Form 10-QSB

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2001

OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to ____________ to ____________.

Commission File No. 1-15383

|USURF America, Inc.                                              
|-----------------------------------------------------------------
|(Exact Name of Small Business Issuer as Specified in its Charter)

|NEVADA                                                         | 72-1346591                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of incorporation
or organization) | (I.R.S. Employer Identification Number)

|8748 Quarters Lake Road, Baton Rouge, Louisiana 70809       
|------------------------------------------------------------
|(Address of Principal Executive Offices, including Zip Code)
|(225) 922-7744                                              
|(Issuer's telephone number, including area code)            

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that Registrant as required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [ X ] No [   ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of
the latest practicable date:

|Class Outstanding              | As of 5-11-01
|------------------------------ | -------------
|Common Stock, $.0001 par value | 19,824,770   

|PART I - FINANCIAL INFORMATION                                                                      
|----------------------------------------------------------------------------------------------------
|Item 1. Financial Statements.                                                                       
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                          
|USURF America, Inc. and Subsidiaries                                                                
|Consolidated Balance Sheets as of March 31, 2001 (unaudited), and December 31, 2000                 
|Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000
(unaudited)
|Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000
(unaudited)
|Notes to Consolidated Financial Statements                                                          

|USURF AMERICA, INC AND SUBSIDIARIES
|-----------------------------------
|CONSOLIDATED BALANCE SHEETS        

|                                          | 3/31/01     | 12/31/00  
|----------------------------------------- | ----------- | ----------
|                                          | (unaudited) | (audited) 
|ASSETS                                    |             |           
|CURRENT ASSETS                            |             |           
|Cash and cash equivalents                 | $125,494    | $    1,088
|Accounts receivable - net                 | 384         | 0         
|Inventory                                 | 246,721     | 246,721   
|Prepaid expenses and other
current assets | 0           | 0         
|                                          | ________    | ________  
|Total current assets                      | 372,599     | 247,809   
|                                          | ________    | ________  
|PROPERTY AND
EQUIPMENT,                   |             |           
|Cost                                      | 138,954     | 138,954   
|Less: accumulated
depreciation            | (81,056)    | (69,476)  
|                                          | ________    | ________  
|                                          | 57,898      | 69,478    
|                                          | ________    | ________  
|INVESTMENTS                               | 68,029      | 68,029    
|                                          |             |           
|OTHER ASSETS                              |             |           
|Acquired customer base - net              | 0           | 0         
|Goodwill - net                            | 0           | 0         
|Other intangibles - net                   | 0           | 0         
|Other assets                              | 25,000      | 25,000    
|                                          | ________    | ________  
|                                          | 25,000      | 25,000    
|                                          | ________    | ________  
|Total assets                              | $523,526    | $410,316  

|LIABILITIES AND
STOCKHOLDER'S
EQUITY                                                                                                                             |              |             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------------
|CURRENT LIABILITIES                                                                                                                                              |              |             
|Disbursements in excess of
cash balances                                                                                                                         | 42,469       | 42,469      
|Accounts payable                                                                                                                                                 | 1,473,817    | 1,472,030   
|Accrued payroll                                                                                                                                                  | 200,155      | 158,262     
|Other current liabilities                                                                                                                                        | 51,824       | 41,824      
|Property dividends payable                                                                                                                                       | 43,750       | 43,750      
|Accrued interest to
stockholder                                                                                                                                  | 0            | 0           
|Notes payable to stockholder                                                                                                                                     | 32,728       | 6,638       
|                                                                                                                                                                 | ________     | ________    
|Total current liabilities                                                                                                                                        | 1,844,743    | 1,764,973   
|                                                                                                                                                                 |              |             
|LONG-TERM LIABILITIES                                                                                                                                            |              |             
|Deferred income tax                                                                                                                                              | 0            | 0           
|                                                                                                                                                                 | ________     | ________    
|Total liabilities                                                                                                                                                | 1,844,743    | 1,764,973   
|                                                                                                                                                                 |              |             
|STOCKHOLDERS'
EQUITY                                                                                                                                             |              |             
|Common stock, $.0001 par
value; Authorized:
100,000,000; Issued and
Outstanding: 16,688,808
shares at December 31, 2000,
and 18,052,770 shares at
March 31, 2001 | 1,805        | 1,669       
|Additional paid-in capital                                                                                                                                       | 35,131,339   | 34,183,962  
|Accumulated deficit                                                                                                                                              | (35,403,419) | (34,502,160)
|Subscriptions receivable                                                                                                                                         | 318,000      | 933,514     
|Deferred consulting                                                                                                                                              | (1,363,942)  | (1,971,642) 
|                                                                                                                                                                 | ________     | ________    
|                                                                                                                                                                 | (1,363,942)  | (1,971,642) 
|                                                                                                                                                                 | ________     | ________    
|TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY                                                                                                                       | $523,526     | $410,316    

|USURF AMERICA, INC. AND SUBSIDIARIES 
|-------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS

|                                              | Three Months Ended | Three Months Ended
|--------------------------------------------- | ------------------ | ------------------
|                                              | March 31, 2001     | March 31, 2000    
|                                              | (unaudited)        | (unaudited)       
|REVENUES                                      |                    |                   
|Internet access revenues                      | $          384     | $     597,392     
|Internet access costs and
costs of goods sold | 0                  | 269,136           
|                                              | ________           | ________          
|Gross profit                                  | 384                | 328,256           
|                                              | ________           | ________          
|OPERATING EXPENSES                            |                    |                   
|Depreciation and
amortization                 | 368,680            | 2,238,544         
|Professional fees                             | 350,188            | 390,038           
|Rent                                          | 5,361              | 61,570            
|Salary and commissions                        | 160,746            | 399,358           
|Advertising                                   | 0                  | 15,179            
|Other                                         | 16,668             | 249,530           
|                                              | ________           | ________          
|Total operating expenses                      | 901,643            | 3,354,219         
|                                              | ________           | ________          
|LOSS FROM OPERATIONS                          | (901,259)          | (3,025,963)       
|OTHER INCOME
(EXPENSE)                        |                    |                   
|Other income                                  | 0                  | 6,618             
|Interest expense                              | 0                  | (9,770)           
|                                              | ________           | ________          
|LOSS BEFORE INCOME
TAX                        | (901,259)          | (3,029,115)       
|INCOME TAX BENEFIT                            | 0                  | 471,519           
|                                              | ________           | ________          
|NET LOSS                                      | (901,259)          | (2,557,596)       
|Net loss per common share                     | (0.05)             | (0.20)            
|Weighted average number of
shares outstanding | 18,208,215         | 12,937,499        

