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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB

(Mark One)

|X|   ANNUAL REPORT UNDERSECTION 13OR15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

                   For the fiscal year ended December 31, 2004

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934


For the transition period from                   to
                              ------------------------------------------------.


Commission file number 001-15383
                      --------------------------------------------------------.

                               Usurf America Inc.
------------------------------------------------------------------------------.
                 (Name of small business issuer in its charter)

             Nevada                                    91-2117796
-------------------------------.           ------------------------------------.
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)


390 Interlocken Crescent, Suite 900, Broomfield, CO              80021
---------------------------------------------------        -------------------.
(Address of principal executive offices)                       (Zip Code)


Issuer's telephone number (303) 285-5379
                         ----------------------------.


Securities registered under Section 12(b) of the Exchange Act:
Title of each class                    Name of each exchange on which registered

Common Stock                                    OTC Bulletin Board
---------------------------------      ----------------------------------------.


Securities registered under Section 12(g) of the Exchange Act: None.

                           Common and Preferred Stock

As of December 31, 2004, there were 202,775,188 shares of the issuer's common
stock issued and outstanding and 10,000 shares of the issuer's Series A
Convertible Preferred Stock issued and outstanding. As of March 25, 2005, there
were 229,155,297 shares of the issuer's common stock issued and outstanding,
10,000 shares of the issuer's Series A Convertible Preferred Stock issued and
outstanding and 100,000 shares of the Registrant's Series B Convertible
Preferred Stock issued and outstanding.

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. |X| Yes |_| No


      SEC 2337 (8-04)    Persons who are to respond to the collection of
                         information contained in this form are not required to
                         respond unless the form displays a currently valid OMB
                         control number.


                                       1-
<PAGE>

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

      State issuer's revenues for its most recent fiscal year were $6,479,420.

      State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.)

At March 24, 2005 there were 185,679,477 Shares held by non-affiliates with an
aggregate market value of $15,782,756.

Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.



                       DOCUMENTS INCORPORATED BY REFERENCE



None.

   Transitional Small Business Disclosure Format (Check one): Yes |_| : No |X|


                                       2-
<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE COMPANY
The Company was incorporated on November 1, 1996, under the name "Media
Entertainment, Inc." In July 1999 the name was changed to "USURF America, Inc."
Our headquarters are located at 390 Interlocken Crescent, Suite 900, Broomfield,
Colorado 80021; our telephone number is (303) 285-5379.

CURRENT OVERVIEW
During 2004 we continued to implement and expand our business plan beyond solely
offering wireless Internet access service. We currently operate as a provider of
voice (telephone), video (cable television) and data (Internet) services to
business and residential customers.

In February 2004 the Company acquired certain assets of the Sovereign Companies,
LLC for stock. The purchase price under the various agreements was $479,770,
generally for subscribers, equipment and other assets. In connection with these
agreements, we issued a total of 5,203,870 shares of common stock

During the first quarter 2004, we borrowed an additional $543,000 under a
convertible loan agreement executed in 2003, bringing the balance under this
agreement to $600,000. The loan(s) were due one year from funding, bore interest
at ten percent (10%) per annum and were convertible into common stock of the
Company at a conversion price of $0.15 per share. Additionally, the agreement
called for the issuance of two warrants with an exercise prices of $0.18 and
$0.26 respectively for each share converted. The balance due under this
agreement was converted into 5,000,000 shares of common stock.

In March 2004, we completed the closing of two private placements totaling
$3,095,000. The placements consisted of $1,000,000 in common stock at $0.10 per
share, $2,095,000 in convertible debentures convertible into common stock at
$0.10 per share, with 125% warrant coverage at an exercise price of $0.12 per
share. The convertible debentures, if not converted, are due September 15, 2005
and bear interest at six percent (6%) payable quarterly. Under the terms of the
private placement, the investors have the right to purchase up to an amount
equal to, at the election of such investors, $3,000,000 principal amount of
additional debentures. Any additional investment will be on terms identical
those set forth in the private placement.

During the second quarter of 2004, we completed the closing of an additional
private placements totaling $1,575,000, consisting of $1,575,000 in convertible
debentures convertible into common stock at $0.08 per share, with 75% warrant
coverage at an exercise price of $0.12 per share. The convertible debentures, if
not converted, are due June, 2006 and bears interest at eight percent (8.0%)
payable quarterly. Under the terms of these private placements, the investors
have the right to purchase up to an amount equal to, at the election of such
investors, $1,500,000 principal amount of additional debentures. Any additional
investment will be on terms identical those set forth in the private placements.

In April 2004, we acquired all of the issued and outstanding common stock of
Connect Paging, Inc. d/b/a Get-A-Phone ("GAP"). The purchase price consisted of
$2,000,000 in cash and 15,000,000 shares of the Company's common stock. GAP
operates as a competitive local exchange carrier in Texas offering local and
long distance telephone services.

Effective in May 2004 the Company sold Children's Technology Group, Inc., dba
MomsandDads, to ZKID Network Company (OTCBB: ZKID). The terms of the sale
provided for ZKID to pay the Company $600,000 in stock consideration (the
"Purchase Price'). At closing the Company received 4,000,000 shares of ZKID
common stock valued at $0.15 per share. The terms of the purchase and sale
agreement provide that if the shares issued to the Company do not have a market
value of at least $600,000, then ZKID would issue additional shares to the
Company for the difference.

During the third quarter of 2004, we closed two additional private placements
totaling $750,000, consisting of $750,000 in convertible debentures convertible
into common stock at $0.05 per share. The convertible debentures, if not
converted, are due June, 2006 and bear interest at twelve percent (12.0%)
payable quarterly. Under the terms of these private placements, the investors
have the right to purchase up to an amount equal to, at the election of such
investors, $750,000 principal amount of additional debentures. Any additional
investment will be on terms identical to those set forth in the private
placements.

Our business plan involves obtaining, through internal growth, as many video and
data customers as possible. Our growth strategy also includes acquisitions of
telecommunications-related businesses and/or properties which would provide an
immediate or potential customer base for our services.

INDUSTRY BACKGROUND.
The Internet, commonly known as the World Wide Web, or simply the Web, is a
collection of connected computer systems and networks that link millions of
public and private computers to form, essentially, the largest computer network
in the world. The Internet has experienced rapid growth in recent years and is
expected to continue its growth, which is why we continue to develop our,
broadband Internet access service business.


                                       3-
<PAGE>

The United States cable and telecommunications industry is large and robust. In
recent years the industry has changed from a provider of a single product,
analog CATV, into a competitive provider of multiple entertainment, information
and telecommunications services. The new broadband infrastructure has allowed
companies to expand into services such as telephony, high-speed Internet access
and digital CATV.

The telephone industry has gone through a series of changes starting with the
Telecommunications Act of 1996 (Telcom Act) that allowed companies to compete
with the Regional Bell Operating Companies (RBOC's). The Telcom Act generally
required the RBOC's to open their networks to Competitive Local Exchange
Companies (CLEC'S) and allow for CLEC's to purchase network elements or resell
RBOC services at a discount.

As a result of technological and regulatory changes that have occurred over the
past few years, smaller companies have been able to compete more effectively in
the CATV and telephony markets traditionally dominated by larger companies. This
shift has enabled companies like ours to become effective competitors to the
franchised local cable television operators in the cable television and
telephony markets. In particular, the potential market for servicing MDU's,
MTU's and MPC's remains largely undeveloped, creating significant opportunities
for alternative providers, like us, with the technological, operational,
marketing and administrative ability to manage growth effectively. Based on its
industry experience, our management has determined that there is a growing
market for alternative telecommunications providers to obtain agreements with
property owners and developers.

OUR BUSINESS
We currently operate as a provider of voice (telephone), video (cable
television) and data (Internet) services to business and residential customers.
Our business plan involves the bundling of voice, video and internet services
which enables us to better negotiate and obtain right of entry (ROE) agreements
with owners of Multiple Dwelling Units (MDU's), commercial properties or
multiple tenant units (MTUs) and developers for rights to provide services to
master planned communities (MPC's). We plan to expand and market our operations
by obtaining new agreements through internal sales efforts, as well as through
the acquisition of other communications companies.

We also offer a telephone package consisting of local, long distance and
enhanced telephone services to residential customers in Texas. Our marketing is
provided through an agent program and direct advertising. We plan to expand this
service to other states as well as through the acquisition of other
communications companies.

TELEPHONE (VOICE) SERVICES
At December 31, 2004 we principally provide telephone service in Texas through
our subsidiary Connect Paging, Inc. d/b/a Get A Phone (GAP). GAP is a
Competitive Local Exchange Carriers (CLECs) and is subject to regulation by the
Texas Public Utilities Commissions (PUC).

CABLE TELEVISION (VIDEO) SERVICES
The Company currently operates as a private cable operator (PCO) whereby it is
not subject to franchise regulations. However, through the Company's subsidiary,
USURF TV., the Company has applied for a franchise in Elbert County Colorado.

We deliver our cable television services by re-transmitting programming signals
via antenna and principal head-end electronic equipment that receive and process
signals from satellites, via both analog and digital transmissions. Currently,
we obtain our programming through program access agreements with the National
Cable Television Cooperative (NCTC), DirecTV, Headend in the Sky (HITS), Dish
Network and direct contracts with other content providers. We also process and
distribute off-air transmission signals from local network affiliates and
independent television stations. For analog services, our system architecture
generally eliminates the need for set-top converter boxes when it is connected
to cable-ready television sets, and enables us to activate service for
subscribers without entering into an apartment. For digital services, a set-top
converter box is required. In the future, we plan to employ the technology that
provides the most attractive return on invested capital without compromising
service.

We offer our subscribers a complete array of popular cable television
programming at competitive prices. Our expanded basic retail prices generally
approximate the rates charged by the incumbent franchise CATV operators, and
includes uninterrupted full-length motion pictures, regional sports channels,
sporting events, concerts and other entertainment programming. Premium channels,
including HBO(TM), Cinemax(TM) and Showtime(TM) are generally offered
individually or in discounted packages with basic or other services. Digital
service can be added and includes additional expanded basic channels, music
channels, multiplex premium channels, pay-per-view availability and an
interactive programming guide.


                                       4-
<PAGE>

INTERNET (DATA) SERVICES
Wireless Internet Access
"Wireless Internet" is a relatively new type of communications spectrum
designated by the Federal Communication Commission (FCC). Wireless Internet
access requires a transmission facility maintained by an ISP employing a
wireless system and the user's modem (a transmitter/receiver modem) equipped
with an antenna. Wireless Internet capability allows users to access the
Internet from a stationary computer or, in some situations, from a mobile,
lap-top computer. Prior to the arrival of our new management, in April 2002, we
marketed our proprietary wireless Internet access system under the "Quick-Cell"
brand name. Our management has continued to market our wireless communications
products under the "Quick-Cell" name, but no longer relies on a proprietary
product design. We now use a combination of "off-the-shelf" components and the
Company's new proprietary IP based software technology in constructing a
wireless Internet system and delivering our wireless Internet services to
customers. This change in equipment strategy, is based on our management's
belief that the off-the-shelf components coupled with its new proprietary IP
technology, offer greater reliability and greater certainty of supply. The
Company's new Quick Cell line will support all equipment meeting Wi-Fi (wireless
fidelity) 802.11(x) standards operating in the unlicensed 2.4, 5.2 and 5.8GHz
802.11(x) spectra, and can be deployed far less expensively than other wireline
and cable technologies.

Current Markets
We are currently developing a network backbone and support infrastructure that
will serve the front range of Colorado from Greeley to Pueblo including the
large municipalities of Denver and Colorado Springs. Our progress has been
slowed due to our need to create the required network and systems to provide a
quality service. We currently provide video (cable TV) and high-speed, broadband
internet access to multiple MDUs and MTUs in Denver and Colorado Springs. We
have begun to market these services to office building owners and property
managers who may be interested in providing our internet access service to their
tenants on a building-wide basis.

In addition to our Denver and Colorado Springs operations, we have entered into
agreements with developers to provide video, voice and data services to
properties in northern Colorado.

Cable Access
We are able to offer high-speed internet dedicated service via cable modems
using the existing cable infrastructure at certain MDU properties. The
properties are connected to the internet via T-1 telephone lines leased from
bandwidth providers.

Intellectual Property Sales
In October 2003 we acquired all the assets of Children's Technology Group (CTG),
a Golden, Colorado based Internet portal providing a content-protected online
environment for children. CTG's flagship product is Garfield Island(TM),
available via download at www.GarfieldIsland.com , and features the world-famous
cartoon cat. This acquisition was completed with a combination of cash and
common stock. In October 2003 the Company entered into an agreement to license
certain software acquired in the CTG purchase to ZKid Network company (OTC
Bulletin Board: ZKID). The Company provided ZKid Network Company's product with
an additional layer of security and greater empowerment to parents for the
soon-to-be released KidsKeep Safe Internet Software Program. The terms of the
agreement called for a license fee payment of $485,000 paid with a combination
of $25,000 cash and two million shares of stock.

Effective in May 2004, the Company sold Children's Technology Group, Inc., dba
MomsandDads, to ZKID Network Company (OTCBB: ZKID). The terms of the sale
provided for ZKID to pay the Company $600,000 in stock consideration (the
"Purchase Price'). At closing the Company received 4,000,000 shares of ZKID
common stock valued at $0.15 per share. The terms of the purchase and sale
agreement provide that if the shares issued to the Company do not have a market
value of at least $600,000, then ZKID would issue additional shares to the
Company for the difference.


Our Sales and Marketing Strategy
For our bundled (voice, video and/or data) telecommunications services, we
target MDU properties and planned community developments and the residents
living there. Our selling cycle for obtaining "right-of-entry" (ROE) agreements
that will permit us to offer our services to MDU tenants includes proposal
presentation, contract negotiations and service implementation, a cycle that can
require up to nine months. While we plan to bolster our growth through
acquisitions, securing new ROE agreements through direct marketing efforts is an
integral part of our strategy to grow and achieve operating efficiencies and
positive cash flow.

While royalty arrangements encourage property owners to enter into ROE
agreements with us, we believe that delivery of competitive products and
superior customer service that are targeted to our MDU niche market are the key
to obtaining ROE agreements. We use a marketing strategy whereby we concentrate
on entering into ROE agreements with the large national owners of high-quality
MDU properties that own properties in our markets, in conjunction with marketing
our services to smaller owners whose properties typically lie within a single
geographic market.

We offer property owners and management companies a great amenity that promotes
increased occupancy, as well as an attractive new revenue source in the form of
royalties. Under the ROE agreements, property owners generally are paid a
percentage of net monthly receipts collected for services delivered to
subscribers on a property. The percentage paid to property owners under this
arrangement typically varies, depending upon the total number of subscribers to
our services in relation to the total number of dwelling units on a property. We
attempt to focus our efforts on negotiating long-term ROE agreements with owners
of MDU portfolios, because we believe that strategic relationships with these
owners are critical to market penetration and long-term success. These ROE
agreements, to date, generally provide for a term of seven to 20 years and give
us the right to be the preferred provider of voice, video and/or data services
on the subject property. The property owner typically agrees to market and
promote our services on a property.


                                       5-
<PAGE>

Once we have obtained the ROE agreement and services have been activated on the
property, we utilize the on-site leasing personnel to market the services to the
residents, which typically takes place at the time the residents sign their
leases. The services are packaged at competitive prices, with discounts for
signing-up for two or more services. For the resident, this easy sign-up process
eliminates the need for them to contact several different service providers, and
saves them money and time. In addition, we attempt to schedule service
installations prior to the move-in date of the resident. This eliminates the
inconvenience for the resident of having to meet the installation technicians,
as is the case with the competition. All of our services are billed on a single
invoice, and the resident only has one company to contact for any questions or
concerns. We believe that the combination of convenience, savings, and quality
service presented to the resident at the time of move-in is a very powerful
marketing advantage. Additionally, the leasing agents are given an incentive to
sell the services, since we pay them commissions (directly or through the
property owner's management company) for signing up residents. The leasing
agents are trained by us and are provided with marketing and other support
literature to facilitate sales of the products and services.

Our acquisition strategy is to pursue properties that we can acquire for costs
comparable to or below those of a standard build-out. These generally tend to be
ROE agreements held by small private telecommunications providers.

Key Suppliers
We currently have agreements with Redline Performance Management Group
(Redline), the National Cable Television Cooperative (NCTC) and DirecTV for
cable television programming. While alternative suppliers do exist for analog
and digital cable programming, these alternatives are either not as robust
and/or are not as economically advantageous as the product(s) offered by these
programming suppliers. As a result, if we were required to replace Redline, NCTC
and DirecTV for any reason, it is likely we would not be able to offer our
current programming packages to tenants or that the cost of providing these
packages would significantly increase.

Customer Service and Support
We are committed to the highest levels of customer satisfaction. We believe that
maintaining high levels of customer satisfaction will remain as a key
competitive factor. Currently, we provide customer support during normal
business hours and after hours support through a third party, ensuring that our
customers will always be able to reach support services.

Competition
The market for cable television, internet and telephony services is extremely
competitive. Under the terms of our ROE agreements, we generally are required to
provide products and services that are competitive with those offered by other
providers. We compete for customers on the basis of price, services offered and
customer service. Local franchised cable television providers, such as Comcast
and Adelphia, represent our principal competition. These competitors are
typically very large companies with significantly greater resources than ours.

While technology and regulatory changes have allowed companies like us to
compete more effectively with the incumbents, there is no assurance that we will
be able to develop and execute upon financially viable business models. As is
the case with us, telecommunications service providers like us have greater
flexibility to customize their products and services than their competition, but
they typically pay higher programming costs than the local franchise cable
television providers and do not have the scale of those businesses to absorb
fixed administrative, customer service and field operations costs. Additionally,
companies like us that serve MDUs incur the higher churn associated with these
residents (the average life cycle of an apartment resident is 18 months vs.
seven years for a single-family housing resident), which results in a greater
percentage of marketing costs and customer service calls than those of the
incumbent providers.

We believe that the primary competitive factors determining success as an
Internet access provider are: a reputation for reliability and high-quality
service; effective customer support; access speed; pricing; effective marketing
techniques for customer acquisition; ease of use; and scope of geographic
coverage. We believe that we will be able to address adequately all of these
factors, except that we will not be able to offer scope of geographic coverage
for the foreseeable future. It is also possible that we will not address any of
these competitive factors successfully. Should we fail to do so, our business
would likely never earn a profit.

We face competition from other internet access providers, as well as large,
national providers of telecommunications service providers who are beginning to
enter this market.


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The market for internet access services, in which our internet access service
will compete, is extremely competitive and highly fragmented. Current and
prospective competitors include many large, nationally-known companies that
possess substantially greater resources, financial and otherwise, market
presence and brand name recognition than do we. We currently compete, or expect
to compete, for the foreseeable future, with the following: national Internet
service providers, numerous regional and local Internet service providers, most
of which have significant market share in their markets; established on-line
information service providers, such as America Online, which provide basic
Internet access, as well as proprietary information not available through public
Internet access; providers of web hosting, co-location and other Internet-based

business services; computer hardware and software and other technology companies
that provide Internet connectivity with their products; telecommunications
companies, including global long distance carriers, regional Bell operating
companies and local telephone companies; operators that provide Internet access
through television cable lines; electric utility companies; communications
companies; companies that provide television or telecommunications through
participation in satellite systems; and, to a lesser extent, non-profit or
educational Internet access providers.

With respect to potential competitors, we expect that manufacturers of computer
hardware and software products, as well as media and telecommunications
companies will continue to enter the Internet services market, which will serve
to intensify competition. In addition, as more consumers and businesses increase
their Internet usage, we expect existing competitors to increase further their
emphasis on Internet access and electronic commerce initiatives, resulting in
even greater competition. The ability of competitors or others to enter into
business combinations, strategic alliances or joint ventures, or to bundle their
services and products with Internet access, could place us at a significant
competitive disadvantage. We currently lack capital necessary to compete
effectively and we may never obtain enough capital to permit us to compete
effectively in our markets.

Moreover, we expect to face competition in the future from companies that
provide connections to consumers' homes, such as telecommunications providers,
cable companies and electrical utility companies. For example, recent advances
in technology have enabled cable television operators to offer Internet access
through their cable facilities at significantly higher speeds than existing
analog modem speeds. These types of companies could include Internet access in
their basic bundle of services or offer such access for a nominal additional
charge. Any such developments could reduce our market share, thereby impairing
our ability to earn a profit.

Regulation
General
Our future telecommunications business is subject to regulations under both
state and federal telecommunications laws which are fluid and rapidly changing.
On the state level, rules and policies are set by each state's Public Utility
Commission or Public Service Commission (collectively, PUC). At the federal
level, the Federal Communication Commission (FCC), among other agencies,
dictates the rules and policies which govern interstate communications
providers. The FCC is also the main agency in charge of creating rules and
regulations to implement the 1996 Telecommunications Act (the "1996 Act").

The PUC reviews and must approve all CLEC transfers, which may impact all of our
potential CLEC acquisitions.

Telephony Regulation
The 1996 Act opened the local telecommunications markets to competition by
mandating the elimination of many legal, regulatory, economic and operational
barriers to competitive entry. These changes provided us with new opportunities
to provide local telephone services on a more cost-effective basis. During 2004
certain court decisions were rendered that adversely affect the ability of
CLEC's to purchase unbundled network element platforms (UNE-P). GAP provides a
portion of its service to customers under UNE-P arrangements with SBC
Corporation. GAP has begun migrating its UNE-P customers to resale lines
provided by SBC. This change may reduce the margins associated with these
customers.

Cable Television Regulation
Regulatory Status and Regulation of Private Cable Operators. Franchise cable
operators are subject to a wide range of FCC regulations regarding such matters
as the rates charged for certain services, transmission of local television
broadcast signals, customer service standards/procedures, performance standards
and system testing requirements. In addition, the operator's franchise, which
can be issued at the municipal, county or state level, typically imposes
additional requirements for operation. These relate to such matters as
construction, provision of channel capacity and production facilities for public
educational and government use, and the payment of franchise fees and the
provision of other "in kind" benefits to the city.

The operator of a video distribution system that serves subscribers without
using any public right-of-way, as we do, referred to generally as a private
cable operator (PCO), is exempt from the majority of FCC regulations applicable
to franchised systems which do use public rights-of-way. Moreover, a state or
local government cannot impose a franchise requirement on such operators.

Access to Property. Federal law provides franchise cable operators access to
public rights-of-way and certain private easements. These provisions generally
have been limited by the courts to apply only to external easements and
franchise operators have not been able to use these rights to access the
interior of MDUs without owner consent. In some jurisdictions, franchise
operators have been able to use state or local access laws to gain access to
property over the owner's objection and in derogation of a competing provider's
exclusive contractual right to serve the property. These "mandatory access"
statutes typically empower only franchise cable operators to force access to an
MDU and provide residential service regardless of the owner's objections. Thus,
in jurisdictions where a mandatory access provision has been enacted, a
franchise operator would be able to access an MDU and provide service in
competition with us regardless of whether we have an exclusive ROE with the
owner. The ability of franchise operators to force access to an MDU and take a
portion of the subscriber base could negatively affect our operating margin at a
particular property. It is often the case, particularly at the local level, that
the mandatory access provision is suspect under constitutional principles
because, for example, it does not provide the MDU owner compensation for the
"taking" of its property.


                                       7-
<PAGE>

The FCC has granted direct broadcast satellite (DBS) and multi-channel,
multi-point distribution service (MMDS) operators rights on a national basis
similar to the mandatory access provided to franchise cable operators in some
state and local jurisdictions. The FCC has adopted rules prohibiting homeowners
associations, manufactured housing parks and state and local governments from
imposing any restriction on a property owner that impairs the owner's
installation, maintenance or use of DBS and MMDS antennas one meter or less in
diameter or diagonal measurement. We do not believe our business will be
significantly impacted by these rights.

Inside Wiring. In 1998, the FCC issued rules governing the disposition of inside
wiring by incumbent operators in MDUs upon termination of service when the
incumbent operator owns the wiring. In some instances, a provider, such as us,
faces difficulty in taking over a property because the ownership of the wiring
is uncertain or contested and the property owner is hesitant to allow
installation of additional wiring. These rules, in general, were designed to
foster competition from new providers and require the incumbent operator to
choose between sale, removal or abandonment of the wiring within certain time
constraints.

Regulation of Franchise Cable Television Rates. The FCC, through local
governments, regulates the rates that franchised cable systems can charge for
basic monthly service and certain customer premises equipment, unless "effective
competition" exists in a local market. This general requirement does not apply
to charges for pay services. Further, the regulations allow certain bulk
discounts to MDU customers, enabling franchised cable systems to be more
competitive with private cable operators such as us.

Copyright. The broadcast programming to be distributed by us contains
copyrighted material. Accordingly, we pay copyright fees for use of that
material (copyright liability for satellite-delivered programming is typically
assumed by the supplier). The U.S. Copyright Office has ruled that private
systems located in "contiguous communities" (or operating from one head-end)
will be treated as one system and that the revenue for such systems must be
combined in the calculation of copyright fees. If the combined revenue figure is
high enough, it results in more complicated fee calculations and higher fees. We
intend to structure our programming to minimize the revenue associated with
retransmission of television and radio broadcasts in an effort to maintain a
simplified filing status and to reduce our copyright liability in the event we
must file under the more complicated formula.

Wireless Internet Regulation
Our wireless Internet access products operate in unregulated spectra, the 2400
MHz, 5200 MHz and 5800 MHz being the primary frequencies, and we expect that
such spectra will remain unregulated.

Regulation of Internet Access Services

We provide Internet access, in part, using telecommunications services provided
by third-party carriers. Terms, conditions and prices for telecommunications
services are subject to economic regulation by state and federal agencies. As an
Internet access provider, we are not currently subject to direct economic
regulation by the FCC or any state regulatory body, other than the type and
scope of regulation that is applicable to businesses generally. In April 1998,
the FCC reaffirmed that Internet access providers should be classified as
unregulated "information service providers" rather than regulated
"telecommunications providers" under the terms of the 1996 Act. As a result, we
are not subject to federal regulations applicable to telephone companies and
similar carriers merely because we provide our services using telecommunications
services provided by third-party carriers. To date, no state has attempted to
exercise economic regulation over Internet access providers.

