|   | U.S. SECURITIES AND EXCHANGE COMMISSION |   |
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| Washington, D.C. 20549 |
|------------------------|

| Form 10-KSB/A |
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| [X] | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934for the Fiscal Year Ended December 31, 2002 |
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| [ ] | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934for the Transition Period From ________ to ________ |
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| Commission File No. 1-15383 |
|-----------------------------|

|   | USURF America, Inc. |   |
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| (Name of Small Business Issuer in its Charter) |
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|   | Nevada                                                        |   | 91-2117796                          |   |
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|   | (State or Other Jurisdiction ofIncorporation or Organization) |   | (IRS Employer IdentificationNumber) |   |

|   | 6005 Delmonico Drive, Suite 140, Colorado Springs, Colorado80919 |   |
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|   | (Address of Principal Executive Offices, Including Zip Code)     |   |

|   | (719) 260-6455                                   |   |
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|   | (Issuer's Telephone Number, Including Area Code) |   |

|   | Securities Registered under Section 12(b) of the Exchange Act: |   |
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|   | Title of Each Class |   | Name of Exchange on WhichRegistered |   |
|--------|---------------------|--------|-------------------------------------|--------|
|   | Common Stock        |   | The American Stock Exchange         |   |

| Securities Registered under Section 12(g) of the Exchange Act: None |
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| Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject of such filing requirements for the past90 days. Yes [X] No [ ]                               |
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| Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-Bcontained in this form, and no disclosure will be contained, to the best of registrant'sknowledge, in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-KSB or any amendment to this Form 10-KSB. [ ] |
| Registrant's revenues for its most recent fiscal year were $0.                                                                                                                                                                                                                                                                                    |
| The aggregate market value of the voting stock held by non-affiliates computed based on theclosing price of such stock as of May 2, 2003, was approximately $3,303,120.                                                                                                                                                                           |
| The number of shares outstanding of the issuer's common equity as of May 2, 2003, was77,797,203 shares of common stock, par value $.0001.                                                                                                                                                                                                         |
| Documents Incorporated by Reference: Current Report on Form 8-K, date of event: January16, 2003; Current Report on Form 8-K, date of event: March 10, 2003; and Current Report onForm 8-K, date of event: March 31, 2003.                                                                                                                         |
| Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]                                                                                                                                                                                                                                                                       |