|USURF AMERICA, INC. AND SUBSIDIARIES 
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                          | Three Months Ended | Three Months Ended
|------------------------------------------------------------------------- | ------------------ | ------------------
|                                                                          | March 31, 2001     | March 31, 2000    
|                                                                          | (unaudited)        | (unaudited)       
|CASH FLOWS FROM
OPERATING ACTIVITIES                                      |                    |                   
|Net loss                                                                  | $    (901,259)     | $ (2,557,596)     
|Adjustment to reconcile net
loss to net cash used in
operating activities |                    |                   
|Depreciation and
amortization                                             | 368,680            | 2,238,544         
|Consulting fees recognized                                                | 311,330            | 311,750           
|Compensation expense                                                      | 3,300              | 24,000            
|Deferred income taxes                                                     | 0                  | (471,519)         
|Accounts receivable                                                       | (384)              | 633               
|Inventory                                                                 | 0                  | 6,301             
|Other current liabilities                                                 | 10,000             | (16,823)          
|Other assets and liabilities                                              | 0                  | 9,276             
|Deferred revenue                                                          | 0                  | 68,051            
|Accounts payable                                                          | 1,786              | 49,464            
|Prepaid expenses and other
current assets                                 | 0                  | (3,381)           
|Accrued payroll                                                           | 41,893             | 35,521            
|                                                                          | ________           | ________          
|Net cash used in operating
activities                                     | (162,684)          | (305,779)         
|                                                                          | ________           | ________          
|CASH FLOWS FROM
INVESTING ACTIVITIES                                      |                    |                   
|Cash acquired in acquisitions                                             | 0                  | 7,704             
|Capital expenditures                                                      | 0                  | (102,612)         
|                                                                          | ________           | ________          
|Net cash used in investing
activities                                     | 0                  | (94,908)          
|CASH FLOWS FROM
FINANCING ACTIVITIES                                      |                    |                   
|Payments on notes payable
and capital lease obligations                   | 0                  | (5,910)           
|Proceeds from subscriptions
receivable                                    | 261,000            | 115,000           
|Proceeds from note payable
to stockholder                                 | 26,090             | 286,400           
|Issuance of common stock for
cash                                         | 0                  | 0                 
|Payment on note to
stockholder                                            | 0                  | (11,093)          
|                                                                          | ________           | ________          
|Net cash provided by
financing activities                                 | 287,090            | 384,397           
|                                                                          | ________           | ________          
|Net increase (decrease) in
cash and cash equivalents                      | 124,406            | (16,290)          
|Cash and cash equivalents,
beginning of period                            | 1,088              | 75,313            
|Cash and cash equivalents,
end of period                                  | 125,494            | 59,023            

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND OTHER CASH FLOW
INFORMATION

|Three Months March 31, 2001:                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  In January 2001, the Company entered into a one-year consulting agreement, by issuing
200,000 shares of stock valued at $62,000.                                                                                                   
|*  In January 2001, the Company issued 800,000 shares of stock valued at $248,000, in payment
of a commitment fee under a common stock purchase agreement.                                                                            
|*  In January 2001, 774,162 shares were issued to the Company's president, pursuant to a debt
conversion agreement, which shares were not issued in 2000, due to an administrative error.                                             
|Three Months March 31, 2000:                                                                                                                                                                                                          
|*  In January 2000, the Company entered into a one-year legal and business consulting services
agreement, by issuing 100,000 shares of stock valued at $300,000.                                                                      
|*  In January 2000, the Company entered into a one-year business and communications
consulting services agreement, by issuing 60,000 shares of stock valued at $180,000.                                                              
|*  In February 2000, the Company acquired all of the stock of The Spinning Wheel, Inc., by
issuing 81,063 shares of stock valued at $324,252.  This acquisition was accounted for as a
purchase business combination.                 
|*  In February 2000, the Company acquired all of the ownership interests of Internet
Innovations, L.L.C., by issuing 50,000 shares of stock valued at $437,500. This acquisition was
accounted for as a purchase business combination.

|USURF AMERICA, INC.                       
|------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|Three Months Ended March 31, 2001         
|(Unaudited)                               

Note 1. Nature of Business, Organization and Basis of Presentation

Basis of Presentation

USURF America, Inc. (USURF), formerly Internet Media Corporation, was incorporated as
Media Entertainment, Inc. in the State of Nevada on November 1, 1996. USURF currently
provides wireless Internet access services to a small number of customers in Santa Fe, New
Mexico. USURF's original purpose was to operate as a holding company in the wireless cable
television and community (low power) television industries, as well as other segments of the
communications industry. Until January 1999, the Company was in the development stage. In
1998 the Company changed its focus to concentrate its efforts in the wireless internet
communications industry. The Company later ceased efforts to develop the wireless cable and low
power television business areas and assigned all of its assets from the low power television
activities to New Wave Media Corp. in exchange for a 15% ownership interest in New Wave
Media Corp.

Effective December 31, 1996, USURF acquired all of the outstanding common stock of Winter
Entertainment, Inc., a Delaware corporation incorporated on December 28, 1995 (WEI), and
Missouri Cable TV Corp., a Louisiana corporation incorporated on October 9, 1996 (MCTV).
WEI operates a community television station in Baton Rouge, Louisiana; MCTV owns wireless
cable television channels in Poplar Bluff, Missouri, which system has been constructed and is
ready for operation, and Lebanon, Missouri. Effective October 8, 1998, the Company formed
Santa Fe Wireless Internet, Inc. (Santa Fe), a New Mexico corporation, to hold the assets
acquired from Desert Rain Internet Services. Santa Fe was organized to provide wireless internet
access. The acquisition of WEI and MCTV by USURF was accounted for as a reorganization of
companies under common control. The assets and liabilities acquired were recorded at historical
cost in a manner similar to a pooling of interests. The acquisition of Santa Fe was accounted for
as a purchase whereby cost is allocated to the assets acquired.

On January 29, 1999, the Company acquired all the stock of CyberHighway, Inc., a Boise,
Idaho-based ISP, by issuing 2,000,000 shares of stock valued at approximately $15,940,000. In
addition, 325,000 shares of common stock were issued in payment of a finder's fee arising out of
this acquisition.  This acquisition was accounted for as a purchase business combination.

In June 1999, USURF acquired all the stock of Santa Fe Trail Internet Plus, Inc., a Santa Fe, New
Mexico-based ISP, by issuing 100,000 shares of stock valued at approximately $400,000. This
acquisition was accounted for as a purchase business combination.

In July 1999, USURF acquired all of the stock of Premier Internet Services, Inc., an Idaho-based
ISP, by issuing 127,000 shares of stock valued at approximately $508,000. This acquisition was
accounted for as a purchase business combination.

In November 1999, the Company acquired the customer base of Cyber Mountain, Inc. a Denver,
Colorado-based ISP, for 25,000 shares of stock valued at approximately $75,000. In December
1999, USURF acquired a portion of the ISP-related equipment and customer base of Cyber
Highway of North Georgia, Inc., a Demorest, Georgia-based ISP for 54,000 shares of stock
valued at approximately $212,000.