Governmental regulatory approaches and policies to Internet access providers and
others that use the Internet to facilitate data and communication transmissions
are continuing to develop and, in the future, we could be exposed to regulation
by the FCC or other federal agencies or by state regulatory agencies or bodies.
In this regard, the FCC has expressed an intention to consider whether to
regulate providers of voice and fax services that employ the Internet, or IP,
switching as "telecommunications providers", even though Internet access itself
would not be regulated. The FCC is also considering whether providers of
Internet-based telephone services should be required to contribute to the
universal service fund, which subsidizes telephone service for rural and low
income consumers, or should pay carrier access charges on the same basis as
applicable to regulated telecommunications providers. To the extent that we
engage in the provision of Internet or Internet protocol-based telephony or fax
services, we may become subject to regulations promulgated by the FCC or states
with respect to such activities. We cannot assure you that these regulations, if
adopted, would not adversely affect our ability to offer certain enhanced
business services in the future.


                                       8-
<PAGE>

Regulation of the Internet

Due to the increasing popularity and use of the Internet by broad segments of
the population, it is possible that laws and regulations may be adopted with
respect to the Internet pertaining to content of Web sites, privacy, pricing,
encryption standards, consumer protection, electronic commerce, taxation, and
copyright infringement and other intellectual property issues. No one is able to
predict the effect, if any, that any future regulatory changes or developments
may have on the demand for our Internet access or other Internet-related
services. Changes in the regulatory environment relating to the Internet access
industry, including the enactment of laws or promulgation of regulations that
directly or indirectly affect the costs of telecommunications access or that
increase the likelihood or scope of competition from national or regional
telephone companies, could materially and adversely affect our business,
operating results and financial condition.

Employees
At December 31, 2004 we had 46 employees, including two officers. As of December
31, 2004, only one of our officers has an employment agreement. In addition, we
contract for the services of a few consultants for engineering and installation
services. Subsequent to year end we entered into an employment contract with Ed
Garneau as the Chief Operating Officer.

Recent Developments
Acquisition of Sovereign Partners, LLC

Securities Purchase Agreement

On January 26, 2005, we entered into a Securities Purchase Agreement (the
"Acquisition Agreement") with Sovereign Partners, LLC, a Colorado limited
liability company ("Sovereign") and each of the members of Sovereign (the
"Members") (the "Acquisition"). The Acquisition Agreement provides, among other
things, for the acquisition by the Company of 100% of the membership interests
of Sovereign from the Members in exchange for the issuance of shares of our
Common Stock and shares of our newly created Series B Convertible Preferred
Stock, $0.0001 par value per share (the "Preferred Stock"). As a result of the
Acquisition, Sovereign is now owned and operated as a wholly owned subsidiary of
our Company. Sovereign operations include real estate development and the
related communications infrastructure for residential, multiple dwelling unit
(apartment) and planned community developments ("developments"). As part of
these new developments, all communications infrastructure (voice, video, data,
fiber to the home, etc.) will be engineered jointly by USURF and Sovereign. The
communications facilities will be owned by USURF and the ongoing communications
services, after sale of the developments, will be provided and operated by
USURF, resulting in residual revenue streams to us.

We closed on the Acquisition Agreement on February 18, 2005 (the "Closing"). At
the Closing, the Members were issued an aggregate of 35,000,000 shares of our
Common Stock and 100,000 shares of our Series B Preferred Stock.

Under the terms of the Acquisition Agreement, the Members are to be issued
shares of our Common Stock and Preferred Stock, as follows: (i) 35,000,000
shares of Common Stock and 100,000 shares of Series B Preferred Stock (which
were issued at the Closing of the Acquisition); (ii) 125,000 shares of Series B
Preferred Stock on each of January 1, 2006 and July 1, 2006; (iii) 250,000
shares of Series B Preferred Stock at such time as the Net Operating Income of
Sovereign after January 1, 2005 is equal to or greater than $6,000,000; and (iv)
400,000 shares of Series B Preferred Stock if the average Net Operating Income
of Sovereign ending on the period twenty-four months following the closing of
the acquisition is equal to or greater than $5,000,000. For the purposes of the
Acquisition Agreement, Net Operating Income means for any period the "EBITDA" on
a consolidated basis for Sovereign and all of its subsidiaries, in accordance
with generally accepted accounting principles. "EBITDA" means earnings before
interest, taxes, depreciation and amortization.

In addition, the Members may earn additional shares of our Common Stock or
Series B Preferred Stock if the average annualized Net Operating Income for the
period commencing on the closing and ending on the twenty-four month anniversary
date of the closing is: (A) greater than $5,000,000, but less than or equal to
$6,000,000, then the Members will receive in the aggregate an additional 0.05
shares of Series B Preferred Stock for each dollar that the average annualized
Net Operating Income for that period exceeds $5,000,000; (B) greater than
$6,000,000 but less than or equal to $7,000,000, then the Members will receive
in the aggregate an additional 0.10 shares of Series B Preferred Stock for each
dollar that the average annualized Net Operating Income for that period exceeds
$5,000,000; (C) greater than $7,000,000 but less than or equal to $8,000,000,
then the Members will receive in the aggregate 0.15 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000; or (D) greater than $8,000,000 for that period, then
the Members will receive in the aggregate 0.20 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000 (collectively, the "Twenty-Four Month Issuances").

In addition, the Members may earn additional shares of our Common Stock or
Series B Preferred Stock as follows: if the average annualized Net Operating
Income for the period commencing on the Closing and ending on the thirty-six
month anniversary date of the closing is: (A) greater than $5,000,000, but less
than or equal to $6,000,000, the Members will receive in the aggregate an
additional 0.10 shares of Series B Preferred Stock for each dollar that the
average annualized Net Operating Income for that period exceeds $5,000,000; (B)
greater than $6,000,000 but less than or equal to $7,000,000, then the Members
will receive in the aggregate an additional 0.20 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000; (C) greater than $7,000,000 but less than or equal to
$8,000,000, then the Members will receive in the aggregate 0.30 shares of Series
B Preferred Stock for each dollar that the average annualized Net Operating
Income for that period exceeds $5,000,000; or (D) greater than $8,000,000 for
that period, then the Members will receive in the aggregate 0.40 shares of
Series B Preferred Stock for each dollar that the average annualized Net
Operating Income for that period exceeds $5,000,000. Such issuances will be
reduced by the number of shares of Common Stock or Series B Preferred Stock
received pursuant to the Twenty-Four Month Issuances, if any.


                                       9-
<PAGE>

Under the terms of the Acquisition Agreement, the aggregate number of shares of
capital stock of the Company issuable to the Members is limited to 300,000,000
shares of Common Stock or such number of shares of Series B Preferred Stock that
is convertible into 300,000,000 shares of Common Stock, or any combination of
Series B Preferred Stock and Common Stock which does not exceed 300,000,000
shares of Common Stock in total.

We may suspend the issuance of additional shares of Common Stock or Series B
Preferred Stock upon certain "breaches" by Sovereign defined in the Acquisition
Agreement. In the event of a breach, any shares that have not yet been issued to
the Members under the terms of the Acquisition Agreement may be withheld by us
until the earlier of (i) twelve months from the date such shares would have
otherwise been issued to the Members or (ii) such time as any such breach has
been cured by Sovereign.

The Acquisition Agreement also provides for customary representations and
warranties of all parties, certain covenants and agreements related to the
closing and mutual indemnification of the parties.

Bylaws Amendment

In connection with the Acquisition Agreement, we amended our Bylaws to provide
that the provisions of Nevada Revised Statutes Sections 78.378 to 78.3793 do not
apply to the acquisition of the capital stock of the Company by Sovereign, its
Members or its affiliates in connection with the Acquisition Agreement. These
sections would have triggered compliance with certain take over measures that
our Board of Directors determined should not apply to this transaction.

Registration Rights Agreement

In addition, we entered into a Registration Rights Agreement with the Members
whereby we will undertake to prepare and file a registration statement on Form
SB-2 to register the Common Stock (and the Common Stock which may be issued upon
conversion of the Series B Preferred Stock) issued to the Members. Under the
terms of the Registration Rights Agreement, the registration statement is
required to be filed within seventy-five days of the Closing, and then within
seventy-five days of each subsequent issuance of Common Stock or Series B
Preferred Stock under the Acquisition Agreement. We must cause the registration
statement to become effective within 180 days of the filing of the registration
statement, or we must pay cash to the Members in the amount of 0.5% per month of
the fair market value of the Common Stock then held by the Members.

Management Agreement

In addition, we entered into a Management Agreement which will provide that Mr.
Ed Garneau, the current manager of Sovereign, will continue to serve as manager
of Sovereign and that the Members will continue to elect the manager of
Sovereign after the closing for a period of three years. The Management
Agreement also provides that while we may use Sovereign's cash on hand following
the closing, should there be an objection to such use, our Board of Directors
shall determine whether the cash may be used for the Company's corporate
purposes.

Investors Rights Agreement; Voting Agreement Concerning our Board of Directors

In connection with the Acquisition Agreement, the Company, each member of our
Board of Directors, and each of the Members entered into an Investor Rights
Agreement. Pursuant to the Investor Rights Agreement, each of the parties agree
to take all steps necessary, including the exercise of their voting rights as a
shareholder of our Company, to ensure the Mr. Ed Garneau and one other person
selected by the Members, is elected to the Company's Board of Directors and
serves as a Director until all of the shares of Common Stock issued to the
Members have either been registered and sold on an effective registration
statement or are eligible for resale under Rule 144 of the Securities Act of
1933. The Investor Rights Agreement also provides that should certain events
happen, each party to the Investor Rights Agreement will take all steps
necessary to increase the number of Directors of our Company and grant the
Members the right to fill all such newly created Board of Director vacancies. In
addition, the Investor Rights Agreement provides for certain protective
operating covenants that prohibit the Company from taking certain extraordinary
actions absent the prior consent of the Members.

Newly Created Series B Convertible Preferred Stock; Redemption Obligations

In connection with the Acquisition Agreement, the Company has filed with the
Secretary of the State of Nevada, a Certificate of Designation designating the
Series B Preferred Stock. The features of the Series B Preferred Stock includes
the right on the part of our Company or the holders of the Preferred Stock to
effect the conversion of the Series B Preferred Stock to Common Stock from time
to time when there is sufficient authorized but unissued shares of Common Stock
available for issuance upon conversion.


                                      10-
<PAGE>

The Series B Preferred Stock is convertible into Common Stock at the conversion
rate of 100 shares of Common Stock for each share of Series B Preferred Stock.
In the event the Company fails to increase the number of authorized shares of
Common Stock to a level sufficient to allow for the conversion of all of the
Series B Preferred Stock into Common Stock by June 30, 2006, the Company will be
obligated, at the request of the holders of the Series B Preferred Stock, to
redeem the Series B Preferred Stock at the then fair market value of the
underlying Common Stock into which the Series B Preferred Stock would otherwise
be convertible. The Preferred Stock designation also provides that the Series B
Preferred Stock will be senior to the Common Stock with respect to rights upon
liquidation, winding up or dissolution of the Company, but will be junior to the
Company's existing Series A Convertible Preferred Stock. The holders of the
Series B Preferred Stock will vote together with the Common Stock as a single
class on an as-converted to Common Stock basis except for any matter that
requires a separate class or series vote.

Executive Employment Agreement with Mr. Ed Garneau

In addition, in connection with the Acquisition, we entered into an Employment
Agreement with Mr. Ed Garneau. The Employment Agreement provides that Mr.
Garneau will be employed as the Chief Operating Officer of the Company for an
initial period of three years following the Closing of the Acquisition. Mr.
Garneau is also a member of our Board of Directors.

Modifications to Existing Investment Agreements

In order to close the Acquisition Agreement, several shareholders and investors
in our Company granted their consent to the actions contemplated by the
Acquisition. In addition, certain outstanding investment agreements, notes and
warrants of the Company were modified and/or terminated.

Surrender and Exchange Agreement

In connection with the Acquisition, we restructured an investment arrangement
with Evergreen Venture Partners, LLC ("Evergreen"). Evergreen and the Company
had been parties to a certain Convertible Loan and Security Agreement dated as
of December 23, 2003 (the "Loan Agreement") pursuant to which the Company issued
a convertible promissory note to Evergreen in the principal amount of $600,000
(the "Old Note"). In addition, on September 19, 2003, we entered into a Letter
Agreement with Evergreen, pursuant to which we issued to Evergreen a warrant to
purchase 3,816,667 shares of Common Stock. The Company and Evergreen also were
parties to a certain Stock Purchase Agreement dated February 27, 2004 (the
"Stock Agreement"). Under the terms of the Stock Agreement, we issued 10,000,000
shares of Common Stock to Evergreen and a warrant to purchase 12,500,000 shares
of Common Stock. On or about April 23, 2004, the Company and Evergreen
terminated the Old Note issued under the Loan Agreement and we issued 5,000,000
shares of Common Stock to Evergreen and a warrant to purchase 10,000,000 shares
of Common Stock.

Effective as of February 18, 2005, on the Closing of the Acquisition, the
Company and Evergreen entered into the Surrender and Exchange Agreement dated as
of January 31, 2005. Under the terms of the Surrender and Exchange Agreement
Evergreen surrendered 17,000,000 shares of Common Stock owned by it (the
"Surrendered Shares"). Evergreen also surrendered warrants to purchase
15,316,667 shares of Common Stock (the "Surrendered Warrants"). The Surrendered
Shares and the Surrendered Warrants have been canceled and are of no further
force or effect. In consideration of the Surrendered Shares and Surrendered
Warrants, we issued to Evergreen a new promissory note in the principal amount
of $750,000.00 (the "New Note"). The New Note provides for the lump sum payment
of the principal amount of the New Note on July 1, 2006. However, should the
trading price of our Common Stock be greater than $0.21 per share for a
consecutive thirty day period, the New Note shall terminate and we shall have no
further obligation to Evergreen under the New Note.

Waiver, Consent, Surrender and Modification Agreement

In connection with the Acquisition, we restructured an investment arrangement
with Crestview Capital and certain of Crestview's affiliated investment entities
(collectively, "Crestview"). We had entered into a series of Purchase Agreements
(the "Purchase Agreements") with Crestview during the year 2004, whereby the
Company issued and sold to Crestview (and certain other participating investors)
convertible notes (the "Crestview Debentures"), warrants to purchase Common
Stock (the "Crestview Warrants") and shares of Common Stock of the Company.

Effective as of February 18, 2005, on the Closing of the Acquisition, the
Company and Crestview entered into the Waiver, Consent, Surrender and
Modification Agreement dated as of January 21, 2005. Under the terms of the
Agreement, Crestview surrendered warrants to purchase an aggregate of 31,626,372
shares of Common Stock (the "Surrendered Crestview Warrants"). In addition, the
Purchase Agreements as between Crestview and the Company were terminated with
respect to the Surrendered Crestview Warrants, except for the registration
requirements of the Agreements with respect to any surviving shares or warrants
owned by Crestview. The Surrendered Crestview Warrants were canceled and are of
no further force or effect.


                                      11-
<PAGE>

In addition, the conversion features of the Debentures were modified such that
the maximum number of shares issuable upon conversion of the Debentures is now
limited to 40,000,000 shares of Common Stock. The payment terms of the
Debentures were also modified such that the principal amount of the Debentures,
approximately $2,250,000 plus accrued but unpaid interest shall be due and
payable on July 1, 2006. However, should the trading price of our Common Stock
be greater than $0.25 per share for a consecutive thirty-day period up to
$2,250,000 of the Debentures shall terminate and we shall have no further
obligation to Crestview under the Debentures.

RISK FACTORS

RISK FACTORS CONCERNING US AND OUR COMMON STOCK

The most significant risks and uncertainties associated with our business are
described below; however, they are not the only risks we face. If any of the
following risks actually occur, our business, financial condition, or results or
operations could be materially adversely affected, the trading of our common
stock could decline, and an investor may lose all or part of his or her
investment.


OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXPRESSED IN THEIR AUDIT
REPORT RELATED TO OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004,
SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

In their opinions on our financial statements for the years ended December 31,
2003 and 2004, our independent auditor, Hein + Associates LLP and AJ. Robbins
PC, respectively expressed substantial doubt about our ability to continue as a
going concern because of our recurring losses and negative working capital.


WE HAVE A HISTORY OF SIGNIFICANT LOSSES AND WE MAY NEVER ACHIEVE OR SUSTAIN
PROFITABILITY. IF WE ARE UNABLE TO BECOME PROFITABLE, OUR OPERATIONS WILL BE
ADVERSELY EFFECTED.

We have incurred annual operating losses since our inception. As a result, at
December 31, 2004, we had an accumulated deficit of $61,164,695. Our gross
revenues for the years ended December 31, 2004 and 2003, were $6,479,420_and
$403,764, with losses from operations of $7,643,124 and $3,583,460 and net
losses of $17,302,850 and $3,654,356 respectively

As we pursue our business plan, we expect our operating expenses to increase
significantly, especially in the areas of sales and marketing. As a result of
these expected cost increases, we will need to generate increased revenues to
become profitable. Accordingly, we cannot assure you that we will ever become or
remain profitable. If our revenues fail to grow at anticipated rates or our
operating expenses increase without a commensurate increase in our revenues, our
financial condition will be adversely affected. Our inability to become
profitable on a quarterly or annual basis would have a materially adverse effect
on our business and financial condition. Also, the market price for our stock
could fall.


WE ARE DEPENDENT UPON LONG-TERM FINANCING. IF WE ARE UNABLE TO RAISE CAPITAL AS
WE NEED IT, OUR OPERATIONS COULD BE JEOPARDIZED

Our ability to implement our business plan and grow is dependent on raising a
significant amount of capital. We have sustained our operations in large part
from sales of our equity. We may not be able to successfully generate revenues
or raise additional funds sufficient to finance our continued operations. In the
long term, failure to generate sufficient revenues or obtain financing would
have a material adverse effect on our business and would jeopardize our ability
to continue our operations.

WE HAVE IN THE PAST AND MAY IN THE FUTURE ENGAGE IN ACQUISITIONS, WHICH WILL
CAUSE US TO INCUR A VARIETY OF COSTS AND WHICH MAY NOT ACHIEVE ANTICIPATED OR
DESIRED RESULTS. WE MAY NOT ACHIEVE THE RESULTS WE ANTICIPATE AND DESIRE FROM
OUR ACQUISITION OF THE SOVEREIGN COMPANIES,

From time to time we engage in discussions with third parties concerning
potential acquisitions of businesses, products, technologies and other assets.
Acquisitions may require us to make considerable cash outlays and can entail the
need for us to issue equity securities, incur debt and contingent liabilities,
incur amortization expenses related to intangible assets, and can result in the
impairment of goodwill, which could harm our profitability. Acquisitions involve
a number of additional risks, including:

      o     difficulties in and costs associated with the assimilation of the
            operations, technologies, personnel and products of the acquired
            companies,


                                      12-
<PAGE>

      o     assumption of known or unknown liabilities or other unanticipated
            events or circumstances,

      o     risks of entering markets in which we have limited or no experience,
            and

      o     potential loss of key employees.

Any of these risks could harm our ability to achieve profitability of acquired
operations or to realize other anticipated benefits of an acquisition.

On February 18, 2005 we acquired Sovereign Partners, LLC which we now own and
operate as a subsidiary in the residential and planned community (real estate
and communications infrastructure) development industry. In connection with the
acquisition, we issued common stock and newly created Series B preferred stock.
That issuance was dilutive to our shareholders. We are obligated to issue more
shares of preferred stock, which is convertible to common stock on a hundred for
one basis, under the terms of the acquisition agreement with Sovereign. All such
issuances will be dilutive to our shareholders. In addition, the preferred stock
we are issuing is senior to the rights of our common stock holders upon
liquidation. If we are unable to assimilate Sovereign's management and
operations, or if we incur unforeseen liabilities, or if the operations of
Sovereign do not continue to grow or if they diminish, we will not obtain
recognizable benefits from the acquisition and our shareholders will have
suffered material dilution.


WE HAVE SENIOR SECURED CONVERTIBLE DEBENTURES TOTALING $4,420,000 DUE IN 2005
AND 2006, COLLATERALIZED BY ALL OUR ASSETS. WE DO NOT HAVE THE FUNDS AVAILABLE
TO PAY THESE DEBENTURES IF NOT CONVERTED INTO COMMON STOCK. IF THE DEBENTURES
ARE NOT PAID OR CONVERTED, THE DEBENTURE HOLDERS COULD FORECLOSE ON OUR ASSETS.

During 2004, we entered into a series of private placements totaling $4,420,000
in senior secured debentures, convertible into common stock at $0.05 per share.
If not converted, we will owe $2,095,000 to the debenture holders on September
15, 2005 and $2,325,000 to the debenture holders on June 15, 2006. The
debentures bear interest at rates from six percent (6%) to twelve percent (12%)
and are collateralized by our assets. We do not currently have the funds to pay
these debentures and we cannot assure you that we will have the funds to pay
them on the due dates. If the debentures are not paid or converted, the
debenture holders could foreclose on our assets.

Subsequent to year-end the terms of the agreements were modified such that a
maximum of 40,000,000 shares are to be issued upon conversion of the debentures.
If our common share price exceeds $0.25 per share for 30 consecutive days
payment of debentures totaling $2,250,000 shall be forgiven by the debenture
holders.

WE HAVE A NOTE PAYABLE TO EVERGREEN VENTURE PARTNERS, LLC DUE IN 2006. WE
CURRENTLY DO NOT HAVE THE FUNDS AVAILABLE TO PAY THIS NOTE WHEN DUE.

Subsequent to year end we entered into an agreement with Evergreen Venture
Partners, LLC to purchase 17,000,000 unregistered shares of our common stock for
a $750,000 note payable. The terms of the agreement call for payment of the note
plus accrued interest in July 2006, provided however, if our common share price
exceeds $0.21 per share for 30 consecutive days, payment of the note shall be
forgiven.

WE RELY ON LOCAL TELEPHONE COMPANIES AND OTHER COMPANIES TO PROVIDE CERTAIN
TELECOMMUNICATIONS SERVICES. A DISRUPTION OF THESE SERVICES COULD HAVE AN
ADVERSE EFFECT ON OPERATIONS.

Our wholly owned subsidiary, Connect Paging, Inc. d/b/a Get-A-Phone is a
Texas-based communications company operating as a local exchange carrier in
areas currently served by SBC and Verizon Southwest. We buy certain
telecommunications from SBC and Verizon and resell these to our customers. If we
were not able to buy these services or if we experienced a disruption of these
services, it would adversely affect our ability to operate in these areas.

WE HAVE THE ABILITY, WITHOUT SHAREHOLDER APPROVAL, TO ISSUE PREFERRED STOCK AND
DESIGNATE THE RIGHTS, PREFERENCES AND PRIVILEGES THAT MAY BE SENIOR TO COMMON
STOCK.

In November 2004, we issued 10,000 shares of Series A Convertible Preferred
Stock ("Series A Stock") at $100.00 per share, for a total consideration of
$1,000,000. The Series A Stock is convertible into our common stock at a
conversion price ranging from $0.05 to $0.075 as calculated in accordance with
the Certificate of Designation. The Series A Stock has a liquidation preference
ahead of the common shares in the event of any dissolution or winding up of our
Company and is entitled to any dividends that may be declared from time to time
by the Board of Directors.

In February 2005, we issued 35,000,000 shares of our common stock and 100,000
shares of our newly created Series B Convertible Preferred Stock in the
acquisition of the Sovereign Partners LLC. The Series B Preferred Stock is
convertible into our Common Stock at a conversion rate of one hundred (100)
shares of Common Stock for each one (1) share of Series B Preferred Stock, in
accordance with the Certificate of Designation. The Series B Preferred Stock has
a liquidation preference ahead of the common shares in the event of any
dissolution or winding up of our Company and is entitled to any dividends that
may be declared from time to time by our Board of Directors. We have the ability
to issue an additional 2,900,000 shares of Series B Preferred Stock without
shareholder approval.


                                      13-
<PAGE>

We have a total of 100,000,000 authorized shares of preferred stock. The Board
of Directors may determine, without shareholder approval, the rights,
preferences and privileges of the preferred stock. Depending on the rights,
preferences and privileges granted when the preferred stock is issued, it may
have the effect of delaying, deferring or preventing a change in control without
further action by the shareholders, may discourage bids for our common stock at
a premium over the market price of the common stock and may adversely affect the
market price of and the voting and other rights of the holders of our common
stock.


WE CAN ISSUE COMMON STOCK WITHOUT SHAREHOLDER APPROVAL THAT MAY CAUSE DILUTION
TO EXISTING SHAREHOLDERS.

We have 400,000,000 authorized shares of common stock that can be issued by the
Board of Directors. At March 31, 2005, we had 170,844,703 shares of common stock
available for issue. Under most circumstances the Board of Directors has the
right to issue these shares. If all of these shares were issued, it would
substantially dilute the existing shareholders.

OUR COMMON STOCK HAS EXPERIENCED SIGNIFICANT PRICE VOLATILITY IN THE PAST AND WE
EXPECT IT TO EXPERIENCE HIGH VOLATILITY IN THE FUTURE. THIS HIGH VOLATILITY
SUBSTANTIALLY INCREASES THE RISK OF LOSS TO PERSONS OWNING OUR COMMON STOCK.

The trading price for our common stock has been, and we expect it to continue to
be, highly volatile. For example, the closing bid price of our stock has
fluctuated between $0.04 and $0.35 per share since January 1, 2002. The price at
which our common stock trades depends upon a number of factors, including our
historical and anticipated operating results and general market and economic
conditions, which are beyond our control. In addition, the stock market has,
from time to time, experienced extreme price and volume fluctuations. These
broad market fluctuations may lower the market price of our common stock.
Moreover, during periods of stock market price volatility, share prices of many
telecommunications companies have often fluctuated in a manner not necessarily
related to their operating performance. Accordingly, our common stock may be
subject to greater price volatility than the stock market as a whole.

FUTURE SALES OF COMMON STOCK MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.

