Form 10-QSB

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

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

For the quarterly period ended September 30, 2001

OR

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

For the transition period from     to       .

Commission File No. 1-15383

USURF America, Inc.

(Exact Name of Small Business Issuer as Specified in its Charter)

| NEVADA                                                        | 91-2117796                              |
|---------------------------------------------------------------|-----------------------------------------|
| (State or Other Jurisdiction of Incorporationor 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 Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that Registrant as required to file such reports), and (2) has been subject to suchfiling 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 ofthe latest practicable date:

| Class                          | Outstanding as of November 16, 2001 |
|--------------------------------|-------------------------------------|
| Common Stock, $.0001 par value | 24,686,834                          |

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

USURF America, Inc.

Consolidated Balance Sheets as of September 30, 2001 (unaudited), and December 31, 2000

Consolidated Statements of Operations for the Three Months Ended September 30, 2001 and2000 (unaudited), and for the Nine Months Ended September 30, 2001

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and2000 (unaudited)

Notes to Consolidated Financial Statements

USURF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

|                           | 9/30/01     | 12/31/00  |
|--------------------------------|-------------|-----------|
|                           | (unaudited) | (audited) |
| CURRENT ASSETS                 |        |      |
| Cash and cash equivalents      | $4,646      | $1,088    |
| Inventory                      | 245,323     | 246,721   |
|                           |        |      |
| TOTAL CURRENT ASSETS           | 249,969     | 247,809   |
|                           |        |      |
| PROPERTY AND EQUIPMENT,        |        |      |
| Cost                           | 143,114     | 138,954   |
| Less: accumulated depreciation | (96,707)    | (69,476)  |
|                           |        |      |
|                           | 46,407      | 69,478    |
|                           |        |      |
| INVESTMENTS                    | 68,029      | 68,029    |
|                           |        |      |
| OTHER ASSETS                   | 25,000      | 25,000    |
|                           |        |      |
| TOTAL ASSETS                   | $389,405    | $410,316  |

LIABILITIES AND STOCKHOLDERS’ EQUITY

|                                                                                                                                                              | 9/30/01      | 12/31/00     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|
|                                                                                                                                                              | (unaudited)  | (audited)    |
| CURRENT LIABILITIES                                                                                                                                               |         |         |
| Disbursements in excess of cash balances                                                                                                                          | $42,469      | $42,469      |
| Accounts payable                                                                                                                                                  | 1,494,816    | 1,472,030    |
| Accrued payroll                                                                                                                                                   | 287,684      | 158,262      |
| Other current liabilities                                                                                                                                         | 73,599       | 41,824       |
| Property dividend payable                                                                                                                                         | 43,750       | 43,750       |
| Notes payable to stockholder                                                                                                                                      | 54,928       | 6,638        |
|                                                                                                                                                              |         |         |
| TOTAL CURRENT LIABILITIES                                                                                                                                         | 1,997,246    | 1,764,973    |
|                                                                                                                                                              |         |         |
| LONG-TERM LIABILITIES                                                                                                                                             |         |         |
| Deferred income tax                                                                                                                                               | 0            | 0            |
|                                                                                                                                                              |         |         |
| TOTAL LIABILITIES                                                                                                                                                 | 1,997,246    | 1,764,973    |
|                                                                                                                                                              |         |         |
| REDEEMABLE COMMON STOCK                                                                                                                                           |         |         |
| Common stock subject to rescission, $.0001 parvalue, Outstanding: 4,295,102 shares atSeptember 30, 2001, and 2,767,823 shares atDecember 31, 2000                 | 4,496,363    | 3,897,552    |
| Deferred consulting                                                                                                                                               | 0            | (574,000)    |
|                                                                                                                                                              |         |         |
|                                                                                                                                                              | 4,496,363    | 3,323,552    |
|                                                                                                                                                              |         |         |
| STOCKHOLDERS’ EQUITY                                                                                                                                        |         |         |
| Common stock, $.0001 par value; Authorized:100,000,000; Issued and Outstanding: 19,034,270shares at September 30, 2001, and 13,920,985shares at December 31, 2000 | 2,341        | 1,392        |
| Additional paid-in capital                                                                                                                                        | 31,945,048   | 30,286,687   |
| Accumulated deficit                                                                                                                                               | (36,664,534) | (34,502,160) |
| Subscriptions receivable                                                                                                                                          | 0            | 933,514      |
| Deferred consulting                                                                                                                                               | (1,387,059)  | (1,397,642)  |
|                                                                                                                                                              |         |         |
|                                                                                                                                                              | (6,104,204)  | (4,678,209)  |
|                                                                                                                                                              |         |         |
| TOTAL LIABILITIES AND STOCKHOLDERS’EQUITY                                                                                                                   | $389,405     | $410,316     |

USURF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                        | Three Months | Three Months | Nine Months | Nine Months  |
|---------------------------------------------|--------------|--------------|-------------|--------------|
|                                        | Ended        | Ended        | Ended       | Ended        |
|                                        | 9/30/01      | 9/30/00      | 9/30/01     | 9/30/00      |
|                                        | (unaudited)  | (unaudited)  | (unaudited) | (unaudited)  |
| REVENUES                                    |         |         |        |         |
| Revenues (returns)                          | $(11,287)    | $598,837     | $4,604      | $1,821,550   |
| Cost of goods sold(returned)                | 3,945        | (142,152)    | (1,398)     | (811,452)    |
|                                        |         |         |        |         |
| Gross profit (loss)                         | (7,342)      | 456,685      | 3,206       | 1,010,098    |
|                                        |         |         |        |         |
| OPERATINGEXPENSES                           |         |         |        |         |
| Depreciation andamortization                | 7,938        | 2,323,562    | 27,231      | 6,843,089    |
| Professional fees                           | 320,840      | 889,157      | 1,460,446   | 2,105,852    |
| Rent                                        | 9,551        | 32,000       | 22,043      | 161,298      |
| Salary and commissions                      | 176,728      | 890,334      | 553,296     | 1,701,223    |
| Advertising                                 | 0            | 66,787       | 0           | 85,782       |
| Other                                       | 53,544       | 79,612       | 101,539     | 576,527      |
|                                        |         |         |        |         |
| Total Operating Expenses                    | 568,601      | 4,281,452    | 2,164,555   | 11,473,771   |
|                                        |         |         |        |         |
| LOSS FROMOPERATIONS                         | (575,943)    | (3,824,767)  | (2,161,349) | (10,463,673) |
|                                        |         |         |        |         |
| OTHER INCOME(EXPENSE)                       |         |         |        |         |
| Other income (expense)                      | 0            | (6,065)      | 0           | 553          |
| Interest expense                            | (1,025)      | (15,350)     | (1,025)     | (36,782)     |
|                                        |         |         |        |         |
| LOSS BEFOREINCOME TAX                       | (576,968)    | (3,846,182)  | (2,162,374) | (10,499,902) |
|                                        |         |         |        |         |
| INCOME TAXBENEFIT                           | 0            | 481,673      | 0           | 1,434,865    |
|                                        |         |         |        |         |
| NET LOSS                                    | (576,968)    | (3,364,509)  | (2,162,374) | (9,065,037)  |
|                                        |         |         |        |         |
| Net loss per commonshare                    | (.03)        | (.25)        | (.14)       | (.69)        |
|                                        |         |         |        |         |
| Weighted averagenumber of sharesoutstanding | 16,517,151   | 13,367,868   | 15,195,778  | 13,207,279   |