| PART I |
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| Item 1. | Description of Business |   |
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|   | The Company |   |
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|   | In July 1999, we changed our name to "USURF America, Inc.", from "Internet MediaCorporation". We were incorporated on November 1, 1996, under the name "MediaEntertainment, Inc." |
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|   | Our headquarters are located at 6005 Delmonico Drive, Suite 140, Colorado Springs,Colorado 80919; our telephone number is (719) 260-6455. |
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|   | Current Overview |   |
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|   | During 2002, we expanded our business plan beyond solely offering wireless Internetaccess service.  We currently operate as a provider of voice (telephone), video (cabletelevision) and data (Internet) services to business and residential customers.  We alsomarket and sell telecommunications-related hardware and software. |
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|   | Our business plan involves obtaining, through internal growth, as many voice, video anddata customers as possible.  Our growth strategy also includes acquisitions oftelecommunications-related businesses and/or properties which would provide animmediate or potential customer base for our services. |
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|   | In early 2003, we restructured our operations by creating three new subsidiary corporationsthat reflect our operating divisions: |
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| - | USURF Development, Inc. - this subsidiary secures right of entry (ROE) agreementsfor the provision of voice, video and/or data services with owners of multiple dwellingunit (MDU) properties, as well as to “greenfield” developers, that is, developers ofundeveloped land. |
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| - | USURF Systems & Technologies, Inc. - this subsidiary conducts all of ourtelecommunications-related equipment and software sales operations for businesscommunications. |
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| - | USURF Communications, Inc. - this subsidiary, directly and through subsidiaries,provides voice, video and data services to our customers, working in close coordinationwith USURF Development, Inc. |
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|   | References to “us”, “our” and “we” include USURF America, Inc., USURF Development,Inc., USURF Systems & Technologies, Inc. and USURF Communications, Inc. |
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|   | Industry Background. |   |
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|   | The  United  States  cable  and  telecommunications  industry  is large and robust.  Inrecent  years the  cable  television  industry  has  changed  from a provider  of a singleproduct,  analog  CATV,  into a  competitive  provider of multiple entertainment,information and telecommunications services. Cable's new broadband  infrastructure  hasallowed companies to expand into services such as telephony,  high-speed  Internet accessand digital CATV. |
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|   | As a result of technological and regulatory changes that have occurred over the past fewyears, smaller companies have been able to compete more effectively in the CATV andtelephony markets  traditionally  dominated by larger companies. This  shift has enabledcompanies like ours to become effective competitors to the franchised local cabletelevision operators in the cable television and telephony markets.  In particular, thepotential market for servicing MDU properties remains largely undeveloped, creatingsignificant opportunities for alternative providers, like us, with the  technological,operational, marketing and administrative ability to manage growth effectively.  Based onits industry experience, our management has determined that there is a growing market foralternative telecommunications providers to obtain ROE agreements with MDU propertyowners. |
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|   | The Internet, commonly known as the World Wide Web, or simply the Web, is a collectionof connected computer systems and networks that link millions of public and privatecomputers to form, essentially, the largest computer network in the world. The Internet hasexperienced rapid growth in recent years and is expected to continue its growth, which iswhy we continue to develop our wireless high-speed, broadband Internet access servicebusiness. |
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|   | Our Business |   |
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|   | We offer voice (telephone), video (cable television) and data (Internet) services to ourcustomers.  We also market and sell telecommunications-related hardware and software.Our management believes our ability to offer bundled telecommunications services hasallowed it to garner ROE agreements with Denver-area MDUs that it would otherwise nothave been able to obtain.  As we develop our business plan, our mode of choice forproviding voice, video and data services will be through leading-edge technology overInternet Protocol (IP) networks.  We have determined that distribution of these services inthis manner will be more cost effective and will complement our developing IP telephonyservices. |
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|   | We currently provide local telephone and dial-up Internet access to customers in Arizona;we provide cable television service to customers in Denver, Colorado; we provide high-speed wireless Internet access service to customers in Denver and Colorado Springs,Colorado; and we market and sell telecommunications-related hardware and softwarethroughout the United States. |
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|   | Assuming we obtain adequate funding, of which there is no assurance, our plan is toexpand our markets rapidly, yet prudently,  without sacrificing the quality of our servicesor the customer's experience.  We will seek to grow within our existing markets first,  aswe believe that  geographical clustering enhances overall enterprise value and results inoperating efficiencies.  However, we will continue to be opportunistic in reviewingpotential acquisitions and in examining potential new markets, entering them only if theyappear to make strategic geographic sense and offer the opportunity to achieve immediatescale in the market.  It is our  expectation  that the  majority of new growth in 2003 willoccur within existing markets, through both acquisition and internal growth. |
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|   | We  plan on expanding our operations by marketing our telecommunications services byobtaining new ROE agreements through internal sales efforts, as well as through theacquisition of private telecommunications companies.  Where possible, we will seek tomaximize  subscriber  penetrations  and  revenue  by  providing a compelling suite ofbundled communications products and services. |
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|   | We currently have ROE Agreements with four active residential developments in theDenver, Colorado, area.  The terms of these ROE agreements range to 20 years, with anaverage remaining term of approximately 15 years. |
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|   | Telephone (Voice) Services |   |
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|   | At December 31, 2002, we did not provide telephone service to any customers.However, in February 2003, we acquired the customer base of an Arizona-basedcompetitive local exchange carrier (CLEC) and currently provide local, long-distanceand dial-up Internet access service to approximately 1,700 customers.  We providelocal telephone service to nearly all of these customers and long-distance and dial-upInternet services to a small number of these customers.  We are in the process ofobtaining a CLEC license in Arizona.  We are aware of no impediment to ourbecoming a licensed CLEC in Arizona.  Until we obtain this license, we havecontracted with an Arizona-licensed CLEC, DMJ Communications, Inc., to provideservices to our customers on an agency basis.  Currently, we derive approximately$75,000 in monthly revenues from our Arizona operations. |
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|   | In January 2003, we acquired DMJ Communications (Colorado), Inc., a small CLEClicensed to operate as such by the State of Colorado.  At the time of acquisition, thisCLEC provided local telephone service to approximately 100 customers.  Ourapplication to the Colorado Public Utilities Commission (PUC) for approval of thechange in ownership of this CLEC recently has become stalled.  Due to deficiencies inthe acquired CLEC’s administrative filings, we anticipate that approval of our PUCapplication will not occur in the near term, if at all.  Should our PUC applicationultimately be denied, we may elect to rescind the acquisition.  Due to thesecircumstances, none of the acquired customer base remains. |
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|   | In Arizona, through our agency agreement with DMJ Communications, we are capableof providing all of the most popular residential telephone features, including callwaiting, call forwarding, caller ID and voice mail. Our switching systems aresoftware-driven and capable of feature enhancement and efficient, remote servicingthrough software interfaces. We currently provide long-distance service  through ourswitches by buying  wholesale minutes from interexchange carriers. |
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|   | Cable Television (Video) Services |   |
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|   | At December 31, 2002, we did not provide cable television service to any customers,although our cable television passings totaled 1,409 at that date. Currently, we providecable television service to 161 customers in Denver, Colorado, with total passings of2,022.  Our monthly revenues derived from our cable television services isapproximately $5,000. |
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|   | We deliver our cable television services by  re-transmitting programming signals viaantenna and principal head-end electronic equipment that receive  and process signalsfrom satellites, via both analog and digital transmissions.  Currently, we obtain ourprogramming through program access agreements with Redline PerformanceManagement Group and DirecTV.  We also process and distribute  off-airtransmission signals from local network affiliates and independent  television stations.For analog  services,  our system  architecture  generally  eliminates  the need forset-top converter boxes when it is connected to cable-ready television sets, and enablesus to  activate  service  for  subscribers  without  entering  into  an apartment.  Fordigital services,  a set-top  converter box is required.  In the future,  we plan to employthe  technology  that  provides  the most  attractive return on invested capital withoutcompromising  service. |
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|   | We offer our subscribers a complete array of popular cable television programming atcompetitive prices. Our expanded basic retail prices generally approximate the ratescharged by the incumbent franchise  CATV  operators, and includes uninterruptedfull-length motion pictures, regional sports channels, sporting events, concerts andother entertainment programming.   Premium channels, including  HBO(TM),Cinemax(TM) and Showtime(TM) are generally offered individually or in discountedpackages with basic or other services. Digital service can be added and includesadditional expanded basic channels, music channels, multiplex  premium channels,pay-per-view availability and an interactive programming guide. |
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|   | Internet (Data) Services |   |
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|   | Wireless Access |   |
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|   | What is Wireless Internet Access? |   |
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|   | "Wireless Internet" is a relatively new type of communications spectrumdesignated by the FCC. Wireless Internet access requires a transmission facilitymaintained by an ISP employing a wireless system and the user's modem (atransmitter/receiver modem) equipped with an antenna. Wireless Internetcapability allows users to access the Internet from a stationary computer or, insome situations, from a mobile, lap-top computer. |
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|   | Prior to the arrival of our new management, in April 2002, we marketed ourproprietary wireless Internet access system under the “Quick-Cell” brand name.Our management has continued to market our wireless communicationsproducts under the “Quick-Cell” name, but no longer relies on a proprietaryproduct design.  Rather, we now use “off-the-shelf” components in constructinga wireless Internet system and delivering our wireless Internet services tocustomers.  This change in equipment strategy, is based on our management’sbelief that the off-the-shelf components, though more expensive, offer greaterreliability and greater certainty of supply, as numerous manufacturers nowproduce equipment that meets all Wi-Fi (wireless fidelity) 802.11(x) standardsthat utilize the unlicensed 2.4 and 5.8GHz 802.11b spectra. |
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|   | The number of server modems needed for a particular system depends on a fewfactors: |
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| - | the geographic size of the city to be served - the larger the city, thegreater the number of server modems required; |
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| - | the population density of the city to be served - the greater thepopulation density, the greater the number of server modems required; |
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| - | the terrain of the city to be served - the hillier the terrain, the greater thenumber of server modems required; and |
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| - | the density of foliage of the city to be served - more densely foliatedareas require a greater number of server modems. |
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|   | Within a particular system, each additional server modem is configured to sharetransmitted data with the other server modems, so as to provide anuninterrupted connection to the Internet. |
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|   | Data transmission speeds remain constant within a system's transmissionradius, regardless of the distance from the server modem. On the fringes of asystem's transmission radius, a customer's connection may fade in and out,similar to the reception of distant AM radio stations. To avoid thiscircumstance, we will not install a customer modem within the fringe areas. |
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|   | Current Markets |   |
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|   | We are currently developing a wireless Internet network that is to serviceCentral Denver.  Our progress has been slowed, due to our need to move ourprimary server cell to a location with a greater bandwidth connection to theInternet.  We currently provide high-speed, broadband wireless Internet accessto a few customers in Denver.  However, in the near future, we will begin tomarket this service aggressively to Central Denver businesses, including officebuilding owners or property managers who may be interested in providing ourwireless Internet access service to their tenants on a building-wide basis. |
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|   | In addition to our Denver-area wireless Internet operations, we have started todevelop a wireless Internet network in Colorado Springs.  We currently providehigh-speed, broadband wireless Internet access to a few business customers andan MDU property on a beta-test basis.  Near the end of the second quarter of2003, we expect to begin to market this service aggressively in ColoradoSprings. |
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|   | In each of our markets, our progress in developing our wireless Internetbusiness has been impaired by a lack of capital.  Unless we obtain neededcapital, the growth of this business segment will continue to be slow. |
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|   | From September 2001 through the end of 2002, we had wireless Internetoperations in Del Rio, Texas.  Due to geographic separation from our Colorado-based operations, our management determined to abandon the Del Riooperations.  At the time of this decision, we had approximately 50 customers inDel Rio and customer response has been excellent, but growth there had beenstymied by a lack of capital. |
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|   | Cable Access |   |
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|   | We are capable of offering high-speed Internet dedicated service via cable modemsusing the existing cable infrastructure at our MDU properties.  Currently, we do notprovide this service.  However, it is likely that, during 2003, we will begin to offerthis service in certain of our MDU properties.  If and when we begin this service,the subject property will be connected to the Internet via a T-1 telephone line thatwould be leased from a bandwidth provider. |
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|   | Dial-up Access |   |
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|   | We currently provide dial-up Internet access to a small number of our customers inArizona.  It is our intention to provide this service to customers who request it, butwe do not intend to market actively this service. |
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|   | As recently as September 2000, our CyberHighway subsidiary, now in Chapter 7bankruptcy, provided dial-up Internet service to about 25,000 customers. By theend of February 2001, we had lost all of these customers. |
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|   | Equipment and Software Sales |   |
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|   | In February 2003, we acquired assets from a telecommunications company that haveenabled us to begin to operate as a seller of telecommunications-related hardware andsoftware.  We offer a broad array of products and the start to this part of our businesshas shown some success.  In March 2003, we booked approximately $45,000 inequipment sales. |
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|   | Our Sales and Marketing Strategy |   |
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|   | For our bundled (voice, video and/or data) telecommunications services, we targetMDU properties and the tenants living there.  Our selling cycle for obtaining ROEagreements that will permit us to offer our services to MDU tenants includes  proposalpresentation, contract negotiations and service implementation, a cycle that can requireup to nine months to complete. While we plan to bolster our growth throughacquisitions, securing new ROE agreements through direct marketing efforts is anintegral part of our strategy to grow and achieve operating efficiencies. |
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|   | While royalty arrangements encourage property owners to enter into ROE agreementswith us, we believe that delivery of competitive products and superior customer servicethat 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 agreementswith the large national owners of high-quality   MDU properties that own properties inour markets, in conjunction with marketing our services to smaller owners whoseproperties typically lie within a single geographic market. |
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|   | We offer property owners and management companies a great amenity that promotesincreased occupancy, as well as an attractive new revenue source in the form ofroyalties. Under the ROE agreements,  property owners generally are paid a percentageof 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 totalnumber of dwelling units on a property.  We attempt to focus our efforts on negotiatinglong-term ROE agreements with owners of MDU portfolios, because we believe thatstrategic relationships with these owners are critical to market penetration andlong-term success.  These ROE agreements, to date, generally provide for a term ofseven  to 20 years and give us the right to be the preferred provider of voice, videoand/or data services on the subject property.  The property owner typically agrees tomarket and promote our services on a property. |
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|   | Once we have obtained the ROE agreement and services have been activated on theproperty, 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 arepackaged at competitive  prices,  with discounts for  signing-up for two or moreservices.  For the resident,  this easy sign-up process  eliminates  the need  for them tocontact  several  different  service providers,  and saves  them money and time.  Inaddition,  we attempt to schedule service installations prior to the move-in date of theresident.  This eliminates the  inconvenience for the resident of having to meet theinstallation  technicians,  as is the case with the competition.  All of our services arebilled on a single  invoice,  and the resident only has one company to contact for anyquestions or concerns.  We believe that the  combination  of convenience,  savings, andquality service presented to the resident at the time of move-in is a very powerfulmarketing  advantage.  Additionally,  the leasing agents  are  given  an  incentive  tosell  the  services,  since  we pay  them commissions  (directly or through the propertyowner's  management  company) for signing up residents. The leasing agents aretrained by us and are provided with marketing and other support  literature to facilitatesales of the products and services. |
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|   | Our  acquisition  strategy is to pursue  properties that we can acquire for costscomparable to or below those of a standard build-out.  These generally tend to be ROEagreements held by small private telecommunications providers. |
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|   | During 2003,  we may enter a new market or new markets, depending on the level offunding we are able to obtain.  We expect a large majority of our new passings growthwill occur from acquisitions with the remaining from internal growth  activities fromlocal marketing efforts. |
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|   | Key Suppliers |   |
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|   | We currently have agreements with Redline Performance Management Group andDirecTV for cable television programming.  While alternative suppliers do exist foranalog and digital cable programming, these alternatives are either not as robust and/orare not as economically advantageous as the product(s) offered by these programmingsuppliers.  As a result,  if we were required to replace Redline and DirecTV for anyreason, it is likely we would not be able to offer our current  programming  packages totenants or that the cost of providing these packages would significantly increase. |
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|   | Customer Service and Support |   |
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|   | We are committed to the highest levels of customer satisfaction. We believe thatmaintaining high levels of customer satisfaction will remain as a key competitive factor.Currently, we provide customer support during normal business hours. Our customersupport operations can be expected to expand, if and when we obtain needed capital. |
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|   | Competition |   |
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|   | The market for cable television and telephony services is extremely competitive. Under theterms of our ROE agreements, we generally are required to provide  products and servicesthat are competitive with those offered by other providers.  We compete for customers onthe basis of price, services offered and customer service.  Local franchised cable televisionproviders, such as Comcast and Adelphia, represent our principal competition.  Thesecompetitors are typically very large  companies with significantly greater resources thanours. |
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|   | While technology and regulatory changes have allowed companies like us to compete moreeffectively with the incumbents, there is no assurance that we will be able to develop andexecute upon  financially viable business models. As is the case with us,telecommunications service providers like us have greater  flexibility to customize theirproducts and services than their competition, but they typically pay higher programmingcosts than the local franchise cable television providers and do not have the scale of thosebusinesses to  absorb fixed administrative, customer service and field operations costs.Additionally, companies like us that serve MDUs incur the higher churn associated withthese residents (the average life cycle of an apartment resident is 18 months  vs. sevenyears for a  single-family  housing  resident), which results in a greater percentage ofmarketing costs and customer  service calls than those of the incumbent providers. |
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|   | We believe that the primary competitive factors determining success as an Internet accessprovider are: a reputation for reliability and high-quality service; effective customersupport; 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 addressadequately all of these factors, except that we will not be able to offer scope of geographiccoverage for the foreseeable future. It is also possible that we will not address any of thesecompetitive factors successfully. Should we fail to do so, our business would likely neverearn a profit. We currently lack capital necessary to compete effectively. |
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|   | We face competition from other wireless Internet access providers, as well as large,national providers of cellular telephone service providers who are beginning to enter thismarket. |
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|   | The market for the provision of dial-up Internet access services, in which our Quick-Cellwireless Internet access service will compete, is extremely competitive and highlyfragmented. Current and prospective competitors include many large, nationally-knowncompanies that possess substantially greater resources, financial and otherwise, marketpresence and brand name recognition than do we. We currently compete, or expect tocompete, for the foreseeable future, with the following: national Internet service providers,numerous regional and local Internet service providers, most of which have significantmarket share in their markets; established on-line information service providers, such asAmerica Online, which provide basic Internet access, as well as proprietary informationnot available through public Internet access; providers of web hosting, co-location andother Internet-based business services; computer hardware and software and othertechnology companies that provide Internet connectivity with their products;telecommunications companies, including global long distance carriers, regional Belloperating companies and local telephone companies; operators that provide Internet accessthrough television cable lines; electric utility companies; communications companies;companies that provide television or telecommunications through participation in satellitesystems; and, to a lesser extent, non-profit or educational Internet access providers. |
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|   | With respect to potential competitors, we expect that manufacturers of computer hardwareand software products, as well as media and telecommunications companies will continueto enter the Internet services market, which will serve to intensify competition. In addition,as more consumers and businesses increase their Internet usage, we expect existingcompetitors to increase further their emphasis on Internet access and electronic commerceinitiatives, resulting in even greater competition. The ability of competitors or others toenter into business combinations, strategic alliances or joint ventures, or to bundle theirservices and products with Internet access, could place us at a significant competitivedisadvantage. We currently lack capital necessary to compete effectively and we may neverobtain enough capital to permit us to compete effectively in our markets. |
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|   | Moreover, we expect to face competition in the future from companies that provideconnections to consumers' homes, such as telecommunications providers, cable companiesand electrical utility companies. For example, recent advances in technology have enabledcable television operators to offer Internet access through their cable facilities atsignificantly higher speeds than existing analog modem speeds. These types of companiescould include Internet access in their basic bundle of services or offer such access for anominal additional charge. Any such developments could reduce our market share, therebyimpairing our ability to earn a profit. |
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|   | Regulation |   |
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|   | General |   |
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|   | Our telecommunications business is subject to regulations under both state and  federaltelecommunications  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 ServiceCommission (collectively, PUC). At the federal level, the 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 toimplement the 1996 Telecommunications Act (the "1996 Act"). |
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|   | Telephony Regulation |   |
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|   | In providing telecommunications services to our customers, we are authorized tooperate as either a shared tenant service (STS) provider or a  competitive localexchange carrier (CLEC), as well as an interexchange carrier (IXC).  Few states imposecertification  and/or tariffing  requirements on STS providers, while virtually all statesdo so with respect to CLECs. While the FCC and a majority of states imposecertification  and/or tariffing  requirements on IXCs,  federal and state regulation ofIXCs has been relaxed  substantially over the  past  few  years.  CLECs  remain  subjectto a wide  array  of  regulatory constraints  and  obligations.  By contrast, regulation ofSTS  providers  is minimal. In the near future, we expect to become certified as aCLEC in the State of Arizona and  intend to seek like  authority when we enter otherstates.  We also expect to gain authority to operate as an IXC in the same state and willseek authority to act as an IXC to the extent such authority is required when we enternew states. |
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|   | The 1996 Act opened the local telecommunications  markets to competition bymandating the  elimination of many legal,  regulatory,  economic and operationalbarriers to competitive  entry. These changes provided us with new opportunities toprovide local telephone  services on a more  cost-effective  basis. |
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|   | Cable Television Regulation |   |
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|   | Regulatory  Status and  Regulation  of Private Cable  Operators.  Franchise cableoperators are subject to a wide range of FCC  regulations  regarding such matters  asthe  rates  charged  for  certain  services,  transmission  of local television broadcastsignals, customer service standards/procedures, performance standards  and  systemtesting  requirements.   In  addition,   the  operator's franchise,  which  can be  issued  atthe  municipal,  county  or  state  level, typically imposes  additional  requirements foroperation.  These relate to such matters as construction, provision of channel capacityand production facilities for public educational and government use, and the paymentof franchise fees and the provision of other "in kind" benefits to the city. |
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|   | The operator of a video distribution system that serves subscribers without using anypublic 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 whichdo use public rights-of-way.  Moreover, a state or local government cannot impose afranchise requirement on such operators. |
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|   | In an attempt to remain  exempt from  extensive  FCC  regulation  and localfranchising   requirements,   we  intend  to   continue  to  confine  our  videodistribution  facilities to contiguous  private property and obtain  programmingprimarily via satellite  master  antenna  television  (SMATV)  facilities  and digital(DBS) transport.  We intend to be a private  cable  operator in all of the markets thatwe serve. |
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|   | Access to Property.  Federal law provides  franchise cable operators access to  publicrights-of-way  and  certain  private  easements.   These  provisions generally  have beenlimited by the courts to apply only to external  easements and  franchise  operatorshave not been able to use these  rights to access the interior  of  MDUs  without  ownerconsent.  In some  jurisdictions,  franchise operators  have been able to use state orlocal  access  laws to gain  access to property over the owner's objection and inderogation of a competing  provider's exclusive contractual right to serve the property.These statutes,  referred to as  "mandatory  access"  provisions,  typically  empoweronly  franchise  cable operators  to  force  access  to an  MDU to  provide  service  tothe  residents regardless  of whether the owner  objects or has entered into a contractwith an alternative  provider of video services such as us. Thus, in jurisdictions where amandatory  access  provision has been enacted,  a franchise  operator would be able toaccess an MDU and provide  service in competition  with us regardless of whether wehave an  exclusive  ROE with the  owner.  The  ability  of  franchise operators  to forceaccess to an MDU and take a portion of the  subscriber  base could  negatively  effectour operating margin at a particular  property.  It is often the case,  particularly  at thelocal  level,  that the  mandatory  access provision is suspect under  constitutionalprinciples because,  for example, it does not provide the MDU owner compensation forthe "taking" of its property. |
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|   | The FCC has granted direct broadcast  satellite (DBS) and  multi-channel, multi-pointdistribution  service (MMDS) operators rights on a national basis similar to themandatory  access  provided to franchise  cable operators in some state and localjurisdictions.  The FCC has adopted rules prohibiting homeowners associations,manufactured  housing parks and state and local  governments from imposing  anyrestriction  on  a  property  owner  that  impairs  the  owner's installation,  maintenanceor use of DBS and MMDS antennas one meter or less in diameter  or  diagonalmeasurement.   We do not believe our  business will be significantly impacted by theserights. |
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|   | Inside Wiring.  In 1998, the FCC issued rules  governing the disposition of insidewiring by incumbent  operators in MDUs upon  termination  of service when theincumbent operator owns the wiring. In some instances,  a provider, such as us, facesdifficulty  in taking over a property  because the ownership of the wiring is  uncertainor  contested  and the property  owner is hesitant to allow installation  of  additionalwiring.  These rules, in general, were designed to foster competition from newproviders, require the incumbent operator to choose between sale, removal orabandonment of the wiring within certain time constraints. |
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|   | Regulation of Franchise  Cable  Television  Rates.  The FCC,  through localgovernments,  regulates the rates that  franchised  cable systems can charge for basicmonthly service and certain customer premises  equipment, unless “effectivecompetition” exists in a local market.  This general  requirement  does not apply tocharges for pay services.  Further,  the regulations allow certain bulk discounts to MDUcustomers,  enabling  franchised cable systems to be more competitive with privatecable operators such as us. |
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|   | Actions by the FCC that expand the freedom of  franchise  operators  to set rates or thetermination of rate  regulation  altogether  could allow franchise operators to subsidizecompetition at MDUs through their  citywide  operations. This could have a materialadverse effect on our business,  financial  condition and results of operations. |
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|   | Copyright.  The  broadcast  programming  to be  distributed  by us contains copyrightedmaterial.  Accordingly,  we pay  copyright  fees  for  use of  that material (copyrightliability for  satellite-delivered  programming is typically assumed by the supplier).The U.S. Copyright Office has ruled that private systems located in "contiguouscommunities" (or operating from one head-end) will be treated as one system and thatthe 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  feecalculations  and higher fees. We intend to structure  our  programming  to minimizethe revenue  associated  with retransmission  of  television  and radio  broadcasts in aneffort to maintain a simplified  filing status and to reduce our copyright  liability in theevent we must file under the more complicated formula. |
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|   | Wireless Internet Regulation |   |
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|   | 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 suchspectra will remain unregulated. |
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|   | Regulation of Internet Access Services |   |
|--------|----------------------------------------|--------|