Future sales of substantial amounts of common stock pursuant to Rule 144 under
the Securities Act of 1933 or otherwise by certain shareholders could have a
material adverse impact on the market price for the common stock at the time. As
of the date of this report, there are 122,999,022 outstanding shares of our
common stock held by shareholders which are deemed "restricted securities" as
defined by Rule 144 under the Securities Act. Under certain circumstances, these
shares may be sold without registration pursuant to the provisions of Rule 144.
In general, under Rule 144, a person (or persons whose shares are aggregated)
who has satisfied a one-year holding period may, under certain circumstances,
sell within any three-month period a number of restricted securities which does
not exceed the greater of one (1%) percent of the shares outstanding or the
average weekly trading volume during the four calendar weeks preceding the
notice of sale required by Rule 144. In addition, Rule 144 permits, under
certain circumstances, the sale of restricted securities without any quantity
limitations by a person who is not an affiliate of ours and has satisfied a
two-year holding period. Any sales of shares by shareholders pursuant to Rule
144 may cause the price of our common stock to decline.


OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES WHICH MAY BE DETRIMENTAL TO
INVESTORS.

Our common stock has traded at a price substantially below $5.00 per share,
subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions, commonly referred to as a "penny stock." Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and institutional or wealthy investors.
For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to the sale. The broker-dealer also
must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could discourage broker-dealers from
effecting transactions in our common stock. These disclosure requirements may
have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules.


                                      14-
<PAGE>

OUR COMMON STOCK WAS DE-LISTED FROM THE AMERICAN STOCK EXCHANGE AND IS NOW
TRADED ON THE OTC BULLETIN BOARD, WHICH MAY BE DETRIMENTAL TO INVESTORS.

Our stock common stock was de-listed from the American Stock Exchange effective
March 9, 2004 because we failed to maintain the continued listing standards of
AMEX. As a result, effective March 22, 2004 our common stock is traded on the
OTC Bulletin Board. Stocks traded on the OTC Bulletin Board generally have
limited trading volume and exhibit a wide spread between the bid/ask quotation.


WE OPERATE IN A HIGHLY COMPETITIVE MARKET, AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY AGAINST ESTABLISHED COMPETITORS WITH GREATER FINANCIAL RESOURCES AND
MORE DIVERSE STRATEGIC PLANS.

We face competition from many communications providers with significantly
greater financial, technical and marketing resources, longer operating
histories, well-established brand names, larger customer bases and diverse
strategic plans and technologies. Intense competition has led to declining
prices and margins for many communications services. We expect this trend to
continue as competition intensifies in the future. We expect significant
competition from traditional and new communications companies, including local,
long distance, cable modem, Internet, digital subscriber line, fixed and mobile
wireless and satellite data service providers, some of which are described in
more detail below. If these potential competitors successfully focus on our
market, we may face intense competition which could harm our business. In
addition, we may also face severe price competition for building access rights,
which could result in higher sales and marketing expenses and lower profit
margins.


REGULATION OF THE INTERNET.

Due to the increasing popularity and use of the Internet by broad segments of
the population, it is possible that laws and regulations may be adopted with
respect to the Internet pertaining to content of Web sites, privacy, pricing,
encryption standards, consumer protection, electronic commerce, taxation, and
copyright infringement and other intellectual property issues. No one is able to
predict the effect, if any, that any future regulatory changes or developments
may have on the demand for our Internet access or other Internet-related
services. Changes in the regulatory environment relating to the Internet access
industry, including the enactment of laws or promulgation of regulations that
directly or indirectly affect the costs of telecommunications access or that
increase the likelihood or scope of competition from national or regional
telephone companies, could materially and adversely affect our business,
operating results and financial condition.


Item 2. Description of Property

General

We own equipment, including office and network equipment, necessary to conduct
our business. Our headquarters are located in Broomfield, Colorado and are
leased through 2015. We have entered into a lease for new space in Broomfield,
Colorado. We are currently occupying temporary space until the permanent space
is finished and ready for occupancy. We are currently paying $3,058 per month
for the temporary space. When we move to the permanent space, expected to be mid
year 2005, the rate increases to $14,875 per month with annual increases based
upon changes in operating cost of the building. With his new lease, we believe
that our leased facility will be adequate for the Company's needs for the
foreseeable future.

Intellectual Property

We currently rely on common law principles for the protection of our copyrights
and trademarks and trade secret laws to protect our proprietary intellectual
property rights. We plan to file patent applications relating to our proprietary
IP based software technology.

We have received authorization to use the products of each manufacturer of
software that is bundled in its software for users with personal computers
operating on the Windows or Macintosh platforms. While certain of the
applications included in our start-up kit for Internet access services
subscribers are shareware that we have obtained permission to distribute or that
are otherwise in the public domain and freely distributable, certain other
applications included in our start-up kit have been licensed where necessary. We
currently intend to maintain or negotiate renewals of all existing software
licenses and authorizations as necessary. We may also enter into licensing
arrangements for other applications in the future.

Item 3. Legal Proceedings

On September 29, 2000, an involuntary bankruptcy petition was filed against
CyberHighway, Inc. in the Idaho Federal Bankruptcy Court, styled In Re:
CyberHighway, Inc., Case No. 00-02454. CyberHighway is a non-operating
subsidiary of the Company that operated as an internet service provider. There
were no developments in this matter during 2003 and 2004. During 2005 we will
attempt to obtain a final order of bankruptcy and have this matter discharged.


                                      15-
<PAGE>

In June 2003 one of our subsidiaries, USURF Telecom, Inc., was named as a
defendant in a lawsuit filed by Qwest Corporation. USURF Telecom has filed its
answer, denying any liability. To date, there has been no activity in the case
involving USURF Telecom, nor has the plaintiff directed any attention to USURF
Telecom beyond the original filing of the lawsuit. Company management believes
that Qwest's allegations are without merit. This case is styled: Qwest
Corporation vs. Maxcom, Inc. (f/k/a Mile High Telecom, CLEC for Sale, Inc. and
Mile High Telecom, Inc.), et. al., District Court, City and County of Denver,
Colorado, Case No. 03 CV 1676.

Item 4. Submission of Matters to Vote of Security Holders

There were no annual or special meetings of our common or preferred
shareholders, and no actions by written consent of our common or preferred
shareholders were taken, during the fiscal year ended December 31, 2004.


                                      16-
<PAGE>

PARTII


Item 5. Market for Common Equity and Related Stockholder Matters

Market Information
During 2003 and until March 9, 2004, our common stock traded on the American
Stock Exchange, under the symbol "UAX". The table below sets forth, for the
periods indicated, the high and low closing sales prices for our common stock,
as reported by the American Stock Exchange:

--------------------------------------------------------------------------------
Quarter/Period Ended                           High                 Low
--------------------------------------------------------------------------------
March 31, 2002                                  .25                 .08
--------------------------------------------------------------------------------
June 30, 2002                                   .12                 .04
--------------------------------------------------------------------------------
September 30, 2002                              .11                 .04
--------------------------------------------------------------------------------
December 31, 2002                               .13                 .04
--------------------------------------------------------------------------------
March 31, 2003                                  .09                 .05
--------------------------------------------------------------------------------
June 30, 2003                                   .29                 .04
--------------------------------------------------------------------------------
September 30, 2003                              .24                 .13
--------------------------------------------------------------------------------
December 31, 2003                               .35                 .15
--------------------------------------------------------------------------------
March 9, 2004                                   .24                 .20
--------------------------------------------------------------------------------

On March 5, we were notified by the American Stock Exchange ("AMEX") that,
following a hearing on March 4, 2004, a Listing Qualifications Panel of the AMEX
Committee on Securities affirmed a decision by the AMEX staff to delist our
common stock. On March 9, 2004, AMEX suspended trading of our common stock. On
March 10, 2004, our common stock began trading on the "pink sheets" and on March
22, 2004, began trading "over the counter" on the Over the Counter Bulletin
Board ("OTC BB") under the symbol "USUR.OB." The table below shows the range of
high and low bid information for the period March 10, 2004 through March 15,
2005.

--------------------------------------------------------------------------------
Period Ended                                     High                      Low
--------------------------------------------------------------------------------
March 31, 2004                                    .11                      .06
--------------------------------------------------------------------------------
June 30, 2004                                     .19                      .06
--------------------------------------------------------------------------------
September 30, 2004                                .09                      .05
--------------------------------------------------------------------------------
December 31, 2004                                 .13                      .06
--------------------------------------------------------------------------------
March 15, 2005                                    .10                      .08
--------------------------------------------------------------------------------

Holders

On March 15, 2005, there were approximately 1,253 holders of record of our
common stock.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                  Securities Authorized for Issuance Under Equity Compensation Plans
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Number of securities
Number of securities                                                                                   remaining available for
                                          Number of securities to be    Weighted average exercise    future issuance under equity
                                            issued upon exercise of     Weighted average exercise         compensation plans
                                             outstanding options,         price of outstanding          (excluding securities
                                              warrants and rights     options, warrants, and rights   reflected in column (a))
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                           <C>                        <C>
Equity compensation plans approved by
security holders                                       0                            0                            (1)
------------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved by
security holders                                   6,650,000                     $ 0.10                     2,000,350 (1)
------------------------------------------------------------------------------------------------------------------------------------
Individual Compensation Arrangements                   0                            0                            n/a
------------------------------------------------------------------------------------------------------------------------------------
Total                                              6,650,000                        0                         2,000,350
------------------------------------------------------------------------------------------------------------------------------------
Note (1) Represents the number of shares, as of December 31, 2004 of the
Company's common stock remaining available for future issuance under the
Company's 2004 Stock Ownership Plan.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Dividends
We have never paid cash dividends on our common stock. We intend to re-invest
any future earnings into the Company for the foreseeable future.


                                      17-
<PAGE>

Recent Issuances of Unregistered Securities

During the three months ended December 31, 2004, we issued the following
securities:

1.    (a)   Securities Issued. In November 2004, 600,000 shares of the
            Company's common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to September Serenade, Ltd..

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

2.    (a)   Securities Issued. In November 2004, 200,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Craig A. Cook.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
            registration under the Securities Act of 1933, as amended, pursuant
            to the provisions of Section 4(2) thereof, as a transaction not
            involving a public offering. This purchaser is a sophisticated
            investor capable of evaluating an investment in the Company.

3.    (a)   Securities Issued. In November 2004, 100,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Brent E. Couch.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
            registration under the Securities Act of 1933, as amended, pursuant
            to the provisions of Section 4(2) thereof, as a transaction not
            involving a public offering. This purchaser is a sophisticated
            investor capable of evaluating an investment in the Company.

4.    (a)   Securities Issued. In November 2004, 100,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Thomas D. Beck.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

5.    (a)   Securities Issued. In November 2004, 400,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Paul T. and Laura M. Garneau.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. These purchasers are sophisticated investors capable of evaluating an
investment in the Company.

6.    (a)   Securities Issued. In November 2004, 200,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Jeffrey W. Fiebig.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.


                                      18-
<PAGE>

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

7.    (a)   Securities Issued. In November 2004, 600,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Kenneth F. Miller.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

8.    (a)   Securities Issued. In November 2004, 800,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Edwin L. Buckmaster.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

9.    (a)   Securities Issued. In November 2004, 10,000 shares of the Company's
            series A convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Monarch Pointe Fund, Ltd..

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

10.   (a)   Securities Issued. In February 2005, 9,721,950 shares of the
            Company's common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to DD Familty Properties, LLC.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

11.   (a)   Securities Issued. In February 2005, 27,777 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to DD Familty Properties, LLC.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

12.   (a)   Securities Issued. In February 2005, 3,332,700 shares of the
            Company's common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Thunderbird Management Limited Partnership.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.


                                      19-
<PAGE>

13.   (a)   Securities Issued. In February 2005, 9,522 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Thunderbird Management Limited Partnership.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

14.   (a)   Securities Issued. In February 2005, 3,747,800 shares of the
            Company's common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Searls Family, LLLP.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

15.   (a)   Securities Issued. In February 2005, 10,708 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Searls Family, LLLP.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

16.   (a)   Securities Issued. In February 2005, 3,123,400 shares of the
            Company's common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Krantz Family, LLLP.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

17.   (a)   Securities Issued. In February 2005, 8,924 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Krantz Family, LLLP.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

18.   (a)   Securities Issued. In February 2005, 2,998,450 shares of the
            Company's common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Dolphin Bay, LLC.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.


                                      20-
<PAGE>

19.   (a)   Securities Issued. In February 2005, 8,567 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Dolphin Bay, LLC.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

20.   (a)   Securities Issued. In February 2005, 993,300 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to New Opportunities, LLC.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from

registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

21.   (a)   Securities Issued. In February 2005, 2,838 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to New Opportunities, LLC.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

22.   (a)   Securities Issued. In February 2005, 7,923,650 shares of the
            Company's common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Kenneth Miller.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

23.   (a)   Securities Issued. In February 2005, 22,639 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Kenneth Miller.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

24.   (a)   Securities Issued. In February 2005, 470,750 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Jeffery Schetgen.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.


                                      21-
<PAGE>

25.   (a)   Securities Issued. In February 2005, 1,345 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Jeffery Schetgen.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

26.   (a)   Securities Issued. In February 2005, 875,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Thomas Beck.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

27.   (a)   Securities Issued. In February 2005, 2,500 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Thomas Beck.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

28.   (a)   Securities Issued. In February 2005, 875,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Brent E. Couch.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

29.   (a)   Securities Issued. In February 2005, 2,500 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Brent E. Couch.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

30.   (a)   Securities Issued. In February 2005, 350,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Jeffrey W. Fiebig.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.


                                      22-
<PAGE>

31.   (a)   Securities Issued. In February 2005, 1,000 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Jeffrey W. Fiebig.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

32.   (a)   Securities Issued. In February 2005, 350,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Craig A. Cook.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

33.   (a)   Securities Issued. In February 2005, 1,000 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Craig A. Cook.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

34.   (a)   Securities Issued. In February 2005, 119,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Curt A. Bushman.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

35.   (a)   Securities Issued. In February 2005, 340 shares of the Company's
            series B convertible preferred stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Curt A. Bushman.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

36.   (a)   Securities Issued. In February 2005, 119,000 shares of the Company's
            common stock were issued.

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Michael P. Petrusich.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

37.   (a)   Securities Issued. In February 2005, 340 shares of the Company's
            series B convertible preferred stock were issued.


                                      23-
<PAGE>

      (b)   Underwriter, Purchaser or Recipient. Such shares of stock were
            issued to Michael P. Petrusich.

      (c)   Consideration. Such shares were issued pursuant to a stock purchase
            agreement.

      (d))  Exemption from Registration. These securities are exempt from
registration under the Securities Act of 1933, as amended, pursuant to the
provisions of Section 4(2) thereof, as a transaction not involving a public
offering. This purchaser is a sophisticated investor capable of evaluating an
investment in the Company.

Information regarding issuance of unregistered securities during the first nine
months of 2004 has been disclosed in each of the Quarterly Report on Form 10-QSB
filed by the Company during 2004.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Management's Discussion and Analysis discusses the results of operations and
financial condition as reflected in our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to
accounts receivable; inventory valuation; amortization and recoverability of
long-lived assets, including goodwill; litigation accruals; and revenue
recognition. Management bases its estimates and judgments on our historical
experience and other relevant factors, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.

While we believe that the historical experience and other factors considered
provide a meaningful basis for the accounting policies applied in the
preparation of the consolidated financial statements, we cannot guarantee that
our estimates and assumptions will be accurate. If such estimates and
assumptions prove to be inaccurate, we may be required to make adjustments to
these estimates in future periods.

This filing contains forward-looking statements, including statements regarding,
among other things, (a) the growth strategies of USURF America, Inc. ("USURF" or
the "Company"), (b) anticipated trends in the Company's industry, (c) the
Company's future financing plans and (d) the Company's ability to obtain
financing and continue operations. In addition, when used in this filing, the
words "believes," "anticipates," "intends," "in anticipation of," and similar
words are intended to identify certain forward-looking statements. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of changes in trends in the economy and
the Company's industry, reductions in the availability of financing and other
factors. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this filing will in fact occur.
The Company does not undertake any obligation to publicly release the results of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.

Current Overview
We operate as a provider of video (cable television) and data (Internet)
services to business as well as residential customers, and we offer
telecommunications services including local, long distance and enhanced
telephone (voice) services. We currently provide services to customers in parts
of Colorado and Texas.

Our current business plan involves obtaining, as many voice, video and data
customers as possible by offering various combinations of bundled packages and
communications services. Our growth strategy also includes acquisitions of
telecommunications-related businesses and/or properties which would provide an
immediate or potential customer base for our services.

In April 2004, we acquired all of the issued and outstanding common stock of
Connect Paging, Inc., doing business as Get-A-Phone ("GAP"). GAP is a
Texas-based communications company operating as a local exchange carrier in
areas currently served by SBC and Verizon Southwest. At the time of the
acquisition, GAP had more than 14,000 customers.

Our business plan involves obtaining, through internal growth, as many voice,
video and data customers as possible. Our growth strategy also includes
acquisitions of communications-related businesses and/or properties which would
provide an immediate or potential customer base for our services.

Critical Accounting Policies
Management's Discussion and Analysis discusses the results of operations and
financial condition as reflected in our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. On an ongoing basis, management evaluates its
estimates and judgments, including those related to accounts receivable,
inventory valuation, amortization and recoverability of long-lived assets,
including goodwill, litigation accruals and revenue recognition. Management
bases its estimates and judgments on its historical experience and other
relevant factors, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources.


                                      24-
<PAGE>

While we believe that the historical experience and other factors considered
provide a meaningful basis for the accounting policies applied in the
preparation of our consolidated financial statements, we cannot guarantee that
our estimates and assumptions will be accurate. If such estimates and
assumptions prove to be inaccurate, we may be required to make adjustments to
these estimates in future periods.

Plan of Operation
We currently operate as a provider of voice (telephone), video (cable
television) and data (Internet) services to business and residential customers.
Our business plan involves obtaining, through internal growth, as many voice,
video and data customers as possible. Our growth strategy also includes
acquisitions of communications-related businesses and/or properties which would
provide an immediate or potential customer base for our services.

2003 Acquisitions
Effective August 26, 2003, USURF acquired the customer base (approximately 510
customers) and related assets of Pipeline Networks of Colorado, LLC,
("Pipeline") a privately-held Denver, Colorado-area provider of high speed
broadband Internet access service. The acquired customers receive their
broadband Internet access via traditional digital subscriber line (DSL) or
cable-modem services. The Pipeline acquisition included all of the assets needed
to provide broadband DSL and cable-modem services at each of the twelve multiple
dwelling unit properties to which we obtained rights of entry. In the
acquisition we used $45,000 of our cash on hand and issued a promissory note,
face amount $111,300, due December 15, 2003, with interest accruing at 8% per
annum. By virtue of a modification and extension agreement executed by the
parties, the promissory note was paid in full in January 2004. Additionally,
pursuant to the modification and extension agreement, we were obligated to pay
to Pipeline the amount of $156,000, plus accrued interest, in the form of cash
or stock, at our discretion, on or before April 13, 2004. This sum is reflected
on the balance sheet as an "other current liability" at December 31, 2003. In
April 2004, a complaint was filed in the District Court, El Paso County,
Colorado styled Pipeline Networks of Colorado, LLC vs. Usurf Communications,
Inc. and Usurf America, Inc.; Case No. 2004cv1565. The lawsuit arose out of a
dispute regarding an agreement to pay Pipeline $156,300 in Shares or in cash by
April 13, 2004 as part of the original asset purchase and extension agreements
to purchase the assets and rights used in connection with the Internet services
business operated by Pipeline. This matter was fully settled by the parties in
July 2004. Under the settlement agreement, Pipeline exchanged its 1,356,960
shares of USURF common stock for a cash payment of $170,000. The settlement
resulted in a net charge of $14,000 against our second quarter earnings.

Effective September 5, 2003, USURF acquired all the assets of Children's
Technology Group, Inc. ("CTG"), a Golden, Colorado-based Internet portal
providing a content-protected online environment for children. In the
acquisition, we used $150,000 of our cash on hand and issued 2,800,000 shares of
our common stock. In addition to revenues from the sale of services directly to
customers, the Company expects to generate significant revenues through the
licensing of the CTG content-filtering software. In October, 2003 the Company
signed a $465,000 licensing agreement with ZKid Network company (OTC Bulletin
Board: ZKID) for CTG's proprietary technology. The Company will provide ZKid
Network company's product with an additional layer of security and greater
empowerment to parents for the soon-to-be released KidsKeep Safe Internet
Software Program. Under the license agreement, USURF received cash and stock for
$465,000 and will receive royalty payments over the next two years. At December
31, 2003, the value of the stock had declined and accordingly, the Company
recorded an unrealized loss of $160,000 and reduced the carrying value of the
stock by $160,000. The Company has recognized approximately $62,000 of revenue
relating to this agreement during 2003. In May 2004, we sold Children's
Technology Group, Inc., dba MomsandDads, to ZKID Network Company (OTCBB: ZKID).
The terms of the sale provided for ZKID to pay us $600,000 in stock
consideration (the "Purchase Price'). At closing we received 4,000,000 shares of
ZKID common stock valued at $0.15 per share. The terms of the purchase and sale
agreement provide that if the shares issued to us do not have a market value of
at least $600,000, then ZKID would issue additional shares to us for the
difference. At December 31, 2004 the market value of the shares was $188, 000
and therefore we recorded a $412,000 securities receivable.

2004 Acquisitions
Connect Paging, Inc. d/b/a Get A Phone
In April 2004 the Company acquired Connect Paging, Inc. d/b/a Get A Phone
("GAP"). The purchase price consisted of $2,000,000 in cash and 15,000,000
shares of common stock of the Company. GAP operates as a competitive local
exchange carrier (CLEC) in Texas offering local and long distance telephone
services. GAP has acquired approximately 14,000 customers that could generate
over $8.0 million in annual revenues. The transaction was subject to the
approval of the Texas Public Utilities Commission and such approval was received
in April 2004.


                                      25-
<PAGE>

Sovereign Assets
In February 2004 the Company acquired certain assets of certain LLC's controlled
by the Sovereign Companies, LLC for stock. The purchase price under the various
agreements was $479,770, generally for subscribers, equipment and other assets.
In connection with theses agreements, we issued a total of 5,203,870 shares of
common stock

Financing Activities
In December 2003, the Company executed a convertible loan agreement under which
the Company could borrow up to $700,000. At December 31, 2003, the balance of
the loan was $57,000. The loan(s) are due one year from funding, and accrue
interest at the rate of ten percent (10%) per annum and are convertible into our
common stock at a conversion price of $0.15 per share. Additionally, the
agreement called for the issuance upon conversion of two warrants with an
exercise price of $0.18 and $0.26 respectively for each share converted. In
accordance with EITF 98-5, the Company calculated the beneficial conversion
feature as $44,200 using the intrinsic value method as of December 31, 2003.
Since the note is convertible immediately, the entire $44,200 was expensed.
During the first quarter of 2004, the Company borrowed an additional $543,000
under the agreement bringing the balance to $600,000. During 2004, the Company
recorded $351,467 as expense for the beneficial conversion feature of the
additional borrowings using the intrinsic value method as the notes are
convertible immediately. In March 2004, as inducement to convert the Company
reduced the conversion price to $0.12 per share and also adjusted the exercise
price of any warrants that would be issued to $0.12 per share. In connection
with adjusting the conversion price, the entire $600,000 outstanding balance of
the note was converted into 5,000,000 shares of the Company's common stock. In
accordance with SFAS 84, the Company recorded a debt conversion expense of
$100,000 as a result of the inducement. Upon conversion the Company granted
warrants to purchase 10,000,000 shares of the Company's common stock at $0.12
per share. Of the warrants, 5,000,000 are exercisable over a period of three
years and the remaining 5,000,000 are exercisable over a period of five years.
The warrants were valued at $700,000, the fair value using the Black-Scholes
Pricing Model. The average risk free interest rate used was 1.26%, volatility
was estimated at 110% and the expected life was three and five years. The entire
$700,000 was recorded as interest expense as of December 31, 2004.

In March 2004, Atlas Capital Services, LLC ("Atlas") arranged for the Company to
complete the closing of a private placement totaling $3,095,000. The placement
consisted of $1,000,000 in common stock at $0.10 per share, $2,095,000 in
convertible debentures convertible into common stock at $0.10 per share. Upon
closing of the convertible debenture, the Company granted the note holder
warrants purchasing 13,782,895 shares of the Company's common stock. The
convertible debentures, if not converted, are due September 15, 2005 and bear
interest at six percent (6%) payable quarterly. Under the terms of the private
placement, the investors have the right to purchase up to an amount equal to, at
the election of such investors, $3,000,000 principal amount of additional
debentures. Any additional investment will be on terms identical to those set
forth in the private placement. The entire proceeds from the convertible
debentures were allocated to the warrants and the notes payable. Since the
warrants are detachable, in accordance with EITF 00-27 the Company recorded the
allocated value of the warrants of $486,717, the fair value of the warrants
using the Black-Scholes Pricing Model in proportion to the fair value of the
note, as a discount on the note. The average risk free interest rate used was
1.26%, volatility was estimated at 110% and the expected life was eighteen
months. The discount is recorded as a reduction of the face value of the note
payable and is being amortized over the eighteen-month term of the note. In
addition, in accordance with EITF 98-5 and EITF 00-27, the Company recorded
interest expense of $401,217 for the beneficial conversion feature of the
discounted convertible note using the intrinsic value method, as the note is
convertible immediately. In July 2004, the debenture was repriced as described
below and an additional beneficial conversion feature of $628,500 calculated
using the intrinsic value method was recorded as expense as the note is
convertible immediately. As of December 31, 2004 the Company has amortized
$256,878 of the discount as interest expense.