USURF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                              | Nine MonthsEnded  | Nine MonthsEnded  |
|-----------------------------------------------------------------------------------|-------------------|-------------------|
|                                                                              | September 30,2001 | September 30,2000 |
|                                                                              | (unaudited)       | (unaudited)       |
| CASH FLOWS FROM OPERATINGACTIVITIES                                               |              |              |
| Net loss                                                                          | $(2,162,374)      | $(9,065,037)      |
| Adjustment to reconcile net loss to net cash usedin operating activities          |              |              |
|  Depreciation and amortization                                               | 27,231            | 6,843,089         |
|  Consulting fees recognized                                                  | 1,321,843         | 2,105,852         |
|  Compensation expense                                                        | 47,947            | 48,000            |
|  Deferred income taxes                                                       | 0                 | (1,434,865)       |
|  Accounts receivable                                                         | 0                 | 65,830            |
|  Inventory                                                                   | 1,398             | 32,150            |
|  Other current liabilities                                                   | 19,775            | (16,829)          |
|  Other assets and liabilities                                                | 7,400             | 46,601            |
|  Deferred revenue                                                            | 0                 | 14,488            |
|  Accounts payable                                                            | 22,786            | 782,273           |
|  Prepaid expenses and other current assets                                   | 0                 | (8,553)           |
|  Accrued payroll                                                             | 129,422           | 231,186           |
|                                                                              |              |              |
| Net cash used in operating activities                                             | (584,572)         | (355,815)         |
|                                                                              |              |              |
| CASH FLOWS FROM INVESTINGACTIVITIES                                               |              |              |
|  Cash acquired in acquisitions                                               | 0                 | 7,704             |
|  Capital expenditures                                                        | (4,160)           | (408,187)         |
|                                                                              |              |              |
| Net cash used in investing activities                                             | (4,160)           | (400,483)         |
|                                                                              |              |              |
| CASH FLOWS FROM FINANCINGACTIVITIES                                               |              |              |
|  Payments on notes payable and capital leaseobligations                      | 0                 | (5,910)           |
|  Proceeds from subscriptions receivable                                      | 302,000           | 240,000           |
|  Proceeds from notes payable to stockholder                                  | 48,290            | 539,980           |
|  Issuance of common stock for cash

 Fee associated with stock issuance | 250,000

(8,000)  | 0

0              |
|  Payment on note payable to stockholder                                      | 0                 | (11,093)          |
|                                                                              |              |              |
| Net cash provided by financing activities                                         | 592,290           | 762,887           |
|                                                                              |              |              |
| Net increase in cash and cash equivalents                                         | 3,558             | 6,589             |
| Cash and cash equivalents, beginning of period                                    | 1,088             | 75,313            |
|                                                                              |              |              |
| Cash and cash equivalents, end of period                                          | 4,646             | 81,902            |

SUPPLEMENTAL DISCLOSURE OF NON-CASH

INVESTING AND OTHER CASH FLOW INFORMATION

Nine Months Ended September 30, 2001:

In January 2001, the Company entered into a one-year consulting agreement, by issuing 200,000shares of stock valued at $62,000.

In January 2001, the Company issued 800,000 shares of stock valued at $248,000, in payment ofa commitment fee under a common stock purchase agreement.

In January 2001, 774,162 shares were issued to the Company's president, pursuant to a debtconversion agreement, which shares were not issued in 2000, due to an administrative error.

In April 2001, the Company issued 300,000 shares of stock valued at $183,000, under aconsulting agreement.

In May 2001, the Company issued 200,000 shares of stock valued at $62,000, in payment of afinder’s fee arising out of a common stock purchase agreement.

In May 2001, the Company issued 60,000 shares of stock valued at $24,000, under a consultingagreement.

In June 2001, the Company issued 20,000 shares of stock valued at $7,400, pursuant to asettlement agreement.

During the nine months ended September 30, 2001, the Company issued a total of 100,000 sharesof stock to a consultant, which shares were issued under a consulting agreement at prices basedon then-current market price of the Company’s common stock.

In July 2001, the Company issued 300,000 shares of stock valued at approximately $111,000,under a consulting agreement.

In September 2001, the Company issued 400,000 shares of stock valued at approximately$68,000, under a consulting agreement.

Nine Months Ended September 30, 2000:

In January 2000, the Company entered into a one-year legal and business consulting servicesagreement, by issuing 100,000 shares of stock valued at $300,000.

In January 2000, the Company entered into a one-year business and communications consultingservices 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 issuing81,063 shares of stock valued at $324,252.  This acquisition was accounted for as a purchasebusiness 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 foras a purchase business combination.

In April 2000, the Company issued a total of 60,000 shares of stock under two separateconsulting agreements, which shares were valued at $210,000.

In April 2000, the issued 100,000 shares of stock under a consulting agreement, which shareswere valued at $725,000.

In July 2000, the Company issued 250,000 shares of stock under an investment bankingagreement, which shares were valued at $375,000.

In August 2000, the Company issued 774,162 shares of stock in payment of indebtedness in theamount of $967,703.

USURF AMERICA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30, 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 asMedia Entertainment, Inc. in the State of Nevada on November 1, 1996. USURF currentlyprovides wireless Internet access services to a small number of customers in Santa Fe, NewMexico. USURF's original purpose was to operate as a holding company in the wireless cabletelevision and community (low power) television industries, as well as other segments of thecommunications industry. Until January 1999, the Company was in the development stage. In1998 the Company changed its focus to concentrate its efforts in the wireless internetcommunications industry. The Company later ceased efforts to develop the wireless cable andlow power television business areas and assigned all of its assets from the low power televisionactivities to New Wave Media Corp. in exchange for a 15% ownership interest in New WaveMedia Corp. 