In February 2000, the Company acquired Spinning Wheel, Inc., an Idaho Springs, Idaho-based
ISP, for 81,063 shares of stock valued at approximately $325,000. This acquisition has been
accounted for as a purchase business combination.

In February 2000, the Company acquired Internet Innovations, LLC, a Baton Rouge, Louisiana
based web design company, for 50,000 shares of common stock valued at approximately
$437,000. This acquisition has been accounted for as a purchase business combination.

Principles of Consolidation

The accompanying consolidated financial statements include all the accounts of USURF and all
wholly owned subsidiaries. Inter-company transactions and balances have been eliminated in the
consolidation.

Loss Per Common Share

Basic loss per common share has been computed by dividing the net loss by the weighted average
number of shares of common stock outstanding throughout the period.

Note 2. Interim Consolidated Financial Statements

In the opinion of management, the accompanying consolidated financial statements for the three
months ended March 31, 2001 and 2000, reflect all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial condition, results of perations and
cash flows of USURF, including subsidiaries, and include the accounts of USURF and all of its
subsidiaries. All material inter-company transactions and balances are eliminated.

The financial statements included herein have been prepared by USURF, without audit, pursuant
to the rules and regulations of the SEC. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations. It is suggested
that these unaudited financial statements be read in conjunction with the financial statements and
notes thereto included in USURF's Annual Report on Form 10-KSB/A for the year ended
December 31, 2000, as filed with the SEC. Certain reclassifications and adjustments may have
been made to the financial statements for the comparative period of the prior fiscal year to
conform with the 2001 presentation. The results of operations for the interim periods are not
necessarily indicative of the results to be obtained for the entire year.

Note 3. Notes Payable to Shareholder

|                                                                                           | March 31, 2001
|------------------------------------------------------------------------------------------ | --------------
|                                                                                           | (unaudited)   
|Notes payable to majority stockholder,
interest accrues at 8%, due on demand and
unsecured | $32,728       

Note 4. Stock Sales

In February 2001, the Company sold, pursuant to a Securities Purchase Agreement, 840,000
shares of common stock and 840,000 warrants with an exercise price of $.15, exercisable for a
period of three years from issuance. These securities were sold for $126,000 in cash, with no
portion of the purchase price having been allocated to these warrants. In connection with this
transaction, the Company issued, as a finder's fee, 84,000 shares of common stock and 336,000
warrants with an exercise price of $.15 per share, exercisable for a period of three years from
issuance.

In March 2001, the Company sold, pursuant a Securities Purchase Agreement, 500,000 shares of
common stock and 500,000 warrants with an exercise price of $.25, exercisable for a period of
three years from issuance. These securities were sold for $125,000 in cash, with no portion of the
purchase price having been allocated to the warrants. In connection with this transaction, the
Company issued, as a finder's fee, 50,000 shares of common stock and 200,000 warrants with an
exercise price of $.25 per share, exercisable for a period of three years from issuance.

Note 5. Other Material Stock Issuances

In January 2000, the Company issued 800,000 shares of its common stock as a commitment fee
under a common stock purchase agreement to an unrelated company. See Note 7.

Note 6. Contingencies

A. Bankruptcy

On September 29, 2000, three creditors of CyberHighway filed an involuntary petition in the
Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454. In
December 2000, CyberHighway and the petitioning creditors filed a joint motion to dismiss this
proceeding. The joint motion to dismiss requires the approval of CyberHighway's creditors.
However, some of CyberHighway's creditors objected to the dismissal of the proceeding. The
basis of the creditors' objection is their belief that CyberHighway's as-yet unasserted damage
claims against the original petitioning creditors and their law firm and a claim against Dialup USA,
Inc. represent CyberHighway's most valuable assets. These as-yet unasserted claims include
claims for bad faith filing of the original bankruptcy petition as to the original petitioning creditors
and their law firm, as well as claim for tortious interference with beneficial business relationships
as to Dialup USA, Inc. The objecting creditors desire that all claims be adjudicated in the
bankruptcy court. The Company believes it is likely that, at some time in the future, a final order
of bankruptcy will be entered with respect to CyberHighway.

Subsequent to the involuntary bankruptcy, CyberHighway lost nearly all of its customers. Due to
this loss of customer base, the Company's intangible assets relating to those customers are
worthless. The write-off of the intangible assets reflected on the Company's December 31, 2000
balance sheet was $4,814,272 (net of deferred taxes). Due to this change in operating
environment, the Company's revenues have decreased substantially as well as a decrease in
expenses associated with the elimination of personnel previously required to operate the
Company's network operations center, and accordingly goodwill has been impaired. The
write-down of goodwill reflected on the Company's December 31, 2000, balance sheet was
$4,425,037.

B. Potential Rescission Claims

Since January 2000, a total of 5,032,085 shares of the common stock of the Company may have
been issued in violation of Section 5 of the Securities Act of 1933, as amended. The aggregate
value assigned to these shares upon their issuance totaled $5,521,502.  It is possible that each of
the issues of these shares has a potential claim for rescission of their respective issuance
transactions.

The Company believes that it is unlikely that any of these potential rescission claims will be
asserted against the Company.

Note 7. Financing Transaction

On October 9, 2000, the Company signed a common stock purchase agreement with an unrelated
company to sell up to $10,000,000 of its common stock. This agreement was replaced by a similar
agreement on April 25, 2001, as amended May 9, 2001. The purchase price of the shares under
this agreement will vary, based on future market prices of the Company's common stock. The
agreement calls for the Company to meet certain requirements and maintain certain criteria with
respect to its common stock in order to avoid an event of default. Upon the occurrence of the
event of default, the buyer would no longer obligated to purchase any additional shares of stock.
The agreement will expire on May 31, 2001, if all of the circumstances necessary to effect the
transaction have not occurred by that date, including completion of a registration statement with
respect thereto. This registration statement is to be filed in the near future.

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

Background

Our management has determined to commit all of our available resources to the exploitation of
our Quick-Cell wireless Internet access products. We currently lack the capital necessary to do
so.

We were organized to operate in the wireless cable and community (low power) television
industries. Due to existing market conditions, we have abandoned our wireless cable business.
Because our Quick-Cell wireless Internet access system can be adapted for use on the wireless
cable frequencies, we believe our frequencies possess future value. However, these frequencies
will not be of value to us, unless and until the FCC approves two-way communications on them.
Due to this circumstance, our wireless-cable-related assets have become impaired and their
$188,091 book value written off.

Effective July 1, 1999, we assigned all of our television-related assets to New Wave Media Corp.,
in exchange for a 15% ownership interest in New Wave common stock. This business segment
was discontinued as of that date and, since then, has not, and will not, generate any revenues. Our
board of directors has declared a dividend with respect to all of the New Wave shares. These
shares will be distributed to our shareholders, upon New Wave's completion of a Securities Act
registration of the distribution transaction. This registration proceeding has not been commenced
by New Wave, due to a lack of funds necessary to pay related professional expenses. New Wave
has advised us that it is making its best efforts to obtain capital for this purpose, but cannot
provide an exact time by which this will occur.