                                      27-

During the second quarter of 2004, Atlas arranged for the Company to complete
the closing of an additional private placements totaling $1,575,000, consisting
of $1,575,000 in convertible debentures convertible into common stock at $0.08
per share. Upon closing of the convertible debenture, the Company granted the
note holder warrants to purchase 7,579,403 shares of the Company's common stock.
The convertible debentures, if not converted, are due April, 2006 and bears
interest at eight percent (8.0%) payable quarterly. Under the terms of these
private placements, the investors have the right to purchase up to an amount
equal to, at the election of such investors, $1,500,000 principal amount of
additional debentures. Any additional investment will be on terms identical to
those set forth in the private placements. The entire proceeds from the
convertible debentures were allocated to the warrants and the notes payable.
Since the warrants are detachable, in accordance with EITF 00-27 the Company
recorded the allocated value of the warrants of $504,742, the fair value of the
warrants using the Black-Scholes Pricing Model in proportion to the fair value
of the note, as a discount on the note. The average risk free interest rate used
was 5%, volatility was estimated at 106% and the expected life was five years.
The discount is recorded as a reduction of the face value of the note payable
and is being amortized over the two-year-term of the note. In addition, in
accordance with EITF 98-5 and EITF 00-27, the Company recorded interest expense
of $1,299,375 for the beneficial conversion feature of the discounted
convertible note using the intrinsic value method, as the note is convertible
immediately. In July 2004, the debenture was repriced per the third paragraph
below and an additional beneficial conversion feature of $472,500 using the
intrinsic value method was recorded as expense as the note is convertible
immediately. As of December 31, 2004 the Company has amortized $168,247 of the
discount as interest expense.

During the third quarter of 2004, Atlas arranged for the Company to complete the
closing of two additional private placements totaling $750,000, consisting of
$750,000 in convertible debentures convertible into common stock at $0.05 per
share. Upon closing of the convertible debenture, the Company granted the note
holders warrants to purchase 11,250,000 shares of the Company's common stock.
The convertible debentures, if not converted, are due June, 2006 and bear
interest at twelve percent (12.0%) payable quarterly. Under the terms of these
private placements, the investors have the right to purchase up to an amount
equal to, at the election of such investors, $750,000 principal amount of
additional debentures. Any additional investment will be on terms identical to
those set forth in the private placements. The entire proceeds from the
convertible debentures were allocated to the warrants and the notes payable.
Since the warrants are detachable, in accordance with EITF 00-27 the Company
recorded the allocated value of the warrants of $370,228, the fair value of the
warrants using the Black-Scholes Pricing Model in proportion to the fair value
of the note, as a discount on the note. The average risk free interest rate used
was 5%, volatility was estimated at 138% and the expected life was five years.
The discount is recorded as a reduction of the face value of the note payable
and is being amortized over the two-year-term of the note. In addition, in
accordance with EITF 98-5 and EITF 00-27, the Company recorded interest expense
of $739,130 for the beneficial conversion feature of the discounted convertible
note using the intrinsic value method, as the note is convertible immediately.
As of December 31, 2004 the Company has amortized $90,180 of the discount as
interest expense.
Additionally in July 2004, the Company repriced the purchase price and
conversion price of the above first and second quarter transactions to $0.05 per
share. As a result, the Company issued an additional 17,000,000 shares for
shares purchased under a securities purchase agreement and certain notes,
previously converted, and has reserved an additional 32,762,500 shares to be
issued upon conversion of the outstanding convertible debentures. The Company
recognized $850,000 as an imputed dividend to these shareholders for this right.
This amount is subtracted from net loss to determine the net loss to the other
shareholders. Upon the change in the conversion terms of these convertible notes
payable the Company calculated the new beneficial conversion feature of the
$2,095,000 note and $1,575,000 note as $628,500 and $472,500, respectively,
using the intrinsic value method, which were expensed as the notes are
convertible immediately.

At December 31, 2004 total short term notes payable under the above is
$2,095,000, the unamortized debt discount of $229,838 is netted with the total
resulting in a balance of $1,865,162. The total long term notes payable under
the above is $2,325,000, the unamortized debt discounts of $616,543 is netted
with the total resulting in a balance of $1,708,457 for the balance sheet
presentation.

Recent Accounting Pronouncements
In December 2004 the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment" ("SFAS 123(R)"). SFAS 123(R) will provide investors and other users of
financial statements with more complete and neutral financial information by
requiring that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments issued. SFAS
123(R) covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. SFAS 123(R) replaces
SFAS No. 123, "Accounting for Stock-Based Compensation", and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123, as
originally issued in 1995, established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees. However, that
Statement permitted entities the option of continuing to apply the guidance in
Opinion 25, as long as the footnotes to financial statements disclosed what net
income would have been had the preferable fair-value-based method been used.
Public entities (other than those filing as small business issuers) will be
required to apply SFAS 123(R) as of the first interim or annual reporting period
that begins after June 15, 2005. The Company has evaluated the impact of the
adoption of SFAS 123(R), and believes that it could have an impact to the
Company's overall results of operations depending on the number of stock options
granted in a given year.

In December 2004 the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
The amendments made by SFAS 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
That exception required that some nonmonetary exchanges, although commercially
substantive, to be recorded on a carryover basis. By focusing the exception on
exchanges that lack commercial substance, the FASB believes SFAS No.153 produces
financial reporting that more faithfully represents the economics of the
transactions. SFAS No.153 is effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. Earlier application is
permitted for nonmonetary asset exchanges occurring in fiscal periods beginning
after the date of issuance. The provisions of SFAS No.153 shall be applied
prospectively. The Company has evaluated the impact of the adoption of SFAS 153,
and does not believe the impact will be significant to the Company's overall
results of operations or financial position.

In December 2004 the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152") SFAS 152 amends SFAS No. 66, "Accounting for Sales of Real Estate", to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS 152 also
amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real
Estate Projects", to state that the guidance for (a) incidental operations and
(b) costs incurred to sell real estate projects does not apply to real estate
time-sharing transactions. The accounting for those operations and costs is
subject to the guidance in SOP 04-2. SFAS 152 is effective for financial
statements for fiscal years beginning after June 15, 2005, with earlier
application encouraged. The Company has evaluated the impact of the adoption of
SFAS 152, and does not believe the impact will be significant to the Company's
overall results of operations or financial position.


                                      27-
<PAGE>

In November 2004 the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4 (" SFAS No. 151". The amendments made by SFAS 151 clarify
that abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges and
require the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. The guidance is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. The Company has evaluated the impact of
the adoption of SFAS 151, and does not believe the impact will be significant to
the Company's overall results of operations or financial position.

Controls and Procedures
Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 as of March
10, 2005 we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and Principal Financial Officer of
the effectiveness of the design and operation of our disclosure controls and
procedures. Our disclosure controls and procedures are designed to ensure that
information required to be disclosed in our reports filed under the Securities
Act of 1934 is recorded, processed, summarized, and reported within the time
periods specified in the Security and Exchange Commission's (SEC) rules and
forms. Based on this evaluation, our Chief Executive Officer and Principal
Financial Officer have concluded that our controls and procedures are effective
in timely alerting them to material financial information required to be
disclosed and included in our periodic SEC filings. There has been no change in
our internal control over financial reporting that occurred during the quarter
ended March 10, 2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. Our internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of our financial reporting and preparation of
financial statements for external reporting purposes in accordance with
generally accepted accounting principles.

Revenue Recognition
We charge our video and data customers monthly service fees and recognize the
revenue in the month the services are provided or equipment is sold. The Company
also charges a license fee for sales of certain software consisting of an "up
front" fee and a monthly fee over the term of the agreement. The up front fee is
amortized over the life of the agreement and the monthly fees are recognized in
the month earned. Allowances for estimated returns and discounts are recognized
when sales are recorded and are based on our experience. Significant management
judgments and estimates must be made and used in connection with establishing
these allowances in any accounting period. Material differences may result in
the amount and timing of revenues for any period if management makes different
judgments or utilizes different estimates.

Asset Impairment - Goodwill
In assessing the recoverability of our fixed assets, goodwill and other
non-current assets, we consider changes in economic conditions and make
assumptions regarding estimated future cash flows and other factors. If these
estimates or their related assumptions change in the future, we may be required
to record impairment charges.

Litigation
We have been involved in lawsuits and other claims. We assess the likelihood of
any adverse judgments or outcomes to these matters, as well as the potential
range of probable losses. A determination of the amount of accrual required, if
any, for these contingencies is made after careful analysis of each matter. The
required accrual may change in the future due to new developments in any matter
or changes in approach (such as a change in settlement strategy) in dealing with
these matters. As noted below, we settled the Marcus Merrick matter and the
Weibelt matter in early 2004. The liabilities related to these matters were
accrued at December 31, 2003. We are unaware of any existing or potential
litigation or judgment and have made no litigation-related accruals at December
31, 2004.

In July 2002 an adverse arbitration decision was rendered against us in favor of
one of our former employees, Christopher L. Wiebelt. The amount of the award was
approximately $100,000, including legal expenses. This amount was included in
accounts payable on the balance sheet at December 31, 2003. The arbitration
matter was styled: USURF America, Inc. versus Christopher L. Wiebelt, American
Arbitration Association, Case No. 71-160-00087-01. In February 2004, we entered
into a settlement agreement with Mr. Weibelt under which we agreed to satisfy
the judgment by making an initial payment of $30,000 and six equal monthly
payments thereafter for the balance. The judgment was fully satisfied in August
2004.

In June 2003 one of our subsidiaries, USURF Telecom, Inc., was named as a
defendant in a lawsuit filed by Qwest Corporation. USURF Telecom has filed its
answer, denying any liability. To date, there has been no activity in the case
involving USURF Telecom, nor has the plaintiff directed any attention to USURF
Telecom beyond the original filing of the lawsuit. Company management believes
that Qwest's allegations are without merit. This case is styled: Qwest
Corporation vs. Maxcom, Inc. (f/k/a Mile High Telecom, CLEC for Sale, Inc. and
Mile High Telecom, Inc.), et. al., District Court, City and County of Denver,
Colorado, Case No. 03 CV 1676.

In April 2004 a complaint was filed in the District Court, El Paso County,
Colorado styled Pipeline Networks of Colorado, LLC vs. Usurf Communications,
Inc. and Usurf America, Inc.; Case No. 2004cv1565. The lawsuit arose out of a
dispute regarding an agreement to pay Pipeline $156,300 in Shares or in cash by
April 13, 2004 as part of the original asset purchase and extension agreements
to purchase the assets and rights used in connection with the Internet services
business operated by Pipeline. This matter was fully settled by the parties in
July of 2004. Under the settlement agreement, Pipeline exchanged its 1,356,960
shares of USURF common stock for a cash payment of $170,000. The settlement
resulted in a net charge of $14,000 against our second quarter earnings.


                                      28-
<PAGE>

Inventories
Our inventories are valued at the lower of cost or market value. We also
identify obsolete items of inventory that are not forecasted to be used in our
future operations and record an allowance for those items. To date, we have
performed full physical inventory counts on an annual basis. In the future, as
we expand our operations, it is possible that we may instead rely on cycle
counts at warehouses and distribution centers to measure inventory. Currently,
however, inventories do not represent a material item on our balance sheet and
are generally not a significant factor in our operations.

Accounts Receivable
We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. We provide a
general allowance for customer accounts based on historical collection and
write-off experience from our operations and the telecommunications industry,
and a specific allowance for any individually significant customers who are
known to be experiencing financial difficulties. Judgment is critical because
some customers may experience financial difficulties. If the financial condition
of any such customer were to worsen, additional allowances might be required.

Results of Operations Years Ended December 31, 2004 and 2003.

Revenues

For the year ended December 31, 2004 USURF had $6,479,420 in revenue compared
to $403,764 for the years ended December 31, 2003. During the year ended
December 31, 2004, USURF's revenues were derived primarily from the sale of
voice services from it wholly owned subsidiary Connect Paging Inc.. These
revenues are recognized and recorded on an accrual basis.

Operating Expenses

For the years ended December 31, 2004 and 2003, operating expenses were
$10,534,843 and $3,493,720, respectively. During the years ended December 31,
2004 and 2003, operating expenses consisted primarily of professional and
consulting fees of $5,149,546 and $1,709,556, respectively, all of which were
paid in stock, salaries and commissions of $1,566,196 and $1,028,246,
respectively, most of which was paid in stock, and other general and
administrative expenses of $3,819,100 and $755,918, respectively, consisting
primarily of $1,063,313 and $130,384 in amortization and depreciation and
$117,835 and $113,517 in rent.

Net loss

For the years ended December 31, 2004, USURF had a net loss of $18,152,850, or
$0.11net loss per share. For the years ended December 31, 2003, USURF had a net
loss of $3,654,356, or $0.04 net loss per share.

Liquidity
Since its inception, USURF has had significant working capital deficits. At
December 31, 2004, USURF had a net working capital deficit of $1,228,757
compared to $ 757,040 at December 31, 2003. A net working capital deficit means
that current liabilities exceeded current assets. Current assets are generally
assets that can be converted into cash within one year and can be used to pay
current liabilities. As a result our independent auditors have issued a going
concern opinion.

Currently, USURF believes that it will have sufficient cash from the private
placements of its securities and operations, including cash generated from our
newly acquired Sovereign subsidiary, to continue its current business
operations. During the year ended December 31, 2004, USURF received
approximately $2,305,415 from the sale of securities. At December 31, 2004,
USURF had cash on hand of $730,372. We anticipate that our cash needs over the
next 12 months will be approximately $5,050,000, consisting of general working
capital needs of $1,800,000 and the satisfaction of our current liabilities of
approximately $3,250,000.

Cash Used or Provided in Operating Activities.

Cash Used in Operating Activities
During the year ended December 31, 2004, the Company's operations used cash of
$4,013,535 compared to $776,395 used during the year ended December 31, 2003. In
the year 2004, the Company's net loss of $18,152,850 is offset by various
non-cash expenses of $14,554,710.25. For each year reported, the use of cash was
a direct result of the lack of revenues compared to operating expenses.


                                      29-
<PAGE>

Cash Used in Investing Activities
The total value of our capital expenditures for 2004 was $5,542,807 compared to
only $1,606,009 during 2003. For the year 2004, this primarily consisted of cash
for acquisitions and future acquisitions.

Cash Provided by Financing Activities
During the year ended December 31, 2004, the total amount of the Company's
financing activities was $10,214,114 compared to $2,343,433 in 2003. During
2004, $3,305,415 of cash was provided through the sale of common and preferred
stock, $2,656,999 worth of stock was issued for acquisitions, $4,420,000 was
provided by convertible debt, and $168,300 was paid down on historical debt.

Item 7. Financial Statements

The financial statements required to be furnished under this Item 7 are attached
at the end of this Annual Report on Form 10-KSB. An index to our financial
statements is also included below in Item 13(a).

Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

Hein & Associates LLP, the independent accountants who had been engaged by the
Company as the principal accountants to audit the Company's consolidated
financial statements, has been dismissed as the Company's principal accountants
effective as of January 20, 2005.

The decision to dismiss Hein + Associates LLP was made by the Board of Directors
of the Company.

The report of Hein & Associates LLP with respect to the audited financial
statements of the Company for the fiscal year ended December 31, 2003, was
modified as to uncertainty that the Registrant will continue as a going concern;
other than that, the report did not contain an adverse opinion, or disclaimer
opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles.

For the audited years ended December 31, 2002 and December 31, 2003, and during
the year 2004 through and 2005 through January 20, 2005 (the effective date of
the dismissal of Hein + Associates LLP), there were no disagreements with Hein +
Associates LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of the former accountant would have caused the accountants to
make reference to the subject matter of such disagreement in their reports. In
addition, the dismissal of Hein + Associates LLP was not caused by, or related
to, any disagreements on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of the former accountant would have caused the
accountants to make reference to the subject matter of such disagreement in
their reports.

On January 20, 2005 the Company engaged the firm of AJ. Robbins, PC as its new
auditors. The decision to retain the services of AJ. Robbins, PC was approved by
the Company's Board of Directors.

Prior to engaging AJ. Robbins, PC, the Company had not consulted AJ. Robbins, PC
regarding the application of accounting principles to a specified transaction,
completed or proposed, the type of audit opinion that might be rendered on the
Company's financial statements or a reportable event, nor did the Company
consult with AJ. Robbins, PC regarding any disagreements with its prior auditor
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of the prior auditor, would have caused it to make a
reference to the subject matter of the disagreements in connection with its
reports.


                                      30-
<PAGE>

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act

Directors and Executive Officers
      The following table sets forth certain information regarding each of our
Directors and executive officers as of December 31, 2004.

<TABLE>
<CAPTION>
                        NAME         AGE                           TITLE(S)
                        ----         ---                           --------
<S>                                   <C>    <C>
David A. Weisman(1) (2) (4)           42     Director, Chairman of the Board of Directors
Douglas O. McKinnon (1) (3)           55     Director, President and Chief Executive Officer
Richard E. Wilson (1) (2) (4)(5)      62     Director
Byron Young(1)                        31     Director
Ed Garneau(2) (5)(6)                  42     Director
Ronald S. Bass(3)                     38     Principal Accounting Officer
Craig A. Cook(3)                      58     Executive Vice President Corporate Development
</TABLE>

----------
(1)   Member of the Executive Committee of the Board of Directors.

(2)   Member of the Audit Committee of the Board of Directors.

(3)   Member of the Disclosure Committee of the Board of Directors.

(4)   Member of the Nominating Committee of the Board of Directors.

(5)   Member of the Compensation Committee of the Board of Directors.

(6)   Mr. Garneau entered into an Employment Agreement with the Company
      effective as of February 21, 2005 whereby Mr. Garneau assumed the position
      of Chief Operating Officer of the Company.

Our officers serve at the discretion of our Board of Directors. Mr. McKinnon and
Mr. Garneau each have executive employment agreements. Our Directors serve until
the next annual meeting of shareholders or until their respective successors are
elected and qualified. There exists no family relationship between our officers
and Directors. Certain information regarding the backgrounds of each of our
officers and Directors is set forth below.

DAVE WEISMAN. Mr. Weisman joined us in October 2004 as the Chairman of Usurf
America's Board of Directors. Mr. Weisman also currently serves as Chairman and
CEO of a broadband and communications technology and services company, Eagle
Broadband, where he has led a highly successful corporate restructuring and
turnaround that has established Eagle Broadband as market leader and created
more than $200 Million in shareholder value. Before Eagle Broadband, he was:
Vice President, Sales & Marketing for IP Dynamics; co-founder and Vice
President, Sales and Marketing for Canyon Networks; Vice President, Marketing
and Customer Service for ACT Networks; co-founder and Vice President, Sales &
Marketing for Thomson Enterprise Networks. Mr. Weisman also served as a pilot
with the United States Air Force Reserve and saw active combat duty in Central
America and Operation Desert Storm. He holds a B.A. in Economics and
International Relations from U.C.L.A.

DOUGLAS O. MCKINNON. Mr. McKinnon joined us in April 2002 as a Director and our
president and chief executive officer. Prior to joining us, he served as chief
executive officer of IP Services, Inc., a next-generation communications
services provider using broadband Internet Protocol (IP) and Asynchronous
Transfer Mode (ATM) based networks, from April 1999 to April 2002. From February
1998 to March 1999 he served as executive vice president and chief financial
officer of AVIRNEX Communications Group, Inc., a provider of retail
telecommunications service including domestic and international long distance
and enhanced services to small and medium-sized business customers. From
November 1994 to January 1998, Mr. McKinnon served as vice president of ICG
Communications, Inc, one of the country's largest competitive local exchange
carriers offering local, long distance, ATM and frame relay services with a
nationwide fiber optic infrastructure. Mr. McKinnon is a former practicing CPA
with the SEC practice section of Coopers & Lybrand.

RICHARD E. WILSON. Mr. Wilson has served as a member of our Board of Directors
since March 2003. Since 2002, Mr. Wilson has served as a principal and executive
vice president of business development of NetPort-Datacom, Inc., a privately
held Mukilteo, Washington-based provider of international voice service. Mr.
Wilson was co-founder of The Association of Communications Enterprises (ASCENT)
(formerly the Telecommunications Resellers Association), a leading trade group
representing entrepreneurial and small business communications companies. He
served on that organization's Board of Directors in 1992 and 1993 and is
currently Chairman Emeritus of ASCENT. During 2001 and 2002, Mr. Wilson was a
principal in SigBioUSA, LLC, a Mulkiteo, Washington-based telecommunications
consulting firm with expertise in both wireline and wireless telecommunications
applications. From May 2000 to April 2001, Mr. Wilson was president and chief
executive officer of Open Telecommunications North America, a wholly owned
subsidiary of Open Telecommunications Australia, a publicly traded company in
Australia that provides telecommunications-network-infrastructure related
products and services. Also, from 2000 through January 2002, Mr. Wilson served
as a Director of GlobalNet International Telecommunications, Inc., an
Illinois-based provider of global telecommunications services. GlobalNet was
publicly traded under the symbol GBNE, until acquired by Titan Corporation in
2002.


                                      31-
<PAGE>

ED GARNEAU. Mr. Garneau joined our Board of Directors December 20, 2004. Mr.
Garneau will also serve as a member of our audit committee. Mr. Garneau is the
founder and, since 1994, has been the Chief Executive Officer of Sovereign
Companies (recently acquired by the Company on February 18, 2005), a diversified
real estate development company with broadband telecommunications installation
and operations in 4 states currently representing 10 major developments or
approximately 1100 homes. Prior to founding Sovereign, Mr. Garneau served eight
years in the US Air Force as a fighter pilot.

JEFFREY W. FIEBIG. Mr. Fiebig joined us as a member of our Board of Directors
March 2005. Mr. Fiebig joined the Sovereign Companies (recently acquired by the
Company on February 18, 2005) as Vice President in August of 2004. Mr. Fiebig
has spent the last sixteen years in the US Air Force on active duty or in the
reserves. From January 2001 to January 2004, Mr. Fiebig was the Supervisor and
Commander of six Squadrons and over 500 personnel at Luke Air Force Base,
Arizona. In addition to his US Air Force duties Mr. Fiebig was an instructor and
evaluator for United Airlines from May of 1997 to September 2004.

BYRON YOUNG. Mr. Young joined us as a member of our Board of Directors in August
2004. Concurrently, Mr. Young will remain active as President of USURF's newly
acquired Texas subsidiary, Connect Paging Inc. d/b/a/ Get-A-Phone ("GAP"). Mr.
Young purchased GAP in 2000, sold off all paging assets and refocused the
company on dial tone. GAP has grown to over 14,000 customers to date and
revenues exceeding $9 million annually. Prior to Connect Paging, Young founded
Phone America in 1997 which was merged with Trans National Telecommunications,
Inc. in 1999 and prior to Phone America, founded Paging Express, Inc. in 1994.

RONALD S. BASS. Mr. Bass joined us as principal accounting officer in November
2003. Prior to joining us, Mr. Bass served as chief financial officer of Phantom
Group from January 2002 to October 2003, chief financial officer of Knovada from
May 2001 to October 2003, Director of finance and operations at Vista Travel
Ventures from March 1999 to May 2001, and manager administration at Group
Voyagers from July 1993 to March 1999. Mr. Bass brings more than 13 years of
executive finance and operations experience including experience in equity
funding, treasury management, financial analysis, tax planning, accounting
system design and implementation, process engineering and risk management.

CRAIG A. COOK. Mr. Cook joined us as Vice President of Operations starting in
December 2004. He comes to Usurf from Sovereign Companies, having served as the
Chief Operating Officer from 2001 to 2004. Concurrently, Mr. Cook will act as
President of Usurf Communications, Inc. Previously, he was the Chief Operating
Officer for Denver Public Schools from 1994 to 2001 and the Assistant
Superintendent of Kansas City Public Schools, Kansas City, Missouri from 1988 to
1994. A retired Lieutenant Colonel in the U.S. Army, Cook served in various
accounting and finance positions during his military service. He brings the
discipline of an MBA from the University of Nevada, Reno, combined with a BSBA
from the University of Idaho to his job.

Our full Board of Directors met two times during 2004 and it took action by
unanimous written consent in lieu of a meeting on numerous occasions.

Executive Committee

Our Board of Directors created an executive committee to facilitate management
between meetings of the full Board of Directors. The executive committee is
composed of Douglas O. McKinnon, Dave Weisman, Byron Young and Richard E.
Wilson. Pursuant to our Bylaws, between meetings of the full Board of Directors,
the executive committee has the full power and authority of the Board of
Directors in the management of our business and affairs, except to the extent
limited by Nevada law. Pursuant to the Bylaws of the executive committee, as
adopted by the full Board of Directors, the executive committee has the
authority to exercise all powers of the Board of Directors, except the power:

      -  to declare dividends;
      -  to sell or otherwise dispose of all or substantially all of our
         assets;
      -  to recommend to our shareholders any action requiring their
         approval; and
      -  to change the membership of any committee, fill the vacancies
         thereon or discharge any committee.

During 2004 the Executive Committee did not meet in person; however, it took
action by unanimous written consent in lieu of a meeting on numerous occasions.

On September 30, 2004 the Board of Directors adopted new corporate governance
initiatives including : (i) the establishment of a Compensation and Stock
Committee, a Nominating Committee, a Disclosure Committee and their respective
charters, (ii) the adoption of a Code of Business Conduct and Ethics and a Code
of Ethics for Senior Financial Officers, (iii) the adoption of an Insider
Trading Compliance Program and (iv) the adoption of a new charter for the Audit
Committee.


                                      32-
<PAGE>

Audit Committee

The audit committee of our Board of Directors is now composed of Richard E.
Wilson, Davis Weisman and Ed Garneau. Our Board of Directors appointed Messrs.
Wilson, Weisman and Garneau to the audit committee effective as of December 15,
2004. Our Board of Directors has determined that the audit committee does not
have a member with the requisite education, background or experience to be
considered an "audit committee financial expert" as that term is defined by the
SEC. The purposes of the audit committee are:

      -  to oversee the quality and integrity of the financial statements and
         other financial information we provide to any governmental body or
         the public;
      -  to oversee the independent auditors' qualifications and
         independence;
      -  to oversee the performance of our independent auditors;
      -  to oversee our systems of internal controls regarding finance,
      -  accounting, legal compliance and ethics that management and the
         Board of Directors has established or will establish in the future;
      -  to establish procedures for the receipt, retention and treatment of
      -  complaints regarding accounting, internal controls, and other
auditing matters and for the confidential, anonymous submission by our employees
of concerns regarding questionable accounting or auditing matters;
      -  to provide an open avenue of communication among the independent
auditors, financial and senior management, the internal auditing department, and
the Board of Directors, always emphasizing that the independent auditors are
accountable to the audit committee; and
      -  to perform such other duties as are directed by the Board of
Directors.

Compensation and Stock Committee
The compensation and stock committee is composed of Richard Wilson and Ed
Garneau. The general purposes of the committee are:

      -  to assist the Board of Directors in discharging the Board of
Directors's responsibilities relating to compensation of the Company's
executives;
      -  to make recommendations to the Board of Directors with respect to
all compensation plans, including equity-based plans for employees and
Directors; and
      -  to produce an annual report on executive compensation for inclusion
in the Company's proxy statement, in accordance with applicable rules and
regulations.