Effective December 31, 1996, USURF acquired all of the outstanding common stock of WinterEntertainment, Inc., a Delaware corporation incorporated on December 28, 1995 (WEI), andMissouri Cable TV Corp., a Louisiana corporation incorporated on October 9, 1996 (MCTV).WEI operates a community television station in Baton Rouge, Louisiana; MCTV owns wirelesscable television channels in Poplar Bluff, Missouri, which system has been constructed and isready for operation, and Lebanon, Missouri. Effective October 8, 1998, the Company formedSanta Fe Wireless Internet, Inc. (Santa Fe), a New Mexico corporation, to hold the assetsacquired from Desert Rain Internet Services. Santa Fe was organized to provide wireless internetaccess. The acquisition of WEI and MCTV by USURF was accounted for as a reorganization ofcompanies under common control. The assets and liabilities acquired were recorded at historicalcost in a manner similar to a pooling of interests. The acquisition of Santa Fe was accounted foras 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. Inaddition, 325,000 shares of common stock were issued in payment of a finder's fee arising out ofthis 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, NewMexico-based ISP, by issuing 100,000 shares of stock valued at approximately $400,000. Thisacquisition was accounted for as a purchase business combination.

In July 1999, USURF acquired all of the stock of Premier Internet Services, Inc., an Idaho-basedISP, by issuing 127,000 shares of stock valued at approximately $508,000. This acquisition wasaccounted 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 December1999, USURF acquired a portion of the ISP-related equipment and customer base of CyberHighway of North Georgia, Inc., a Demorest, Georgia-based ISP for 54,000 shares of stockvalued at approximately $212,000.

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

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

Principles of Consolidation

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

  

Loss Per Common Share

Basic loss per common share has been computed by dividing the net loss by the weightedaverage 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 ninemonths ended September 30, 2001 and 2000, reflect all adjustments (consisting only of normalrecurring adjustments) necessary to present fairly the financial condition, results of operationsand cash flows of USURF, including subsidiaries, and include the accounts of USURF and all ofits subsidiaries. All material inter-company transactions and balances are eliminated.

The financial statements included herein have been prepared by USURF, without audit, pursuantto the rules and regulations of the SEC. Certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with generally accepted accountingprinciples have been condensed or omitted pursuant to such rules and regulations. It is suggestedthat these unaudited financial statements be read in conjunction with the financial statements andnotes thereto included in USURF's Annual Report on Form 10-KSB/A for the year endedDecember 31, 2000, as filed with the SEC. Certain reclassifications and adjustments may havebeen made to the financial statements for the comparative period of the prior fiscal year toconform with the 2001 presentation. The results of operations for the interim periods are notnecessarily indicative of the results to be obtained for the entire year.

Note 3.  Notes Payable to Shareholder

|                                                                             | September 30, 2001 |
|----------------------------------------------------------------------------------|--------------------|
|                                                                             | (unaudited)        |
| Notes payable to stockholder, interest accrues at 8%, due ondemand and unsecured | $54,928            |

Note 4.  Stock Sales

In February 2001, the Company sold, pursuant to a Securities Purchase Agreement, 840,000shares of common stock and 840,000 warrants with an exercise price of $.15, exercisable for aperiod of three years from issuance. These securities were sold for $126,000 in cash, with noportion of the purchase price having been allocated to these warrants. In connection with thistransaction, the Company issued, as a finder's fee, 84,000 shares of common stock and 336,000warrants with an exercise price of $.15 per share, exercisable for a period of three years fromissuance.

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

In June 2001, the Company sold, pursuant a Securities Purchase Agreement, 205,000 shares ofcommon stock and 205,000 warrants with an exercise price of $.20, exercisable for a period ofthree years from issuance. These securities were sold for $41,000 in cash, with no portion of thepurchase price having been allocated to the warrants. In connection with this transaction, theCompany issued, as a finder's fee, 20,500 shares of common stock and 82,000 warrants with anexercise price of $.20 per share, exercisable for a period of three years from issuance.

Note 5.  Other Material Stock Issuances

In January 2001, the Company issued 800,000 shares of its common stock as a commitment feeunder 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 theIdaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454. InDecember 2000, CyberHighway and the petitioning creditors filed a joint motion to dismiss thisproceeding. 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. Thebasis of the creditors' objection is their belief that CyberHighway's as-yet unasserted damageclaims against the original petitioning creditors and their law firm and a claim against DialupUSA, Inc. represent CyberHighway's most valuable assets. These as-yet unasserted claimsinclude claims for bad faith filing of the original bankruptcy petition as to the original petitioningcreditors and their law firm, as well as claim for tortious interference with beneficial businessrelationships as to Dialup USA, Inc. The objecting creditors desire that all claims be adjudicatedin the bankruptcy court. The Company believes it is likely that, at some time in the future, a finalorder of bankruptcy will be entered with respect to CyberHighway.

Subsequent to the involuntary bankruptcy, CyberHighway lost nearly all of its customers. Due tothis loss of customer base, the Company's intangible assets relating to those customers weredetermined to be worthless. The write-off of the intangible assets reflected on the Company'sDecember 31, 2000, balance sheet was $4,814,272 (net of deferred taxes). Due to this change inoperating environment, the Company's revenues have decreased substantially and it hasexperienced a substantial decrease in expenses associated with the elimination of personnelpreviously required to operate the Company's network operations center, and accordinglygoodwill has been impaired. The write-down of goodwill reflected on the Company's December31, 2000, statement of operations was $4,425,037.

B.  Potential Rescission Claims

At September 2001, a total of 4,295,102 shares of the common stock of the Company may havebeen issued in violation of Section 5 of the Securities Act of 1933, as amended. The aggregatevalue assigned to these shares upon their issuance totaled $4,496,363.  It is possible that each ofthe issues of these shares has a potential claim for rescission of their respective issuancetransactions.

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

Note 7.  Financing Transaction

On May 9, 2001, the Company entered into an amended and restated common stock purchaseagreement with an unrelated company to sell up to $10,000,000 of its common stock.  Thepurchase price of the shares under this agreement will vary, based on future market prices of theCompany's common stock. The agreement calls for the Company to meet certain requirementsand maintain certain criteria with respect to its common stock in order to avoid an event ofdefault, which include:

| - | if for any legal reason the shares purchased cannot be sold pursuant to this prospectusfor a period of 10 consecutive trading days or for more than an aggregate of 30trading days in any 365-day period;                                                                                                                                                                                                                                                                      |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| - | suspension by the American Stock Exchange of Company common stock fromtrading for a period of 10 consecutive trading days or for more than an aggregate of30 trading days in any 365-day period;                                                                                                                                                                                                                                                                               |
| - | the Company’s failure to satisfy any listing criteria of the American Stock Exchangefor a period of 10 consecutive trading days or for more than an aggregate of 30trading days in any 365-day period;                                                                                                                                                                                                                                                                   |
| - | (1) notice from the Company’s transfer agent to the effect that the Company or thetransfer agent intends not to comply with a proper request for purchase of sharesunder the purchase agreement; (2) the Company’s failure to promptly confirm to thetransfer agent the buyer's purchase notice; or (3) the failure of the transfer agent toissue shares of common stock promptly upon delivery of a purchase notice or upondelivery of a warrant exercise notice; |
| - | any material breach of the representations or warranties or covenants contained in thepurchase agreement or any related agreements which has or which could have amaterial adverse affect on the Company, subject to a cure period of 10 trading days;                                                                                                                                                                                                                         |
| - | if the number of shares to be issued to the buyer reaches an aggregate amount thatwould require shareholder approval under the principal market regulations (to theextent not previously obtained and then required) or otherwise cause us to breach theprincipal market rules and regulations;                                                                                                                                                                                |
| - | a default of any payment obligation of the Company in excess of $1.0 million; or                                                                                                                                                                                                                                                                                                                                                                                               |
| - | commencement of insolvency or bankruptcy proceedings by or against the Company.                                                                                                                                                                                                                                                                                                                                                                                                |