|   | We provide Internet access, in part, using telecommunications services provided bythird-party carriers. Terms, conditions and prices for telecommunications services aresubject to economic regulation by state and federal agencies. As an Internet accessprovider, we are not currently subject to direct economic regulation by the FCC or anystate regulatory body, other than the type and scope of regulation that is applicable tobusinesses generally. In April 1998, the FCC reaffirmed that Internet access providersshould be classified as unregulated "information service providers" rather thanregulated "telecommunications providers" under the terms of the 1996 Act. As a result,we are not subject to federal regulations applicable to telephone companies and similarcarriers merely because we provide our services using telecommunications servicesprovided by third-party carriers. To date, no state has attempted to exercise economicregulation over Internet access providers. |
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|   | Governmental regulatory approaches and policies to Internet access providers andothers that use the Internet to facilitate data and communication transmissions arecontinuing to develop and, in the future, we could be exposed to regulation by the FCCor other federal agencies or by state regulatory agencies or bodies. In this regard, theFCC has expressed an intention to consider whether to regulate providers of voice andfax services that employ the Internet, or IP, switching as "telecommunicationsproviders", even though Internet access itself would not be regulated. The FCC is alsoconsidering whether providers of Internet-based telephone services should be requiredto contribute to the universal service fund, which subsidizes telephone service for ruraland low income consumers, or should pay carrier access charges on the same basis asapplicable to regulated telecommunications providers. To the extent that we engage inthe provision of Internet or Internet protocol-based telephony or fax services, we maybecome subject to regulations promulgated by the FCC or states with respect to suchactivities. We cannot assure you that these regulations, if adopted, would not adverselyaffect our ability to offer certain enhanced business services in the future. |
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|   | Regulation of the Internet |   |
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|   | Due to the increasing popularity and use of the Internet by broad segments of thepopulation, it is possible that laws and regulations may be adopted with respect to theInternet pertaining to content of Web sites, privacy, pricing, encryption standards,consumer protection, electronic commerce, taxation, and copyright infringement andother intellectual property issues. No one is able to predict the effect, if any, that anyfuture regulatory changes or developments may have on the demand for our Internetaccess or other Internet-related services. Changes in the regulatory environmentrelating to the Internet access industry, including the enactment of laws orpromulgation of regulations that directly or indirectly affect the costs oftelecommunications access or that increase the likelihood or scope of competition fromnational or regional telephone companies, could materially and adversely affect ourbusiness, operating results and financial condition. |
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|   | Employees |   |
|--------|-----------|--------|

|   | We have six employees, including four officers. All of our officers have entered intoemployment agreements.  In addition, we contract for the services of a few consultants forengineering and installation services. |
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|   | None of our employees is covered by any collective bargaining agreement, nor have weever experienced a work stoppage. Our management believes employee relations to begood. Much of our future success will depend, in large measure, upon our ability tocontinue to attract and retain highly skilled technical, sales, marketing and customersupport personnel. |
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|   | Financing Transactions with Fusion Capital |   |
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|   | First Fusion Capital Financing Transaction |   |
|--------|--------------------------------------------|--------|

|   | In May 2001, we entered into an amended and restated common stock purchaseagreement with Fusion Capital, pursuant to which Fusion Capital agreed to purchaseup to $10 million of our common stock. The selling price of the shares was equal to aprice based upon the market price of our common stock without any fixed discount tothe market price.  In March 2003, this agreement ended, with Fusion Capital havingpurchased all 6,000,000 shares available for sale under the agreement for cash in thetotal amount of approximately $585,000. |
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|   | Second Fusion Capital Financing Transaction |   |
|--------|---------------------------------------------|--------|

|   | In March 2003, we entered into another similar common stock purchase agreementwith Fusion Capital, pursuant to which Fusion Capital agreed to purchase up to $10million of our common stock. The selling price of the shares will be equal to a pricebased upon the future market price of the common stock without any fixed discount tothe market price.  Sales under this agreement will not commence until such time as wehave completed a registration proceeding with respect thereto.  We intend to file aregistration statement relating to this transaction in the very near future. |
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|   | Risk Factors Concerning Us and Our Common Stock |   |
|--------|-------------------------------------------------|--------|

|   | Because we have a short operating history, thereis a limited amount of information about us uponwhich you can evaluate our business andpotential for future success. |   |
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|   | We were incorporated in 1996 and have only a limited operating history upon whichyou can evaluate our business and prospects. You must consider the risks anduncertainties frequently encountered by early stage companies in new and rapidlyevolving markets, such as the market for wireless Internet access services. Some ofthese risks and uncertainties relate to our ability to: |
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| - | gain access to sufficient capital with which to support anticipated growth; |
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| - | achieve customer acceptance of our telecommunications products; |
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| - | expand our customer base and related revenues; |
|---|------------------------------------------------|

| - | compete successfully in a highly competitive market; and |
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| - | recruit and train qualified employees. |
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|   | We cannot assure you that we will successfully address any of these risks anduncertainties. |
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|   | Unless we obtain $500,000 in new capital, wewill be unable to remain in business. |   |
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|   | During the next twelve months, we will need approximately $500,000 just to continueour operations at their current levels. Absent this amount of funding, we will be unableto continue our operations. |
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|   | We lack the capital necessary to pursue our full-scale business plan. |   |
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|   | We do not possess the capital necessary to pursue our full-scale business plan and thereis no assurance that we will ever obtain enough capital.  In this circumstance, it islikely that we would be unable to earn a profit. |
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|   | We had an accumulated deficit of $40,207,489 asof December 31, 2002, and we expect to continueto incur losses for the foreseeable future. |   |
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|   | We have had substantial losses since our inception and our operating losses maycontinue in the future. |
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|   | We have incurred annual operating losses since our inception. As a result, at December31, 2002, we had an accumulated deficit of $40,207,489. Our gross revenues for theyears ended December 31, 2002 and 2001, were $0 and $7,446, respectively, withlosses from operations of $3,969,548 and $2,954,189, respectively. Our net losses forthe years ended December 31, 2002 and 2001, were $4,160,422 and $2,988,373,respectively. We cannot assure you that we will experience revenue growth, or that wewill be profitable in the future. |
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|   | As we pursue our business plan, we expect our operating expenses to increasesignificantly, especially in the areas of sales and marketing. As a result of theseexpected cost increases, we will need to generate increased revenues to becomeprofitable. Accordingly, we cannot assure you that we will ever become or remainprofitable. If our revenues fail to grow at anticipated rates or our operating expensesincrease without a commensurate increase in our revenues, our financial condition willbe adversely affected. Our inability to become profitable on a quarterly or annual basiswould have a materially adverse effect on our business and financial condition. Also,the market price for our stock could fall. |
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|   | You will suffer substantial dilution in the nettangible book value of the common stock youpurchase. |   |
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|   | Should you purchase shares of our common stock at market-level prices, you willsuffer substantial and immediate dilution, due to the lower book value per share of ourcommon stock compared to the purchase price per share of our common stock. Wecannot predict your actual dilution, because dilution will depend on the price at whichyou purchase our common stock. |
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|   | The market price of our common stock willcontinue to be extremely volatile, and it may dropunexpectedly. |   |
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|   | The market price of our common stock has fluctuated significantly in the past and weexpect this volatility to continue in the future. Since January 2000, trading prices forour common stock have ranged from $.04 per share to $11.00 per share. The closingprice of our common stock on May 2, 2003, was $.06. It is possible that the marketprice of our common stock could fall below the price you paid for your shares of ourcommon stock. |
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|   | The stock prices for many telecommunications and high technology companies recentlyhave experienced wide fluctuations and extreme volatility. This volatility has oftenbeen unrelated to the operating performance of such companies, so our stock pricecould decline even if our wireless Internet access business is successful. Also,following periods of volatility in the market price of a company's securities, securitiesclass action claims frequently are brought against the subject company. To the extentthat the market price of our shares falls dramatically in any period of time, shareholdersmay bring claims, with or without merit, against us. Such litigation would be expensiveto defend and would divert management attention and resources regardless of outcome. |
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|   | Our common stock could be delisted from theAmerican Stock Exchange. |   |
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|   | In July 2002, we were notified by AMEX that we have fallen below the continuedlisting standards of AMEX. We have 18 months in which to regain compliance withAMEX's continued listing standards. We have fallen below certain of AMEX'scontinued listing standards: (1) losses from operations in its two most recent fiscalyears with shareholders' equity below $2 million; and (2) sustained losses sosubstantial in relation to the company's overall operations or its existing financialresources, or its financial condition in relation to its overall operations or its existingfinancial resources, or its financial condition has become so impaired that it appearsquestionable, in the opinion of AMEX, as to whether the company will be able tocontinue operations and/or meet its obligations as they mature. After AMEX reviewedour plan for regaining compliance, we were granted an extension of time (18 months)to regain compliance with the continued listing standards. We will be subject toperiodic review by the AMEX staff during the extension period. Failure to makeprogress consistent with the plan or to regain compliance with the continued listingstandards by the end of the extension period could result in our being delisted fromAMEX. Should our common stock be delisted from AMEX, it is very likely that themarket price for our stock could drop dramatically. We cannot assure you that we willbe able to maintain our listing on AMEX. In addition, should our stock be delistedfrom AMEX, we would be in default under the Fusion Capital agreement and unable toobtain funding thereunder. In this circumstance, it is likely that we would not haveaccess to capital necessary to sustain our operations. |
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|   | In addition, should our stock be delisted from AMEX, we would be in default underthe second Fusion Capital agreement and be unable to obtain funding thereunder. Inthis circumstance, it is likely that we would not have access to capital necessary tosustain our operations. |
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|   | If we are unable to maintain our AMEX listing, our common stock would likely beginto trade on the NASD's OTC Bulletin Board and become a "penny stock", as long as ittrades below $5.00 per share. Broker-dealer practices in connection with transactions inpenny stocks are regulated by penny stock rules adopted by the SEC. The penny stockrules require a broker-dealer, prior to a transaction in a penny stock not otherwiseexempt from the rules, to deliver a standardized risk disclosure statement prepared bythe SEC that provides information about penny stocks and the nature and level of risksin the penny stock market. The broker-dealer also must provide the customer withcurrent bid and offer quotations for the penny stock, the compensation of thebroker-dealer and its salesperson in the transaction, as well as the monthly accountstatements showing the market value of each penny stock held in the customer'saccount. In addition, the penny stock rules require that, prior to a transaction in a pennystock not otherwise exempt from such rules, the broker-dealer must make a specialwritten determination that the penny stock is a suitable investment for the purchaserand receive the purchaser's written agreement to the transaction. |
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|   | These disclosure requirements may have the effect of reducing the level of tradingactivity in the secondary market for a stock that becomes subject to the penny stockrules. Should our common stock return to trading on the OTC Bulletin Board, it can beexpected that investors in our common stock may find it more difficult to profit ontheir investments in our stock. |
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|   | The resale of shares purchased by Fusion Capitalcould cause the price of our stock to decline,which could impair our ability to obtain neededcapital in the future. |   |
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|   | All of the shares of our common stock issuable to Fusion Capital under our secondagreement with them, up to 22,250,000 shares in total, will be freely tradable, exceptthat Fusion Capital has agreed that it will not sell or otherwise transfer 2,250,000shares issued to it as part of its commitment fee until the earlier of the termination ofthe Fusion Capital agreement, our default under that agreement or approximatelyOctober 2005. Fusion Capital may sell none, some or all of the shares of commonstock purchased from us at any time and from time to time. This circumstance couldimpair our ability to accomplish our business objectives, due to a potential lack ofcapital. |
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|   | The lower our stock price at the time FusionCapital makes a purchase, the more shares ofstock Fusion Capital will receive. |   |
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|   | Fusion Capital will receive more shares at the time it makes a purchase, the lower theprice of our stock, since the shares covered under the Fusion Capital agreement areissuable at a floating rate based on our stock price. |
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|   | Given the low market price of our common stock, it appears likely that we will beunable to obtain $10 million under the second agreement with Fusion Capital, unlesswe elect to issue more than the 20,000,000 shares reserved for issuance under thatagreement, which we have the right, but not the obligation, to do, or the market price ofour common stock increases significantly in the near future. We cannot assure you thatthe market price of our common stock will increase at all. |
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|   | Fusion Capital may purchase more than 9.9% ofour common stock. |   |
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|   | Even though the Fusion Capital agreement restricts Fusion Capital from owning anymore than 9.9% of our stock at any one time, this restriction does not prevent FusionCapital from selling a portion of its holdings and later purchasing additional shares.Thus, it is possible that the total number of shares purchased by Fusion Capital wouldbe greater than 9.9% of the then-outstanding common stock. |
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|   | The existence of our agreement with FusionCapital could cause downward pressure on themarket price of our common stock. |   |
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|   | Simply the existence of the Fusion Capital agreement could cause holders of ourcommon stock to sell their shares, which could cause the market price of our commonstock to decline. Also, prospective investors anticipating future downward pressure onthe price of our common stock due to the shares that may be available for sale byFusion Capital could refrain from purchases or effect sales in anticipation of a declineof the market price. |
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|   | We may be unable to obtain sufficient capital tosustain our business or pursue our growthstrategy. |   |
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|   | Currently, we do not have sufficient financial resources to implement our business planor grow our operations. Therefore, excluding any funding that we might receive fromFusion Capital in the future, we will need additional funds to continue our operationsand to grow our business. Assuming we do not receive any further funding from FusionCapital, there is no assurance that we will be able to generate revenues that aresufficient to sustain our operations and we would require additional sources offinancing in order to satisfy our working capital needs. Should needed financing beunavailable or prohibitively expensive when we require it, it is possible that we wouldbe forced to cease operations. |
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|   | We have designed a very aggressive growth strategy for our business.  This strategy isexpected to place a significant strain on our managerial, operational and financialresources. In particular, our planned wireless Internet expansion will require significantcapital with which to purchase equipment necessary for the construction andimplementation of systems. If we are unable to secure enough capital, we will beunable to achieve our growth objectives. We cannot assure you that we will be able toobtain enough capital for our growth needs. |
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|   | Even if we are able to access significant funds under the second Fusion Capitalagreement, we will need additional capital to implement fully our growth plans. |
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|   | Because we depend heavily on outside suppliers,our business may suffer, should our suppliers failto perform in a timely manner. |   |
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|   | We depend on third-party suppliers of hardware components and telecommunicationscarriers to provide equipment and communications capacity. The failure of one or moreof our suppliers to perform in a timely manner could cause a significant disruption inour business and cause our operating results to suffer. |
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|   | We have not purchased insurance that covers ouroperations. |   |
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|   | We have not purchased any insurance that would cover property loss or loss of incomewith respect to any of our. Damage to any of our uninsured property could cause aninterruption in our telecommunications services. It is possible that we would be unableto afford to repair any items of damaged equipment, due to our extreme lack of capital. |
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|   | Our failure to manage future growth wouldhinder our efforts in earning a profit. |   |
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|   | Without additional capital, we will be unable to expand significantly our operations.Should we obtain capital with which to expand, our expected expansion will place asignificant strain on our management and operating systems. In order to accommodatethis sort of growth, we will need to hire and retain appropriate management personnel.We may not be able to hire and retain enough qualified managers. This circumstancewould likely hinder our growth and reduce our chance of earning a profit. |
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|   | If and when we experience our anticipated rapid growth, we may encounter difficultiesin developing and implementing needed internal systems, including our recruiting andmanagement systems. Our failure to do so will reduce the likelihood that we will earn aprofit. |
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|   | We are a new competitor in our markets andconsumer acceptance of our services may not beachieved. |   |
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|   | Because we lack capital with which to engage in significant marketing activities, wemay be unable to secure ROE agreements with enough MDU property owners or toobtain significant numbers of wireless Internet access customers to permit us to earn aprofit. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | We could fail to overcome the severe competitionfor telecommunications customers, which wouldimpair our ability to earn a profit and cause ouroverall financial condition to deteriorate. |   |
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|   | The telecommunications market is highly fragmented and extremely competitive. Asthere are no significant barriers to entry, we expect that competition will intensify overtime. |
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|   | Our cable television competitors include many large, nationally-known companies,such as Comcast and Adelphia; our telephone service competitors include nationally-known companies, such as Qwest Communications; our wireless Internet accessservice competitors include many nationally-known companies, such as AmericaOnline, Earthlink as well as the locally operating “Bell” companies. These and othercompanies possess greater resources, particularly access to capital sources, marketpresence and brand name recognition than do we. In addition, we will face competitionfrom other wireless Internet access providers and larger, national cellular telephoneservice providers. If we are unable to overcome this severe competition, we do notexpect that we would earn a profit and our overall financial condition would decline. |
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|   | Our directors and executive officers own enoughof our common stock effectively to controldirectors' elections and thereby control ourmanagement policies. |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