Nominating Committee
The nominating committee is composed of David Weisman and Richard Wilson. The
general purposes of the committee are:
      -  to assist the Board of Directors by identifying individuals
qualified to become Board of Directors members, and to recommend to the Board of
Directors the Director nominees for the next annual meeting of stockholders;
      -  to develop and recommend to the Board of Directors the corporate
governance guidelines applicable to the Company;
      -  to lead the Board of Directors in its annual review of the Board of
Directors's performance;
      -  to conduct an annual assessment of each committee; and
      -  to recommend to the Board of Directors Director nominees for each
committee.


Disclosure Committee
The disclosure committee is composed Douglas McKinnon, Craig Cook and Ron Bass.
The general purpose of the committee is to design, establish and maintain a
system of controls and other procedures to ensure that information required to
be disclosed in the reports and statements filed by the Company pursuant to the
Exchange Act, is recorded, processed, summarized and reported in conformity with
the rules and forms of the Securities and Exchange Commission

Code of Ethics
We have adopted a code of ethics that applies to our executive and financial
officers. A copy of our code of ethics is available on our website:
www.usurf.com.

Insider Trading
We have adopted an Insider Trading Compliance Program that applies to our
officers, Directors, employees and other individuals that have access to inside
information.

Compensation of Directors
Non-employee Directors receive annual payments for their service as Directors,
nor has our Board of Directors established a per-meeting stipend. At such time
as our cash position improves, it is likely that the Board of Directors will
begin to compensate non-employee Directors. However, no determination of the
amount of any such payment amounts has been made. Directors who are also
employees receive no additional compensation for their service on the Board of
Directors and its committees.

In March 2003, in connection with his agreement to become a Board of Directors
member, Richard E. Wilson received 200,000 shares of our common stock, valued at
$.05 per share, the closing price on the date of award, as reported by AMEX, an
aggregate value of $10,000. In November 2003, he received an additional 150,000
shares valued at $0.19 per share, the closing price on the date of award, as
reported by AMEX, an aggregate value of $28,500. In December, 2004 he received
150,000 shares valued at $0.0935, the closing price on the date of award, for an
aggregate value of $14,025.


                                      33-
<PAGE>

Indemnification of Directors and Officers
Article X of the Articles of Incorporation of USURF America provides that no
Director or officer shall be personally liable to USURF America or its
shareholders for damages for breach of fiduciary duty as a Director officer;
provided, however, that such provision shall not eliminate or limit the
liability of a Director or officer for (1) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (2) the payment
of dividends in violation of law. Any repeal or modification of Article X shall
be prospective only and shall not adversely affect any right or protection of a
Director or officer of USURF America existing at the time of such repeal or
modification for any breach covered by Article X which occurred prior to any
such repeal or modification. The effect of Article X is that Directors and
officers will experience no monetary loss for damages arising out of actions
taken (or not taken) in such capacities, except for damages arising out of
intentional misconduct, fraud or a knowing violation of law, or the payment of
dividends in violation of law.

As permitted by Nevada law, our Bylaws provide that we will indemnify our
Directors and officers against expense and liabilities they incur to defend,
settle or satisfy any civil, including any action alleging negligence, or
criminal action brought against them on account of their being or having been
Directors or officers unless, in any such action, they are judged to have acted
with gross negligence or willful misconduct. Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended, may be
permitted to Directors, officers or control persons pursuant to the foregoing
provisions, we have been informed that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.

Compliance with Section 16(a) of the Securities Exchange Act
The Company's executive officers and Directors, and beneficial owners of more
than 10% of the Common Stock, are required to file initial reports of ownership
and reports of changes of ownership of the Common Stock with the SEC. The SEC's
rules require such person to furnish the Company with copies of all Section
16(a) reports they file. The Company has determined that not all of the reports
required to have been filed during 2004 were filed on a timely basis. Based
solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to the
Company under Rule 16a-3(e) of the Exchange Act, the Company has determined that
all officers, Directors and beneficial owners of more than 10% of the Common
Stock have filed reports as follows:

--------------------------------------------------------------------------------
         NAME                            FORM                         DATE FILED
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
         Douglas O. McKinnon             Form 5                       2/15/05
--------------------------------------------------------------------------------
         David A. Weisman                Form 5                       2/22/05
--------------------------------------------------------------------------------
         Craig A. Cook                   Form 5                       2/22/05
--------------------------------------------------------------------------------
         Ed Garneau                      Form 5                       2/24/05
--------------------------------------------------------------------------------
         Ed Garneau                      Form 4                       2/24/05
--------------------------------------------------------------------------------
         Jeff Fiebig                     Form 3                       3/21/05
--------------------------------------------------------------------------------

Item 10. Executive Compensation

Executive Compensation
The following table sets forth in summary form the compensation received during
each of the last three completed fiscal years by our Chief Executive Officer and
each executive officer who received total salary and bonus exceeding $100,000
during any of the last three fiscal years.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                          Annual Compensation                   Long Term Compensation
---------------------------------------------------------------------------------------------------------------------------
Name, Principal                    Fiscal    Salary $          Bonus $           Other       Securities         All
---------------------------------------------------------------------------------------------------------------------------
Position                            Year                                        Annual       Underlying        Other
---------------------------------------------------------------------------------------------------------------------------
                                                                            Compensation $     Options    Compensation $
---------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>     <C>             <C>                 <C>              <C>          <C>
Douglas O. McKinnon                 2004      180,000
---------------------------------------------------------------------------------------------------------------------------
[President and Chief Executive      2003    180,000 (1)          $0               $0              0             $0
---------------------------------------------------------------------------------------------------------------------------
Officer]                            2002    127,500 (2)      310,456 (2)          $0              0             $0
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
Richard W. Koontz                   2004    62,500 (A)           $0               $0              0             $0
---------------------------------------------------------------------------------------------------------------------------
Former Vice President               2003        $0               $0               $0              0             $0
---------------------------------------------------------------------------------------------------------------------------
Corporate Development               2002        $0               $0               $0              0             $0
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
David M. Loflin                     2004        $0
---------------------------------------------------------------------------------------------------------------------------
Former Chairman of the              2003    75,000 (3)                            $0              0             $0
---------------------------------------------------------------------------------------------------------------------------
Board of Directors and former       2002    150,000 (4)      200,000 (4)          $0              0             $0
President
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      34-
<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                                                          Annual Compensation                   Long Term Compensation
---------------------------------------------------------------------------------------------------------------------------
Name, Principal                    Fiscal    Salary $          Bonus $           Other       Securities         All
---------------------------------------------------------------------------------------------------------------------------
Position                            Year                                        Annual       Underlying        Other
---------------------------------------------------------------------------------------------------------------------------
                                                                            Compensation $     Options    Compensation $
---------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>     <C>             <C>                 <C>              <C>          <C>
Waddell Loflin                      2004        $0
---------------------------------------------------------------------------------------------------------------------------
Former Vice President and           2003        (B)
---------------------------------------------------------------------------------------------------------------------------
Secretary                           2002    79,167 (5)       200,000 (6)          $0              0             $0
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
James Kaufman                       2004        $0
---------------------------------------------------------------------------------------------------------------------------
Former Vice President               2003        (C)
---------------------------------------------------------------------------------------------------------------------------
Corporate Development               2002    95,000 (7)       200,000 (8)          $0              0             $0
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
Kenneth J. Upcraft                  2004    109,142 (9)
---------------------------------------------------------------------------------------------------------------------------
Former Executive Vice               2003    150,000 (9)                           $0              0             $0
---------------------------------------------------------------------------------------------------------------------------
President                           2002    62,500 (10)      58,220 (10)          $0              0             $0

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

---------------------------------------------------------------------------------------------------------------------------
Christopher K. Brenner              2004        (D)
---------------------------------------------------------------------------------------------------------------------------
Former Vice President Finance       2003   120,000 (11)          $0               $0              0             $0
---------------------------------------------------------------------------------------------------------------------------
And Administration                  2002       (12)              $0               $0              0             $0
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(A) Mr. Koontz entered into an agreement in which his employment contract was
terminated effective December 15, 2004. In connection with the agreement, Mr.
Koontz received 5,000,000 warrants with an exercise price of $0.10 and 2,000,000
warrants with an exercise price of $0.12 exercisable into common stock of the
Company.

(B) Mr. Loflin resigned, effective March 31, 2003.

(C) Mr. Kaufman was not employed by us during this fiscal year.

(D) Mr. Brenner was not employed by us during this fiscal year

(1) $95,500 of Mr. McKinnon's salary amount was paid by the issuance of
1,450,000 shares of our common stock, a per share value of $.07 per share, the
last closing price of our common stock, as reported by AMEX, on the date of
issuance.

(2) $91,044 of Mr. McKinnon's salary amount and $10,456 of his bonus amount were
paid by the issuance of 1,450,000 shares of our common stock, a per share value
of $.07 per share, the last closing price of our common stock, as reported by
AMEX, on the date of issuance. $300,000 of Mr. McKinnon's bonus amount was paid
by the issuance of 3,000,000 shares of our common stock, upon his executing his
employment agreement, which shares were valued at $.10 per share, the last
closing price of our common stock, as reported by AMEX, on the date of issuance.

(3) $75,000 of Mr. Loflin's salary amount was paid by the issuance of 1,300,000
shares of our common stock, a per share value of $.07 per share, the last
closing price of our common stock, as reported by AMEX, on the date of issuance.

(4) $42,750 of Mr. Loflin's salary amount was accrued; Mr. Loflin waived payment
of this amount, in connection with the Evergreen transaction (described
elsewhere herein). $107,250 of Mr. Loflin's salary amount was paid by the
issuance of 618,000 shares of our common stock, a per share value of $.173 per
share, a per share price higher than the market price that was negotiated by us
with Mr. Loflin. Mr. Loflin's bonus amount was paid by the issuance of 2,000,000
shares of our common stock, upon his executing an amendment to his employment
agreement, which shares were valued at $.10 per share, the last closing price of
our common stock, as reported by AMEX, on the date of issuance.

(5) $29,167 of Mr. Loflin's salary amount was accrued; Mr. Loflin waived payment
of this amount, in connection with the Evergreen transaction (described
elsewhere herein). $50,000 of Mr. Loflin's salary amount was paid by the
issuance of 600,000 shares of our common stock, a per share value of $.083 per
share, a per share price higher than the market price that was negotiated by us
with Mr. Loflin.

(6) This bonus was paid by the issuance of 2,000,000 shares to Mr. Loflin in
connection with the Evergreen transaction (described elsewhere herein), which
shares were valued at $.10 per share, the last closing price of the Common
Stock, as reported by AMEX, prior to their issuance.

(7) $35,000 of Mr. Kaufman's salary amount was accrued; Mr. Kaufman waived
payment of this amount, in connection with the Evergreen transaction (described
elsewhere herein). $60,000 of Mr. Kaufman's salary amount was paid by the
issuance of 600,000 shares of our common stock, a per share value of $.10 per
share, a per share price higher than the market price that was negotiated by us
with Mr. Kaufman.


                                      35-
<PAGE>

(8) This bonus was paid by the issuance of 2,000,000 shares to Mr. Kaufman in
connection with the Evergreen transaction (described elsewhere herein), which
shares were valued at $.10 per share, the last closing price of the Common
Stock, as reported by AMEX, prior to their issuance.

(9) $70,000 of Mr. Upcraft's salary amount was paid by the issuance of 1,150,000
shares of our common stock, a per share value of $.07 per share, the last
closing price of our common stock, as reported by AMEX, on the date of issuance.

(10) $47,500 of Mr. Upcraft's salary amount and $22,220 of his bonus amount were
paid by the issuance of 996,000 shares of our common stock, a per share value of
$.07 per share, the last closing price of our common stock, as reported by AMEX,
on the date of issuance. $36,000 of Mr. Upcraft's bonus amount was paid by the
issuance of 600,000 shares of our common stock, upon his executing his
employment agreement, which shares were valued at $.06 per share, the last
closing price of our common stock, as reported by AMEX, on the date of his
executing his employment agreement.

(11) $66,500 of Mr. Brenner's salary amount was paid by the issuance of
1,100,000 shares of our common stock, a per share value of $.07 per share, the
last closing price of our common stock, as reported by AMEX, on the date of
issuance.

(12) During 2002, Mr. Brenner served as a consultant to the Company.

Employment Contracts and Termination of Employment and Change-in-Control
Agreements

The following table summarizes certain provisions of the employment agreements.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
      Name of Officer            Position(s)              Term           Annual Salary        Date
--------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------
<S>                        <C>                           <C>              <C>               <C>
    Douglas O. McKinnon      President and Chief         3 Years          $180,000.00       4/15/2002
                              Executive Officer
--------------------------------------------------------------------------------------------------------
        Ed Garneau         Chief Operating Officer       3 Years          $185,000.00        2/21/05
--------------------------------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------------------------------
</TABLE>


In connection with each of their respective employment agreements, the executive
officers entered into confidentiality agreements and agreements not to compete
with the Company during the term of employment and for a period of one year
thereafter.

Under Mr. McKinnon's employment agreement, should the Company (1) experience a
change in control or (2) change Mr. McKinnon's responsibilities with the
Company, Mr. McKinnon has the right, in his sole discretion, to terminate his
employment with the Company and the Company would be liable for all compensation
remaining to be paid during the then-current term of his employment agreement,
plus an additional period of one year.

Under each employment agreement, if the executive is terminated by the Company
other than for cause, he will be entitled to continue to receive his base salary
for the unexpired term of his employment contract.

Option/SAR Grants in Last Fiscal Year

2004 Stock Ownership Plan
In February 2004, our Board of Directors adopted a stock ownership plan for our
officers, Directors and consultants known as the 2004 Stock Ownership Plan. The
2004 Plan was established by the Board of Directors as a means to promote our
success and enhance our value by linking the personal interests of participants
to our shareholders, and by providing participants with an incentive for
outstanding performance. The 2004 Plan is further intended to aid us in
attracting and retaining the services of persons upon whose judgment, interest
and special efforts our successful operation and our subsidiaries' operations is
dependent. Persons who are either officers, Directors or consultants are
eligible to participate in the 2004 Plan. The Board of Directors may, at any
time and from time to time, grant shares of our common stock in such amounts and
upon such terms and conditions as it may determine, to include the granting of
shares of the Common Stock and the granting of options to purchase shares of the
common stock. A total of 15,000,000 shares of our common stock have been
reserved for issuance under the 2004 Plan registration statement on Form S-8
(SEC File No.333-115558) relating to the 2004 Plan, as amended, have been filed
with the SEC. At March 31, 2005, no shares of our common stock remain unissued
under the Plan.


                                      36-
<PAGE>

2005 Stock Ownership Plan
In December 2004, our Board of Directors adopted a stock ownership plan for our
officers, Directors and consultants known as the 2005 Stock Ownership Plan. The
2005 Plan was established by the Board of Directors as a means to promote our
success and enhance our value by linking the personal interests of participants
to our shareholders, and by providing participants with an incentive for
outstanding performance. The 2004 Plan is further intended to aid us in
attracting and retaining the services of persons upon whose judgment, interest
and special efforts our successful operation and our subsidiaries' operations is
dependent. Persons who are either officers, Directors or consultants are
eligible to participate in the 2005 Plan. The Board of Directors may, at any
time and from time to time, grant shares of our common stock in such amounts and
upon such terms and conditions as it may determine, to include the granting of
shares of the Common Stock and the granting of options to purchase shares of the
common stock. A total of 20,000,000 shares of our common stock have been
reserved for issuance under the 2005 Plan registration statement on Form S-8
(SEC File No.333-121916) relating to the 2005 Plan, as amended, have been filed
with the SEC. At March 31, 2005, 11,619,891 shares of our common stock remain
unissued under the Plan.

Stock Appreciation Rights
We have never granted any stock appreciation rights (SARs), nor do we expect to
grant any SARs in the foreseeable future.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Common Stock
The following table sets forth certain information known to us regarding
    beneficial ownership of our common stock as of March 31, 2005 by (i) each
    person who is known to us to be beneficial owners of more than 5% of our
    common stock, (ii) each of our Directors and the executive officers named in
    the Summary Compensation Table above, and (iii) our executive officers and
    Directors as a group. Except as otherwise noted below, the address of each
    persons is 390 Interlocken Crescent, Suite 900, Broomfield, Colorado 80021.

<TABLE>
<CAPTION>
                                                    NUMBER OF SHARES           PERCENTAGE OF SHARES
           NAME AND ADDRESS OF BENEFICIAL OWNER     BENEFICIALLY OWNED(1)      BENEFICIALLY OWNED(1)
           ------------------------------------     ---------------------      ---------------------
<S>                                                         <C>                          <C>
Crestview Capital Master LLC (2)                            40,000,000                   14.9%
Evergreen Venture Partners, LLC(3)                          15,000,000                    6.5%
Monarch Pointe Fund, Ltd. (4)                               25,400,000                   10.0%
David A. Weisman(5)                                         17,500,000                    7.1%
Douglas O. McKinnon(6)                                       8,650,000                    3.7%
Richard E. Wilson(7)                                         1,200,000                    *
Ed Garneau(8)                                               18,503,520                    8.0%
Byron T. Young                                               5,750,000                    2.5%
Jeff Fiebig(9)                                                 716,667                    *
Craig Cook(10)                                                 716,667                    *
All executive officers and Directors as a group
  (5 persons)                                                53,036,853                  20.9%
</TABLE>

----------

* Represents beneficial ownership of less than 1%.

(1)   Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or
      investment power with respect to securities. Shares of common stock
      subject to options and warrants currently exercisable or convertible, or
      exercisable or convertible within 60 days of March 31, 2005, are deemed
      outstanding for computing the percentage of the person holding such option
      or warrant but are not deemed outstanding for computing the percentage of
      any other person. Except as pursuant to applicable community property
      laws, the persons named in the table have sole voting and investment power
      with respect to all shares of common stock beneficially owned. Percentages
      are based on 229,155,297 shares of common stock outstanding as of March
      31, 2005.

(2)   Includes 40,000,000 shares issuable upon conversion of convertible
      debentures held by Crestview Capital Master LLC. Crestview's business
      address is 95 Revere Dr., Suite A, Northbrook, Illinois, 60062.

(3)   Evergreen Venture Partners, LLC's business address is 1535 Grant Street,
      Suite 140, Denver, CO 80203. (4) Includes 20,000,000 shares issuable upon
      conversion of Series A Preferred Shares and 5,400,000 shares issuable upon
      exercise of warrants held by Monarch Pointe Fund, Ltd .Monarch's business
      address is 555 South Flower St., Suite 4500, Los Angeles, California
      90071.

(5)   Includes 17,500,000 shares issuable upon exercise of warrants. (6)
      Includes 3,000,000 shares issuable upon exercise of options.

(7)   Includes 750,000 shares issuable upon exercise of options. Mr. Wilson's
      address is 6252 Harbour Heights Parkway, Makilteo, Washington 98275.

(8)   Includes: (i) 5,203,870 shares were issued to, and a owned by five
      affiliated limited liability companies for which Mr. Garneau serves as
      Manager, and in his capacity as Manager, Mr. Garneau exercises voting
      control over the 5,203,870 common shares. Mr. Garneau disclaims beneficial
      ownership of all such shares: (ii) 600,000 shares and 200,000 shares
      issuable upon exercise of two warrants issued in a private placement
      transaction to September Serenade Ltd., a family owned partnership of
      which Mr. Garneau serves as a general partner and in which he shares
      voting control over the shares with his wife. Each of Mr. Garneau and his
      wife own a 0.5% interest in the partnership. Mr. Garneau disclaims
      beneficial ownership of all but 0.5% of the shares and warrants owned by
      the partnership; and (iii) 9,721,950 common shares and 2,777,700 common
      shares issuable upon conversion of Series B Preferred Stock issued to and
      owned by DD Family Properties LLC, a family owned LLC of which Mr. Garneau
      owns a 21% interest and for which he serves as Manager. Mr. Garneau
      exercises voting control over all of the common shares and preferred
      shares owned by the LLC. Mr. Garneau disclaims beneficial ownership of all
      but 21% of the common shares and preferred shares owned by the family LLC.


                                      37-
<PAGE>

(9)   Includes 100,000 shares issuable upon conversion of Series B Preferred
      Shares and 66,667 shares issuable upon exercise of warrants.

(10)  Includes 100,000 shares issuable upon conversion of Series B Preferred
      Shares and 66,667 shares issuable upon exercise of warrants.


                                      38-
<PAGE>

Item 12. Certain Relationships and Related Transactions

Item 12

On December 20, 2004, Mr. Ed Garneau became a member of our Board of Directors.
On February 18, 2005, we closed on the acquisition of Sovereign Partners LLC
(the "Acquisition") (described above under "Recent Developments" under Item 1 of
this Annual Report). At the time the Acquisition was negotiated, signed and
closed, Mr. Garneau was both an indirect shareholder and Director of our Company
and the Manager of Sovereign Partners LLC ("Sovereign"). Mr. Garneau's prior
shareholdings in our Company are described below. Mr. Garneau also owned direct
and indirect economic interests in Sovereign at and prior to the closing of the
Acquisition, as described below. Upon the closing of the Acquisition, Mr.
Garneau assumed the title of Chief Operating Officer of our Company and entered
into an Employment Agreement with us.

In connection with the Acquisition, we issued common shares and series B
preferred shares to the former members of Sovereign. On February 18, 2005 at the
closing of the Acquisition, 9,721,950 shares of common stock and 27,777 shares
of Series B preferred stock were issued by us to entities in which Mr. Garneau
has an economic interest. These entities were members of Sovereign as of the
closing of the Acquisition. Specifically, the common shares and preferred shares
were issued to, and are owned by, DD Family Properties LLC, a family owned LLC
of which Mr. Garneau owns a 21% interest and for which he serves as Manager. Mr.
Garneau exercises voting control over all of the common shares and preferred
shares owned by the LLC. Under the terms of the Acquisition described under Item
1, additional shares of common stock and preferred stock will be issued to the
former Sovereign members, including DD Family Properties LLC over the next
several years.

In 2004, we entered into an acquisition transaction whereby we acquire certain
assets of the "Sovereign Companies." As part of that transaction, we issued
2,854,167 shares of common stock on March 8, 2004 and 2,349,703 shares of common
on November 22, 2004 to five affiliated limited liability companies (the owners
of the Sovereign Company assets) over which Mr. Garneau served as Manager as of
those dates. Mr. Garneau continues to serve as Manager of those entities and in
his capacity as Manager, Mr. Garneau exercises voting control over the 5,203,870
common shares. The acquisition of the assets closed before Mr. Garneau became a
Director or officer of our Company.

In addition, 600,000 shares of common stock and warrants to purchase 200,000
shares of common stock were issued by us on November 22, 2004 as part of a
private placement transaction. All of the foregoing common shares and warrants
to purchase common shares were acquired by, and are owned by, September Serenade
Ltd., a family owned partnership of which Mr. Garneau serves as a general
partner. He shares voting control over the shares with his wife. Each of Mr.
Garneau and his wife own a 0.05% interest in the partnership. The private
placement and the sale of the shares and warrants closed before Mr. Garneau
became a Director or officer of our Company.

Item 13. Exhibits

(a)(1) Financial Statements

Index to Financial Statements of USURF America
--------------------------------------------------------------------------------
F-2   Reports of Independent Registered Public Accounting Firms
--------------------------------------------------------------------------------
F-4   Consolidated Balance Sheet as of December 31, 2004
--------------------------------------------------------------------------------
F-6   Consolidated Statements of Operations for the Years Ended December 31,
      2004 and 2003
--------------------------------------------------------------------------------
F-7   Consolidated Statements of Changes in Stockholders' Equity for
      the Years Ended December 31, 2004 and 2003
--------------------------------------------------------------------------------
F-8   Consolidated Statements of Cash Flows for the Years Ended December 31,
      2004 and 2003
--------------------------------------------------------------------------------
F-9   Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

(a)(2) Exhibits


                                      39-
<PAGE>

ITEM 27.  EXHIBITS

          EXHIBIT NO.   DESCRIPTION

(1)       3.1           Articles of Incorporation of Registrant.

#         3.2           Bylaws of Registrant, as amended to date.

(3)       3.5           Articles of Amendment to Articles of Incorporation of
                        Registrant.

(4)       3.6           Articles of Amendment to Articles of Incorporation of
                        Registrant.

(8)       3.7           Certificate of Designation of Series A Convertible
                        Preferred Stock

(6)       3.8           Certificate of Designation of Series B Convertible
                        Preferred Stock

(2)       4.1           Specimen Common Stock Certificate.

#         4.2           Specimen Series A Preferred Stock Certificate

#         4.3           Specimen Series B Preferred Stock Certificate

(5)       10.1          Stock Purchase Agreement, dated April 20, 2004 by and
                        among USURF America, Inc. and Brandon Young, Brian Young
                        and Byron Young, as shareholders of Connect Paging, Inc.

(6)       10.2          Securities Purchase Agreement dated as of January 26
                        2005 by and among Usurf America, Inc., Sovereign
                        Partners, LLC and each of the members of Sovereign
                        listed on the signature pages thereto

(6)       10.3          Registration Rights Agreement dated as of February 18,
                        2005 by and among Usurf America, Inc., Sovereign
                        Partners, LLC and each of the Members of Sovereign
                        listed on the signature pages thereto

(6)       10.4          Management Agreement dated as of February 18, 2005 by
                        and among Usurf America, Inc. and each of the Members of
                        Sovereign listed on the signature pages thereto

(6)       10.5          Investor Rights Agreement dated as of February 18, 2005
                        by and among Usurf America, Inc., each member of its
                        Board of Directors, and each of the Members of Sovereign
                        listed on the signature pages thereto

(6)       10.6          Employment Agreement dated as of February 18, 2005 by
                        and between Usurf America, Inc. and Mr. Ed Garneau

(6)       10.7          Surrender and Exchange Agreement dated as of January 31,
                        2005 by and between Usurf America, Inc. and Evergreen
                        Venture Partners, LLC

(6)       10.8          Promissory Note in the Principal Amount of $750,000

(6)       10.9          Waiver, Consent, Surrender and Modification Agreement
                        dated as of January 21, 2005 by and between Usurf
                        America, Inc. and Crestview Capital Master Fund LLC

(7)       10.10         Subscription Agreement dated October 29, 2004, by and
                        between Usurf America, Inc., Mercator Momentum Fund, LP,
                        Mercator Momentum Fund III, LP, Monarch Point Fund, Ltd
                        and Mercator Advisory Group

(7)       10.11         Warrant to Purchase Common Stock issued to Mercator
                        Advisory Fund, Ltd.