Since 1998, we have acquired seven dial-up Internet service providers, including CyberHighway,
the business of www.e-tail.com and a web design firm, none of which was an affiliated company
nor were any acquired from an affiliate. All but one of these acquisitions were made for shares of
our stock. All of these acquisitions were accounted for as a purchase, which means that we did
not include past operations of the acquired businesses in our historical statements of operations.
Also in connection with these acquisitions, we recorded large amounts of amortizable customer
base and goodwill values, as a result of the acquisitions' valuations exceeding the values of the
tangible net assets. At December 31, 2000, all of these values were written off, due to the demise
of CyberHighway's business. Please see the discussion under "CyberHighway Bankruptcy" below.

All of the customers of the acquired Internet access providers were assimilated into the dial-up
operations of our CyberHighway subsidiary, which has few remaining customers - please see the
discussion under "CyberHighway Bankruptcy" below.

Current Overview

Our management has committed all available current and future capital and other resources to the
commercial exploitation of our Quick-Cell wireless Internet access products. It is these products
upon which our future is based.

As CyberHighway's business has become defunct while in bankruptcy, we have determined not to
attempt to revive our dial-up Internet access business and, for the foreseeable future, we have
abandoned development of our e-commerce business.

In April 2001, we entered into a common stock purchase agreement with Fusion Capital Fund II,
LLC, which was amended in May 2001. This agreement replaced a similar agreement entered into
in October 2000. Pursuant to the agreement, Fusion Capital may purchase up to $10 million of
our common stock. We intend to file, in the very near future, a registration statement with respect
to the shares issued and to be issued pursuant to the Fusion Capital agreement. Please see the
discussion under the heading "Management's Plans Relating to Future Liquidity", for a more
thorough explanation of the impact this agreement could have on our business. Should we obtain
this funding, we would be able to begin to pursue our wireless Internet business plan. We have
commenced marketing of our Quick-Cell service through a reseller. We will need more capital
thereafter, as we continue to expand our wireless Internet business. We may never possess
enough capital to permit us to earn a profit.

CyberHighway Bankruptcy

On September 29, 2000, an involuntary bankruptcy petition was filed against CyberHighway in
the Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454, by
ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith. In December 2000, CyberHighway
and the petitioning creditors filed a joint motion to dismiss this proceeding. The joint motion to
dismiss requires the approval of CyberHighway's creditors. However, some of CyberHighway's
creditors have objected to the dismissal of the proceeding. The basis of the creditors' objection is
their belief that CyberHighway's as-yet unasserted damage claims against the original petitioning
creditors and their law firm and a claim against Dialup USA, Inc. represent CyberHighway's most
valuable assets. These as-yet unasserted claims include claims for bad faith filing of the original
bankruptcy petition as to the original petitioning creditors and their law firm, as well as a claim for
tortious interference with beneficial business relationships as to Dialup USA, Inc. The objecting
creditors desire that these claims be adjudicated in the bankruptcy court. It is likely that, at some
time in the future, a final order of bankruptcy will be entered with respect to CyberHighway. No
prediction of the timing of such an order can be made, although we believe that such an order
would come only after the final adjudication of the claims described above.

The January 1999 acquisition of CyberHighway fundamentally altered our company. Our annual
revenues went from nearly zero to about $2.5 million. Throughout 2000, operating losses at
CyberHighway, primarily personnel costs and leased telephone-line charges, steadily increased,
while revenues began to decrease slightly each quarter. This trend continued through 2000, until
September 2000.

As a means to achieve immediate cost savings at CyberHighway, in September 2000, the
following actions were taken:

|*  CyberHighway sold its affiliate-ISP business for $40,500, in cash; and                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------
|*  CyberHighway contracted with Dialup USA for all "backroom" and customer support
services, which took effect at the end of October 2000.

These actions did reduce monthly operating costs by approximately $50,000.

However, the involuntary bankruptcy proceeding started the demise of CyberHighway's business,
in effect rendering our September 2000 actions meaningless. Since that time, CyberHighway's
company-owned dial-up customer base has gone from approximately 8,500 to none. The filing of
the involuntary bankruptcy and CyberHighway's switch-over to the network of Dialup USA were
the primary causes of CyberHighway's customer base demise. We will not apply any available
future capital to the revitalization of our dial-up Internet access business.

This sudden and permanent demise of CyberHighway's customer base has rendered our intangible
assets relating to those customers to become worthless. The write-off of these intangible assets
totalled $4,814,272, net of deferred taxes, as reflected in our December 31, 2000, financial
statements. Due to this change in operating environment, monthly revenues have decreased
substantially, and, accordingly, goodwill has been impaired.  The write-down of goodwill totalled
$4,425,037, as reflected in our December 31, 2000, balance sheet.

Shareholder Loans - Conversion to Equity

In August 2000, our president, David M. Loflin, converted all loan amounts owed to him,
including accrued interest, into a total of 774,162 shares of our common stock. The total amount
of indebtedness converted to common stock was $967,703. Since August 2000, Mr. Loflin has
made small loans to us to ease periods of restricted cash flow. At March 31, 2001, we owed Mr.
Loflin $32,728.

Results of Operations

General. By the end of February 2001, CyberHighway had lost all of its dial-up Internet access
customers and we do not foresee the revitalization of CyberHighway's business. You should not
purchase our common stock expecting that CyberHighway's business will assist in making us
profitable.

Our revenues for the first quarter of 2000 were derived from CyberHighway's business. During
the first quarter of 2001, we derived no revenue from CyberHighway's business.

For the first three months of 2001, our small amount of revenues were dervied from our
Quick-Cell wireless Internet access system in Santa Fe, New Mexico. With the demise of
CyberHighway, any future revenues will be derived from sales of our Quick-Cell wireless Internet
access service. We currently lack the capital necessary to pursue our Quick-Cell business plan,
and we may never possess enough capital with which to exploit fully our Quick-Cell products. In
this circumstance, it is likely that we would never earn a profit.

Before the demise of CyberHighway, our revenues were derived primarily from monthly customer
payments for dial-up access and from per-customer royalty payments from our CyberHighway
affiliate-ISPs.

Beginning in March 2000, we began initial Quick-Cell wireless Internet access operations in Santa
Fe, New Mexico. Currently, we have approximately 120 Quick-Cell customers. Throughout
2000, these customers were in their one-year "free-use" period. Beginning in March 2001, we
began to receive monthly payments from the customers who had completed their one-year of free
use. The lack of growth of our wireless Internet access business during 2000 is due to the fact
that our available monies were applied to CyberHighway expenses and corporate overhead. We
had no available capital to apply to the expansion of the Santa Fe market.