Upon the occurrence of the event of default, the buyer would no longer be obligated to purchaseany additional shares of stock.  The Company is currently in compliance with these criteria andexpects to continue to comply in the future.  The Company’s Registration Statement on Form S-1, SEC File No. 333-63846, effective date, June 29, 2001, relates to the shares of common stockbeing sold under that agreement.  As of September 30, 2001, the Company had received$250,000 under this agreement.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results ofOperations.

Background

Our management has determined to commit all of our available resources to the exploitation ofour Quick-Cell wireless Internet access products.  We currently lack the capital necessary toimplement our full-scale Quick-Cell business plan.

We were organized to operate in the wireless cable and community (low power) televisionindustries.  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 wirelesscable frequencies, we believe our frequencies possess future value.  However, these frequencieswill 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 were determined to be impaired andtheir $188,091 book value written off in December 2000.

Effective July 1, 1999, we assigned all of our television-related assets to New Wave MediaCorp., in exchange for a 15% ownership interest in New Wave common stock.  This businesssegment was discontinued as of that date and, since then, has not, and will not, generate anyrevenues.  Our board of directors has declared a dividend with respect to all of the New Waveshares.  These shares will be distributed to our shareholders, upon New Wave’s completion of aSecurities Act registration of the distribution transaction.  This registration proceeding has notbeen commenced by New Wave, due to a lack of funds necessary to pay related professionalexpenses.  New Wave has advised us that it is making its best efforts to obtain capital for thispurpose, 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 companynor were any  acquired from an affiliate.  All but one of these acquisitions were made for sharesof our stock.  All of these acquisitions were accounted for as a purchase, which means that wedid not include past operations of the acquired businesses in our historical statements ofoperations.  Also in connection with these acquisitions, we recorded large amounts ofamortizable customer base and goodwill values, as a result of the acquisitions’ valuationsexceeding the values of the tangible net assets.  At December 31, 2000, all of these assets werewritten 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-upoperations of our CyberHighway subsidiary, which has no remaining customers – please see thediscussion under “CyberHighway Bankruptcy” below.

Current Overview

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

In May 2001, we entered into an amended and restated common stock purchase agreement withFusion Capital Fund II, LLC.  This agreement replaced a similar agreement entered into inOctober 2000.  Pursuant to the agreement, Fusion Capital may purchase up to $10 million of ourcommon stock.  The shares of our common stock being issued under this agreement are thesubject to an effective registration statement, SEC File No. 333-63846.  As of September 30,2001, we had received $250,000 under our agreement with Fusion Capital.  Due to the currentlow market price for our stock, we have not obtained the maximum funding amount possibleunder this agreement, in an effort to avoid further downward pressure on our stock price.  Thishas impeded our ability to expand our Quick-Cell business operations.  We will remain in thisposition unless and until (1) our stock price increases significantly or (2) we secure funding froma source other than Fusion Capital, of which there is no assurance.  Please see the discussionunder the heading “Management’s Plans Relating to Future Liquidity”, for a more thoroughexplanation of the impact this agreement could have on our business.  As we obtain this funding,we will pursue our wireless Internet business plan.  In October 2001, we began company-ownedQuick-Cell operations in Del Rio, Texas, and have agreements with two resellers there.  We areapproaching 100 customers in Del Rio, and consumer response has been excellent.  However, ourcustomer growth will continue to be slowed by a lack of capital.  We have also completed theengineering efforts in four other South Texas towns.  We will not begin marketing our Quick-Cell service in these towns, until we stabilize our working capital situation.  We will continue toneed capital, as we continue to expand our wireless Internet business.  We may never possessenough capital to permit us to earn a profit.

As CyberHighway’s business has become defunct while in bankruptcy, we have determined notto attempt to revive our dial-up Internet access business and, for the foreseeable future, we haveabandoned development of our e-commerce business.

CyberHighway Bankruptcy

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

The January 1999 acquisition of CyberHighway fundamentally altered our company.  Our annualrevenues went from nearly zero to about $2.5 million.  Throughout 2000, operating losses atCyberHighway, primarily personnel costs and leased telephone-line charges, steadily increased,while revenues began to decrease slightly each quarter.  This trend continued until September2000.

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

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

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

However, the involuntary bankruptcy proceeding started the demise of CyberHighway’sbusiness, 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 tonone.  The filing of the involuntary bankruptcy and CyberHighway’s switch-over to the networkof Dialup USA were the primary causes of CyberHighway’s customer base demise.  We will notapply 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 ourintangible assets relating to those customers worthless.  The write-off of these intangible assetstotalled $4,814,272, net of deferred taxes, as reflected in our December 31, 2000, financialstatements.  Due to this change in operating environment, monthly revenues have decreasedsubstantially, and, accordingly, goodwill was impaired.  The write-down of goodwill totalled$4,425,037, as reflected in our December 31, 2000, statement of operations.

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 amountof indebtedness converted to common stock was $967,703.  Since August 2000, Mr. Loflin hasmade small loans to us to ease periods of restricted cash flow.  At September 30, 2001, we owedMr. Loflin $54,928.

Results of Operations

General.  By the end of February 2001, CyberHighway had lost all of its dial-up Internet accesscustomers and we do not foresee the revitalization of CyberHighway’s business.  You should notpurchase our common stock expecting that CyberHighway’s business will assist in making usprofitable.

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

For the first nine months of 2001, our revenues were dervied from our Quick-Cell wirelessInternet access system in Santa Fe, New Mexico.  With the demise of CyberHighway, any futurerevenues will be derived from sales of our Quick-Cell wireless Internet access service.  Wecurrently lack the capital necessary to pursue our Quick-Cell business plan on a full-scale basis,and we may never possess enough capital with which to exploit fully our Quick-Cell products,even though we have begun to obtain limited funds under our agreement with Fusion Capital.  Inthis circumstance, it is likely that we would never earn a profit.