(7)       10.12         Warrant to Purchase Common Stock issued to Monarch Point
                        Fund, Ltd.


                                      40-
<PAGE>

          EXHIBIT NO.   DESCRIPTION

(7)       10.13         Registration Rights Agreement, dated October 29, 2004,
                        by and between Usurf America, Inc., Mercator Momentum
                        Fund, LP, Mercator Momentum Fund III, LP, Monarch Point
                        Fund, Ltd and Mercator Advisory Group

(8)       10.14         Asset Purchase Agreement Dated February 6, 2004 by and
                        between Usurf America, Inc. and SunWest Communication,
                        Inc.

(9)       10.15         Agreement and Plan of Reorganization between Usurf
                        America, Inc. and UTEL, Inc. and SunWest Communications,
                        Inc. effective February 5, 2004

#         10.16         Colorado Office Lease Agreement

#         10.17         Texas Office Lease Agreement

#         21.1          Subsidiaries of Registrant.

#         31            Certification Pursuant to 18 U.S.C. Section 1350 of
                        President and CEO

#         32            Certification Pursuant to 18 U.S.C. Section 1350 of
                        Principal Accounting Officer


(1) Incorporated by reference from Registrant's Registration Statement on Form
S-1, Commission File No. 333-26385.

(2) Incorporated by reference from Registrant's Registration Statement on Form
S-1, Commission File No. 333-96027.


(3) Incorporated by reference from Registrant's Current Report on Form 8-K filed
with the SEC on July 29, 1998.

(4) Incorporated by reference from Registrant's Current Report on Form 8-K filed
with the SEC on July 13, 1999.

(5) Incorporated by reference from Registrant's Current Report on Form 8-K filed
with the SEC on May 5, 2004.

(6) Incorporated by reference from Registrant's Current Report on Form 8-K filed
with the SEC on February 22, 2005

(7) Incorporated by reference from Registrant's Current Report on Form 8-K filed
with the SEC on November 4, 2004

(8) Incorporated by reference from Registrant's Current Report on Form 8-K filed
with the SEC on February 20, 2004

(9) Incorporated by reference from Registrant's Current Report on Form 8-K filed
with the SEC on April 21, 2004

# Filed Herewith


                                      41-
<PAGE>

Item 14. Principal Accountant Fees and Services

The following table sets forth fees billed to us by our auditors during the
fiscal years ended December 31, 2003 and December 31, 2004 for: (i) services
rendered for the audit of our annual financial statements and the review of our
quarterly financial statements, (ii) services by our auditor that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as Audit Fees, (iii) services rendered in connection
with tax compliance, tax advice and tax planning, and (iv) all other fees for
services rendered.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                                December 31, 2004       December 31, 2003
-------------------------------------------------------------------------------------------
<S>    <C>                                               <C>                     <C>
(i)    Audit fees                                        $55,065                 $73,600
-------------------------------------------------------------------------------------------
(ii)   Audit related fees                                $5,000                  $4,496
-------------------------------------------------------------------------------------------
(iii)  Tax                                                $0.00                   $0.00
-------------------------------------------------------------------------------------------
(iv)   All other fees                                     $0.00                   $0.00
-------------------------------------------------------------------------------------------
</TABLE>


                                      42-
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

USURF AMERICA, INC.

By: /s/ DOUGLAS O. MCKINNON
-------------------------------------
Douglas O. McKinnon
President and Chief Executive Officer


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
<S>                                 <C>                                          <C>
/s/ DAVID A. WEISMAN                Director/Chairman                            March 31, 2005
----------------------------------------------------------------------------------------------------
David A. Weisman
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
/s/ DOUGLAS O. MCKINNON             President and Chief Executive Officer        March 31, 2005
                                    (Principal Executive Officer) and Director
----------------------------------------------------------------------------------------------------
Douglas O. McKinnon
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
/s/ RICHARD E. WILSON               Director                                     March 31, 2005
----------------------------------------------------------------------------------------------------
Richard E. Wilson
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
/s/ EDOUARD A. GARNEAU              Director and Chief Operating Officer         March 31, 2005
----------------------------------------------------------------------------------------------------
Edouard A. Garneau
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
/s/ BYRON T. YOUNG                  Director                                     March 31, 2005
----------------------------------------------------------------------------------------------------
Byron T. Young
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
/s/ JEFFREY W. FIEBIG               Director                                     March 31, 2005
----------------------------------------------------------------------------------------------------
Jeffrey W. Fiebig
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
/s/ RONALD S. BASS                  Principal Accounting Officer                 March 31, 2005
----------------------------------------------------------------------------------------------------
Ronald Bass
----------------------------------------------------------------------------------------------------
</TABLE>

Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Exchange Act by Non-reporting Issuers.

As of the date of this Form 10-KSB, no annual report or proxy material has been
sent to security holders of USURF America. It is anticipated that an annual
report and proxy material will be furnished to security holders subsequent to
the filing of this Form 10-KSB.


                                      43-
<PAGE>


                      USURF AMERICA, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
                                                                           Page
--------------------------------------------------------------------------------
Reports of Independent Registered Public Accounting Firms                  F-2
--------------------------------------------------------------------------------
Consolidated Balance Sheet - December 31, 2004                             F-4
--------------------------------------------------------------------------------
Consolidated Statements of Operations For the Years
Ended December 31, 2004 and 2003                                           F-6
--------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders'
Equity - For the Years ended December 31, 2004 and 2003                    F-7
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows For the Years
Ended December 31, 2004 and 2003                                           F-8
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements                                 F-9
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


                                      44-
<PAGE>

                                 AJ. ROBBINS, PC
                              216 SIXTEENTH STREET
                                    SUITE 600
                             DENVER, COLORADO 80206

      I. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Audit Committee
USURF America, Inc.
Broomfield, Colorado


We have audited the accompanying consolidated balance sheet of USURF America,
Inc. as of December 31, 2004, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USURF America, Inc.
as of December 31, 2004, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has experienced recurring losses from
operations, negative cash flows from operations and has both a working capital
and a capital deficit at December 31, 2004, that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 3. The financial statements do not
include any adjustments that might results from the outcome of this uncertainty.

                                 AJ. ROBBINS, PC
                          CERTIFIED PUBLIC ACCOUNTANTS



DENVER, COLORADO
MARCH 11, 2005


                                      F-2-
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
USURF America, Inc.
Broomfield, Colorado


We have audited the consolidated balance sheet of USURF America, Inc. (the
"Company") as of December 31, 2003, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USURF America, Inc.
as of December 31, 2003, and the results of their operations and their cash
flows for the year then ended in conformity with U.S. generally accepted
accounting principles generally accepted.

The accompanying financial statements have been prepared assuming USURF America,
Inc. will continue as a going concern. As more fully described in Note 3, the
Company has recurring losses, and negative working capital. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern (management's plans in regard to those matters are also described in
Note 3). The financial statements do not include any adjustments to reflect the
possible future effect on the recoverability and classification of assets or the
amounts and classifications of liabilities that may result from the outcome of
this uncertainty.


/s/ HEIN & ASSOCIATES LLP
-------------------------
HEIN & ASSOCIATES LLP
Denver, Colorado

February 27, 2004


                                      F-3-
<PAGE>

                      USURF AMERICA, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET


                                                December 31,
                                                    2004

                    ASSETS

CURRENT ASSETS
     Cash and cash equivalents                 $  730,372
     Marketable securities                        188,000
     Securities receivable                        412,000
     Accounts receivable, net                     201,099
     Unamortized financing costs                  374,378
     Deposits and prepaid expenses                 77,309
                                               ----------
     Total current assets                       1,983,158

FURNITURE AND EQUIPMENT, net                      905,832

INTANGIBLES, net                                3,647,170
                                               ----------

                                               $6,536,160
                                               ==========



The accompanying notes are an integral part of these statements.


                                      F-4-
<PAGE>

<TABLE>
<CAPTION>
                      USURF AMERICA, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                                                      December 31,
                                                                          2004
                      LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                   <C>
CURRENT LIABILITIES
     Accounts payable                                                 $    642,494
     Accrued expenses and other liabilities                                457,207
     Deferred revenue                                                      247,050
     Current portion of convertible notes payable, net of discount       1,865,162
                                                                      ------------
     Total current liabilities                                           3,211,913

CONVERTIBLE NOTES PAYABLE, net of current portion and discount           1,708,457
                                                                      ------------

                                                                         4,920,370
                                                                      ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
     Preferred stock, $.0001 par value; 100,000,000 shares
     authorized; 10,000 issued and outstanding                                   1
     Common stock, $.0001 par value; 400,000,000 shares
     authorized; 202,775,188 issued and outstanding                         20,278
     Additional paid-in capital                                         62,822,291
     Subscriptions receivable                                              (44,585)
     Deferred consulting                                                   (17,500)
     Accumulated (deficit)                                             (61,164,695)
                                                                      ------------
     Total stockholders' equity                                          1,615,790
                                                                      ------------

                                                                      $  6,536,160
                                                                      ============
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-5-
<PAGE>

<TABLE>
<CAPTION>
                      USURF AMERICA, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


                                                                    2004               2003
<S>                                                           <C>                <C>
REVENUES
      Revenues                                                $   6,479,420      $     329,297
      License revenue                                                  --               74,467
                                                              -------------      -------------
      Total Revenue                                               6,479,420            403,764
      COSTS OF GOODS SOLD                                        (3,587,701)          (493,504)
                                                              -------------      -------------
         Gross profit (loss)                                      2,891,718            (89,740)
                                                              -------------      -------------

OPERATING EXPENSES
      Depreciation and amortization                               1,063,313            130,384
      Professional fees                                           5,149,546          1,709,556
       Rent                                                         117,835            113,517
      Salaries and commissions                                    1,566,196          1,028,246
       Other selling, general and administrative expenses         2,637,952            512,017
                                                              -------------      -------------
      Total Operating Expenses                                   10,534,843          3,493,720
                                                              -------------      -------------

(LOSS) FROM OPERATIONS                                           (7,643,124)        (3,583,460)

OTHER INCOME (EXPENSE)
       Other income (expense)                                      (402,119)            27,048
       Accretion of interest expense on convertible debt         (5,575,105)                 0
       Litigation settlement                                              0            (42,235)
      Failed acquisition costs                                   (3,273,258)                 0
      Loss on Debt Modification                                    (100,001)                 0
       Gain (loss) on disposition of assets                         (39,825)                 0
       Interest expense                                            (269,418)           (55,709)
                                                              -------------      -------------
                                                                 (9,659,726)           (70,896)
                                                              -------------      -------------

(LOSS) BEFORE IMPUTED DIVIDEND                                  (17,302,850)        (3,654,356)

Imputed dividend attributable to rights applicable to
certain shareholders                                               (850,000)                 0
                                                              -------------      -------------

NET (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS                $ (18,152,850)     $  (3,654,356)
                                                              =============      =============
NET (LOSS) PER SHARE - BASIC AND DILUTED                      $       (0.11)     $       (0.04)

Weighted average number of shares outstanding
  - basic and diluted                                           165,552,450         89,186,106
</TABLE>


The accompanying notes are an integral part of these statements.


                                      F-6-
<PAGE>

                      USURF AMERICA, INC. AND SUBSIDIARIES
                              BROOMFIELD, COLORADO
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                            Common       Common        Preferred    Preferred        Paid-In        Subscription
                                            Shares       Stock Amount     Shares    Stock Amount     Capital        Receivable
                                         ------------------------------------------------------------------------------------------
<S>                                      <C>           <C>                  <C>      <C>            <C>            <C>
Balance 12/31/2002                        71,445,338   $      7,145              0   $         --   $ 40,778,870   $    (21,200)
                                         ==========================================================================================
Issuance of Common Stock for:
      Cash                                 6,994,865            699                                    1,006,301
      Legal Fees                             400,000             40                                       99,960
      Consulting Fees                      3,981,500            398                                      653,727
      Debt Conversion                        600,000             60                                       95,940
      Compensation                         4,525,000            452                                      284,298
      Exercise of Warrants                12,244,500          1,224                                    1,257,008
      Services                            10,918,283          1,092                                    2,028,113
      Acquisitions                         3,575,000            358                                      585,642
      Warrants to non-employees                                                                          325,258
Proceeds on subscriptions receivable                                                                                     21,200
Amortization of Deferred Consulting
Net Loss
Unrealized loss-marketable securities
FAS 123 Adjustment                                                                                        44,200
                                         ------------------------------------------------------------------------------------------
Balance 12/31/2003                       114,684,486   $     11,468              0   $         --   $ 47,159,317   $         --
                                         ==========================================================================================
Issuance of Common Stock for:
      Cash                                38,500,000          3,850         10,000              1      3,346,149        (44,585)
      Legal Fees                             600,000             60                                       59,940
      Consulting Fees                      2,798,917            280                                      712,243
      Compensation                         2,355,000            236                                      192,565         13,273
      Services                            18,001,097          1,800                                    2,176,176        (13,273)
      Acquisitions                        25,835,688          2,584                                    2,654,415
Amortization of Deferred Consulting
Net Loss
Comprehensive Income
Loss on Debt Conversion                                                                                                 100,001
FAS 123 Adjustment                                                                                     6,421,486
                                         ------------------------------------------------------------------------------------------
Balance 12/31/2004                       202,775,188   $     20,278         10,000   $          1   $ 62,822,291   $    (44,585)
                                         ==========================================================================================
<CAPTION>
                                           Deferred                   Comprehensive
                                          Consulting       Deficit        Income            Total
                                         -----------------------------------------------------------
<S>                                      <C>             <C>             <C>            <C>
Balance 12/31/2002                       $   (370,000)   $(40,207,489)                  $    187,326
                                         ===========================================================
Issuance of Common Stock for:
      Cash                                                                                 1,007,000
      Legal Fees                             (100,000)                                             0
      Consulting Fees                        (320,000)                                       334,125
      Debt Conversion                                                                         96,000
      Compensation                                                                           284,750
      Exercise of Warrants                                                                 1,258,232
      Services                             (1,464,000)                                       565,205
      Acquisitions                                                                           586,000
      Warrants to non-employees                                                              325,258
Proceeds on subscriptions receivable                                                          21,200
Amortization of Deferred Consulting           645,627                                        645,627
Net Loss                                                   (3,654,356)                    (3,654,356)
Unrealized loss-marketable securities                                        (160,000)      (160,000)
FAS 123 Adjustment                                                                            44,200
                                         -----------------------------------------------------------
Balance 12/31/2003                       $ (1,608,373)   $(43,861,845)   $   (160,000)  $  1,540,567
                                         ===========================================================
Issuance of Common Stock for:
      Cash                                                                                 3,305,414
      Legal Fees                              (50,000)                                        10,000
      Consulting Fees                         (43,042)                                       669,481
      Compensation                                                                           206,073
      Services                               (813,889)                                     1,350,814
      Acquisitions                                                                         2,656,999
Amortization of Deferred Consulting         2,497,804                                      2,497,804
Net Loss                                                  (17,302,850)                   (17,302,850)
Comprehensive Income                                                          160,000        160,000
Loss on Debt Conversion                                                                      100,001
FAS 123 Adjustment                                                                         6,421,486
                                         -----------------------------------------------------------
Balance 12/31/2004                       $    (17,500)   $(61,164,695)   $         --   $  1,615,790
                                         ===========================================================
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-7-
<PAGE>


                      USURF AMERICA, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                           2004              2003
                                                       ------------      ------------
<S>                                                    <C>               <C>
Cash Flows From Operating Activities:
Net (Loss)                                             $(17,302,850)     $ (3,654,356)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization                             1,063,313           130,384
Consulting and other fees paid w/stock                    4,481,372         1,174,957
Acccretion of interest expense on convertible debt        5,575,105            44,200
Loss on debt modification                                   100,000
Failed acquisition costs                                  1,830,000
Comprehensive Income                                        160,000          (160,000)
Compensation expense paid with stock                        192,800           284,750
Warrants issued to non-employees                            325,258
Legal fees paid with stock                                   60,000           370,000
Impairement loss and write down of assets                   402,119            50,000

Changes in Operating Assets and Liabilities:
Accounts receivable                                        (131,894)          (68,981)
Financing Costs                                            (702,403)
Inventory                                                    71,906           (69,191)
Other assets                                                (32,399)          (39,986)
Accounts payable                                            212,545           298,887
Accrued payroll and liabilities                             336,375
Deferred revenue                                           (156,283)          403,333
Accrued expenses and other liabilities                     (173,240)          134,350
                                                       ------------      ------------
Net cash (used in) operating activities                  (4,013,532)         (776,395)
                                                       ------------      ------------

Cash Flows From Investing Activities:
Acquisition of equipment                                   (637,772)         (346,009)
Marketable securities and securities receivable            (220,153)         (280,000)
Cash paid for future acquisitions                        (1,025,000)         (785,000)
Cash paid for other assets                                        0          (195,000)
Cash paid for intangibles & other assets                 (3,560,032)
Loss on Sale of CTG Assets                                  (99,850)
                                                       ------------      ------------
Net cash (used in) investing activities                  (5,542,807)       (1,606,009)
                                                       ------------      ------------

Cash Flows From Financing Activities:
Collection of subscription receivable                       (44,585)           21,200
Issuance of common stock for cash                         1,807,000         1,007,000
Issuance of common stock for acquisitions                 2,656,999
Issuance of preferred stock for cash                      1,000,000
Warrants exercised                                        1,258,233
Proceeds from convertible debt                            4,963,000            57,000
Payments on notes payable                                  (168,300)                0
                                                       ------------      ------------
Net cash provided by financing activities                10,214,114         2,343,433
                                                       ------------      ------------

Net increase (decrease) in cash                            (657,775)          (38,971)

Cash, beginning of year                                      72,597           111,568
                                                       ------------      ------------
Cash, end of year                                       $  (730,372)      $    72,597
                                                       ------------      ------------
</TABLE>

The accompanying notes are an integral part of these statements.


                                      F-8-
<PAGE>

            USURF AMERICA, INC. AND SUBSIDIARIES BROOMFIELD, COLORADO
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

1. BUSINESS AND BACKGROUND

USURF America, Inc. (the "Company"), formerly Internet Media Corporation, was
incorporated as Media Entertainment, Inc. in the State of Nevada on November 1,
1996. The Company currently operates as a provider of video (cable television)
and data (Internet) services to business and residential customers. The Company
also markets and sells telecommunications-related hardware and software.

Overview of Our Business
During 2003 and 2004, the Company continued to implement and expand our business
plan beyond solely offering wireless Internet access service. The Company
currently operates as a provider of video (cable television) and data (Internet)
services to business and residential customers and since the completion of the
acquisition of Connect Paging Inc. d/b/a/ Get-A-Phone, the Company also offers
additional telecommunications services including local, long distance and
enhanced telephone (voice) services. Our current business plan involves
obtaining, through internal growth, as many, voice, video and data customers as
possible offering various combinations of bundled packages of communications
services. Our growth strategy also includes acquisitions of
telecommunications-related businesses and/or properties which would provide an
immediate or potential customer base for our services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
The accompanying consolidated financial statements include all the accounts of
the Company and all controlled wholly owned subsidiaries. Intercompany
transactions and balances have been eliminated in the consolidation. For the
years ended December 31, 2004 and 2003.

Reclassifications
For comparative purposes, prior year's consolidated financial statements have
been reclassified to conform to report classifications of the current year.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Specific estimates include lives of assets, intangibles,
collectability of receivables and notes, purchase price adjustments and
valuation of allowance on net operating loss carryforward. Actual results could
differ from those estimates.

Cash Equivalents
The Company considers all highly liquid investments with original maturities of
three months or less from the date of purchase to be cash equivalents.

Marketable Securities and Securities Receivable
Marketable securities consist of publicly traded equity securities, which are
classified as "available-for-sale" under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). In accordance with
SFAS No. 115, the Company is required to carry these investments at their fair
or market value. Changes in market value are reflected in other comprehensive
income in the Statement of Stockholders' Equity.

In May 2004, the Company sold Children's Technology Group, Inc., dba
MomsandDads, to ZKID Network Company (OTCBB: ZKID). The terms of the sale
provided for ZKID to pay us $600,000 in stock consideration (the "Purchase
Price'). At closing the Company received 4,000,000 shares of ZKID common stock
valued at $0.15 per share. The terms of the purchase and sale agreement provide
that if the shares issued to us do not have a market value of at least $600,000,
then ZKID would issue additional shares to us for the difference. At December
31, 2004 the market value of the shares was $188, 000 and therefore the Company
recorded a $412,000 securities receivable.

Receivables and Credit Policies
Accounts receivable consist of uncollateralized customer obligations due under
normal trade terms requiring payment within 30 days of the invoice date. In most
cases, trade receivables are applied to a specific identified invoice.
Management reviews trade receivables periodically and reduces the carrying
amount by a valuation allowance that reflects management's best estimate of the
amount that may not be collectible.


                                      F-9-
<PAGE>

Bad Debt
The Company estimates the amount of uncollectible accounts receivable and
records an allowance for bad debt. Uncollectible accounts receivable are then
charged against this allowance.

Furniture and Equipment
Furniture and equipment are recorded at cost less accumulated depreciation.
Depreciation and amortization expense is provided for on the straight-line
method over the estimated useful lives of the assets, generally three to five
years. Depreciation expense was $1,393 and $96 for the years ended December 31,
2004 and 2003, respectively. Maintenance and repairs are charged to expense as
incurred and expenditures for major improvements are capitalized. When assets
are retired or otherwise disposed of, the property accounts are relieved of
costs and accumulated depreciation and any resulting gain or loss is credited or
charged to operations.

Goodwill
Goodwill was recorded at its purchase price and is not being amortized. Pursuant
to SFAS 142 ("Goodwill and Other Intangible Assets") and SFAS 144 ("Accounting
for the Impairment or Disposal of Long-Lived Assets"), the Company has evaluated
its goodwill for impairment and determined that the fair value of its goodwill
is $2,433,033.

Property and Equipment
Property and equipment are stated at cost and are depreciated over the estimated
useful lives of the assets.

--------------------------------------------------------------------------------
                            Description                      Life
--------------------------------------------------------------------------------
                       Furniture and Fixtures               5 years
--------------------------------------------------------------------------------
                             Equipment                     3-5 years
--------------------------------------------------------------------------------
                            Automobiles                     5 years
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

In the event that facts and circumstances indicate that the carrying value of
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.

Revenue Recognition
The Company charges its video and data customers monthly service fees and
recognizes the revenue in the month the services are provided or equipment is
sold.

The Company charges its video and data customers monthly service fees and
recognizes the revenue in the month the services are provided or equipment is
sold. The Company bills monthly for voice (telephone) services in advance and
generally receive payments during the month in which the services are provided.
To the extent that revenue is received, but not earned, the Company records
these amounts as deferred revenue.

Costs of Goods Sold
Costs of Goods Sold primarily consist of telecommunications expenses inherent in
the network infrastructure.

Advertising Expenses
The Company expenses advertising costs as incurred. During the years ended
December 31, 2004 and 2003 the Company did not have significant advertising
costs.

Comprehensive Income/Loss
SFAS No. 130 establishes standards for reporting and display of comprehensive
income/loss and its components and accumulated balances. Comprehensive
income/loss is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Comprehensive net loss
is set forth in the following table.

--------------------------------------------------------------------------------
                                                  2004               2003
--------------------------------------------------------------------------------
Net loss                                      $(17,302,850)      $ (3,654,356)
--------------------------------------------------------------------------------
Unrealized loss on marketable securities                         $   (160,000)
--------------------------------------------------------------------------------
Imputed dividend attributable to rights
applicable to certain shareholders            $   (850,000
--------------------------------------------------------------------------------
Comprehensive net loss                        $(18,152,850)      $ (3,814,356)
--------------------------------------------------------------------------------
Loss per share                                $    (0.1097)      $      (0.04)
--------------------------------------------------------------------------------


                                     F-10-
<PAGE>

Income Taxes
Deferred income taxes are recorded to reflect the tax consequences in future
years of temporary differences between the tax basis of the assets and
liabilities and their financial statement amounts at the end of each reporting
period. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the tax
payable for the current period and the change during the period in deferred tax
assets and liabilities. The deferred tax assets and liabilities have been netted
to reflect the tax impact of temporary differences. At December 31, 2004, a full
valuation allowance has been established for the deferred tax asset as
management believes that it is more likely than not that a tax benefit will not
be realized.

Financial Instruments and Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash. The Company maintains its cash in
bank deposit accounts, which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash.

Concentrations
The Company relies, in part, on local telephone companies and other companies to
provide certain telecommunications services. Although management believes
alternative telecommunications facilities could be found in a timely manner, any
disruption of these services could have an adverse effect on operating results.

Fair Values of Financial Instruments
The carrying amounts of financial instruments including cash, trade receivables,
accounts payable and accrued expenses approximate fair value because of the
immediate or short-term maturities of these instruments.

Earnings per Share
The Company computes earnings per common share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). The
Statement requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic loss per
share is computed by dividing loss available to common shareholders by the
weighted average number of common shares outstanding. The computation of diluted
loss per share is similar to the basic loss per share computation except the
denominator is increased to include the number of additional shares that would
have been outstanding if the dilutive potential common shares had been issued.
In addition, the numerator is adjusted for any changes in income or loss that
would result from the assumed conversions of those potential shares. However,
such presentation is not required if the effect is antidilutive. Accordingly,
the diluted per share amounts do not reflect the impact of warrants and options
or convertible debt outstanding (totaling 129,757,591and 48,476,727 at December
31, 2004 and 2003, respectively) is not presented as the effects would be
anti-dilutive.

Intangible Assets
Intangible assets are stated at cost and are amortized over the estimated useful
lives of the assets.