In the middle of 2000, we began marketing our Quick-Cell systems to local exchange telephone
companies, independent telephone companies, digital subscriber line resellers and Internet service
providers. We sold three Quick-Cell systems in a short time, and received approximately 200
additional indications of interest via e-mail and telephone from other telecommunications
companies and others, 25% of which our management considered to be of a serious nature. Due
to a lack of capital, however, this marketing effort was suspended before we investigated the
nature of the other inquiring companies. No paying customers use these systems, due to
circumstances involving these companies that are beyond our control. During 2001, we do not
expect to derive significant revenues from customer modem sales to these Quick-Cell purchasers.

In cities in which we construct company-owned Quick-Cell systems, we intend to employ
telephone marketing as the initial means for acquiring customers and, later, mass media. We will
employ a sales force that will focus primarily on potential business customers. This focus on
business customers is based on our management's informal study of Internet usage by businesses
versus home users that revealed businesses' higher demand for high-speed Internet access. Our
management's decision may prove to have been incorrect, which would significantly impair our
ability to earn a profit. Our management believes, based on its collective business experience, that
effective marketing techniques can overcome Quick-Cell's lack of name recognition, although this
belief may also prove to be incorrect. Our Quick-Cell business will not be able to succeed without
additional capital.

In cities where a Quick-Cell reseller operates, we will not have final approval of the reseller's
marketing strategies. Our resellers will be permitted to market our Quick-Cell service in any
commercially reasonable manner. We cannot, therefore, assure you that any of our resellers will
ever achieve high enough sales levels that would permit us to earn a profit.

Under our Quick-Cell reseller agreement with Wireless WebConnect!, Inc., we expect to derive
revenues as follows:

|*  WebConnect's purchase of each Quick-Cell cell site;                                                                                                                                                                                                                                                                                                                                                               
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  WebConnect's purchase of all customer modems;                                                                                                                                                                                                                                                                                                                                                                     
|*  Charges for installation services on behalf of every customer acquired by WebConnect; and                                                                                                                                                                                                                                                                                                                         
|*  Monthly per-Quick-Cell-customer royalties - while we anticipate that this monthly
per-customer royalty will average approximately $12.00, we cannot assure you that the
monthly per-customer will be that high; in any event, given the number of customers that can
use a single Quick-Cell cell site, approximately 2,000, the lowest monthly per-customer royalty
to be paid by WebConnect will be about $9.00.

We expect our revenues for all of 2001 to be significantly below those of 2000, since we no
longer will derive revenues from the operations of CyberHighway. In 2001, we will produce
significant revenues only if:

|*  our Quick-Cell reseller is as successful selling our wireless Internet access products as it has
been in the past in reselling a competing wireless Internet access service; or
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  we are able to obtain at least $2,500,000 under the Fusion Capital agreement.                                                                                                  

Our reseller may not be successful enough for us to make a profit, nor can we assure you that
funding under the Fusion Capital agreement will permit us to make a profit.

Three Months Ended March 31, 2001, versus Three Months Ended March 31, 2000. During the
2000 period, all of our revenues were generated by CyberHighway's dial-up Internet access
operations. We derived our revenues from monthly customer payments for dial-up Internet
access, which averaged approximately $18.00 per customer. We also derived revenue from
per-customer royalty payments from our CyberHighway affiliate-ISPs, which averaged
approximately $1.75 per customer. This affiliate-ISP business was sold in September 2000.

During the 2001 period, we had only small revenues from our wireless Internet access business.
We derived no revenues from CyberHighway's operations. Whether or not we obtain capital, our
existing operations in Santa Fe will increase slightly from month to month, as our customers end
their free-use periods and begin to pay for our wireless Internet access services.

Our revenues for all of 2001 can be expected to be significantly below our revenue levels of 2000.
However, due to uncertainties relating to the timing of receipt of expected funds under the Fusion
Capital agreement, we can make no prediction of our actual revenues.

Our operating results for the first quarters of 2001 and 2000 are summarized in the following
table:

|                                             | First Quarter 2001 | First Quarter 2000
|-------------------------------------------- | ------------------ | ------------------
|Revenues                                     | $     384          | $    597,392      
|Internet access costs and cost
of goods sold | 0                  | 269,136           
|Gross profit                                 | 384                | 328,256           
|Operating expenses                           | 901,643            | 3,354,219         
|Loss from operations                         | 901,643            | 3,025,963         
|Net loss                                     | 901,259            | 2,557,596         

Our net loss of $901,259 for the first quarter of 2001 was significantly less than our net loss for
the 2000 period of $2,557,596. This reduced net loss is attributable primarily to:

|*  Depreciation and amortization decreasing from $2,238,544 for the 2000 period to $368,680
for the 2001 period. This reduction is due to the demise of CyberHighway's business and the
write-off of all of our intangible assets associated with that business, which occurred at
December 31, 2000. We no longer amortize those intangible assets.                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  Salary and commissions fell from $399,358 in 2000 to $160,746 in 2001. Our lower salary
and commissions during 2001 is attributable to CyberHighway's demise, its personnel having
been reduced from about 30 during the first quarter of 2000 to none, now.                                                                                                                                                        
|*  Rent expense decreased from $61,570 during the first quarter of 2000 to $5,361 during the
2001 period. This large decrease is the result of our abandoning all leased premises of
CyberHighway, following the filing of the involuntary bankruptcy proceeding. Our monthly
lease expense for the remainder of 2001 will be higher, due to our recent leasing of a small
assembly facility in Baton Rouge, Louisiana.
|*  Other expenses fell from $249,530 in 2000 to $16,668 in 2001. The reduction in this line item
is attributable to the demise of CyberHighway's business, as well as our severe lack of capital
during the last half of 2000 and most of the first quarter of 2001.                                                                                                                                                   

Our statements of operations reflect an income tax benefit of $471,519 for the 2000 period and no
such benefit for the 2001 period. This income tax benefit was attributable to the difference in the
bases of our acquired customer bases for book versus tax purposes. Since our intangible assets
were completely written-off as of December 31, 2000, we no longer derive any similar income tax
benefit.

We expect that our results of operations for the second quarter of 2001 will be similar to those of
the first quarter of 2001.

During the first quarter of 2001, we issued 200,000 shares of common stock under a consulting
agreement; these shares were valued for financial accounting purposes at $62,000, in the
aggregate. This amount will be expensed in equal monthly amounts during 2001. Subsequent to
March 31, 2001, we issued 300,000 shares under a consulting agreement; these shares have been
valued for financial accounting purposes at $150,000, in the aggregate, and will be expensed in
equal monthly amounts during the remainder of 2001 and the first quarter of 2002.

During the first quarter of 2000, we issued 160,000 shares of common stock under two separate
consulting agreements; these shares were valued for financial accounting purposes at $480,000, in
the aggregate. This amount was expensed in equal monthly amounts during 2000.

Liquidity and Capital Resources

General. Since our inception, we have had a significant working capital deficit. Following the
CyberHighway acquisition and until the recent demise of CyberHighway's business, we generated
significant monthly revenues, yet continued to have a working capital deficit. Currently, we are
substantially illiquid, although we do possess approximately $100,000 in cash, the result of recent
securities sales to private investors. Without additional capital, it is possible that we would be
forced to cease operations.