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

Beginning in March 2000, we began initial Quick-Cell wireless Internet access operations inSanta 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 March2001, we began to bill the customers who had completed their one-year of free use; thesecustomers will not be charged for their service during the fourth quarter of 2001, as we retrofitthat system with our latest generation equipment.  We will begin charging these customers assoon as the upgrade is completed.  The lack of significant growth of our wireless Internet accessbusiness during 2000 and most of the first nine months of 2001 is due to the fact that ouravailable monies were applied to CyberHighway expenses and corporate overhead in 2000 andcorporate overhead in 2001.

Since September 30, 2001, we have begun Quick-Cell operations in Del Rio, Texas.  We arenearing 100 customers online, but our growth there has been slowed due to our lack of capital.We cannot predict the number of customers we will secure during the remainder of 2001.Should we begin to derive greater amounts of funds under the Fusion Capital agreement, ofwhich there is no assurance, we plan to construct additional Quick-Cell systems throughout 2002.

In the middle of 2000, we began marketing our Quick-Cell systems to local exchange telephonecompanies, independent telephone companies, digital subscriber line resellers and Internetservice providers.  We sold three Quick-Cell systems in a short time.  However, due to a lack ofcapital, this marketing effort was suspended.  No paying customers use these systems, due tocircumstances involving these companies that are beyond our control.  For all of 2001 and thefirst half of 2002, we do not expect to derive significant revenues from customer modem sales tothese Quick-Cell purchasers.

In cities in which we construct company-owned Quick-Cell systems, we intend to employtelephone marketing as the initial means for acquiring customers and, later, mass media.  We willemploy a sales force that will focus primarily on potential business customers.  This focus onbusiness customers is based on our management’s informal study of Internet usage by businessesversus home users that revealed businesses’ higher demand for high-speed Internet access.  Ourmanagement’s decision may prove to have been incorrect, which would significantly impair ourability 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 tosucceed without additional capital.

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

We have entered into a Quick-Cell reseller agreement with Wireless WebConnect!, Inc.  Due toissues within WebConnect that were out of our control, to date, we have not derived any benefitfrom this agreement.  However, after recent discussions with WebConnect, we expect to begin toimplement our agreement in late 2001 or early 2002, as it appears that WebConnect’s internalissues have been resolved to a point that it is now in a position to participate as a Quick-Cellreseller.

Under our Quick-Cell reseller agreement with WebConnect, we expect to derive revenues asfollows:

| - | 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 byWebConnect; and                                                                                                                                                                                                                                                                                                                                     |
| - | Monthly per-Quick-Cell-customer royalties – while we anticipate that this monthlyper-customer royalty will average approximately $12.00, we cannot assure you thatthe monthly per-customer royalty will be that high; in any event, given the number ofcustomers that can use a single Quick-Cell cell site, approximately 2,000, the lowestmonthly per-customer royalty to be paid by WebConnect will be about $9.00. |

Our revenues for all of 2001 will be significantly below those of 2000, since we no longer willderive revenues from the operations of CyberHighway and we have lacked capital with which toimplement a full-scale implementation of our Quick-Cell business plan.  In 2002, we willproduce significant revenues only if we are able to be successful in placing Quick-Cell servicecustomers online, of which there is no assurance, due to the uncertainty surrounding our level ofcapitalization to be derived under the Fusion Capital agreement.

Potential Rescission Claims.  Currently, 4,295,102 shares of our common stock with anaggregate assigned value of $4,496,363 may have been issued in violation of Section 5 of theSecurities Act.  Only 130,000 of these shares were issued for cash or underlie currentlyexercisable warrants, which were sold or will be sold for at total of $650,000 in cash.  It ispossible that each of the issuees of these shares has a potential claim for rescission of theirrespective issuance transactions. We do not possess capital with which to pay any such claims, ifasserted, and, if such claims are asserted, it is possible that our then-available capital wouldbecome impaired and our future operating results would likely suffer.

Nine Months Ended September 30, 2001, versus Nine Months Ended September 30, 2000.During the 2000 period, all of our revenues were generated by CyberHighway’s dial-up Internetaccess operations.  We derived our revenues from monthly customer payments for dial-upInternet access, which averaged approximately $18.00 per customer.  We also derived revenuefrom per-customer royalty payments from our CyberHighway affiliate-ISPs, which averagedapproximately $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.  Our Quick-Cell operations willcontinue to grow slowly, unless we obtain greater amounts of capital under the Fusion Capitalagreement or otherwise, of which there is no assurance.

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

Our operating results for the first nine months of 2001 and 2000 are summarized in the followingtable:

|                 | First Nine Months of 2001 | First Nine Months of 2000 |
|----------------------|---------------------------|---------------------------|
|                 |                      |                      |
| Revenues             | $4,604                    | $1,821,550                |
| Cost of goods sold   | 1,398                     | 811,452                   |
| Gross profit         | 3,206                     | 1,010,098                 |
| Operating expenses   | 2,164,555                 | 11,473,771                |
| Loss from operations | 2,161,349                 | 10,463,673                |
| Net loss             | 2,162,374                 | 9,065,037                 |

Our net loss of $2,162,374 for the 2001 period was significantly less than our net loss for the2000 period of $9,065,037.  This reduced net loss is attributable primarily to:

| - | Depreciation and amortization decreasing from $6,843,089 for the 2000 period to$27,231 for the 2001 period.  This reduction is due to the demise of CyberHighway’sbusiness and the write-off of all of our intangible assets associated with that business,which occurred during December 2000.  We no longer amortize those intangibleassets.                                                                                    |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| - | Professional fees decreased from $2,105,852 in the 2000 period to $1 ,460,446 in the2001 period.  A portion of the current period’s professional fees is due to theissuance of 800,000 shares as a commitment fee under a common stock purchaseagreement, which shares were valued at $248,000, as well as the monthlyamortization of various consulting agreements under which we issued stock forservices during 2000 and 2001. |
| - | Salary and commissions fell from $1,701,223 in 2000 to $553,296 in 2001.  Ourlower 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 tonone, now.                                                                                                                                                                      |
| - | Rent expense decreased from $161,298 during the 2000 period to $22,043 during the2001 period.  This large decrease is the result of our abandoning all leased premisesof CyberHighway, following the filing of the involuntary bankruptcy proceeding.Our monthly lease expense for 2002 is expected to remain at current levels.                                                                                                        |
| - | Advertising expense fell from $85,782 in 2000 to zero in 2001.  The reduction in thisline item is attributable to the demise of CyberHighway’s business, as well as ourlack of capital.                                                                                                                                                                                                                                           |
| - | Other expenses fell from $576,527 in 2000 to $101,539 in 2001.  The reduction inthis line item is attributable to the demise of CyberHighway’s business, as well as oursevere lack of capital during the last half of 2000 and most of 2001.                                                                                                                                                                                      |

Our statements of operations reflect an income tax benefit of $1,434,865 for the 2000 period andno such benefit for the 2001 period.  This income tax benefit was attributable to the difference inthe bases of our acquired customer bases for book versus tax purposes.  Since our intangibleassets were completely written-off as of December 31, 2000, we no longer derive any similarincome tax benefit.