|   | Our directors and executive officers own approximately 16% of our currentlyoutstanding common stock. Two of our directors, as well as three other persons, haveentered into a voting agreement relating to the voting in elections of directors.Currently, approximately 21% of our outstanding shares of common stock are subjectto this voting agreement. These shareholders may be able effectively to control theoutcome of corporate actions requiring shareholder approval by majority action. Theirstock ownership may have the effect of delaying, deferring or preventing a change incontrol of USURF America. |
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|   | Our business plan is not based on independentmarket studies, so we cannot assure you that ourstrategy will be successful. |   |
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|   | We have not commissioned any independent market studies concerning the extent towhich customers will utilize our services and products. Rather, our plans forimplementing our business strategy and achieving profitability are based on theexperience, judgment and assumptions of our key management personnel, and uponother available information concerning the communications industry. If ourmanagement's assumptions prove to be incorrect, we will not be successful inestablishing our wireless Internet access business. |
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|   | Nearly all of our shares are eligible for futuresale, which could cause the market price for ourcommon stock to decline. |   |
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|   | Nearly all of the outstanding shares of our common stock owned by non-affiliates areeligible for resale to the public. This amount of common stock represents a significantoverhang on the market for our common stock. The sale of a significant amount ofthese shares at any given time could cause the trading price of our common stock todecline and to be highly volatile. |
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| Item 2. | Description of Property |   |
|---------|-------------------------|--------|

|   | General |   |
|--------|---------|--------|

|   | We own equipment, including office equipment, necessary to conduct our business. |
|--------|----------------------------------------------------------------------------------|

|   | In Colorado Springs, Colorado, we lease our executive office space for a monthly rental of$4,500 and we lease a small office in Englewood, Colorado, in conjunction with ourDenver-area operations for a small monthly rental. |
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|   | Wireless Cable Properties |   |
|--------|---------------------------|--------|

|   | We own the rights to wireless cable channels in Poplar Bluff, Missouri, Lebanon,Missouri, Port Angeles, Washington, The Dalles, Oregon, Sand Point, Idaho, Fallon,Nevada, and Astoria, Oregon. We have abandoned our efforts to develop these wirelesscable properties, due to current market conditions. Rather, we intend to develop theseproperties into operating wireless Internet systems, at such time as two-way datatransmission on these frequencies is permitted. We cannot predict when this permissionwill be granted, if ever. |
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|   | Intellectual Property |   |
|--------|-----------------------|--------|

|   | We currently rely on common law principles for the protection of our copyrights andtrademarks and trade secret laws to protect our proprietary intellectual property rights. Wedo not intend to file patent applications relating to our wireless Internet access products. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | We have received authorization to use the products of each manufacturer of software thatis bundled in its software for users with personal computers operating on the Windows orMacintosh platforms. While certain of the applications included in our start-up kit forInternet access services subscribers are shareware that we have obtained permission todistribute or that are otherwise in the public domain and freely distributable, certain otherapplications included in our start-up kit have been licensed where necessary. We currentlyintend to maintain or negotiate renewals of all existing software licenses and authorizationsas necessary. We may also enter into licensing arrangements for other applications, in thefuture. |
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| Item 3. | Legal Proceedings |   |
|---------|-------------------|--------|

|   | CyberHighway Involuntary Bankruptcy |   |
|--------|-------------------------------------|--------|

|   | On September 29, 2000, an involuntary bankruptcy petition was filed againstCyberHighway in the Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc.,Case No. 00-02454.  The petitioning creditors were ProPeople Staffing, CTC Telecom,Inc. and Hawkins-Smith.  In December 2000, CyberHighway and the petitioning creditorsfiled a joint motion to dismiss this proceeding.  The joint motion to dismiss was deniedbecause the creditors believe that CyberHighway’s as-yet unasserted damage claimsagainst the original petitioning creditors and their law firm and a claim against DialupUSA, Inc. represent CyberHighway’s most valuable assets.  These as-yet unasserted claimsinclude claims for bad faith filing of the original bankruptcy petition as to the originalpetitioning creditors and their law firm, as well as claim for tortious interference withbeneficial business relationships as to Dialup USA, Inc.  It is likely that, at some time inthe future, a final order of bankruptcy will be entered with respect to CyberHighway, noprediction of the timing of such an order can be made, although we believe that such anorder would come only after the final adjudication of the claims described above. |
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|   | Other Litigation |   |
|--------|------------------|--------|

|   | In November 2000, CyberHighway requested and received a temporary restraining orderagainst Darrell Davis, formerly one of our officers, and his wife, Deanna Davis.  We havealleged that the Davises have diverted dial-up customers from CyberHighway to acompany controlled by him, all while he was an employee of USURF America.  It is ourexpectation that this legal proceeding will be abandoned by us in the near future.  This caseis styled: CyberHighway, Inc. versus Deanna Davis, individually and d/b/a Cyber-Trail,Inc., and Darrell D. Davis, 19th Judicial District Court, Parish of East Baton Rouge, Stateof Louisiana, Case No. 478320.                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | In January 2000, we instituted arbitration proceedings against Christopher L. Wiebelt, ourformer vice president of finance and chief financial officer.  At the recent hearing, wealleged that Mr. Wiebelt violated certain terms of his employment agreement and soughtdamages resulting from those violations, while Mr. Wiebelt claimed wrongful terminationunder his employment agreement.  The arbitrator has awarded Mr. Wiebelt $75,000, pluslegal expenses of approximately $25,000.  We are attempting to negotiate payment terms.This case is styled: USURF America, Inc. versus Christopher L. Wiebelt, AmericanArbitration Association, Case No. 71-160-00087-01. |
|   | In July 2002, we became aware of an existing default judgment against us, dated June 7,2001, in the approximate amount of $22,000.  The lawsuit, filed by a law firm in Boise,Idaho, went unchallenged as a result of administrative error.  We are attempting tonegotiate payment terms.  This case is styled: Marcus, Merrick, Montgomery, Christian &Hardee, LLP vs. USURF America, Inc., District Court of the Fourth Judicial District of theState of Idaho, in and for the County of Ada, Case No. CV OC 0101693D.                                                                                                                                                  |

| Item 4. | Submission of Matters to Vote of Security Holders |   |
|---------|---------------------------------------------------|--------|

| No matters were submitted to a vote of our security holders during the fourth quarter of thefiscal year ended December 31, 2002. |
|----------------------------------------------------------------------------------------------------------------------------------|

| PART II |
|---------|

| Item 5. | Market for Common Equity and Related Stockholder Matters |   |
|---------|----------------------------------------------------------|--------|

|   | Market Information |   |
|--------|--------------------|--------|

|   | Our common stock trades on the American Stock Exchange, under the symbol "UAX".The table below sets forth, for the periods indicated, the high and low closing sales pricesfor our common stock, as reported by the American Stock Exchange: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Quarter Ended      |   | High  |   | Low   |   |
|--------|--------------------|--------|-------|--------|-------|--------|
|   | March 31, 2000     |   | 11.00 |   | 3.625 |   |
|   | June 30, 2000      |   | 6.00  |   | 2.25  |   |
|   | September 30, 2000 |   | 2.50  |   | .875  |   |
|   | December 31, 2000  |   | 1.25  |   | .1875 |   |
|   | March 31, 2001     |   | .80   |   | .22   |   |
|   | June 30, 2001      |   | .78   |   | .33   |   |
|   | September 30, 2001 |   | .50   |   | .17   |   |
|   | December 31, 2001  |   | .27   |   | .08   |   |
|   | 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   |   |

|   | You should note that our common stock, like many technology-related stocks, hasexperienced significant fluctuations in its price and trading volume. We cannot predict thefuture trading patterns of our common stock. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Holders |   |
|--------|---------|--------|

|   | On April 10, 2003, the number of record holders of our common stock, excludingnominees and brokers, was 1,194, holding 77,797,203 shares. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | Dividends |   |
|--------|-----------|--------|

|   | We have never paid cash dividends on our common stock.  We intend to re-invest anyfuture earnings for the foreseeable future. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | Our board of directors has declared property dividends, the values of which have beenwritten-off in our financial statements, comprised of common stock of three privatecompanies acquired by us.  These dividends of stock are: 1,500,000 shares of New WaveMedia Corp., acquired by us in exchange for all of our community-television-relatedassets; 400,000 shares of Argo Petroleum Corporation, acquired by us in exchange for10,000 shares of our common stock; and 800,000 shares of Woodcomm International, Inc.,acquired by us in exchange for 7,500 shares of our common stock. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | None of the three dividend distributions will occur unless and until a registration statementrelating to each distribution transaction has been declared effective by the SEC. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 6. | Management’s Discussion and Analysis of Financial Condition and Resultsof Operations |   |
|---------|--------------------------------------------------------------------------------------------|--------|

| Background |   |
|------------|--------|

|   | During 2001 and the first quarter of 2002, we focused all of our efforts and capital on theexploitation of our wireless Internet access products.  Beginning in April 2002, with thearrival of our new president, we began to expand our business.  By the beginning of 2003,we had become a provider of  broad range of telecommunications services. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Current Overview |   |
|------------------|--------|

|   | We currently operate as a provider of voice (telephone), video (cable television) and data(Internet) services to business and residential customers.  We also market and selltelecommunications-related hardware and software.                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Our business plan involves obtaining, through internal growth, as many voice, video anddata customers as possible.  Our growth strategy also includes acquisitions oftelecommunications-related businesses and/or properties which would provide animmediate or potential customer base for our services. |

|   | In early 2003, we restructured our operations by creating three new subsidiary corporationsthat reflect our operating divisions.  In the future, our reports on operations can beexpected to contain business segment information.  However, for 2002 and 2001, nodiscussion of business segment operations appears. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Since the end of 2002, we have acquired a competitive local exchange carrier (CLEC)licensed in the State of Arizona and currently provide local telephone, long-distance anddial-up Internet access to approximately 1,700 customers there.  Our monthly revenuesassociated with these customers is approximately $75,000. Also, we acquired assets from atelecommunications company that have enabled us to begin to operate as a seller oftelecommunications-related hardware and software.  We offer a broad array of productsand the start to this part of our business has shown some success.  In March 2003, webooked approximately $45,000 in equipment sales.  We have begun to build our wirelessInternet network in Denver.  Also, we have begun to build our wireless Internet network inColorado Springs.  We have become the preferred telecommunications services provider infour Denver-area MDU properties, providing voice, video and data services to theseproperties.  In the aggregate, we now provide cable television services to approximately160 customers in Denver. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | First Fusion Capital Financing Transaction |   |
|--------|--------------------------------------------|--------|

|   | In May 2001, we entered into an amended and restated common stock purchase agreementwith Fusion Capital, pursuant to which Fusion Capital agreed to purchase up to $10million of our common stock. The selling price of the shares was equal to a price basedupon the market price of our common stock without any fixed discount to the market price.In March 2003, this agreement ended, with Fusion Capital having purchased all 6,000,000shares available for sale under the agreement for cash in the total amount of approximately$585,000. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As the level of funding under the first Fusion Capital agreement was lower than we hadanticipated, during 2002 we obtained additional funds through sales of our securities toother parties in the approximate amount of $875,000. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The majority of these funds were used for operating expenses.  We will need furthercapital, as we continue to expand our business. |
|--------|------------------------------------------------------------------------------------------------------------------------------------|

|   | Second Fusion Capital Financing Transaction |   |
|--------|---------------------------------------------|--------|