Our Capital Needs. To sustain our current level of operations for the next twelve months, we will
require additional capital of approximately $300,000. To accomplish our goals of expanding our
Quick-Cell business, we will require at least $2.5 million. If we are unable to obtain this needed
capital, we could be forced to cease our operations.

Currently we do not possess enough capital to accomplish our goals for our Quick-Cell wireless
Internet access business, including the construction of Quick-Cell systems. When we refer to the
construction of a Quick-Cell system in any city, that process requires the following expenditures:

|*  A single Quick-Cell cell site, including a Quick-Cell server modem, parts and configuration -
projected average cost: $25,000;
|---------------------------------------------------------------------------------------------------------------------------------
|*  Tower lease site - projected average cost: $500 per month;                                                                    
|*  Direct T1 telephone line connection to the Internet - projected average cost: $1,200 per
month; and                           
|*  Initial inventory of customer modems - approximate cost: $70,000.                                                             

Each Quick-Cell cell site added to an existing system will cost approximately $25,000 for the
server modem, parts and configuration, plus tower lease costs and, if customer usage requires, the
cost of a direct T1 telephone line connection to the Internet.

Should we be able to obtain the minimum of $400,000 per month pursuant to the Fusion Capital
agreement, we would have enough money to pay for the construction of the initial Quick-Cell cell
site in at least three markets per month. We cannot assure you that we will be able to construct
Quick-Cell cell sites at that rate.

In light of the relatively small amount of capital required to construct each Quick-Cell cell site, we
believe that the expected funding under the Fusion Capital agreement would provide us with
enough capital to construct the initial Quick-Cell cell site and commence marketing activities in
approximately 60 markets. With the Quick-Cell construction permitted by this amount of capital,
we will be able to determine whether our Quick-Cell wireless Internet access business is a viable
business, as presently offered. However, the funds expected under the Fusion Capital agreement
will not be adequate for us to pursue our complete Quick-Cell business plan, and we cannot
assure you that we will be able to obtain capital when needed. Our inability to obtain further
capital when needed would lessen our chance of earning a profit, as we would become illiquid.

Expected Proceeds from the Fusion Capital Agreement. Beginning near the end of the second
quarter of 2001, we expect to begin to receive the first funds of up to $10 million under our
agreement with Fusion Capital. Assuming we receive the entire $10 million under that agreement,
of which there is no assurance, we anticipate that we will apply these funds as follows:

|Purchase of Quick-Cell Equipment    | $  6,000,000
|----------------------------------- | ------------
|Construction of Quick-Cell Systems  | 1,300,000   
|Marketing                           | 1,000,000   
|General and Administrative Expenses | 200,000     
|Finder's Fee                        | 800,000     
|Working Capital                     | 700,000     
|Total                               | $10,000,000 

Should all of our outstanding warrants, including all of the warrants to be issued in connection
with the Fusion Capital agreement, be exercised, we would receive cash proceeds of
approximately $2,540,000. Funds received from the exercise of warrants would be used to
purchase Quick-Cell equipment, to construct Quick-Cell systems, to market our Quick-Cell
wireless Internet access service and for working capital.

You should note that we may never receive any of the funds discussed above. Our failure to
obtain capital from these sources could cause us to cease our operations.

March 31, 2001. Historically, we have had a significant working capital deficit. At March 31,
2001, our working capital deficit was $1,472,144, which is slightly lower than our $1,517,164
deficit at December 31, 2000. Although we had slightly higher accounts payable, accrued payroll
and notes payable to a shareholder at March 31, 2001, compared to December 31, 2000, these
increases were offset by our receipt of cash pursuant to private sales of securities of $251,000
during the first quarter of 2001. Most of our accounts payable are accounts payable of
CyberHighway. Without additional capital, our working capital deficit can be expected to become
larger each quarter.

The following table sets forth our current assets and current liabilities at March 31, 2001, and
December 31, 2000:

|                    |                                          | 3/31/01   | 12/31/00   
|------------------- | ---------------------------------------- | --------- | -----------
|Current Assets      | Cash                                     | $ 125,494 | $     1,088
|                    | Accounts receivable                      | 384       | 0          
|                    | Inventory                                | 246,721   | 246,721    
|                    | Prepaids                                 | 0         | 0          
|Current Liabilities | Disbursements in
excess of cash
balances | $ 42,469  | $ 42,469   
|                    | Accounts payable                         | 1,473,817 | $1,472,030 
|                    | Accrued payroll                          | 200,155   | 158,262    
|                    | Other current
liabilities                | 51,824    | 41,824     
|                    | Property dividends
payable               | 51,824    | 41,824     
|                    | Notes payable to
stockholder             | 32,728    | 6,638      

Our accrued payroll at March 31, 2001, as well as at December 31, 2000, is attributable to
accrued salary of our president and two of our vice presidents.

The increase in notes payable to stockholder, from $6,638 at December 31, 2000, to $32,728 at
March 31, 2001, represents loans made to us by our president, David M. Loflin. All of this
indebtedness is due on demand and bears interest at 8% per annum. The funds loaned during 1Q
2000 were used primarily for operating expenses. Mr. Loflin has advised us that he does not
intend to demand payment of his loans, until their repayment would not adversely affect our
financial position. Without outside funding, it is possible that Mr. Loflin may loan us additional
funds, though no assurance or prediction can be made in this regard.

In addition to Mr. Loflin's loans, during the first quarter of 2001, we obtained a total of $251,000
in cash from private sales of our securities:

|*  In February 2001, we sold 840,000 units of securities, each unit being comprised of one share
of our stock and one warrant with an exercise price of $.15 per share, to a private investor for
$126,000 in cash. The warrants are exercisable for a period of three years. In connection with
this sale of securities, we issued to a finder 84,000 shares of our common stock and a warrant
to purchase 336,000 shares of our common stock at an exercise price of $.15 per share. These
warrants are exercisable for a period of three years. The 84,000 shares issued to the finder were
valued at $.15 per share, a total value of $12,600. No value was placed on the warrants issued.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  In March 2001, we sold 500,000 units of securities, each unit being comprised of one share of
our stock and one warrant with an exercise price of $.25 per share, to a private investor for
$125,000 in cash. The warrants are exercisable for a period of three years. In connection with
this sale of securities, we issued to a finder 50,000 shares of our common stock and a warrant
to purchase 200,000 shares of our common stock at an exercise price of $.25 per share. These
warrants are exercisable for a period of three years. The 50,000 shares issued to the finder were
valued at $.25 per share, a total value of $12,500. No value was placed on the warrants issued.   

The funds received were used for working capital and for the initial costs associated with the
establishment of a new company-owned Quick-Cell wireless Internet access system.