During September 2001, our operations began to reflect the beginning our Quick-Cell operationsin Del Rio, Texas.  Our operations during the last quarter of 2001 will reflect revenues beingderived from customers having begun to be placed online.  However, we cannot predict ourresults of operations for the remainder of 2001.  Our revenues for all of 2001 will be substantiallybelow our 2000 revenues.

During the first nine months of 2001, we issued 1,330,000 shares of common stock under sixseparate consulting agreements; these shares were valued for financial accounting purposes atapproximately $450,000, in the aggregate.  This amount will be expensed in equal monthlyamounts during 2001 and 2002.  Subsequent to September 30, 2001, we have issued 760,000shares under two separate consulting agreements; these shares have been valued for financialaccounting purposes at approximately $150,000, in the aggregate, and will be expensed in equalmonthly amounts during the remainder of 2001 and a portion of 2002.

During the first three quarters of 2000, we issued 570,000 shares of common stock under sixseparate consulting agreements; these shares were valued for financial accounting purposes atapproximately $2,350,000, in the aggregate. This amount was expensed in equal monthlyamounts during 2000 and 2001.

Liquidity and Capital Resources

General.  Since our inception, we have had a significant working capital deficit.  Following theCyberHighway acquisition and until the recent demise of CyberHighway’s business, wegenerated significant monthly revenues, yet continued to have a working capital deficit.Currently, we are substantially illiquid.  Without additional capital, it is possible that we wouldbe forced to cease operations.

We are currently illiquid due to our not having received the maximum amount of cash availableunder the Fusion Capital agreement, which is due to the current low market price of our stock.We have not attempted to obtain the maximum amount of cash available, in an effort to avoidplacing further downward pressure on the market price of our stock.  We do not know when wewill begin to obtain an increased level of funds under the Fusion Capital agreement.  Until suchtime, or until we secure funds from another source, we will continue to be illiquid and able toachieve only slow growth of our Quick-Cell business.

Our Capital Needs.  To sustain our current level of operations for the next twelve months, wewill require additional capital of approximately $300,000.  To accomplish our goals of expandingour Quick-Cell business, we will require approximately$2.0 million.  If we are unable to obtainthis 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 wirelessInternet access business, including the construction of Quick-Cell systems.  When we refer to theconstruction 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 andconfiguration – projected average cost: $12,000; |
|---|-------------------------------------------------------------------------------------------------------------------------------------|
| - | Tower lease site – projected average cost: $500 per month;                                                                    |
| - | Direct T1 telephone line connection to the Internet – projected average cost: $1,200per month; and                            |
| - | Initial inventory of customer modems – approximate cost: $70,000.                                                             |

Each Quick-Cell cell site added to an existing system will cost approximately $12,000 for theserver 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.

However, in Del Rio, due to our lack of large sums of capital, we were able to re-design ourQuick-Cell system to achieve significant cost savings and built the first portion of that system,which included two server cells – the original plan having called for one server cell – forapproximately $18,000, and we have added a third server cell to this system, in response toconsumer demand.  However, we continue to lack capital with which to market our Quick-Cellservice aggressively.

If and when we begin to obtain the maximum amount of funds available pursuant to the FusionCapital agreement, we expect, then, to have enough money to pay for the construction of theinitial Quick-Cell cell site in at least three markets per month.  We cannot assure you that we willbe able to construct Quick-Cell cell sites at that rate or that we will ever possess adequate capitalwith which to engage in this level of activities.

In light of the relatively small amount of capital required to construct each Quick-Cell cell site,we believe that, once we begin to obtain substantial funds under the Fusion Capital agreement, ofwhich there is no assurance, we would possess enough capital to construct the initial Quick-Cellcell site and commence marketing activities in approximately 60 markets.  With the Quick-Cellconstruction permitted by this amount of capital, we will be able to determine whether ourQuick-Cell wireless Internet access business is a viable business, as presently offered.  However,even if we obtain all funds available under the Fusion Capital agreement, we would not possessadequate capital for us to pursue our complete Quick-Cell business plan, and we cannot assureyou that we will be able to obtain capital when needed.  Our inability to obtain further capitalwhen needed would lessen our chance of earning a profit, as we would become illiquid.

Proceeds from the Fusion Capital Agreement.  Beginning in July 2001, we began to receive thefirst funds of up to $10 million under our agreement with Fusion Capital.  To date, we havereceived approximately $350,000 under this agreement.  Assuming we receive the entire $10million under that agreement, of which there is no assurance, we anticipate that we will applythese 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 connectionwith the Fusion Capital agreement, be exercised, we would receive cash proceeds ofapproximately $2,540,000.  Funds received from the exercise of warrants would be used topurchase Quick-Cell equipment, to construct Quick-Cell systems, to market our Quick-Cellwireless Internet access service and for working capital.

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

Potential Rescission Claims.  Because we lack the capital to pay any potential claims forrescission that may be asserted by some of our shareholders, any such claim made against uscould negatively impact our ability to continue in business.  Currently, these claims relate to atotal of 4,295,102 shares valued at $4,496,363.  We do not possess capital with which to pay anysuch claims, if asserted, and, if such claims are asserted, it is possible that we would be forced tocease operations, as our then-available capital could become severely impaired.

September 30, 2001.  Historically, we have had a significant working capital deficit.  AtSeptember 30, 2001, our working capital deficit was $1,747,277, which is higher than our$1,517,164 deficit at December 31, 2000.  Increases in accrued payroll, other current liabilitiesand notes payable to shareholder were the primary causes of our larger working capital deficit.These increases in liabilities offset our receipt of cash pursuant to sales of securities ofapproximately $550,000 during the first three quarters of 2001.  Approximately 80% of ouraccounts payable are accounts payable of CyberHighway.  Without additional capital, ourworking capital deficit can be expected to become larger each quarter.