--------------------------------------------------------------------------------
           Description                                Life
--------------------------------------------------------------------------------
            Contracts                     15 years or life of contract
--------------------------------------------------------------------------------
    Right of Entry Agreements                    3, 5 or 7 years
--------------------------------------------------------------------------------
          Customer Base                          3, 5 or 7 years
--------------------------------------------------------------------------------
       Website and Graphics                          3 years
--------------------------------------------------------------------------------
             Software                             3 or 7 years
--------------------------------------------------------------------------------

The Company assesses the recoverability of intangible assets by determining
whether the amortization of the intangible asset balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of intangible assets will be impacted if estimated future
operating cash flows are not achieved.

The Company accounts for stock based compensation in accordance with Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). This standard requires the Company to adopt the "fair
value" method with respect to stock-based compensation of consultants and other
non-employees and allows for use of the intrinsic value method for stock-based
compensation of employees under Accounting Principles Board Opinion No. 25.


                                     F-11-
<PAGE>

Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value of the options at the grant date as prescribed
by SFAS 123, the Company's pro forma net loss and loss per common share would be
as follows:

                                                Year Ended December 31,
                                                 2004              2003

NET LOSS AS REPORTED                         (17,302,850)     $ (3,654,356)
Stock based employee compensation (as
recorded):                                           -0-               -0-
Stock based employee compensation (fair
value method):                                  (764,986)                0
                                            ------------      ------------
ProForma Net Loss                           $(18,067,836)     $ (3,654,356)
                                            ============      ============
Basic loss per common share as reported     $     (0.104)     $     (0.041)
ProForma Net loss per common share          $     (0.109)     $     (0.041)
                                            ============      ============

Valuation of the Company's Common Stock
Unless otherwise disclosed, all stock based transactions entered into by the
Company have been valued at the market value of the Company's common stock on
the date the transaction was entered into or have been valued using the Modified
Black-Scholes European Model to estimate the fair market value.

Recently Issued Accounting Pronouncements
In December 2004 the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment" ("SFAS 123(R)"). SFAS 123(R) will provide investors and other users of
financial statements with more complete and neutral financial information by
requiring that the compensation cost relating to share-based payment
transactions be recognized in financial statements. That cost will be measured
based on the fair value of the equity or liability instruments issued. SFAS
123(R) covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. SFAS 123(R) replaces
SFAS No. 123, "Accounting for Stock-Based Compensation", and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123, as
originally issued in 1995, established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees. However, that
Statement permitted entities the option of continuing to apply the guidance in
Opinion 25, as long as the footnotes to financial statements disclosed what net
income would have been had the preferable fair-value-based method been used.
Public entities (other than those filing as small business issuers) will be
required to apply SFAS 123(R) as of the first interim or annual reporting period
that begins after June 15, 2005. The Company has evaluated the impact of the
adoption of SFAS 123(R), and believes that it could have an impact to the
Company's overall results of operations depending on the number of stock options
granted in a given year.

In December 2004 the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
The amendments made by SFAS 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
That exception required that some nonmonetary exchanges, although commercially
substantive, to be recorded on a carryover basis. By focusing the exception on
exchanges that lack commercial substance, the FASB believes SFAS No.153 produces
financial reporting that more faithfully represents the economics of the
transactions. SFAS No.153 is effective for nonmonetary asset exchanges occurring
in fiscal periods beginning after June 15, 2005. Earlier application is
permitted for nonmonetary asset exchanges occurring in fiscal periods beginning
after the date of issuance. The provisions of SFAS No.153 shall be applied
prospectively. The Company has evaluated the impact of the adoption of SFAS 153,
and does not believe the impact will be significant to the Company's overall
results of operations or financial position.

In December 2004 the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152") SFAS 152 amends SFAS No. 66, "Accounting for Sales of Real Estate", to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS 152 also
amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real
Estate Projects", to state that the guidance for (a) incidental operations and
(b) costs incurred to sell real estate projects does not apply to real estate
time-sharing transactions. The accounting for those operations and costs is
subject to the guidance in SOP 04-2. SFAS 152 is effective for financial
statements for fiscal years beginning after June 15, 2005, with earlier
application encouraged. The Company has evaluated the impact of the adoption of
SFAS 152, and does not believe the impact will be significant to the Company's
overall results of operations or financial position.


                                     F-12-
<PAGE>

In November 2004 the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4 (" SFAS No. 151". The amendments made by SFAS 151 clarify
that abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges and
require the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. The guidance is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after November 23, 2004. The Company has evaluated the impact of
the adoption of SFAS 151, and does not believe the impact will be significant to
the Company's overall results of operations or financial position.

In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity," which is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS No. 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The adoption of this standard
did not have a material impact on the Company's financial statements.

In April 2003 FASB issued SFAS No. 149, "Accounting for Derivative Instruments
and Hedging Activities," which is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. This statement amends and clarifies financial accounting and reporting
for derivative instruments including certain instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The adoption of this standard
did not have a material impact on the Company's financial statements.

In January 2003 the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." FIN 46 clarifies the application of Accounting Research Bulletin No.
51, "Consolidated Financial Statements," for certain entities which do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties or in which equity
investors do not have the characteristics of a controlling financial interest
("variable interest entities"). Variable interest entities will be required to
be consolidated by their primary beneficiary. The primary beneficiary of a
variable interest entity is determined to be the party that absorbs a majority
of the entity's expected losses, receives a majority of its expected returns, or
both, as a result of holding variable interests, which are ownership,
contractual, or other pecuniary interests in an entity. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after
December 15, 2003 to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. FIN 46 applies to
public enterprises as of the beginning of the applicable interim or annual
period. The Company's adoption of FIN 46 did not have any impact upon the
Company's financial condition or results of operations.

In March 2004 the FASB approved the consensus reached on the Emerging Issues
Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments." The objective of this
Issue is to provide guidance for identifying impaired investments. EITF 03-1
also provides new disclosure requirements for investments that are deemed to be
temporarily impaired. In September 2004 the FASB issued a FASB Staff Position
(FSP) EITF 03-1-1 that delays the effective date of the measurement and
recognition guidance in EITF 03-1 until after further deliberations by the FASB.
The disclosure requirements are effective only for annual periods ending after
June 15, 2004. The Company has evaluated the impact of the adoption of the
disclosure requirements of EITF 03-1 and does not believe it will have an impact
to the Company's overall results of operations or financial position. Once the
FASB reaches a final decision on the measurement and recognition provisions, the
Company will evaluate the impact of the adoption of EITF 03-1.


3. GOING CONCERN

These financial statements are presented on the basis that the Company is a
going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The appropriateness of using the going concern basis is
dependent upon obtaining additional financing or equity capital and, ultimately,
to achieve profitable operations. The uncertainty about these conditions raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

Management plans to raise capital by obtaining debt and equity financings.
Management intends to use the proceeds from any financings to acquire and
develop markets to implement its business plan and sell its telecommunications
services and telecommunications-related equipment. The Company believes that
these actions will enable it to carry out its business plan and ultimately to
achieve profitable operations.

The Company relies, in part, on local telephone companies and other companies to
provide certain telecommunications services. Although management believes
alternative telecommunications facilities could be found in a timely manner, any
disruption of these services could have an adverse effect on operating results.

                                     F-13-
<PAGE>

Our auditor stated in reports on our financial statements for the periods ended
December 31, 2004 and 2003 that the Company has experienced recurring losses and
operated with negative working capital and, as a result, there exists
substantial doubt about our ability to continue as a going concern. For the
years 2004 and 2003, the Company incurred a net loss of $ 17,302,850 and
$3,654,356 respectively. As of December 31, 2004, USURF had an accumulated
deficit of $ 61,164,695 . The Company is actively seeking customers for our
services. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence. These factors raise substantial doubt about our
ability to continue as a going concern.

4. PROPERTY AND EQUIPMENT

Classifications of property and equipment and accumulated depreciation were as
follows at December 31, 2004 and 2003:

--------------------------------------------------------------------------------
Description                                          2004          2003
--------------------------------------------------------------------------------
Furniture, fixtures and equipment                $ 1,275,084     $ 681,511
--------------------------------------------------------------------------------
Accumulated depreciation                         $ (369,252)     $(98,836)
--------------------------------------------------------------------------------
Property and equipment, net                       $ 905,831      $582,675
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

For the years ending December 31, 2004 and 2003, the Company recognized $314,616
and $91,500 of depreciation expense, respectively.

5. INTANGIBLES

Classification of intangible assets and accumulated amortization at December 31
were as follows:

--------------------------------------------------------------------------------
Description                                                           2004
--------------------------------------------------------------------------------
Contracts                                                           $201,604
--------------------------------------------------------------------------------
Right of entry agreements                                            $95,000
--------------------------------------------------------------------------------
Customer Base                                                      $1,995,352
--------------------------------------------------------------------------------
Goodwill                                                           $1,820,824
--------------------------------------------------------------------------------
Totals                                                             $4,112,780
--------------------------------------------------------------------------------
Accumulated Amortization                                           $(459,559)
--------------------------------------------------------------------------------
Intangible Assets, net                                             $3,653,221
--------------------------------------------------------------------------------

For the years ending December 31, 2004 and 2003, the Company recognized $459,559
and $38,885 respectively of amortization expense. Additions and reductions to
intangible assets in 2004 and 2003 are the result of certain acquisitions and
dispositions (Note 12).


6. NOTES PAYABLE

In December 2003, the Company executed a convertible loan agreement under which
the Company could borrow up to $700,000. At December 31, 2003, the balance of
the loan was $57,000. The loan(s) are due one year from funding, and accrue
interest at the rate of ten percent (10%) per annum and are convertible into our
common stock at a conversion price of $0.15 per share. Additionally, the
agreement called for the issuance upon conversion of two warrants with an
exercise price of $0.18 and $0.26 respectively for each share converted. In
accordance with EITF 98-5, the Company calculated the beneficial conversion
feature as $44,200 using the intrinsic value method as of December 31, 2003.
Since the note is convertible immediately, the entire $44,200 was expensed.
During the first quarter of 2004, the Company borrowed an additional $543,000
under the agreement bringing the balance to $600,000. During 2004, the Company
recorded $351,467 as expense for the beneficial conversion feature of the
additional borrowings using the intrinsic value method as the notes are
convertible immediately. In March 2004, as inducement to convert the Company
reduced the conversion price to $0.12 per share and also adjusted the exercise
price of any warrants that would be issued to $0.12 per share. In connection
with adjusting the conversion price, the entire $600,000 outstanding balance of
the note was converted into 5,000,000 shares of the Company's common stock. In
accordance with SFAS 84, the Company recorded a debt conversion expense of
$100,000 as a result of the inducement. Upon conversion the Company granted
warrants to purchase 10,000,000 shares of the Company's common stock at $0.12
per share. Of the warrants, 5,000,000 are exercisable over a period of three
years and the remaining 5,000,000 are exercisable over a period of five years.
The warrants were valued at $700,000, the fair value using the Black-Scholes
Pricing Model. The average risk free interest rate used was 1.26%, volatility
was estimated at 110% and the expected life was three and five years. The entire
$700,000 was recorded as interest expense as of December 31, 2004.

In March 2004, Atlas Capital Services, LLC ("Atlas") arranged for the Company to
complete the closing of a private placement totaling $3,095,000. The placement
consisted of $1,000,000 in common stock at $0.10 per share, $2,095,000 in
convertible debentures convertible into common stock at $0.10 per share. Upon
closing of the convertible debenture, the Company granted the note holder
warrants purchasing 13,782,895 shares of the Company's common stock. The
convertible debentures, if not converted, are due September 15, 2005 and bear
interest at six percent (6%) payable quarterly. Under the terms of the private
placement, the investors have the right to purchase up to an amount equal to, at
the election of such investors, $3,000,000 principal amount of additional
debentures. Any additional investment will be on terms identical to those set
forth in the private placement. The entire proceeds from the convertible
debentures were allocated to the warrants and the notes payable. Since the
warrants are detachable, in accordance with EITF 00-27 the Company recorded the
allocated value of the warrants of $486,717, the fair value of the warrants
using the Black-Scholes Pricing Model in proportion to the fair value of the
note, as a discount on the note. The average risk free interest rate used was
1.26%, volatility was estimated at 110% and the expected life was eighteen
months. The discount is recorded as a reduction of the face value of the note
payable and is being amortized over the eighteen-month term of the note. In
addition, in accordance with EITF 98-5 and EITF 00-27, the Company recorded
interest expense of $401,217 for the beneficial conversion feature of the
discounted convertible note using the intrinsic value method, as the note is
convertible immediately. In July 2004, the debenture was repriced as described
below and an additional beneficial conversion feature of $628,500 calculated
using the intrinsic value method was recorded as expense as the note is
convertible immediately. As of December 31, 2004 the Company has amortized
$256,878 of the discount as interest expense.


                                     F-14-

During the second quarter of 2004, Atlas arranged for the Company to complete
the closing of an additional private placements totaling $1,575,000, consisting
of $1,575,000 in convertible debentures convertible into common stock at $0.08
per share. Upon closing of the convertible debenture, the Company granted the
note holder warrants to purchase 7,579,403 shares of the Company's common stock.
The convertible debentures, if not converted, are due April, 2006 and bears
interest at eight percent (8.0%) payable quarterly. Under the terms of these
private placements, the investors have the right to purchase up to an amount
equal to, at the election of such investors, $1,500,000 principal amount of
additional debentures. Any additional investment will be on terms identical to
those set forth in the private placements. The entire proceeds from the
convertible debentures were allocated to the warrants and the notes payable.
Since the warrants are detachable, in accordance with EITF 00-27 the Company
recorded the allocated value of the warrants of $504,742, the fair value of the
warrants using the Black-Scholes Pricing Model in proportion to the fair value
of the note, as a discount on the note. The average risk free interest rate used
was 5%, volatility was estimated at 106% and the expected life was five years.
The discount is recorded as a reduction of the face value of the note payable
and is being amortized over the two-year-term of the note. In addition, in
accordance with EITF 98-5 and EITF 00-27, the Company recorded interest expense
of $1,299,375 for the beneficial conversion feature of the discounted
convertible note using the intrinsic value method, as the note is convertible
immediately. In July 2004, the debenture was repriced per the third paragraph
below and an additional beneficial conversion feature of $472,500 using the
intrinsic value method was recorded as expense as the note is convertible
immediately. As of December 31, 2004 the Company has amortized $168,247 of the
discount as interest expense.

During the third quarter of 2004, Atlas arranged for the Company to complete the
closing of two additional private placements totaling $750,000, consisting of
$750,000 in convertible debentures convertible into common stock at $0.05 per
share. Upon closing of the convertible debenture, the Company granted the note
holders warrants to purchase 11,250,000 shares of the Company's common stock.
The convertible debentures, if not converted, are due June, 2006 and bear
interest at twelve percent (12.0%) payable quarterly. Under the terms of these
private placements, the investors have the right to purchase up to an amount
equal to, at the election of such investors, $750,000 principal amount of
additional debentures. Any additional investment will be on terms identical to
those set forth in the private placements. The entire proceeds from the
convertible debentures were allocated to the warrants and the notes payable.
Since the warrants are detachable, in accordance with EITF 00-27 the Company
recorded the allocated value of the warrants of $370,228, the fair value of the
warrants using the Black-Scholes Pricing Model in proportion to the fair value
of the note, as a discount on the note. The average risk free interest rate used
was 5%, volatility was estimated at 138% and the expected life was five years.
The discount is recorded as a reduction of the face value of the note payable
and is being amortized over the two-year-term of the note. In addition, in
accordance with EITF 98-5 and EITF 00-27, the Company recorded interest expense
of $739,130 for the beneficial conversion feature of the discounted convertible
note using the intrinsic value method, as the note is convertible immediately.
As of December 31, 2004 the Company has amortized $90,180 of the discount as
interest expense.
Additionally in July 2004, the Company repriced the purchase price and
conversion price of the above first and second quarter transactions to $0.05 per
share. As a result, the Company issued an additional 17,000,000 shares for
shares purchased under a securities purchase agreement and certain notes,
previously converted, and has reserved an additional 32,762,500 shares to be
issued upon conversion of the outstanding convertible debentures. The Company
recognized $850,000 as an imputed dividend to these shareholders for this right.
This amount is subtracted from net loss to determine the net loss to the other
shareholders. Upon the change in the conversion terms of these convertible notes
payable the Company calculated the new beneficial conversion feature of the
$2,095,000 note and $1,575,000 note as $628,500 and $472,500, respectively,
using the intrinsic value method, which were expensed as the notes are
convertible immediately.

At December 31, 2004 total short term notes payable under the above is
$2,095,000, the unamortized debt discount of $229,838 is netted with the total
resulting in a balance of $1,865,162. The total long term notes payable under
the above is $2,325,000, the unamortized debt discounts of $616,543 is netted
with the total resulting in a balance of $1,708,457 for the balance sheet
presentation.


<PAGE>

7. INCOME TAXES

The significant components of deferred tax assets and liabilities were as
follows at December 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                             2004                2003
---------------------------------------------------------------------------------------------
<S>                                                        <C>                <C>
Deferred tax assets Net operating loss carryforwards       $11,816,187        $ 7,231,000
---------------------------------------------------------------------------------------------
Less - valuation allowance                              $(11,816,187)        $(7,231,000)
---------------------------------------------------------------------------------------------
                                                            $0.00                $0.00
---------------------------------------------------------------------------------------------
</TABLE>



                                     F-15-
<PAGE>

The increase in the valuation allowance was approximately $4,585,187 and
$1,281,000 for the years ended December 31, 2004 and 2003, respectively. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.

The Company has net operating loss carry forwards of approximately $32,000,000
and $21,300,000 for 2004 and 2003, respectively. These losses may be available
to offset future income for income tax reporting purposes and will begin to
expire in 2011.


8. STOCKHOLDERS' EQUITY

At the 2003 annual meeting of shareholders, the Articles of Incorporation were
amended to increase the number of authorized shares of common stock to
400,000,000 and to authorize 100,000,000 shares of preferred stock. The Board of
Directors has been authorized to fix the number of shares in series, and the
designations, preferences, relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof as well as
increase or decrease the number of shares of any series.

During the year ended December 31, 2004 the Board of Directors granted options
to certain key employees and consultants totaling 6,650,000. The options have an
exercise price of $0.10 per share and are exercisable in three installments,
each of which become exercisable when the market price for common share of the
Company's stock reaches $0.15 per share, $0.22 per share and $0.30 per share
respectively. The Company used the BlackScholes method to calculate the fair
market value of the options given to consultants as $43,499; this amount was
recorded as an expense.

Stock, Option and Warrant Issuances
During 2004, the Company issued shares of common stock and common stock purchase
warrants, as follows:

25,835,688 shares to acquire various businesses or business assets;

38,500,000 shares for cash;

2,355,000 shares to officers and employees in lieu of compensation;

21,400,014 shares in exchange for consulting and other services; and

57,501,822 warrants as set forth and further described in footnote 11-
STOCKHOLDERS EQUITY below.

In 2004 the Board of Directors granted options to certain key employees and
consultants totaling 6,650,000. The options have an exercise price of $0.10 per
share and are exercisable in three installments, each of which become
exercisable when the market price for common share of our stock reaches $0.15
per share, $0.22 per share and $0.30 per share respectively. The Company used
the BlackScholes method to calculate the fair market value of the options given
to consultants as $43,499; this amount was recorded as an expense.

Additionally, the Board of Directors granted warrants for the purchase of
17,500,000 shares of our common stock to the new Chairman. The exercise price
for the warrants is $0.07 per share and the warrants are exercisable in whole or
in part through September 30, 2006.

Common and Preferred Stock
At the 2003 annual meeting of shareholders, the Articles of Incorporation were
amended to increase the number of authorized shares of common stock to
400,000,000 and to authorize 100,000,000 shares of preferred stock. The Board of
Directors has been authorized to fix the number of shares in series, and the
designations, preferences, relative, participating, optional or other special
rights, and qualifications, limitations and restrictions thereof as well as
increase or decrease the number of shares of any series.

2004 Stock Ownership Plan
In February 2004, our Board of Directors adopted a stock ownership plan for our
officers, Directors and consultants known as the 2004 Stock Ownership Plan. The
2004 Plan was established by the Board of Directors as a means to promote our
success and enhance our value by linking the personal interests of participants
to our shareholders, and by providing participants with an incentive for
outstanding performance. The 2004 Plan is further intended to aid us in
attracting and retaining the services of persons upon whose judgment, interest
and special efforts our successful operation and our subsidiaries' operations is
dependent. Persons who are either officers, Directors or consultants are
eligible to participate in the 2004 Plan. The Board of Directors may, at any
time and from time to time, grant shares of our common stock in such amounts and
upon such terms and conditions as it may determine, to include the granting of
shares of the Common Stock and the granting of options to purchase shares of the
common stock. A total of 15,000,000 shares of our common stock have been
reserved for issuance under the 2004 Plan registration statement on Form S-8
(SEC File No.333-115558) relating to the 2004 Plan, as amended, have been filed
with the SEC. At March 31, 2005, no shares of our common stock remain unissued
under the Plan.


                                     F-16-
<PAGE>


2005 Stock Ownership Plan
In December 2005, our Board of Directors adopted a stock ownership plan for our
officers, Directors and consultants known as the 2005 Stock Ownership Plan. The
2005 Plan was established by the Board of Directors as a means to promote our
success and enhance our value by linking the personal interests of participants
to our shareholders, and by providing participants with an incentive for
outstanding performance. The 2004 Plan is further intended to aid us in
attracting and retaining the services of persons upon whose judgment, interest
and special efforts our successful operation and our subsidiaries' operations is
dependent. Persons who are either officers, Directors or consultants are
eligible to participate in the 2005 Plan. The Board of Directors may, at any
time and from time to time, grant shares of our common stock in such amounts and
upon such terms and conditions as it may determine, to include the granting of
shares of the Common Stock and the granting of options to purchase shares of the
common stock. A total of 20,000,000 shares of our common stock have been
reserved for issuance under the 2005 Plan registration statement on Form S-8
(SEC File No.333-121916) relating to the 2005 Plan, as amended, have been filed
with the SEC. At March 31, 2005, 11,619,891 shares of our common stock remain
unissued under the Plan.

The following table summarizes the activity of options under all agreements and
plans for the two years ended December 31, 2003 and 2004:

 DESCRIPTION                          NUMBER OF OPTIONS          EXERCISE PRICE

 Options Outstanding,
 December 31, 2002 and 2003                    -0-                     n/a

 Granted                                    6,650,000                 $0.10

 Expired/cancelled                             -0-                     n/a
                                               ---                     ---

 Outstanding, December 31, 2004             6,650,000                 $0.10
                                            =========                 =====

Stock Appreciation Rights
We have never granted any stock appreciation rights (SARs), nor do we expect to
grant any SARs in the foreseeable future.

Stock Compensation
During 2004 and 2003, the Company issued a total of 2,355,000 and 4,525,000
shares in payment of salaries in the total amount of $ 206,073 and $284,750,
respectively, the fair value of the common stock on the respective dates of
contract.

The Company uses the intrinsic value method for accounting for employee stock
based compensation. Under the intrinsic value method, the compensation cost, if
any, is the excess of the quoted market price of the stock over the exercise
price. All of the warrants and options were granted with an exercise price in
excess of market at the date of grant and therefore no compensation expense is
recognized in the financial statements. For years ended after December 31, 2004,
the Financial Accounting Standards Board may require the use of the fair value
method. Had the Company used the fair value method for the year ended December
31, 2004 the Company would have recognized an additional expense of $149,348 for
the options granted employees and $615,638 in additional expense for the
warrants. Below is the proforma net loss and earnings per share if the Company
used the fair value method.

                                                   Year Ended December 31,
                                                   2004              2003

NET LOSS                                        (17,302,850)     $ (3,654,356)
Fair Value of Options and Warrants Granted         (764,986)                0
                                               ------------      ------------
ProForma Net Loss                              $(18,067,836)     $ (3,654,356)
                                               ============      ============

ProForma Net loss per common share             $     (0.109)     $    (0.0410)
                                               ============      ============


                                     F-17-
<PAGE>


Stock for Settlement of Debt
During 2004, the Company issued 38,500,000 shares of common stock for cash of $
2,305,415 and stock subscriptions receivable of $ 44,585 During 2003, the
Company issued 6,994,865 shares of common stock for cash of $1,007,000 based on
the market price at the time of issuance.

During 2004 and 2003 the Company issued 21,400,014 and 15,299,783 shares of
common stock, respectively to consultants and professionals for services to be
performed during 2004 and 2003. The stock price was determined to be market
price on the date of issuance. As of December 31, 2004 and 2003, $17,499.87 and
$1,608,373, respectively, of services were not performed and are shown as a
reduction to stockholders' equity.

Warrant Exercises

During 2003, the Company issued 12,244,500 shares to non-employees upon the
exercise of warrants for a total consideration of $1,258,232 in cash.

The following table is a table of warrants issued during 2004 and 2003:

------------------------------------------------------------------------------
------------------------------------------------------------------------------
Warrants Outstanding, January 1, 2003                     12,558,977
------------------------------------------------------------------------------
Warrants issued                                           8,162,250
------------------------------------------------------------------------------
Warrants exercised                                       (12,244,500)
------------------------------------------------------------------------------
Warrants expired                                              0
------------------------------------------------------------------------------
Warrants Outstanding, December 31, 2003                   8,476,727
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Warrants issued                                          108,501,882
------------------------------------------------------------------------------
Warrants exercised                                            0
------------------------------------------------------------------------------
Warrants expired                                         (4,815,477)
------------------------------------------------------------------------------
Warrants returned                                        (50,000,000)
------------------------------------------------------------------------------
Warrants Outstanding, December 31, 2004                   61,163,132
------------------------------------------------------------------------------

Warrants for 58,501,882 and 8,162,250 shares were granted in 2004 and 2003. The
weighted average remaining contractual life for all warrants as of December 31,
2004, was approximately 2.5 years. At December 31, 2004, all outstanding
warrants were fully vested and exercisable.