Without obtaining at least $1,000,000 in new capital, we will continue to have a significant
working capital deficit and will not be able to operate from a position of liquidity. This will impair
our ability to pursue our Quick-Cell business plan and, thus, our ability ever to earn a profit.

If we are unable to obtain significant additional capital, it is possible that we would be forced to
cease operations.

Cash Flows from Operating Activities. During the first quarter of 2001, our operations used
$162,684 in cash compared to cash used of $305,779 during the first quarter of 2000. In both
periods, the use of cash in operations was a direct result of the lack of revenues compared to our
operating expenses, particularly salary and commissions.

Cash Flows from Investing Activities. During the first quarter of 2001, our investing activities
neither provided nor used cash. In the first quarter of 2000, we used cash of $94,908 in our
investing activities, where our equipment purchases were offset, in part, by cash acquired in
acquisitions. Because we lack working capital, we cannot predict our cash flows from investing
activities for the remainder of 2001.

Cash Flows from Financing Activities. For the first quarter of 2001, our financing activities
provided $287,090 in cash. Of this amount, $26,090 is attributable to loans from our president
and $251,000 is attributable to private sales of securities. For the first quarter of 2000, our
financing activities provided $384,397 in cash, $115,000 of which is attributable to private sales
of our securities and $286,400 of which is attributable to loans from our president. We continue
to seek capital and cannot, therefore, predict future levels of cash flows from financing activities.

Management's Plans Relating to Future Liquidity

To sustain our current level of operations for the next twelve months, we will require additional
capital of approximately $300,000. To accomplish our goals of expanding our Quick-Cell
business, we will require at least $2.5 million.

Our best opportunity for obtaining needed funds is pursuant to the Fusion Capital agreement. The
following summarizes the important terms under the Fusion Capital agreement:

|*  Fusion Capital may purchase up to $10 million of our common stock;                                                                                                                                                           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  The selling price to Fusion Capital will be equal to a price based upon the future market price
of the common stock without any fixed discount to the market price;                                                          
|*  We have the right to require Fusion Capital to purchase up to $20,000 each trading day
during the agreement;                                                                                                                 
|*  Should our stock price be $5.00 or higher for five consecutive trading days, we have the right
to require Fusion Capital to purchase up to the full remaining portion of the $10 million
commitment; and                     
|*  During the term of the Fusion Capital agreement, we may not issue, or agree to issue, any
variable-priced equity or variable-priced "equity-like" securities, unless we have obtained
Fusion Capital's prior written consent.

We may never realize proceeds under the Fusion Capital agreement.

Should we obtain at least $2.5 million under the Fusion Capital agreement, we expect that we will
be able to accomplish our two primary objectives:

|*  Placing at least 20,000 customers on our Quick-Cell systems during the next year; and
|----------------------------------------------------------------------------------------
|*  proving the commercial viability of our Quick-Cell wireless Internet access service. 

We cannot assure you that we will accomplish these objectives.

Currently, we have no other sources for funding on the scale of the Fusion Capital transaction.

If we do not obtain the necessary funding, we would be forced to cease operations.

Capital Expenditures

During 2000, we made approximately $195,000 in equipment purchases, approximately 40% for
wireless Internet equipment and approximately 60% for needed equipment in our network
operations center. We currently have no capital with which to make any significant capital
expenditures. Should we obtain funding under the Fusion Capital agreement, we will be able to
make major expenditures on Quick-Cell-related equipment, as described above. However, without
additional capital, we will make no capital expenditures. During Fiscal 1999, we made $614,193
in equipment purchases.

CERTAIN STATEMENTS CONTAINED IN THIS "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" ARE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND ARE, THUS, PROSPECTIVE.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. THE MOST SIGNIFICANT OF SUCH
RISKS, UNCERTAINTIES AND OTHER FACTORS IS OUR ABILITY TO OBTAIN
CAPITAL IN AMOUNTS NECESSARY FOR US TO ACCOMPLISH OUR PLAN FOR THE
EXPLOITATION OF OUR QUICK-CELL WIRELESS INTERNET ACCESS PRODUCTS, AS
WELL AS CONSUMER ACCEPTANCE OF THESE PRODUCTS.

|PART II - OTHER INFORMATION
|---------------------------

Item 1. Legal Proceedings.

CyberHighway Involuntary Bankruptcy

On September 29, 2000, an involuntary bankruptcy petition was filed against CyberHighway in
the Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454. The
petitioning creditors were ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith. In
December 2000, CyberHighway and the petitioning creditors filed a joint motion to dismiss this
proceeding. The joint motion to dismiss requires the approval of CyberHighway's creditors.
However, some of CyberHighway's creditors have objected to the dismissal of the proceeding.
The basis of the creditors' objection is their belief that CyberHighway's as-yet unasserted damage
claims against the original petitioning creditors and their law firm and a claim against Dialup USA,
Inc. represent CyberHighway's most valuable assets. These as-yet unasserted claims include
claims for bad faith filing of the original bankruptcy petition as to the original petitioning creditors
and their law firm, as well as claim for tortious interference with beneficial business relationships
as to Dialup USA, Inc. The objecting creditors desire that these claims be adjudicated in the
bankruptcy court. It is likely that, at some time in the future, a final order of bankruptcy will be
entered with respect to CyberHighway, no prediction of the timing of such an order can be made,
although we believe that such an order would come only after the final adjudication of the claims
described above.

Other Litigation

In November 2000, CyberHighway requested and received a temporary restraining order against
Darrell Davis, formerly one of our officers, and his wife, Deanna Davis. We have alleged that the
Davises have diverted dial-up customers from CyberHighway to a company controlled by him, all
while he was an employee of USURF America. We expect that a hearing for our motion for a
permanent injunction will occur in the very near future. In addition, we are seeking monetary
damages in this action. This case is in its early stages and no prediction as to its final outcome can
be made. This case is styled: CyberHighway, Inc. versus Deanna Davis, individually and d/b/a
Cyber-Trail, Inc., and Darrell D. Davis, 19th Judicial District Court, Parish of East Baton Rouge,
State of Louisiana.

In January 2000, we instituted arbitration proceedings against Christopher L. Wiebelt, our former
vice president of finance and chief financial officer. We have alleged that Mr. Wiebelt violated
certain terms of his employment agreement and are seeking damages resulting from those
violations. This case is in its early stages and no prediction as to its outcome can be made. This
case is styled: USURF America, Inc. versus Christopher L. Wiebelt, American Arbitration
Association, Case No. 71-160-00087-01.

Possible Claim

Some time in the future, it is possible that we will enter into arbitration proceedings with
Commonwealth Associates. The dispute revolves around Commonwealth's claim that we owe it
approximately 127,000 shares of our common stock. It is our position that Commonwealth is
entitled to any shares and will vigorously defend our position in arbitration. We cannot predict the
outcome of this arbitration proceeding.