|   | In March 2003, we entered into another similar common stock purchase agreement withFusion Capital, pursuant to which Fusion Capital agreed to purchase up to $10 million ofour common stock. The selling price of the shares will be equal to a price based upon thefuture market price of the common stock without any fixed discount to the market price.Sales under this agreement will not commence until such time as we have completed aregistration proceeding with respect thereto.  We expect to file a registration statementrelating to this transaction in the very near future. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| CyberHighway Bankruptcy |   |
|-------------------------|--------|

|   | In September 2000, an involuntary bankruptcy petition was filed against CyberHighway inthe Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454, by ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith.  We expect a finalorder of discharge to be issued in the future.  We cannot predict when this final order willbe issued. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Critical Accounting Policies |   |
|------------------------------|--------|

|   | There have been no material changes to our critical accounting policies during fiscal 2002,except for the adoption of Statement of Financial Accounting Standards No. 142,"Goodwill and Other Intangible Assets". |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Management's Discussion and Analysis discusses the results of operations and financialcondition as reflected in our consolidated financial statements, which have been preparedin accordance with accounting principles generally accepted in the United States ofAmerica. The preparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements and reported amountsof revenues and expenses during the reporting period. On an ongoing basis, managementevaluates its estimates and judgments, including those related to accounts receivable;inventory valuation; amortization and recoverability of long-lived assets, includinggoodwill; litigation accruals; and revenue recognition. Management bases its estimates andjudgments on our historical experience and other relevant factors, the results of which formthe basis for making judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | While we believe that the historical experience and other factors considered provide ameaningful basis for the accounting policies applied in the preparation of the consolidatedfinancial statements, we cannot guarantee that our estimates and assumptions will beaccurate. If such estimates and assumptions prove to be inaccurate, we may be required tomake adjustments to these estimates in future periods. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenue Recognition |   |
|--------|---------------------|--------|

|   | We charge our customers monthly service fees and recognize the revenue in the month theservices are provided or equipment is sold. Allowances for estimated returns and discountsare recognized when sales are recorded and are based on our experience. Significantmanagement judgments and estimates must be made and used in connection withestablishing these allowances in any accounting period. Material differences may result inthe amount and timing of revenues for any period if management makes differentjudgments 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 estimatedfuture cash flows and other factors. If these estimates or their related assumptions changein the future, we may be required to record impairment charges. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Litigation and Tax Assessments |   |
|--------|--------------------------------|--------|

|   | We have been involved in lawsuits and other claims. We assess the likelihood of anyadverse judgments or outcomes to these matters as well as the potential range of probablelosses. A determination of the amount of accrual required, if any, for these contingencies ismade after careful analysis of each matter. The required accrual may change in the futuredue to new developments in any matter or changes in approach (such as a change insettlement strategy) in dealing with these matters. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Additionally, in the future, we may become engaged in various tax audits by federal andstate governmental authorities incidental to our business activities. We anticipate that wewill record reserves for any estimated probable losses for any such proceeding. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Inventories |   |
|--------|-------------|--------|

|   | Our inventories are valued at the lower of cost or market value. We also identify obsoleteitems of inventory that are not forecasted to be used in our future operations and record anallowance for those items. To date, we have performed full physical inventory counts on anannual basis. In the future, as we expand our operations, it is possible that we may insteadrely on cycle counts at warehouses and distribution centers to measure inventory. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Accounts Receivable |   |
|--------|---------------------|--------|

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

| Results of Operations |   |
|-----------------------|--------|

|   | General |   |
|--------|---------|--------|

|   | By the end of February 2001, CyberHighway had lost all of its dial-up Internet accesscustomers and we do not foresee the revitalization of CyberHighway’s business.  During2001, we derived no revenue from CyberHighway’s business.   For all of 2001 and 2002,our small amounts of revenues were dervied from our wireless Internet access operations.During 2002, our management expanded our business plan and caused an evolution of ourbusiness, which has led to changes in our operating structure.  We began to deriverevenues from our expanded and reorganized business in the first quarter of 2003.  Wecurrently lack the capital necessary to pursue our full-scale business plan, and we maynever possess enough capital with which to do so.  In this circumstance, it is likely that wewould never earn a profit. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In the third quarter of 2001, we began wireless Internet operations in Del Rio, Texas, andthat system grew to have 50 customers online in a short period of time.  Our growth there,during 2002, was inhibited significantly due to our lack of capital.  Then, during the fourthquarter of 2002, our management determined to cease operations in Del Rio, due to DelRio’s geographic separation from our home area of Eastern Colorado. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Our revenues for 2001and 2002 were small, due to a lack of funds with which to expandour operations.  However, during the first quarter of 2003, we have begun to derive greaterrevenues from our operations, approximately $100,000 per month.  Nevertheless, the levelof our future revenues cannot be predicted, due to our significant lack of capital. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Potential Rescission Claims. |   |
|--------|------------------------------|--------|

|   | At December 31, 2001, 2,138,726 shares of our common stock with an aggregate assignedvalue of $1,192,700 may have been issued in violation of Section 5 of the Securities Act.Our December 31, 2001, balance sheet reflects a Redeemable Common Stock line itemwith this assigned value, since each of the issuees of these shares may have had a potentialclaim for rescission of their respective issuance transactions.  None of these issuees madesuch a claim within the various statute of limitations periods and, consequently, atDecember, 31, 2002, none of our shares remained subject to potential rescission claims,which circumstance is reflected in the Redeemable Common Stock line item of ourDecember 31, 2002, balance sheet. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Year Ended December 31, 2002, versusYear Ended December 31, 2001. |   |
|--------|-------------------------------------------------------------------|--------|

|   | Our small revenues were derived from our wireless Internet access business.  Our 2002revenues of approximately $19,000 derived from these operations were included under the“other expense” line item in our statement of operations, due to our inability to documentthe revenues and their associated costs, in accordance with SAB 101, such that they do notappear under the “revenues” line item.  Without additional capital, it is likely that ourrevenues will not permit us to earn a profit. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Our operating results for 2002 and 2001 are summarized in the following table:                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|   |                                     | 2002                 |   | 2001                |
|--------|------------------------------------------|----------------------|--------|---------------------|
|   | Revenues                                 | $0                   |   | $7,446              |
|   | Internet Access Costs, Cost ofGoods Sold | 0                    |   | (109,525)           |
|   | Gross Profit (Loss)                      | (132,031)            |   | (102,079)           |
|   | Operating Expenses

Other (Expense)      | 3,837,517

(190,874) |   | 2,852,110

(34,184) |
|   | Loss from Operations                     | (3,969,548)          |   | (2,954,189)         |
|   | Net Loss                                 | (4,160,422)          |   | (2,988,373)         |

|   | Our net loss of $4,160,422 for 2002 was higher than our net loss for 2001 of $2,988,373.Certain line items in our statements of operations changed materially from 2001 to 2002. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Professional fees increased from $1,803,751 in 2001 to $2,794,020 in 2002.  Thisincrease is a result of our increased use of professional services during 2002.  Wepaid substantially all of our consultants with shares of our common stock, due toour lack of cash.  Should we continue to lack cash reserves, it is likely that, duringthe remainder of 2003, we would issue shares of our common stock in payment ofcertain professional fees. |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | Salaries and commissions increased from $856,124 in 2001 to $899,967 in 2002.This increase in salaries and commissions is attributable primarily to issuances ofshares of our common stock to our officers under their employment agreements inconnection with the change-in-control transaction.  These payments with shares ofcommon stock are summarized below. |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As a result of a change-in-control transaction, we incurred a one-time charge against ourearnings during 2002 in the amount of $567,180 (net of unpaid loans to certain of ourofficers), due to the following stock issuances: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | 3,000,000 shares issued to our new president and chief executive officer as asigning bonus under his employment agreement.                                                                                                                            |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| - | 2,000,000 shares to our former president (current Chairman of the Board) inconsideration of his agreeing to reduce the term of his employment agreement,waive the payment of accrued salary and waive the repayment of unpaid loansmade by him to us. |
| - | 2,000,000 shares to one of our vice presidents in consideration of his agreeing toreduce the term of his employment agreement and waive the payment of accruedsalary.                                                                                 |
| - | 2,000,000 shares to our vice president of corporate development in consideration ofhis agreeing to reduce the term of his employment agreement and waive thepayment of accrued salary.                                                                |

|   | In 2002, we issued shares of our common stock in payment of accrued salary of certain ofour officers, which shares were valued at $.07 per share, the closing price of our commonstock, as reported by AMEX, on the date of issuance.  We issued a total of 4,404,000shares in payment of approximately $290,000 in accrued salary. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Due to our severe lack of capital during 2001and 2002, we issued shares of our stock toconsultants in payment of their services.  The fair value of the shares issued to consultantsis included in our statements of operations under the “Professional Fees” line item.  Issuingshares of our common stock was the only means by which we could obtain the consultants’services. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Liquidity and Capital Resources |   |
|---------------------------------|--------|

|   | General. |   |
|--------|----------|--------|

|   | Since our inception, we have had a significant working capital deficit.  Currently, we aresubstantially illiquid, although we do possess enough cash, through the result of recentsecurities sales, to continue our current level of business activities, until we begin to obtainfunds under the second Fusion Capital common stock purchase agreement.  As the level offunding under the first Fusion Capital agreement was lower than we had anticipated,during 2002, we obtained additional funds through sales of our securities to other parties inthe approximate amount of $875,000. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The majority of these funds were used for operating expenses. |
|--------|---------------------------------------------------------------|

|   | We will need further capital, as we continue to expand our business.  It is possible that wewill not be able to secure adequate capital as we need it.  Also, without additional capital,it is possible that we would be forced to cease operations.                                                                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | In July 2002, we became aware of an existing default judgment against us, dated June 7,2001, in the approximate amount of $22,000.  The lawsuit went unchallenged as a result ofadministrative error.  In August 2002, an arbitrator ruled against us in an arbitrationproceeding against our former chief financial officer, in the amount of $100,000.  We arecurrently negotiating terms with respect to each of these liabilities. |

|   | Our Capital Needs. |   |
|--------|--------------------|--------|

|   | Due to our expanded business plan, our capital needs have increased significantly since thestart of 2002.  To sustain our current level of operations for the next twelve months, wewill require additional capital of approximately $500,000.  To accomplish our businessobjectives, we will require at least $2 million.  If we are unable to obtain this neededcapital, we could be forced to cease our operations. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Currently we do not possess enough capital to accomplish our business objectives on afull-scale basis.                                                                                                                                                                                                                                                                                                                 |

|   | Fusion Capital Agreements |   |
|--------|---------------------------|--------|

|   | Beginning in July 2001, we began to receive the first funds under our first agreement withFusion Capital.  Through December 31, 2002, we had received only $445,000 in paymentof a total of 4,200,000 shares under that agreement.  This agreement ended in March 2003,with Fusion Capital having purchased all 6,000,000 shares available for sale under theagreement for a total of $585,000 in cash. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In March 2003, we entered into a second common stock purchase agreement with FusionCapital, which agreement is substantially similar to the first agreement.  Under the secondagreement, Fusion Capital is to purchase up to $10 million of our common stock, based onfuture stock prices.  We will not begin to sell shares to Fusion Capital under thisagreement, until such time as we have completed a registration proceeding relating theretowith the SEC.  No prediction as to the timing of this circumstance can be made.  Weexpect to file a registration statement relating to this transaction in the very near future. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Should all of our outstanding warrants be exercised, we would receive cash proceeds ofapproximately $2,000,000.  Any funds derived from the exercise of warrants would beused for working capital.                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   | You should note that we may never receive any of the funds discussed above.  Our failureto obtain capital from these sources could cause us to cease our operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|   | Potential Rescission Claims. |   |
|--------|------------------------------|--------|

|   | At December 31, 2001, 2,138,726 shares of our common stock with an aggregate assignedvalue of $1,192,700 may have been issued in violation of Section 5 of the Securities Act.Our December 31, 2001, balance sheet reflects a Redeemable Common Stock line itemwith this assigned value, since each of the issuees of these shares may have had a potentialclaim for rescission of their respective issuance transactions.  None of these issuees madesuch a claim within the various statute of limitations periods and, consequently, atDecember 31, 2002, none of our shares remained subject to potential rescission claims,which circumstance is reflected in the Redeemable Common Stock line item of ourDecember 31, 2002, balance sheet. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | December 31, 2002 |   |
|--------|-------------------|--------|

|   | Historically, we have had a significant working capital deficit.  At December 31, 2002, ourworking capital deficit was $100,301 which is lower than our $301,335 deficit atDecember 31, 2001.  Without additional capital, our working capital deficit can beexpected to become larger each quarter. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The following table sets forth our current assets and current liabilities at December 31,2002, and 2001:                                                                                                                                                                                             |

|   |               |                                    | December 31,2002 |   | December 31,2001 |
|--------|--------------------|-----------------------------------------|------------------|--------|------------------|
|   | Current Assets     | Cash                                    | $111,568         |   | $10              |
|   |               | Accounts Receivable

Inventory          | 224

2,715       |   | 0

134,756       |
|   | CurrentLiabilities | Disbursements in Excessof Cash Balances | $0               |   | $15,539          |
|   |               | Accounts Payable

