.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

None

ITEM 5. OTHER INFORMATION

RESIGNATION OF COMPANY'S ACCOUNTANTS

TRADING MARKET

The Company's common stock ceased trading on the Nasdaq National Market on
October 17, 2000 at the Company's request. Since the Company no longer satisfies
the requirements for continued listing on the Nasdaq National Market, by letter
dated November 3, 2000, the Company requested that its securities be delisted
from the Nasdaq National Market. On November 9, 2000, the Company's common stock
resumed trading on the "Pink Sheets" market. No assurance can be given as to the
continuing existence or liquidity of any trading market for the Company's common
stock.

<PAGE>

UNIVERSAL BROADBAND NETWORKS, INC.

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 August 2, 2000 to report
the filing of an Amended and Restated Certificate of Incorporation in
the State of Delaware, the Company's domestic state of incorporation.

The Company filed a report on Form 8-K on August 9, 2000 to report
the closure of the Man Rabbit House subsidiary.

The Company filed a report on Form 8-K on October 17, 2000 to report
that the Company's efforts to secure new vendor financing were
unsuccessful.

The Company filed a report on Form 8-K on November 6, 2000 to report
the filing of the Company's bankruptcy case under Chapter 11, the
resignation of the Company's accountants, BDO Seidman, LLP and the
request by the Company that its securities be delisted from the
Nasdaq National Market since the Company no longer satisfies the
listing requirements.

<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: November 13, 2000

UNIVERSAL BROADBAND NETWORKS, INC.

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