Potential Legal Proceeding

In addition to CyberHighway's cause of action against Dialup USA, it is the intention of USURF
America to pursue damage claims against Dialup USA for tortiously interfering with the beneficial
business relationships between CyberHighway and its customers. These claims arise out of Dialup
USA's actions on behalf of one of our former officers, which were designed to divert customers to
a company controlled by him. Our claim against Dialup USA will be for approximately $2 million.
We have not established a date by which we intend to commence this legal proceeding.

Item 2. Changes in Securities.

During the three months ended March 31, 2001, we issued securities as follows:

|1.(a) Securities Sold. In January 2000, we issued 800,000 shares of Common Stock.

(b) Underwriters and Other Purchasers. Such shares were issued to Fusion Capital Fund II,
LLC.

(c) Consideration. Such shares were issued as a commitment fee under a common stock
purchase agreement and were valued at $.31 per share.

(d) Exemption from Registration Claimed. The Company relied upon the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended, but this
exemption may not have been available

(e) Terms of Conversion or Exercise. Not applicable.                                                                                       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. (a) Securities Sold. In January 2001, 200,000 shares of Company Common Stock were
issued.

(b) Underwriter or Other Purchasers. Such shares of Common Stock were issued to Fair
Market, Inc.

(c) Consideration. Such shares of Common Stock were issued pursuant to a letter
agreement, at a price of $.375 per share.

(d) Exemption from Registration Claimed. The Company relied upon the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended, but this
exemption may not have been available.

(e) Terms of Conversion or Exercise. Not applicable.                                                                                        
|3. (a) Securities Sold. In January 2001, 20,000 shares of Company Common Stock were
issued.

(b) Underwriter or Other Purchasers. Such shares of Common Stock were issued to
CyberHighway of North Georgia.

(c) Consideration. Such shares of Common Stock were issued pursuant to a letter
agreement, at a price of $.375 per share.

(d) Exemption from Registration Claimed. The Company relied upon the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended, but this
exemption may not have been available.

(e) Terms of Conversion or Exercise. Not applicable.                                                                            
|4. (a) Securities Sold. In January 2001, 10,000 shares of Company Common Stock were
issued.

(b) Underwriter or Other Purchasers. Such shares of Common Stock were issued to Fusion
Capital Fund II, LLC.

(c) Consideration. Such shares of Common Stock were issued pursuant to a letter
agreement, at a price of $.375 per share.

(d) Exemption from Registration Claimed. The Company relied upon the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended, but this
exemption may not have been available.

(e) Terms of Conversion or Exercise. Not applicable.                                                                              
|5. (a) Securities Sold. In February 2001, 840,000 shares of Company Common Stock were
issued.

(b) Underwriter or Other Purchasers. Such shares of Common Stock were issued to
Claymore Asset Management Group Ltd.

(c) Consideration. Such shares of Common Stock were issued pursuant to a securities
purchase agreement, at a price of $.15 per share.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Not applicable.                                                                                 
|6. (a) Securities Sold. In February 2001, 840,000 common stock purchase warrants of the
Company were issued.

(b) Underwriter or Other Purchasers. Such warrants were issued to Claymore Asset
Management Group Ltd.

(c) Consideration. Such warrants were issued for no additional consideration pursuant to a
securities purchase agreement.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Exercise price of the warrants is $.15 per share and
exercisable for a period of three years from issuance.
|7. (a) Securities Sold. In February 2001, 84,000 shares of Company Common Stock were
issued.

(b) Underwriter or Other Purchasers. Such shares of Common Stock were issued to Shelter
Capital Ltd.

(c) Consideration. Such shares of Common Stock were issued pursuant to a finder's fee
agreement, at a price of $.15 per share.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Not applicable.                                                                                                         
|8. (a) Securities Sold. In February 2001, 336,000 common stock purchase warrants of the
Company were issued.

(b) Underwriter or Other Purchasers. Such warrants were issued to Shelter Capital Ltd.

(c) Consideration. Such warrants were issued for no additional consideration pursuant to a
finder's fee agreement.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Exercise price of the warrants is $.15 per share and
exercisable for a period of three years from issuance.                       
|9. (a) Securities Sold. In March 2001, 500,000 shares of Company Common Stock were
issued.

(b) Underwriter or Other Purchasers. Such shares of Common Stock were issued to Atlas
Securities Inc.

(c) Consideration. Such shares of Common Stock were issued pursuant to a securities
purchase agreement, at a price of $.25 per share.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Not applicable.                                                                                                   
|10. (a) Securities Sold. In March 2001, 500,000 common stock purchase warrants of the
Company were issued.

(b) Underwriter or Other Purchasers. Such warrants were issued to Atlas Securities Inc.

(c) Consideration. Such warrants were issued for no additional consideration pursuant to a
securities purchase agreement.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Exercise price of the warrants is $.25 per share and
exercisable for a period of three years from issuance                  
|11. (a) Securities Sold. In December 2000, 50,000 shares of Company Common Stock were
issued.

(b) Underwriter or Other Purchasers. Such shares of Common Stock were issued to Shelter
Capital Ltd.

(c) Consideration. Such shares of Common Stock were issued pursuant to a finder's fee
agreement, at a price of $.25 per share.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Not applicable.                                                                                                        
|12. (a) Securities Sold. In December 2000, 200,000 common stock purchase warrants of the
Company were issued.

(b) Underwriter or Other Purchasers. Such warrants were issued to Shelter Capital Ltd.

(c) Consideration. Such warrants were issued for no additional consideration pursuant to a
finder's fee agreement.

(d) Exemption from Registration Claimed. These securities are exempt from registration
under the Securities Act of 1933, as amended, pursuant to the provisions of Regulation S
thereunder.

(e) Terms of Conversion or Exercise. Exercise price of the warrants is $.25 per share and
exercisable for a period of three years from issuance.                      

Subsequent to March 31, 2001, the Company has issued unregistered securities, as follows:

|1.(a) Securities Sold. In April 2000, we issued 300,000 shares of Common Stock.

(b) Underwriters and Other Purchasers. Such shares were issued to IBC.TV, LLC.

(c) Consideration. Such shares were sold for cash in the amount of $.50 per share.

(d) Exemption from Registration Claimed. The Company relied upon the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933, as amended, but this
exemption may not have been available.

(e) Terms of Conversion or Exercise. Not applicable.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 3. Defaults upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

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

(a) Exhibits.

None.

(b) Reports on From 8-K.

During the three months ended March 31, 2001, on or about March 14, 2001, we filed a Current
Report on Form 8-K in which we reported the resignation of one of our directors.

Subsequent to March 31, 2001, on or about April 5, 2001, we filed a Current Report on Form
8-K in which we made disclosure pursuant to Regulation FD.

|SIGNATURES
|----------

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

|Dated: May 14, 2001. | USURF AMERICA, INC.                             
|-------------------- | ------------------------------------------------
|                     | By: /s/ David M. Loflin                         
|                     | David M. Loflin                                 
|                     | President and Acting Principal Financial
Officer