Note Payable          | 131,146

87,604  |   | 136,054

0       |
|   |               | Accrued Payroll                         | 0                |   | 265,978          |
|   |               | Notes Payable toStockholder             | 1,000            |   | 18,521           |

|   | We had no accrued payroll at December 31, 2002, due to our officers agreeing to havetheir accrued salaries paid in shares of our common stock, while at December 31, 2001, wehad accrued payroll of $265,978, which was attributable to accrued salary of our officers.In connection with the Evergreen transaction described above, three of our officers waivedpayment of all of their then-existing accrued salaries, in the approximate amount of$225,000, which is reflected on our December 31, 2002, balance sheet. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | We reduced our note payable to stockholder during 2002 by $17,521, and owed ashareholder $1,000 at December 31, 2002.  We do not expect that we will again borrowfunds from our shareholders.                                                                                                                                                                                                                                                                                                                              |
|   | As the level of funding under the first Fusion Capital agreement was lower than we hadanticipated, during 2002 we obtained additional funds through sales of our securities toother parties in the approximate amount of $875,000.                                                                                                                                                                                                                                                                                         |

|   | The majority of these funds were used for operating expenses.                                                                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Without obtaining at least $2,000,000 in new capital, we will continue to have a significantworking capital deficit and will not be able to operate from a position of liquidity.  Thiswill impair our ability to pursue our full-scale business plan and, thus, our ability ever toearn a profit. |
|   | If we are unable to obtain significant additional capital, it is possible that we would beforced to cease operations.                                                                                                                                                                              |

|   | Cash Flows from Operating Activities. |   |
|--------|---------------------------------------|--------|

|   | During 2002, our operations used $646,837 in cash compared to cash used of $707,569during 2001.  In both years, the use of cash in operations was a direct result of the lack ofrevenues compared to our operating expenses, particularly salaries and commissions in2001 and greater business development activities in 2002. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash Flows from Investing Activities. |   |
|--------|---------------------------------------|--------|

|   | Our investing activities used $73,359 in cash in 2002 and used $12,681 in cash during2001.  Capital expenditures comprised the use of cash in both periods. Because we lackworking capital, we cannot predict our cash flows from investing activities for all of 2003. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash Flows from Financing Activities. |   |
|--------|---------------------------------------|--------|

|   | For 2002, our financing activities provided $831,754 in cash.  Our payments on notespayable to stockholder of $17,521 and payments received on subscriptions receivable of$58,154 was offset by $635,200 in cash from sales of our common stock and $137,400 incash obtained by the exercise of certain warrants.  For 2001, our financing activitiesprovided $719,172 in cash.  Of this amount, $340,000 is attributable to private sales ofsecurities and $359,750 in subscriptions receivable.  We continue to seek capital andcannot, therefore, predict future levels of cash flows from financing activities. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Management's Plans Relating to Future Liquidity |   |
|-------------------------------------------------|--------|

|   | To sustain our current level of operations for the next twelve months, we will requireadditional capital of approximately $500,000.  To accomplish our business objectives, wewill require at least $2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Our best opportunity for obtaining needed funds is pursuant to the second Fusion Capitalagreement.  We cannot predict the level of funding to be obtained under this agreement orthe commencement date thereunder.                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Since we only plan to sell up to 20,000,000 shares to Fusion Capital under the secondFusion Capital agreement, the selling price of our stock sold to Fusion Capital will need toaverage $.50 per share for us to receive the maximum proceeds of $10 million under thatagreement.  Assuming a selling price of $.06 per share, the closing sale price of thecommon stock on May 2, 2003, and the purchase by Fusion Capital of the full amount ofshares purchasable under the second Fusion Capital agreement, total proceeds to us wouldonly be approximately $1,200,000, unless we choose to issue more than 20,000,000 shares,which we have the right to do. |
|   | Should we obtain at least $2 million under the Fusion Capital agreement, we believe thatwe will be able to make significant progress in implementing our business plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

|   | We cannot assure you that we will accomplish these objectives.                                              |
|--------|-------------------------------------------------------------------------------------------------------------|
|   | Currently, we have no other sources for funding on the scale contemplated by the FusionCapital transaction. |
|   | If we do not obtain the necessary funding, we would be forced to cease operations.                          |

| Capital Expenditures |   |
|----------------------|--------|

|   | During 2002, we made capital expenditures of $73,359, all for needed equipment.  Wecurrently have limited capital with which to make any significant capital expenditures.Should we obtain significant funding, of which there is no assurance, we would be able tomake significant expenditures on equipment.  The amount of these equipment purchasescannot be predicted due to the uncertainty of funding levels and timing.  However, withoutadditional capital, we will make no capital expenditures. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 7. | Financial Statements |   |
|---------|----------------------|--------|

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

| Item 8. | Changes In and Disagreements With Accountants on Accounting andFinancial Disclosure |   |
|---------|-------------------------------------------------------------------------------------|--------|

| On January 16, 2003, we dismissed Postlethwaite & Netterville as our independent auditor.  Atthe time of the dismissal, there was no disagreement with respect to any matter of accountingprinciples or practices, financial statement disclosure or auditing scope or procedure.  OnJanuary 17, 2003, we engaged Hein + Associates LLP as our new independent auditor, to auditour financial statements for the year ended December 31, 2002.  The lone member of the auditcommittee of our board of directors recommended this change in auditors and the full boardapproved the change. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| PART III |
|----------|

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

|   | Directors and Executive Officers |   |
|--------|----------------------------------|--------|

|   | The following table sets forth the current officers and directors of USURF America. |
|--------|-------------------------------------------------------------------------------------|

|   | Name of Director |   | Age |   | Title(s) |   |
|--------|------------------|--------|-----|--------|----------|--------|

|   | Douglas O. McKinnon |   | 52 |   | Director, President and Chief ExecutiveOfficer |   |
|--------|---------------------|--------|----|--------|------------------------------------------------|--------|

|   | David M. Loflin |   | 45 |   | Chairman of the Board |   |
|--------|-----------------|--------|----|--------|-----------------------|--------|

|   | Richard E. Wilson |   | 61 |   | Director |   |
|--------|-------------------|--------|----|--------|----------|--------|

|   | Ross S. Bravata |   | 43 |   | Director |   |
|--------|-----------------|--------|----|--------|----------|--------|

|   | Kenneth J. Upcraft |   | 57 |   | Executive Vice President |   |
|--------|--------------------|--------|----|--------|--------------------------|--------|

|   | Christopher K. Brenner |   | 43 |   | Vice President of Finance andAdministration, Chief Financial Officerand Secretary |   |
|--------|------------------------|--------|----|--------|-----------------------------------------------------------------------------------|--------|

|   | Our current officers and directors serve until the next annual meeting of our board ofdirectors or until their respective successors are elected and qualified. All officers serve atthe discretion of our board of directors. There exists no family relationship between ourofficers and directors. Certain information regarding the backgrounds of each of theofficers and directors is set forth below. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | DOUGLAS O. MCKINNON |   |
|--------|---------------------|--------|

|   | Mr. McKinnon became president and chief executive officer of the Company in April2002.  During the five years prior to his joining the Company, he served as chiefexecutive officer of IP Services, Inc., a next-generation communications servicesprovider using broadband Internet Protocol (IP) and Asynchronous Transfer Mode(ATM) based networks; executive vice president and chief financial officer ofAVIRNEX Communications Group, Inc., a provider of retail telecommunications serviceincluding domestic and international long distance and enhanced services to small andmedium-sized business customers; and vice-president of ICG Communications, Inc, oneof 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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | DAVID M. LOFLIN |   |
|--------|-----------------|--------|

|   | Mr. Loflin has served as an executive officer of the Company, since its inception in1996.  From inception to April 2002, Mr. Loflin served as president.  Since that time, hehas served as Chairman of the Board. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | RICHARD E. WILSON |   |
|--------|-------------------|--------|

|   | Mr. Wilson was co-founder of The Association of Communications Enterprises(ASCENT) (formerly the Telecommunications Resellers Association), a leading tradegroup representing entrepreneurial and small business communications companies. Heserved on that organization’s board in 1992 and 1993 and is currently ChairmanEmeritus of ASCENT. At present, Mr. Wilson is a principal and executive vice presidentof business development of NetPort-Datacom, Inc., a privately-held Mukilteo,Washington-based provider of international voice service. During 2001 and 2002, Mr.Wilson was a principal in SigBioUSA, LLC, a Mulkiteo, Washington-basedtelecommunications consulting firm with expertise in both wireline and wirelesstelecommunications applications. From May 2000 to April 2001, Mr. Wilson waspresident and chief executive officer of Open Telecommunications North America, awholly-owned subsidiary of Open Telecommunications Australia (OT), a publicly-tradedcompany in Australia that provides telecommunications-network-infrastructure relatedproducts and services. Also, from 2000 through January 2002, Mr. Wilson served as adirector of GlobalNet International Telecommunications, Inc., an Illinois-based providerof global telecommunications services. GlobalNet was publicly traded under the symbolGBNE, until acquired by Titan Corporation. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ROSS S. BRAVATA |   |
|--------|-----------------|--------|

|   | Mr. Bravata has, since 1981, worked for Novartis (formerly Ciba Corporation), invarious positions, and currently serves as a Senior Control Systems Technician.  In suchcapacity, Mr. Bravata supervises the service and maintenance of electronicinstrumentation. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | KENNETH J. UPCRAFT |   |
|--------|--------------------|--------|

|   | Mr. Upcraft joined the Company in August 2002.  For more than the five years prior tothat time, he owned and operated Pantel, a consultancy focused on providingprofessional services to telecommunications and Internet service providers, includingwireless Internet access providers. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | CHRISTOPHER K.BRENNER |   |
|--------|-----------------------|--------|

|   | Mr. Brenner earned a BBA degree in accounting from Baylor University, Waco, Texas,and a JD degree from the University of Houston Law Center.  Prior to his joining theCompany in February 2003, Mr. Brenner served as chief financial officer and generalcounsel for Southern Colorado Telecommunications Company, a privately-held,Colorado City, Colorado-based telecommunications company.  Prior to that, fromJanuary 2000 to November 2001, Mr. Brenner was an associate in the law firm ofMartin, Disiere, Jefferson & Wisdom, LLP, Houston, Texas.  From August 1996 toDecember 1999, Mr. Brenner was an associate in the law firm of Bracewell & Patterson,LLP, Houston, Texas.  He is licensed to practice law in the states of Colorado and Texasand is a former practicing CPA. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Board of Directors |   |
|--------|--------------------|--------|

|   | There currently exist two vacancies on our board of directors, one of which vacancies is tobe filled by a person named by Evergreen Venture Partners, LLC, pursuant to a stockpurchase agreement. (This agreement with Evergreen Venture Partners, LLC is discussedbelow under “Item 12. Certain Relationships and Related Transactions”.)   We are makingour best effort to locate additional qualified persons who are willing to fill such vacancies.To date, no such person has committed to join the board. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Our full board did not meet during 2002; however, it took action by unanimous writtenconsent in lieu of a meeting on forty occasions. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | Executive Committee |   |
|--------|---------------------|--------|

|   | Our board of directors created an executive committee to facilitate management betweenmeetings of the full board of directors.  The executive committee is composed of David M.Loflin (chairman), Douglas O. McKinnon and Richard E. Wilson. Pursuant to our bylaws,between meetings of the full board, the executive committee has the full power andauthority of the board in the management of our business and affairs, except to the extentlimited by Nevada law. Pursuant to the bylaws of the executive committee, as adopted bythe full board, the executive committee has the authority to exercise all powers of theboard, 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 dischargeany committee. |
|---|--------------------------------------------------------------------------------------------------|

|   | During 2002, the Executive Committee did not meet; however, it took action byunanimous written consent in lieu of a meeting on nineteen occasions. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Audit Committee |   |
|--------|-----------------|--------|

|   | The audit committee of our board of directors is composed of Douglas O. McKinnon(chairman), Richard E. Wilson and Ross S. Bravata. Our board appointed Messrs.McKinnon, Wilson and Bravata to the audit committee effective as of March 28, 2003.The purposes of the audit committee are: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | to oversee the quality and integrity of the financial statements and other financialinformation 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, legalcompliance and ethics that management and the board have established or willestablish in the future; |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | to establish procedures for the receipt, retention and treatment of complaintsregarding accounting, internal controls, and other auditing matters and for theconfidential, anonymous submission by our employees of concerns regardingquestionable 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,always emphasizing that the independent auditors are accountable to the auditcommittee; and |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| - | to perform such other duties as are directed by the board. |
|---|------------------------------------------------------------|

|   | In March 2003, our board approved the amendment and restatement of the audit committeecharter. The board has determined that the audit committee meets the current requirementsof AMEX and applicable rules and regulations of the SEC.  Due to resignations by two ofour independent directors and our inability to attract qualified replacements, the auditcommittee was comprised of only one member, Mr. Loflin, during nearly all of 2002. Mr.Loflin, in his position as a member of the audit committee, approved the dismissal of ourformer independent auditors, Postlethwaite & Netterville, and the engagement of Hein +Associates LLP as our auditors of our financial statements for the year ended December31, 2002. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Management Council |   |
|--------|--------------------|--------|

|   | In addition to its executive and audit committees, our board has established a managementcouncil.  While the management council has no power to authorize any corporate action , itwas created by the board to promote communication between and among our variousoperating divisions as our operations expand.  It is expected that the management councilwill begin to hold regular meetings during the second quarter of 2003. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Compensation of Directors |   |
|--------|---------------------------|--------|

|   | Non-employee directors do not receive annual payments for their service as directors, norhas our board established a per-meeting stipend.  At such time as our cash positionimproves, it is likely that the board 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 onthe board and its committees. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2002, one of our directors, Ross S. Bravata, received, as a bonus for his service as adirector, 200,000 shares of our common stock, valued at $.06 per share, the closing priceon the date of award, as reported by AMEX, an aggregate value of $12,000.  Also, inMarch 2003, in connection with his agreeing to become a board member, Richard E.Wilson was awarded a bonus of 200,000 shares of our common stock, valued at $.05 pershare, the closing price on the date of award, as reported by AMEX, an aggregate value of$10.000. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Indemnification of Directors and Officers |   |
|--------|-------------------------------------------|--------|

|   | Article X of the Articles of Incorporation of USURF America provides that no director orofficer shall be personally liable to USURF America or its shareholders for damages forbreach of fiduciary duty as a director officer; provided, however, that such provision shallnot eliminate or limit the liability of a director or officer for (1) acts or omissions whichinvolve intentional misconduct, fraud or a knowing violation of law or (2) the payment ofdividends in violation of law. Any repeal or modification of Article X shall be prospectiveonly and shall not adversely affect any right or protection of a director or officer of USURFAmerica existing at the time of such repeal or modification for any breach covered byArticle X which occurred prior to any such repeal or modification. The effect of Article Xis that directors and officers will experience no monetary loss for damages arising out ofactions taken (or not taken) in such capacities, except for damages arising out ofintentional misconduct, fraud or a knowing violation of law, or the payment of dividendsin violation of law. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As permitted by Nevada law, our bylaws provide that we will indemnify our directors andofficers against expense and liabilities they incur to defend, settle or satisfy any civil,including any action alleging negligence, or criminal action brought against them onaccount of their being or having been directors or officers unless, in any such action, theyare judged to have acted with gross negligence or willful misconduct. Insofar asindemnification for liabilities arising under the Securities Act of 1933, as amended, may bepermitted to directors, officers or control persons pursuant to the foregoing provisions, wehave been informed that, in the opinion of the SEC, such indemnification is against publicpolicy 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 ofchanges of ownership of the Common Stock with the SEC. The SEC’s rules require suchperson to furnish the Company with copies of all Section 16(a) reports they file.  TheCompany has determined that none of the reports required to have been filed during 2002has been filed.  The Company has requested that all of these persons file the requiredreports. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 10. | Executive Compensation |   |
|----------|------------------------|--------|