The following table sets forth our current assets and current liabilities at September 30, 2001, andDecember 31, 2000:

|                |                                    | 9/30/01   | 12/31/00  |
|---------------------|-----------------------------------------|-----------|-----------|
|                |                                    |      |      |
| Current Assets      | Cash                                    | $4,646    | $1,088    |
|                | Inventory                               | 245,323   | 246,721   |
|                |                                    |      |      |
| Current Liabilities | Disbursements in excess ofcash balances | $42,469   | $42,469   |
|                | Accounts payable                        | 1,494,816 | 1,472,030 |
|                | Accrued payroll                         | 287,684   | 158,262   |
|                | Other current liabilities               | 73,599    | 41,824    |
|                | Property dividends payable              | 43,750    | 43,750    |
|                | Notes payable tostockholder             | 54,928    | 6,638     |

Our accrued payroll at September 30, 2001, as well as at December 31, 2000, is attributableprimarily 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 $54,928 atSeptember 30, 2001, represents loans made to us by our president, David M. Loflin.  All of thisindebtedness is due on demand and bears interest at 8% per annum.  The funds loaned during thefirst nine months of 2001 were used primarily for operating expenses.  Mr. Loflin has advised usthat he does not intend to demand payment of his loans, until their repayment would notadversely affect our financial position.  Without outside funding, it is possible that Mr. Loflinmay 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 three quarters of 2001, we obtained a total of$552,000 in cash from sales of our securities, including $250,000 under our agreement withFusion Capital.

The funds received were used for working capital and for the initial costs associated with theestablishment of a new company-owned Quick-Cell wireless Internet access system in Del Rio,Texas.

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

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

Cash Flows from Operating Activities.  During the first three quarters of 2001, our operationsused $584,572 in cash compared to cash used of $355,815 during the first three quarters of 2000.In both periods, the use of cash in operations was a direct result of the lack of revenues comparedto our operating expenses, particularly salary and commissions.  The lack of CyberHighwayoperations during 2001 has caused our increased use of cash.  We do not expect operatingactivities to provide cash for all of 2001 and, due to the uncertainty of the timing of our obtainingfuture capital, we cannot predict whether our operations will provide cash during the first half of2002.

Cash Flows from Investing Activities.  During the 2001 period, our investing activities used$4,160 in cash.  This low amount is the direct result of our lack of capital throughout 2001.  Inthe 2000 period, we used cash of $400,483 in our investing activities, where our equipmentpurchases were offset, in part, by cash acquired in acquisitions.  We cannot predict our cashflows from investing activities for the remainder of 2001 or for the first half of 2002, although itmay be significant, due to our agreement with Fusion Capital.

Cash Flows from Financing Activities.  For the first three quarters of 2001, our financingactivities provided $592,290 in cash.  Of this amount, $48,290 is attributable to loans from ourpresident and $552,000 is attributable to sales of securities, which was offset in small measure byour payment of a finder’s fee of $8,000.  For the first three quarters of 2000, our financingactivities provided $762,887 in cash, $240,000 of which is attributable to sales of our securitiesand $539,890 of which is attributable to loans from our president.  We continue to seek capitaland cannot, therefore, predict future levels of cash flows from financing activities, although weexpect to derive significant cash under our agreement with Fusion Capital at an undeterminedtime in the future, which uncertainty is caused by our current low stock price and ourdetermination to attempt to avoid placing further downward pressure on our stock price.

Management’s Plans Relating to Future Liquidity

To sustain our current level of operations for the next twelve months, we will require additionalcapital of approximately $300,000.  To accomplish our goals of expanding our Quick-Cellbusiness, we will require approximately$2.0 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 futuremarket 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 tradingday during the agreement;                                                                                                                             |
| - | Should our stock price be $5.00 or higher for five consecutive trading days, we havethe 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 haveobtained Fusion Capital's prior written consent. |

Should we obtain approximately $2.0 million under the Fusion Capital agreement, we expect thatwe 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% forwireless Internet equipment and approximately 60% for needed equipment in our networkoperations center.  We currently have no capital with which to make any significant capitalexpenditures.  If we are ever able to obtain significant amounts of funds under the Fusion Capitalagreement, we will be able to make major expenditures on Quick-Cell-related equipment, asdescribed above.  However, without additional capital, we will make no capital expenditures.

CERTAIN STATEMENTS CONTAINED IN THIS “MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” ARE“FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATESECURITIES 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 RESULTSTO DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BYSUCH FORWARD-LOOKING STATEMENTS.  THE MOST SIGNIFICANT OF SUCHRISKS, UNCERTAINTIES AND OTHER FACTORS IS OUR ABILITY TO OBTAINCAPITAL IN AMOUNTS NECESSARY FOR US TO ACCOMPLISH OUR PLAN FOR THEEXPLOITATION OF OUR QUICK-CELL WIRELESS INTERNET ACCESS PRODUCTS, ASWELL 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 inthe Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454.  Thepetitioning creditors were ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith.  InDecember 2000, CyberHighway and the petitioning creditors filed a joint motion to dismiss thisproceeding.  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 unasserteddamage claims against the original petitioning creditors and their law firm and a claim againstDialup USA, Inc. represent CyberHighway’s most valuable assets.  These as-yet unassertedclaims include claims for bad faith filing of the original bankruptcy petition as to the originalpetitioning creditors and their law firm, as well as claim for tortious interference with beneficialbusiness relationships as to Dialup USA, Inc.  The objecting creditors desire that these claims beadjudicated in the bankruptcy court.  It is likely that, at some time in the future, a final order ofbankruptcy will be entered with respect to CyberHighway, no prediction of the timing of such anorder can be made, although we believe that such an order would come only after the finaladjudication of the claims described above.

Other Litigation

In November 2000, CyberHighway requested and received a temporary restraining order againstDarrell Davis, formerly one of our officers, and his wife, Deanna Davis.  We have alleged thatthe Davises have diverted dial-up customers from CyberHighway to a company controlled byhim, all while he was an employee of USURF America.  We expect that a hearing for our motionfor a permanent injunction will occur in the very near future.  In addition, we are seekingmonetary damages in this action.  This case is in its early stages and no prediction as to its finaloutcome 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, Parishof East Baton Rouge, State of Louisiana.

In January 2001, we instituted arbitration proceedings against Christopher L. Wiebelt, our formervice president of finance and chief financial officer.  We have alleged that Mr. Wiebelt violatedcertain terms of his employment agreement and are seeking damages resulting from thoseviolations.  This case is styled: USURF America, Inc. versus Christopher L. Wiebelt, AmericanArbitration Association, Case No. 71-160-00087-01 and is scheduled for hearing in December2001.  No prediction as to its outcome can be made.

Possible Claim

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

Potential Legal Proceeding

In addition to CyberHighway’s cause of action against Dialup USA, it is the intention of USURFAmerica to pursue damage claims against Dialup USA for tortiously interfering with thebeneficial business relationships between CyberHighway and its customers.  These claims ariseout of Dialup USA’s actions on behalf of one of our former officers, which were designed todivert customers to a company controlled by him.  Our claim against Dialup USA will be forapproximately $2 million.  We have not established a date by which we intend to commence thislegal proceeding. 