If not previously exercised, warrants outstanding December 31, 2004, will expire
as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                      Range                                         Weighted average
--------------------------------------------------------------------------------------
    Year        Low        High           Number of Warrants         Exercise price
---------------------------------------------------------------------------------------
<S> <C>       <C>         <C>                 <C>                         <C>
    2006      $0.075      $0.450              24,661,250                  $0.10
---------------------------------------------------------------------------------------
    2007      $0.075      $0.150               23784,167                  $0.11
---------------------------------------------------------------------------------------
    2009      $0.010      $0.120              12,717,715                  $0.10
---------------------------------------------------------------------------------------
 Thereafter   $0.010      $0.010               1,000,000                  $0.10
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
   Totals                                     62,163,122                  $0.11
---------------------------------------------------------------------------------------
</TABLE>

For the years ended December 31, 2004, the Company recognized $325,258 of
compensation expense related to issuance of warrants to non-employees in
accordance with SFAS No. 123. The average risk free interest rate used was 5.0%,
the cumulative volatility was estimated at 167%, and the expected life was 2
years.

10. 2004 ACQUISITIONS

Connect Paging, Inc. d/b/a Get A Phone
In April 2004, the Company acquired all of the issued and outstanding common
stock of Connect Paging, Inc. d/b/a Get-A-Phone ("GAP"). The purchase price
consisted of $2,000,000 in cash and 15,000,000 shares of the Company's common
stock. GAP operates as a competitive local exchange carrier in Texas offering
local and long distance telephone services.

The transaction was accounted for as a purchase. The purchase price was
allocated to the acquired assets based upon fair market values on the date of
acquisition.


                                     F-18-
<PAGE>

upon fair market values on the date of acquisition.

The following table summarizes the assets acquired by Usurf in the transaction
and the amount attributable to cost in excess of assets acquired:

Property and Equipment                      $   45,000
Intangibles (Customer List)                 $1,566,686
Intangibles (Goodwill)                      $1,955,814

The preliminary estimate of assets represents management's best estimate based
on currently available information; however, such estimate may be revised within
the one-year period following the acquisition date.

The following unaudited proforma condensed statements of operations assumes the
GAP acquisition occurred on January 1, 2003 and presents proforma financial
information for the year ended December 31, 2003. In the opinion of management,
all adjustments necessary to present fairly such unaudited proforma condensed
statements of operations have been made.

<TABLE>
<CAPTION>
                                          ------------------------------------------------------------------
                                                                           2003
                                          ------------------------------------------------------------------
                                                                                  Proforma        Proforma
                                              USURF             CPI              Adjustments      Combined
                                          ------------------------------------------------------------------
<S>                                        <C>               <C>                 <C>            <C>
Revenues                                     403,764         6,266,744                           6,670,508
Expenses
      Internet access cost                   493,504                                               493,504
      Cost of Sales                        5,409,966                                             5,409,966
      Depreciation and amortization          130,384                   (1)       328,337           458,721
      General and administrative           3,363,336         1,745,179                           5,108,515
      Other operating expenses                                  86,353                              86,353
                                          -----------------------------------------------------------------
Total Operating Expenses                   3,987,224         7,241,498           328,337        11,557,059
                                          -----------------------------------------------------------------

Operating loss                            (3,583,460)         (974,754)         (328,337)       (4,886,551)
Other Income (expense)                       (70,896)             (907)(2)       (80,000)         (151,803)
                                          -----------------------------------------------------------------

Net loss                                  (3,654,356)         (975,661)         (408,337)       (5,038,354)
                                          =================================================================

Net loss per common share                      (0.04)                                                (0.06)
Weighted average shares outstanding       89,186,106                                            89,186,106
                                          ===========                                           ===========
</TABLE>


(1) To record Depreciation for equipment and amortization of intangible assets.
(2) To record interest on loan to acquire GAP.

The following unaudited proforma condensed statements of operations assumes the
GAP acquisition occurred on January 1, 2003 and presents proforma financial
information for the year ended December 31, 2004. In the opinion of management,
all adjustments necessary to present fairly such unaudited proforma condensed
statements of operations have been made.


                                     F-19-
<PAGE>

<TABLE>
<CAPTION>
                                           -------------------------------------------------------------------
                                                                      2004
                                           -------------------------------------------------------------------
                                                                                 Proforma        Proforma
                                             USURF             CPI              Adjustments      Combined
                                           -------------------------------------------------------------------
<S>                                          <C>                <C>        <C>       <C>           <C>
Revenues                                      6,479,420         2,203,212                           8,682,632

Expenses
      Costs of Goods Sold                     3,587,701                                             3,587,701
      Cost of Sales                                               766,984                             766,984
      Depreciation and amortization           1,063,313             3,750  (1)       (246,253)        820,810
      General and administrative              9,471,530           936,755                          10,408,285
                                           -------------------------------------------------------------------
Total Operating Expenses                     14,122,544         1,707,489  (1)       (246,253)     15,583,780
                                           -------------------------------------------------------------------
                                                                                                           --
Operating loss                               (7,643,124)          495,723             246,253      (6,901,148)
Other Income (expense)                       (9,659,726)                   (2)        (94,500)     (9,754,226)
                                           -------------------------------------------------------------------
                                                                                                           --
Net loss                                    (17,302,850)          495,723  (2)        151,753     (16,655,374)
                                           ===================================================================
                                                                                                           --
Net loss per common share                         (0.10)                                                (0.10)
Weighted average shares outstanding         165,552,450                                           165,552,450
                                           =============                                      ================
</TABLE>


(1) To record Depreciation for equipment and amortization of intangible assets.
(2) To record interest on loan to acquire GAP.

Pipeline Networks of Colorado, LLC

On August 25, 2003, the Company , through its subsidiary, USURF Communications,
Inc., acquired the customer base and substantially all of the tangible and
intangible assets and rights used in connection with the Internet services
business operated by Pipeline Networks of Colorado, LLC ("Pipeline"). The
acquisition was effected pursuant to an Asset Purchase Agreement, dated August
25, 2003 and modified effective December 15, 2003. The members of Pipeline were
paid a total of $312,600 in cash.

The following table summarized the assets acquired and liabilities assumed by
the Company in the transaction and the amount attributable to cost in excess of
assets acquired:

<TABLE>
<CAPTION>
<S>                                                                           <C>
Property and Equipment                                                        $  207,177
Intangibles: Customer Base, Non-compete and Right-of Entry Agreements         $  119,613
Customer Deposits                                                            ($   14,190)
</TABLE>

The following proforma condensed statements of operations assumes the Pipeline
acquisition occurred on January 1, 2003 and presents proforma financial
information for the year ended December 31, 2003. In the opinion of management,
all adjustments necessary to present fairly such proforma condensed statements
of operations have been made.


<TABLE>
<CAPTION>
                                                                            Proforma            Proforma
                                              Company          Pipeline    Adjustments          Combined

<S>                                    <C>              <C>                 <C>            <C>
Revenues                               $    430,812     $    154,091                       $    584,903
   Expenses
     Internet access cost                   493,504          106,985           600,489
     Depreciation and amortization          130,384           54,410            12,073          196,867
     General and administrative           3,481,106          218,256         3,699,362
                                       ------------     ------------       -----------     ------------
   Total Operating Expenses               4,104,994          379,651            12,073        4,496,718

Operating loss                           (3,674,182)        (225,560)          (12,073)      (3,911,815)
Other Income (expense)                     (213,744)          24,281          (189,463)
                                       ------------     ------------       -----------     ------------
Net loss                               $ (3,887,927)    $   (322,579)          (12,073)    $ (4,101,279)
                                       ============     ============       ===========     ============

Net loss per common share              $    ( 0.044)                                       $     (0.046)
Weighted average shares outstanding      89,186,106                                          89,186,106
</TABLE>


                                     F-20-
<PAGE>

(1) To record amortization of intangible assets






Failed Acquisition Costs

SunWest Communications, Inc. and Apollo Communications, Inc.

In October 2003, the Company signed a Letter of Intent to acquire the assets of
Apollo Communications, Inc. of Colorado Springs ("Apollo"). Apollo provides data
and high-speed internet access services as well as local and long distance
telephone services. Additionally, in February, 2004, we signed a definitive
agreement to acquire the assets of SunWest Communications, Inc. ("SunWest"). The
assets included SunWest's network of fiber optic lines, its operations
facilities and equipment and, subject to Colorado Public Utility Commission
approval, its customer base.

Through September 30, 2004 the Company advanced a combined total of $1,830,000
to SunWest and Apollo and recorded this amount as "other long term assets".
Through September 30, 2004 the Company supported through its operations
$1,443,257.71 of customer care and related expenses of SunWest and Apollo.
During the quarter ended September 30, 2004 the senior secured lenders of
SunWest and Apollo foreclosed on the assets of these companies. As a result, the
Company wrote off the balance of other assets of $1,830,000 and reclassified the
related expenses of $1,443,257.71 as write off of other assets and
reclassification of related expenses. The Company has not made a determination
whether to seek legal recourse to recover damages as a result of the
foreclosure.


10. COMMITMENTS AND CONTINGENCIES

A. Litigation
From time to time, the Company is a party to a number of lawsuits arising in the
normal course of business. In the opinion of management, the resolution of these
matters will not have a material adverse effect on the Company's operations,
cash flows or financial position.

The Company has been involved in lawsuits and other claims. The Company assesses
the likelihood of any adverse judgments or outcomes to these matters as well as
the potential range of probable losses. A determination of the amount of accrual
required, if any, for these contingencies is made after careful analysis of each
matter. The required accrual may change in the future due to new developments in
any matter or changes in approach (such as a change in settlement strategy) in
dealing with these matters. The Company settled certain litigation early 2004.
The liabilities related to these matters were accrued at December 31, 2003 in
the amount of $168,300, respectively. Management is unaware of any other
existing or potential litigation or judgment and has made no litigation-related
accruals at December 31, 2004

B. Leases
Our headquarters are located in Broomfield, Colorado and are leased through
2015. The Company has entered into a lease for new space in Broomfield,
Colorado. The Company is currently occupying temporary space until the permanent
space is finished out and ready for occupancy. The Company is currently paying
$3,058 per month for the temporary space. When the Company move to the permanent
space, expected to be mid year 2005, the rate increases to $14,875 per month
with annual increases based upon changes in operating cost of the building. With
his new lease, the Company believes that our leased facility is adequate for the
Company's needs for the foreseeable future.

Connect Paging, Inc. d/b/a Get A Phone leases office space in Fort Worth, Texas.
The Company is currently paying $3,496 per month for this facility.

Rent expense for the years ended December 31, 2004 and 2003, was $117,835 and
$113,517, respectively.

The following table sets forth the minimum annual rental expense under the terms
of the Company's lease agreements.

---------------------------------------------------------------------
                Year                         Rent Expense
---------------------------------------------------------------------
                2005                           $202,202
---------------------------------------------------------------------
                2006                           $207,556
---------------------------------------------------------------------
                2007                           $213,048
---------------------------------------------------------------------
                2008                           $196,942
---------------------------------------------------------------------
                2009                           $200,869
---------------------------------------------------------------------
             Thereafter                       $1,098,535
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------


                                     F-21-
<PAGE>

11. SUBSEQUENT EVENTS

A. Employment Agreement
Subsequent to year end the Company entered into an employment contract on
February 18th, 2005 with Ed Garneau as the Chief Operating Officer. The
Employment Agreement provides that Mr. Garneau be employed as the Chief
Operating Officer of the Company for an initial period of three years Mr.
Garneau is currently a member of the Company's Board of Directors and will
continue in that position following the Closing.

Employment agreements are as follows:

The following table summarizes certain provisions of the employment agreements.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
   Name of Officer        Position(s)          Term         Annual Salary        Date
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
<S>                                          <C>             <C>               <C>
 Douglas O. McKinnon  President and Chief    3 Years         $180,000.00       4/15/2002
                       Executive Officer
------------------------------------------------------------------------------------------
      Ed Garneau        Chief Operating      3 Years         $185,000.00        2/21/05
                            Officer
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>

In connection with each of their respective employment agreements, the executive
officers entered into confidentiality agreements and agreements not to compete
with the Company during the term of employment and for a period of one year
thereafter.

Under Mr. McKinnon's employment agreement, should the Company (1) experience a
change in control or (2) change Mr. McKinnon's responsibilities with the
Company, Mr. McKinnon has the right, in his sole discretion, to terminate his
employment with the Company and the Company would be liable for all compensation
remaining to be paid during the then-current term of his employment agreement,
plus an additional period of one year.

Under each employment agreement, if the executive is terminated by the Company
other than for cause, he will be entitled to continue to receive his base salary
for the unexpired term of his employment contract.

B. Financing Activitities Subsequent to year-end the terms of the 2004 private
placement agreements totaling $4,420,000 were modified such that a maximum of
40,000,000 shares are to be issued upon conversion of the debentures If our
common share price exceeds $0.25 per share for 30 consecutive days payment of
debentures totaling $2,250,000 shall be forgiven by the debenture holders.

Subsequent to year end the Company entered into an agreement with Evergreen
Venture Partners, LLC to purchase 17,000,000 unregistered shares of our common
stock for a $750,000 note payable. The terms of the agreement call for payment
of the note plus accrued interest in July 2006, provided however, if our common
share price exceeds $0.21 per share for 30 consecutive days, payment of note
shall be forgiven.


                                     F-22-
<PAGE>


C. Acquisitions

On January 26, 2005, the Company entered into a Securities Purchase Agreement
(the "Acquisition Agreement") with Sovereign Partners, LLC, a Colorado limited
liability company ("Sovereign") and each of the members of Sovereign (the
"Members") (the "Acquisition"). The Acquisition Agreement provides, among other
things, for the acquisition by the Company of 100% of the membership interests
of Sovereign from the Members in exchange for the issuance of shares of our
Common Stock and shares of our newly created Series B Convertible Preferred
Stock, $0.0001 par value per share (the "Preferred Stock"). As a result of the
Acquisition, Sovereign is now owned and operated as a wholly owned subsidiary of
our Company. Sovereign operations include real estate development and the
related communications infrastructure for residential, multiple dwelling unit
(apartment) and planned community developments ("developments"). As part of
these new developments, all communications infrastructure (voice, video, data,
fiber to the home, etc) will be engineered jointly by USURF and Sovereign. The
communications facilities will be owned by USURF and the ongoing communications
services, after sale of the developments, will be provided and operated by a
USURF subsidiary, resulting in residual revenue streams to USURF.

The Company closed on the Acquisition Agreement on February 18, 2005 (the
"Closing"). At the Closing, the Members were issued an aggregate of 35,000,000
shares of our Common Stock and 100,000 shares of our Series B Preferred Stock.

Under the terms of the Acquisition Agreement, the Members are to be issued
shares of our Common Stock and Preferred Stock, as follows: (i) 35,000,000
shares of Common Stock and 100,000 shares of Preferred Stock (which were issued
at the Closing of the Acquisition); (ii) 125,000 shares of Series B Preferred
Stock on each of January 1, 2006 and July 1, 2006; (iii) 250,000 shares of
Series B Preferred Stock at such time as the Net Operating Income of Sovereign
after January 1, 2005 is equal to or greater than $6,000,000; and (iv) 400,000
shares of Series B Preferred Stock if the average Net Operating Income of
Sovereign ending on the period twenty-four months following the closing of the
acquisition is equal to or greater than $5,000,000. For the purposes of the
Acquisition Agreement, Net Operating Income means for any period the "EBITDA" on
a consolidated basis for Sovereign and all of its subsidiaries, in accordance
with generally accepted accounting principles. "EBITDA" means earnings before
interest, taxes, depreciation and amortization.

In addition, the Members may earn additional shares of our Common Stock or
Series B Preferred Stock if the average annualized Net Operating Income for the
period commencing on the closing and ending on the twenty-four month anniversary
date of the closing is: (A) greater than $5,000,000, but less than or equal to
$6,000,000, then the Members will receive in the aggregate an additional 0.05
shares of Series B Preferred Stock for each dollar that the average annualized
Net Operating Income for that period exceeds $5,000,000; (B) greater than
$6,000,000 but less than or equal to $7,000,000, then the Members will receive
in the aggregate an additional 0.10 shares of Series B Preferred Stock for each
dollar that the average annualized Net Operating Income for that period exceeds
$5,000,000; (C) greater than $7,000,000 but less than or equal to $8,000,000,
then the Members will receive in the aggregate 0.15 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000; or (D) greater than $8,000,000 for that period, then
the Members will receive in the aggregate 0.20 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000 (collectively, the "Twenty-Four Month Issuances").

In addition, the Members may earn additional shares of our Common Stock or
Series B Preferred Stock as follows: if the average annualized Net Operating
Income for the period commencing on the Closing and ending on the thirty-six
month anniversary date of the closing is: (A) greater than $5,000,000, but less
than or equal to $6,000,000, the Members will receive in the aggregate an
additional 0.10 shares of Series B Preferred Stock for each dollar that the
average annualized Net Operating Income for that period exceeds $5,000,000; (B)
greater than $6,000,000 but less than or equal to $7,000,000, then the Members
will receive in the aggregate an additional 0.20 shares of Series B Preferred
Stock for each dollar that the average annualized Net Operating Income for that
period exceeds $5,000,000; (C) greater than $7,000,000 but less than or equal to
$8,000,000, then the Members will receive in the aggregate 0.30 shares of Series
B Preferred Stock for each dollar that the average annualized Net Operating
Income for that period exceeds $5,000,000; or (D) greater than $8,000,000 for
that period, then the Members will receive in the aggregate 0.40 shares of
Series B Preferred Stock for each dollar that the average annualized Net
Operating Income for that period exceeds $5,000,000. Such issuances will be
reduced by the number of shares of Common Stock or Series B Preferred Stock
received pursuant to the Twenty-Four Month Issuances, if any.

Under the terms of the Acquisition Agreement, the aggregate number of shares of
capital stock of the Company issuable to the Members is limited to 300,000,000
shares of Common Stock or such number of shares of Series B Preferred Stock that
is convertible into 300,000,000 shares of Common Stock, or any combination of
Series B Preferred Stock and Common Stock which does not exceed 300,000,000
shares of Common Stock in total.

The Company may suspend the issuance of additional shares of Common Stock or
Series B Preferred Stock upon certain "breaches" by Sovereign defined in the
Acquisition Agreement. In the event of a breach, any shares that have not yet
been issued to the Members under the terms of the Acquisition Agreement may be
withheld by us until the earlier of (i) twelve months from the date such shares
would have otherwise been issued to the Members or (ii) such time as any such
breach has been cured by Sovereign.


                                     F-23-
<PAGE>

The Acquisition Agreement also provides for customary representations and
warranties of all parties, certain covenants and agreements related to the
closing and mutual indemnification of the parties.

Bylaws Amendment In connection with the Acquisition Agreement, the Company
amended its Bylaws to provide that the provisions of Nevada Revised Statutes
Sections 78.378 to 78.3793 do not apply to the acquisition of the capital stock
of the Company by Sovereign, its Members or its affiliates in connection with
the Acquisition Agreement. These sections would have triggered compliance with
certain take over measures that our Board of Directors determined should not
apply to this transaction.

Registration Rights Agreement
In addition, the Company entered into a Registration Rights Agreement with the
Members whereby the Company will undertake to prepare and file a registration
statement on Form SB-2 to register the Common Stock (and the Common Stock which
may be issued upon conversion of the Series B Preferred Stock) issued to the
Members. Under the terms of the Registration Rights Agreement, the registration
statement is required to be filed within seventy-five days of the Closing, and
then within seventy-five days of each subsequent issuance of Common Stock or
Series B Preferred Stock under the Acquisition Agreement. The Company must cause
the registration statement to become effective within 180 days of the filing of
the registration statement, or the Company must pay cash to the Members in the
amount of 0.5% per month of the fair market value of the Common Stock then held
by the Members.

Management Agreement
In addition, the Company entered into a Management Agreement which will provide
that Mr. Ed Garneau, the current manager of Sovereign, will continue to serve as
manager of Sovereign and that the Members will continue to elect the manager of
Sovereign after the closing for a period of three years. The Management
Agreement also provides that while the Company may use Sovereign's cash on hand
following the closing, however, should there be an objection to such use, our
Board of Directors of shall determine whether the cash may be used for the
Company's corporate purposes.

Investors Rights Agreement; Voting Agreement Concerning our Board of Directors
In connection with the Acquisition Agreement, the Company, each member of our
Board of Directors, and each of the Members entered into an Investor Rights
Agreement. Pursuant to the Investor Rights Agreement, each of the parties agree
to take all steps necessary, including the exercise of their voting rights as a
shareholder of our Company, to ensure the Mr. Ed Garneau and one other person
selected by the Members, is elected to the Company's Board of Directors and
serves as a Director until all of the shares of Common Stock issued to the
Members have either been registered and sold on an effective registration
statement or are eligible for resale under Rule 144 of the Securities Act of
1933. The Investor Rights Agreement also provides that should certain events
happen, each party to the Investor Rights Agreement will take all steps
necessary to increase the number of Directors of our Company and grant the
Members the right to fill all such newly created Board of Director vacancies. In
addition, the Investor Rights Agreement provides for certain protective
operating covenants that prohibit the Company from taking certain extraordinary
actions absent the prior consent of the Members.

Newly Created Series B Convertible Preferred Stock; Redemption Obligations In
connection with the Acquisition Agreement, the Company has filed with the
Secretary of the State of Nevada, a Certificate of Designation designating the
Series B Preferred Stock. The features of the Series B Preferred Stock includes
the right on the part of our Company or the holders of the Preferred Stock to
effect the conversion of the Series B Preferred Stock to Common Stock from time
to time when there is sufficient authorized but unissued shares of Common Stock
available for issuance upon conversion.

The Series B Preferred Stock is convertible into Common Stock at the conversion
rate of 100 shares of Common Stock for each share of Series B Preferred Stock.
In the event the Company fails to increase the number of authorized shares of
Common Stock to a level sufficient to allow for the conversion of all of the
Series B Preferred Stock into Common Stock by June 30, 2006, the Company will be
obligated, at the request of the holders of the Series B Preferred Stock, to
redeem the Series B Preferred Stock at the then fair market value of the
underlying Common Stock into which the Series B Preferred Stock would otherwise
be convertible. The Preferred Stock designation also provides that the Series B
Preferred Stock will be senior to the Common Stock with respect to rights upon
liquidation, winding up or dissolution of the Company, but will be junior to the
Company's existing Series A Convertible Preferred Stock. The holders of the
Series B Preferred Stock will vote together with the Common Stock as a single
class on an as-converted to Common Stock basis except for any matter that
requires a separate class or series vote.

Modifications to Existing Investment Agreements
In order to close the Acquisition Agreement, several shareholders and investors
in our Company granted their consent to the actions contemplated by the
Acquisition. In addition, certain outstanding investment agreements, notes and
warrants of the Company were modified and/or terminated.

Surrender and Exchange Agreement
In connection with the Acquisition, the Company restructured an investment
arrangement with Evergreen Venture Partners, LLC ("Evergreen"). Evergreen and
the Company had been parties to a certain Convertible Loan and Security
Agreement dated as of December 23, 2003 (the "Loan Agreement") pursuant to which
the Company issued a convertible promissory note to Evergreen in the principal
amount of $600,000 (the "Old Note"). In addition, on September 19, 2003, the
Company entered into a Letter Agreement with Evergreen, pursuant to which the
Company issued to Evergreen a warrant to purchase 3,816,667 shares of Common
Stock. The Company and Evergreen also were parties to a certain Stock Purchase
Agreement dated February 27, 2004 (the "Stock Agreement"). Under the terms of
the Stock Agreement, the Company issued 10,000,000 shares of Common Stock to
Evergreen and a warrant to purchase 12,500,000 shares of Common Stock. On or
about April 23, 2004, the Company and Evergreen terminated the Old Note issued
under the Loan Agreement and the Company issued 5,000,000 shares of Common Stock
to Evergreen and a warrant to purchase 10,000,000 shares of Common Stock.


                                     F-24-
<PAGE>

Effective as of February 18, 2005, on the Closing of the Acquisition, the
Company and Evergreen entered into the Surrender and Exchange Agreement dated as
of January 31, 2005. Under the terms of the Surrender and Exchange Agreement
Evergreen surrendered 17,000,000 shares of Common Stock owned by it (the
"Surrendered Shares"). Evergreen also surrendered warrants to purchase
15,316,667 shares of Common Stock (the "Surrendered Warrants"). The Surrendered
Shares and the Surrendered Warrants have been canceled and are of no further
force or effect. In consideration of the Surrendered Shares and Surrendered
Warrants, the Company issued to Evergreen a new promissory note in the principal
amount of $750,000.00 (the "New Note"). The New Note provides for the lump sum
payment of the principal amount of the New Note on July 1, 2006. However, should
the trading price of our Common Stock be greater than $0.21 per share for a
consecutive thirty day period, the New Note shall terminate and the Company
shall have no further obligation to Evergreen under the New Note.

Waiver, Consent, Surrender and Modification Agreement
In connection with the Acquisition, were structured an investment arrangement
with Crestview Capital and certain of Crestview's affiliated investment entities
(collectively, "Crestview"). The Company entered into a series of Purchase
Agreements (the "Purchase Agreements") with Crestview during the year 2004,
whereby the Company issued and sold to Crestview (and certain other
participating investors) convertible notes (the "Crestview Debentures"),
warrants to purchase Common Stock (the "Crestview Warrants") and shares of
Common Stock of the Company.

Effective as of February 18, 2005, on the Closing of the Acquisition, the
Company and Crestview entered into the Waiver, Consent, Surrender and
Modification Agreement dated as of January 21, 2005. Under the terms of the
Agreement, Crestview surrendered warrants to purchase an aggregate of 31,626,372
shares of Common Stock (the "Surrendered Crestview Warrants"). In addition, the
Purchase Agreements as between Crestview and the Company were terminated with
respect to the Surrendered Crestview Warrants, except for the registration
requirements of the Agreements with respect to any surviving shares or warrants
owned by Crestview. The Surrendered Crestview Warrants were canceled and are of
no further force or effect.

In addition, the conversion features of the Debentures were modified such that
the maximum number of shares issuable upon conversion of the Debentures is now
limited to 40,000,000 shares of Common Stock. The payment terms of the
Debentures were also modified such that the principal amount of the Debentures,
approximately $2,250,000 plus accrued but unpaid interest shall be due and
payable on July 1, 2006. However, should the trading price of our Common Stock
be greater than $0.25 per share for a consecutive thirty-day period up to
$2,250,000 of the Debentures shall terminate and the Company shall have no
further obligation to Crestview under the Debentures.


                                     F-25-
<PAGE>