|   | Executive Compensation |   |
|--------|------------------------|--------|

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

|   | AnnualCompensation |   | Long-TermCompensation |
|--------|--------------------|--------|-----------------------|

| Name, PrincipalPosition |   | FiscalYear |   | Salary $ |   | Bonus $ |   | OtherAnnualCom-pen-sation$ |   | SecuritiesUnderlyingOptions# |   | Allothercom-pen-sation $ |
|-------------------------|--------|------------|--------|----------|--------|---------|--------|----------------------------|--------|------------------------------|--------|--------------------------|

| Douglas O.McKinnon[President and ChiefExecutive Officer] |   | 200220012000 |   | $127,500(1) NOTE(A) NOTE(A) |   | $310,456(1) |   | $-0- |   | -0- |   | $-0- |
|----------------------------------------------------------|--------|--------------|--------|-----------------------------|--------|-------------|--------|------|--------|-----|--------|------|

| David M. Loflin[Chairman of theBoard and formerPresident] |   | 200220012000 |   | $150,000(2)$150,000(3)$150,000(4) |   | $200,000(2)$133,000(5) $-0- |   | $-0-$-0-$-0- |   | $-0-$-0-$-0- |   | $-0-$-0-$-0- |
|-----------------------------------------------------------|--------|--------------|--------|-----------------------------------|--------|-----------------------------|--------|--------------|--------|--------------|--------|--------------|

| Waddell D. Loflin[former VicePresident andSecretary] |   | 200220012000 |   | $79,167(6)$100,000(7)$100,000(8) |   | $200,000(9)$18,000(10)$48,000(11) |   | $-0-$-0-$-0- |   | $-0-$-0-$-0- |   | $-0-$-0-$-0- |
|------------------------------------------------------|--------|--------------|--------|----------------------------------|--------|-----------------------------------|--------|--------------|--------|--------------|--------|--------------|

| James Kaufman[former VicePresident -CorporateDevelopment] |   | 200220012000 |   | $95,000(12)$120,000(13)$120,000(14) |   | $200,000(15) $-0-$72,000(16) |   | $-0-$-0-$-0- |   | $-0-$-0-$-0- |   | $-0-$-0-$-0- |
|-----------------------------------------------------------|--------|--------------|--------|-------------------------------------|--------|------------------------------|--------|--------------|--------|--------------|--------|--------------|

| Kenneth J. Upcraft[Executive VicePresident] |   | 200220012000 |   | $62,500(17) NOTE(B) NOTE(B) |   | $58,220(17) |   | $-0- |   | -0- |   | $-0- |
|---------------------------------------------|--------|--------------|--------|-----------------------------|--------|-------------|--------|------|--------|-----|--------|------|

| (A) | Mr. McKinnon was not employed by us during this fiscal year. |
|-----|--------------------------------------------------------------|

| (B) | Mr. Upcraft was not employed by us during this fiscal year. |
|-----|-------------------------------------------------------------|

| (1) | $91,044 of Mr. McKinnon’s salary amount and $10,456 of his bonus amount were paidby the issuance of 1,450,000 shares of our common stock, a per share value of $.07 pershare, the last closing price of our common stock, as reported by AMEX, on the date ofissuance. $300,000 of Mr. McKinnon’s bonus amount was paid by the issuance of3,000,000 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. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | $42,750 of Mr. Loflin’s salary amount was accrued; Mr. Loflin waived payment of thisamount, 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 ofour common stock, a per share value of $.173 per share, a per share price higher thanthe market price that was negotiated by us with Mr. Loflin.  Mr. Loflin’s bonus amountwas paid by the issuance of 2,000,000 shares of our common stock, upon his executingan amendment to his employment agreement, which shares were valued at $.10 pershare, the last closing price of our common stock, as reported by AMEX, on the date ofissuance. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | $53,612 of this amount was accrued; Mr. Loflin waived payment of this amount, inconnection with the Evergreen transaction (described elsewhere herein). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | $34,083 of this amount was accrued; Mr. Loflin waived payment of this amount, inconnection with the Evergreen transaction (described elsewhere herein). |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | This bonus was paid by the issuance of 700,000 shares to Mr. Loflin, which werevalued at $.19 per share, the last closing price of the Common Stock, as reported byAMEX, prior to their issuance. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | $29,167 of Mr. Loflin’s salary amount was accrued; Mr. Loflin waived payment of thisamount, 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 ofour common stock, a per share value of $.083 per share, a per share price higher thanthe market price that was negotiated by us with Mr. Loflin. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | $24,423 of Mr. Loflin’s salary amount was accrued; Mr. Loflin waived payment of thisamount, in connection with the Evergreen transaction (described elsewhere herein). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | $35,417 of Mr. Loflin’s salary amount was accrued; Mr. Loflin waived payment of thisamount, in connection with the Evergreen transaction (described elsewhere herein). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | This bonus was paid by the issuance of 2,000,000 shares to Mr. Loflin in connectionwith the Evergreen transaction (described elsewhere herein), which shares were valuedat $.10 per share, the last closing price of the Common Stock, as reported by AMEX,prior to their issuance. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10) | This bonus was paid by the issuance of 200,000 shares to Mr. Loflin, which shareswere valued at $.09 per share, the last closing price of the Common Stock, as reportedby AMEX, prior to their issuance. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11) | This bonus was paid by the issuance of 200,000 shares to Mr. Loflin, which shareswere valued at $.24 per share, the last closing price of the Common Stock, as reportedby AMEX, prior to their issuance. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (12) | $35,000 of Mr. Kaufman’s salary amount was accrued; Mr. Kaufman waived paymentof this amount, in connection with the Evergreen transaction (described elsewhereherein). $60,000 of Mr. Kaufman’s salary amount was paid by the issuance of 600,000shares of our common stock, a per share value of $.10 per share, a per share pricehigher than the market price that was negotiated by us with Mr. Kaufman. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (13) | $106,270 of this amount was accrued; $96,000 of this amount was payable in shares ofour common stock.  In connection with the Evergreen transaction (described elsewhereherein), Mr. Kaufman waived payment of this amount. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (14) | $26,667 of this amount was accrued; $96,000 of this amount was payable in shares ofour common stock.  In connection with the Evergreen transaction (described elsewhereherein), Mr. Kaufman waived payment of this amount. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (15) | This bonus was paid by the issuance of 2,000,000 shares to Mr. Kaufman in connectionwith the Evergreen transaction (described elsewhere herein), which shares were valuedat $.10 per share, the last closing price of the Common Stock, as reported by AMEX,prior to their issuance. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (16) | This bonus was paid by the issuance of 300,000 shares to Mr. Kaufman, which shareswere valued at $.24 per share, the last closing price of the Common Stock, as reportedby AMEX, prior to their issuance. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (17) | $47,500 of Mr. Upcraft’s salary amount and $22,220 of his bonus amount were paid bythe issuance of 996,000 shares of our common stock, a per share value of $.07 pershare, the last closing price of our common stock, as reported by AMEX, on the date ofissuance. $36,000 of Mr. Upcraft’s bonus amount was paid by the issuance of 600,000shares of our common stock, upon his executing his employment agreement, whichshares were valued at $.06 per share, the last closing price of our common stock, asreported by AMEX, on the date of his executing his employment agreement. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Employment Contracts and Termination of Employment andChange-in-Control Agreements |   |
|--------|------------------------------------------------------------------------------------|--------|

|   | Each of our current executive officers has entered into an employment agreement.  Thefollowing table summarizes certain provisions of the employment agreements. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name of Officer       |   | Position(s)                                                                      |   | Term    |   | AnnualSalary |   | Date                  |
|-----------------------|--------|----------------------------------------------------------------------------------|--------|---------|--------|--------------|--------|-----------------------|
| Douglas O.McKinnon    |   | President and ChiefExecutive Officer                                             |   | 3 years |   | $180,000     |   | 4/15/02               |
| David M. Loflin       |   | Chairman of the Board                                                            |   | 6months |   | $150,000     |   | 6/1/99,amended4/15/02 |
| Kenneth J. Upcraft    |   | Executive Vice President                                                         |   | 3 years |   | $150,000(1)  |   | 7/31/02               |
| Christopher K.Brenner |   | Vice President of Financeand Administration, ChiefFinancial Officer andSecretary |   | 2 years |   | $120,000(1)  |   | 2/4/03                |

|  (1) | 80% of this officer’s salary may be paid with shares of our common stock, in ourdiscretion. |
|-----------|---------------------------------------------------------------------------------------------------|

|   | In connection with each of their respective employment agreements, the executive officersentered into confidentiality agreements and agreements not to compete with the Companyduring the term of employment and for a period of one year thereafter. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under Mr. McKinnon’s employment agreement, should the Company (1) experience achange 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 theCompany and the Company would be liable for all compensation remaining to be paidduring the then-current term of his employment agreement, plus an additional period ofone year. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under each employment agreement, if the executive is terminated by the Company otherthan for cause, he will be entitled to continue to receive his base salary for the unexpiredterm of his employment contract. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Option/SAR Grants in Last Fiscal Year |   |
|--------|---------------------------------------|--------|

|   | 2002 Stock Ownership Plan |   |
|--------|---------------------------|--------|

|   | In March 2002, our board adopted a stock ownership plan for our officers, directorsand consultants known as the 2002 Stock Ownership Plan, as amended and restated inDecember 2002. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The 2002 Plan was established by the board as a means to promote our success andenhance our value by linking the personal interests of participants to our shareholders,and by providing participants with an incentive for outstanding performance. The 2002Plan is further intended to aid us in attracting and retaining the services of personsupon whose judgment, interest and special efforts our successful operation and oursubsidiaries’ operations is dependent.  Persons who are either officers, directors orconsultants are eligible to participate in the 2002 Plan.  The board may, at any time andfrom time to time, grant shares of our common stock in such amounts and upon suchterms and conditions as it may determine, to include the granting of shares of theCommon Stock and the granting of options to purchase shares of the common stock.11,000,000 shares of our common stock have been reserved for issuance under the2002 Plan and a registration statement on Form S-8 (SEC File No. 333-102167)relating to the 2002 Plan, as amended, has been filed with the SEC.  Under the 2002Plan, to date, 4,150,000 shares of our common stock have been issued to consultantsand options to acquire a total of 500,000 shares of our common stock have beengranted to consultants and remain unexercised. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Stock Appreciation Rights |   |
|--------|---------------------------|--------|

|   | We have never granted any stock appreciation rights (SARs), nor do we expect to grantany SARs in the foreseeable future. |
|--------|--------------------------------------------------------------------------------------------------------------------------|

| Item 11. | Security Ownership of Certain Beneficial Owners and Management |   |
|----------|----------------------------------------------------------------|--------|

| As of May 2, 2002, there were 77,797,203 shares of our common stock issued andoutstanding. The following table sets forth certain information regarding the current beneficialownership of our common stock, by (1) persons known to be beneficial owners of more than5% of our common stock, (2) each our officers and directors and (3) our officers and directors,as a group. Unless otherwise noted, the address of the listed persons is 6005 Delmonico Drive,Suite 140, Colorado Springs, Colorado 80919. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Name andAddress ofBeneficialOwner |   |   | Number ofSharesBeneficiallyOwned |   | Percentageof SharesBeneficiallyOwned |   |
|--------|-----------------------------------|--------|--------|----------------------------------|--------|--------------------------------------|--------|

| Douglas O. McKinnon |   | 4,450,000 |   | 4.87% |   |
|---------------------|--------|-----------|--------|-------|--------|

| David M. Loflin(2) |   | 5,868,960 |   | 6.43% |   |
|--------------------|--------|-----------|--------|-------|--------|

| Richard E. Wilson(3) |   | 200,000 |   | * |   |
|----------------------|--------|---------|--------|---|--------|

| Ross S. Bravata(4) |   | 342,500(5) |   | * |   |
|--------------------|--------|------------|--------|---|--------|

| Kenneth J. Upcraft |   | 1,596,000 |   | 1.74% |   |
|--------------------|--------|-----------|--------|-------|--------|

| Christopher K. Brenner |   | 540,000 |   | * |   |
|------------------------|--------|---------|--------|---|--------|

| All executive officer and directorsas a group (6 persons) |   | 12,797,460(6) |   | 14.02% |   |
|-----------------------------------------------------------|--------|---------------|--------|--------|--------|

| Fusion Capital Fund II, LLC(7) |   | 4,577,641(8) |   | 5.01% |   |
|--------------------------------|--------|--------------|--------|-------|--------|

| Evergreen Investment Partners,LLC(9) |   | 3,183,333(10) |   | 3.49% |   |
|--------------------------------------|--------|---------------|--------|-------|--------|

|  * | Represents beneficial ownership of less than 1%. |
|---------|--------------------------------------------------|

| (1) | Based on 91,283,453 shares outstanding, including a total of 13,486,250 sharesunderlying currently outstanding and exercisable warrants and options. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Mr. Loflin’s address is 7635 Jefferson Highway, Suite 309, Baton Rouge, Louisiana70809. |
|-----|-----------------------------------------------------------------------------------------------|

| (3) | Mr. Wilson’s address is P.O. Box 2844, Kirkland, Washington 98083. |
|-----|--------------------------------------------------------------------------|

| (4) | Mr. Bravata’s address is 7635 Jefferson Highway, Suite 309, Baton Rouge, Louisiana70809. |
|-----|------------------------------------------------------------------------------------------------|

| (5) | 75,000 of these shares have not been issued, but underlie currently exercisablewarrants. |
|-----|------------------------------------------------------------------------------------------|

| (6) | 75,000 of these shares have not been issued, but underlie currently exercisablewarrants. |
|-----|------------------------------------------------------------------------------------------|

| (7) | Fusion Capital’s address 222 Merchandise Mart Plaza, Suite 9-112, Chicago, Illinois60654. |
|-----|-------------------------------------------------------------------------------------------------|