Item 2.  Changes in Securities.

During the three months ended September 30, 2001, we issued securities as follows:

     1.(a) Securities Sold.  In July 2001, we issued 300,000 shares of Common Stock.

       (b) Underwriters and Other Purchasers.  Such shares were issued to Peter Rochow.

       (c) Consideration.  Such shares were issued pursuant to a consulting agreement and valued at$.33 per share.

       (d) Exemption from Registration Claimed. The Company relied upon the exemption fromregistration afforded by Regulation S promulgated under the Securities Act of 1933, as amended.

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

     2.(a) Securities Sold.  In July 2001, we issued 200,000 shares of Common Stock.

       (b) Underwriters and Other Purchasers.  Such shares were issued to Newlan & Newlan,Attorneys at Law.

       (c) Consideration.  Such shares were issued for professional services rendered and valued at$.33 per share.

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

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

     3. (a) Securities Sold.  In July 2001, we issued 5,000 shares of Common Stock.

       (b) Underwriters and Other Purchasers.  Such shares were issued to Lionel J. Colbert

       (c) Consideration.  Such shares were issued as an employment bonus and valued at $.41 pershare.

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

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

     4. (a) Securities Sold.  In July 2001, we issued 100,000 shares of Common Stock.

       (b) Underwriters and Other Purchasers.  Such shares were issued to Slade S. Maurer.

       (c) Consideration.  Such shares were issued as an employment bonus and valued at $.41 pershare.

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

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

  5. (a)  Securities Sold.  In July 2001, 20,500 shares of Company Common Stock were issued.

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

     (c)   Consideration.  Such shares of Common Stock were issued pursuant to a finder’s feeagreement, at a price of $.20 per share.

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

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

  6. (a)  Securities Sold.  In July 2001, 336,000 common stock purchase warrants of the Companywere 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 afinder’s fee agreement.

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

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

  7. (a)  Securities Sold.  In August 2001, 300,000 shares of Company Common Stock wereissued.

     (b)  Underwriter or Other Purchasers.  Such shares of Common Stock were issued to WallStreet Marketing Group, Inc.

     (c)   Consideration.  Such shares of Common Stock were issued pursuant to a consultingagreement and valued at $.31 per share.

     (d)  Exemption from Registration Claimed.  The Company relied upon the exemption fromregistration afforded by Section 4(2) of the Securities Act of 1933.

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

  8. (a)  Securities Sold.  In August 2001, 100,000 common stock purchase warrants of theCompany were issued.

     (b)  Underwriter or Other Purchasers.  Such warrants were issued to Wall Street MarketingGroup Inc.

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

     (d)  Exemption from Registration Claimed.  The Company relied upon the exemption fromregistration afforded by Section 4(2) of the Securities Act of 1933, as amended.

      (e) Terms of Conversion or Exercise.  Exercise price of the warrants is $2.00 per share andexercisable for a period of three years from issuance.

  9. (a)  Securities Sold.  In August 2001, 100,000 common stock purchase warrants of theCompany were issued.

     (b)  Underwriter or Other Purchasers.  Such warrants were issued to Wall Street MarketingGroup Inc.

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

     (d)  Exemption from Registration Claimed.  The Company relied upon the exemption fromregistration afforded by Section 4(2) of the Securities Act of 1933, as amended.

      (e) Terms of Conversion or Exercise.  Exercise price of the warrants is $4.00 per share andexercisable for a period of three years from issuance.

  10. (a)  Securities Sold.  In August 2001, 100,000 common stock purchase warrants of theCompany were issued.

     (b)  Underwriter or Other Purchasers.  Such warrants were issued to Wall Street MarketingGroup Inc.

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

     (d)  Exemption from Registration Claimed.  The Company relied upon the exemption fromregistration afforded by Section 4(2) of the Securities Act of 1933, as amended.

      (e) Terms of Conversion or Exercise.  Exercise price of the warrants is $6.00 per share andexercisable for a period of three years from issuance.

  11. (a)  Securities Sold.  In September 2001, 400,000 shares of Company Common Stock wereissued.

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

     (c)   Consideration.  Such shares of Common Stock were issued pursuant to a consultingagreement and valued at $.17 per share.

     (d)  Exemption from Registration Claimed.  The Company relied upon the exemption fromregistration afforded by Section 4(2) of the Securities Act of 1933.

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

  12. (a)  Securities Sold.  During July and August 2001, a total of 1,102,974 shares of CompanyCommon Stock were issued.

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

     (c)   Consideration.  Such shares of Common Stock were sold pursuant to an amended andrestated common stock purchase agreement and sold at then-current market prices.

     (d)  Exemption from Registration Claimed.  The Company relied upon the exemption fromregistration afforded by Section 4(2) of the Securities Act of 1933.

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

Subsequent to September 30, 2001, the Company has issued unregistered securities, as follows:

  1. (a)  Securities Sold.  In October 2001, 300,000 shares of Company Common Stock wereissued.

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

     (c)   Consideration.  Such shares of Common Stock were issued pursuant to a consultingagreement and valued at $.20 per share.

     (d)  Exemption from Registration Claimed. The Company relied upon the exemption fromregistration afforded by Regulation S promulgated under the Securities Act of 1933, as amended.

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

  2. (a)  Securities Sold.  In October 2001, 460,000 shares of Company Common Stock wereissued.

     (b)  Underwriter or Other Purchasers.  Such shares of Common Stock were issued to Euro-Swiss Group Ltd.

     (c)   Consideration.  Such shares of Common Stock were issued pursuant to a consultingagreement and valued at $.20 per share.

     (d)  Exemption from Registration Claimed. The Company relied upon the exemption fromregistration afforded by Regulation S promulgated under the Securities Act of 1933, as amended.

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

  3. (a)  Securities Sold.  In October 2001, 700,000 shares of Company Common Stock wereissued.

     (b)  Underwriter or Other Purchasers.  Such shares of Common Stock were issued to DavidM. Lolfin.

     (c)   Consideration.  Such shares of Common Stock were issued as an employment bonus andvalued at $.20 per share.

     (d)  Exemption from Registration Claimed.  The Company relied upon the exemption fromregistration afforded by Section 4(2) of the Securities Act of 1933.

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

Item 3.  Defaults upon Senior Securities.

None.

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

None.

Item 5.  Other Information.

None.

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

(a)  Exhibits.

None.

(b)  Reports on From 8-K.

During the three months ended September 30, 2001, we filed a Current Report on Form 8-K, onor about July 2, 2001, in which we reported the effectiveness of a registration statement, SECFile No. 333-63846.

SIGNATURES

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

Dated: November 19, 2001.

USURF AMERICA, INC.

| By: David M. LoflinDavid M. LoflinPresident and ActingPrincipal FinancialOfficer |   |
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