| (8) | 2,500,000 of these shares may not be sold by Fusion Capital until the earliest of thetermination of a common stock purchase agreement, default thereunder orapproximately 30 months from the date hereof. 645,000 of these shares have not beenissued, but underlie currently exercisable warrants. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9) | Douglas O. McKinnon is a manager of Evergreen and may be deemed to be abeneficial owner of all of the shares owned by Evergreen.  Mr. McKinnon disclaimsany beneficial ownership of the securities owned by Evergreen. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (10) | 408,333 of these shares have been issued; 2,775,000 of these shares have not beenissued, but underlie currently exercisable warrants. |
|------|---------------------------------------------------------------------------------------------------------------------------------------|

| Item 12. | Certain Relationships and Related Transactions |   |
|----------|------------------------------------------------|--------|

|   | Evergreen Transaction |   |
|--------|-----------------------|--------|

|   | On April 15, 2002, we entered into a securities purchase agreement with EvergreenVenture Partners, LLC, whereby we issued securities for cash in the amount of $250,000.We sold  Evergreen a total of 3,645,833 shares of our common stock, 3,125,000 commonstock purchase warrants to purchase a like number of shares at an exercise price of $.15 pershare and 3,125,000 common stock purchase warrants to purchase a like number of sharesat an exercise price of $.30 per share.  Also, under the Evergreen agreement, Evergreen hasthe right to name two persons to become directors.  To date, Evergreen has exercised thisright as to one person, Richard E. Wilson, but has not yet named another person as adirector.  Mr. McKinnon is a manager of Evergreen. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Stock Issuances Pursuant to Evergreen Transaction |   |
|--------|---------------------------------------------------|--------|

|   | Pursuant to the Evergreen agreement, on April 15, 2002, the following occurred: |
|--------|---------------------------------------------------------------------------------|

| - | We hired Douglas O. McKinnon as our new president and chief executive officer;Mr. McKinnon also became a director.  In consideration of Mr. McKinnon’sexecuting his employment agreement, we issued him 3,000,000 shares of ourcommon stock.  These shares were valued at $210,000.                                                                                                                                                                                                                   |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| - | Our former president, David M. Lofin, became chairman of the board, reduced theterm of his remaining term of employment from approximately four years to sixmonths, waived the payment of all accrued and unpaid salary and waived therepayment of all loans made to us by him.  In consideration of Mr. Loflin’sexecuting an amendment to his employment agreement that reflected the foregoingprovisions, we issued him 2,000,000 shares of our common stock.  These shareswere valued at $140,000. |
| - | Our former vice president and secretary, Waddell D. Loflin, reduced the term of hisremaining term of employment from approximately four years to six months andwaived the payment of all accrued and unpaid salary.  In consideration of Mr.Loflin’s executing an amendment to his employment agreement that reflected theforegoing provisions, we issued him 2,000,000 shares of our common stock.  Theseshares were valued at $140,000.                                                             |
| - | Our former vice president of corporate development, James Kaufman, reduced theterm of his remaining term of employment from one year to six months and waivedthe payment of all accrued and unpaid salary.  In consideration of Mr. Kaufman’sexecuting an amendment to his employment agreement that reflected the foregoingprovisions, we issued him 2,000,000 shares of our common stock.  These shareswere valued at $140,000.                                                                     |

|   | As a result of these common stock issuances, we incurred a charge against our earning ofapproximately $300,000 in 2002. |
|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | Share Issuances in Payment of Accrued Salary |   |
|--------|----------------------------------------------|--------|

|   | In 2002, we issued shares of our common stock in payment of accrued salary of certain ofits executive officers, which shares were valued at $.07 per share, the closing price of ourcommon stock, as reported by AMEX, on the date of issuance, as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Name of Officer |   | Accrued Salary Paid withShares |   | No. of Shares Issued inPayment |   |
|--------|-----------------|--------|--------------------------------|--------|--------------------------------|--------|

|   | Douglas O. McKinnon |   | $91,044 |   | 1,450,000(1) |   |
|--------|---------------------|--------|---------|--------|--------------|--------|

|   | David M. Loflin |   | $43,123 |   | 618,000 |   |
|--------|-----------------|--------|---------|--------|---------|--------|

|   | Kenneth J. Upcraft |   | $63,500 |   | 996,000 |   |
|--------|--------------------|--------|---------|--------|---------|--------|

|   | Christopher K.Brenner(2) |   | $11,250 |   | 140,000 |   |
|--------|--------------------------|--------|---------|--------|---------|--------|

|   | James Kaufman(3) |   | $48,000 |   | 600,000 |   |
|--------|------------------|--------|---------|--------|---------|--------|

|   | Waddell D. Loflin(4) |   | $34,533 |   | 600,000 |   |
|--------|----------------------|--------|---------|--------|---------|--------|

|   | (1) | Included in this number of shares and in addition to the payment of accrued salary,Mr. McKinnon received a $10,456 bonus. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------|

|   | (2) | At the time of the issuance of shares to Mr. Brenner, Mr. Brenner was serving as aconsultant to the Company. |
|--------|-----|--------------------------------------------------------------------------------------------------------------|

|   | (3) | Mr. Kaufman is a former vice president of the Company. |
|--------|-----|--------------------------------------------------------|

|   | (4) | Mr. Loflin resigned as an officer and director of the Company in March 2003. |
|--------|-----|------------------------------------------------------------------------------|

|   | Conversion of Loans to Stock by Officer |   |
|--------|-----------------------------------------|--------|

|   | As of August 21, 2000, we owed Mr. Loflin a total of $967,703 ($916,045 in principal,$51,658 in interest), the result of cash loans made to us by Mr. Loflin during the pastapproximately two years. The proceeds of these loans were used primarily for operatingexpenses and purchases of equipment. On August 21, 2000, we entered into a letteragreement with our president, David M. Loflin, whereby Mr. Loflin agreed to convert allsums owed to him into shares of our common stock. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Pursuant to the letter agreement, Mr. Loflin received one share of common stock for every$1.25 of debt converted, for a total of 774,162 shares. The $1.25 price was agreed upon asthat price was the low sale price for our common stock on Friday, August 18, 2000, asreported by AMEX. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Our board of directors, in authorizing the transaction described above, found thetransaction to be in the best interest of USURF America, as it would significantly improveour financial condition, potentially making it more attractive to prospective investors. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Stock Bonuses |   |
|--------|---------------|--------|

|   | In May 2000, one of our former vice presidents, Robert A. Hart IV, was issued 250,000shares of our common stock as an employment agreement signing bonus. These shareswere valued at $750,000, or $3.00 per share, pursuant to the terms of the Mr. Hart'semployment agreement. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In December 2000, two of our vice presidents, Waddell D. Loflin and James Kaufman,were issued shares of our common stock as a bonus. Mr. Loflin was issued 200,000 sharesand Mr. Kaufman was issued 300,000 shares. These shares were valued at $119,000, or$.24 per share, which was the closing sale price of our common stock on the dayimmediately preceding their issuance. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In October 2001, our President, David M. Loflin, was issued shares of our common stockas a bonus. Mr. Loflin was issued 700,000 shares. These shares were valued at $133,000,or $.19 per share, which was the closing sale price of our common stock on the dateimmediately preceding their issuance. When this issuance was approved by our board ofdirectors, Mr. Loflin abstained from the voting. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Employment Agreements |   |
|--------|-----------------------|--------|

|   | Each of our current officers has entered into an employment agreement.  The followingtable summarizes certain provisions of the employment agreements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name of Officer       |   | Position(s)                                                                      |   | Term    |   | AnnualSalary |   | Date                  |
|-----------------------|--------|----------------------------------------------------------------------------------|--------|---------|--------|--------------|--------|-----------------------|
| Douglas O.McKinnon    |   | President and ChiefExecutive Officer                                             |   | 3 years |   | $180,000     |   | 4/15/02               |
| David M. Loflin       |   | Chairman of the Board                                                            |   | 6months |   | $150,000     |   | 6/1/99,amended4/15/02 |
| Kenneth J. Upcraft    |   | Executive Vice President                                                         |   | 3 years |   | $150,000(1)  |   | 7/31/02               |
| Christopher K.Brenner |   | Vice President of Financeand Administration, ChiefFinancial Officer andSecretary |   | 2 years |   | $120,000(1)  |   | 2/4/03                |

|  (1) | 80% of this officer’s salary may be paid with shares of our common stock, in ourdiscretion. |
|-----------|---------------------------------------------------------------------------------------------------|

|   | In connection with each of their respective employment agreements, our officers enteredinto confidentiality agreements and agreements not to compete with us during the term ofemployment and for a period of one year thereafter. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under Mr. McKinnon’s employment agreement, should we (1) experience a change incontrol or (2) change Mr. McKinnon’s responsibilities, Mr. McKinnon has the right, in hissole discretion, to terminate his employment with us and we would be liable for allcompensation remaining to be paid during the then-current term of his employmentagreement, plus an additional period of one year. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Voting Agreement |   |
|--------|------------------|--------|

|   | On January 29, 1999, David W. Loflin, Waddell D. Loflin, Julius W. Basham, David W.Brown and Wm. Kim Stimpson entered into a voting agreement, whereby all of thesepersons are required to vote all shares owned by them for David M. Loflin and Waddell D.Loflin in all elections of directors of USURF America. Currently, approximately 8,458,960shares are subject to this voting agreement. This amount of stock represents approximately11% of our currently outstanding shares. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Fusion Capital Consulting Agreements |   |
|--------|--------------------------------------|--------|

|   | In January 2001, we entered into a one-year consulting agreement with Fusion Capital,pursuant to which Fusion Capital agreed to provide operational and strategic consultingservices. Fusion Capital received a total of 120,000 shares of our common stock during theterm of this agreement and reimbursement for expenses. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In January 2002, we entered another into a one-year consulting agreement with FusionCapital, pursuant to which Fusion Capital agreed to provide operational and strategicconsulting services. Fusion Capital received 120,000 shares of our common stock pursuantto this agreement and is to be reimbursed for expenses. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 13. | Exhibits and Reports on Form 8-K |   |
|----------|----------------------------------|--------|

|   | (a)(1) Financial Statements |   |
|--------|-----------------------------|--------|

|   | Index to Financial Statements of USURFAmerica |   |
|--------|-----------------------------------------------|--------|

|   | Independent Auditor’s Report |
|--------|------------------------------------|

|   | Independent Auditors’ Report |
|--------|------------------------------------|

|   | Consolidated Balance Sheets as of December 31, 2002 and 2001 |
|--------|--------------------------------------------------------------|

|   | Consolidated Statements of Operations for the Years Ended December 31, 2002and 2001 |
|--------|-------------------------------------------------------------------------------------|

|   | Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the YearsEnded December 31, 2002 and 2001 |
|--------|--------------------------------------------------------------------------------------------------------------------|

|   | Consolidated Statements of Cash Flows for the Years Ended December 31, 2002and 2001 |
|--------|-------------------------------------------------------------------------------------|

|   | Notes to Consolidated Financial Statements |
|--------|--------------------------------------------|

|   | (a)(2) Exhibits |   |
|--------|-----------------|--------|

|   | Exhibit No. |   | Description |   |
|--------|-------------|--------|-------------|--------|

|   | 99.1 |   | Certification Pursuant to 18 U.S.C. Section 1350 ofPresident and CEO |   |
|--------|------|--------|----------------------------------------------------------------------|--------|

|   | 99.2 |   | Certification Pursuant to 18 U.S.C. Section 1350 of ChiefFinancial Officer and Principal Accounting Officer |   |
|--------|------|--------|-------------------------------------------------------------------------------------------------------------|--------|

|   | (b) Reports on Form 8-K |   |
|--------|-------------------------|--------|

|   | During the three months ended December 31, 2002, we did not file a Current Report onForm 8-K. |
|--------|-----------------------------------------------------------------------------------------------|

|   | Subsequent to December 31, 2002, we have filed three Current Reports on Form 8-K: |
|--------|-----------------------------------------------------------------------------------|

| - | Date of event: January 16, 2003, wherein we reported a change in independentauditors; |
|---|---------------------------------------------------------------------------------------|

| - | Date of event: March 10, 2003, wherein we reported our entering into a financingtransaction with a third party; and |
|---|---------------------------------------------------------------------------------------------------------------------|

| - | Date of event: March 31, 2003, wherein we reported (1) a change in the location of ourexecutive offices and (2) the resignation of one of our directors. |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 14. | Controls and Procedures |   |
|----------|-------------------------|--------|

| As of March 31, 2003, an evaluation was performed by our Chief Financial Officer, with theparticipation of our Chief Executive Officer, of the effectiveness of the design and operation ofour disclosure controls and procedures. Based on that evaluation, our management, includingour Chief Executive Officer and Chief Financial Officer, concluded that our disclosurecontrols and procedures were effective as of March 31, 2003. There have been no significantchanges in our internal controls or in other factors that could significantly affect internalcontrols subsequent to March 31, 2003. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | USURF AMERICA, INC. |
|--------|---------------------|

|   | By: | /s/ DOUGLAS O. MCKINNON |   |
|--------|-----|-------------------------|--------|

|   | Douglas O.McKinnon Presidentand Chief ExecutiveOfficer |   |
|--------|--------------------------------------------------------|--------|

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

|                    |   |                                                                           |   |        |
|-------------------------|--------|--------------------------------------------------------------------------------|--------|-------------|
| /s/ DOUGLAS O. MCKINNON |   |                                                                           |   | May 8, 2003 |
| Douglas O. McKinnon     |   | President and Chief ExecutiveOfficer (Principal ExecutiveOfficer) and Director |   |        |

| /s/ DAVID M. LOFLIN |   |                  |   | May 8, 2003 |
|---------------------|--------|-----------------------|--------|-------------|
| David M. Loflin     |   | Chairman of the Board |   |        |

|                |   |     |   |        |
|---------------------|--------|----------|--------|-------------|
| /s/ ROSS S. BRAVATA |   |     |   | May 8, 2003 |
| Ross S. Bravata     |   | Director |   |        |

|                  |   |     |   |        |
|-----------------------|--------|----------|--------|-------------|
| /s/ RICHARD E. WILSON |   |     |   | May 8, 2003 |
| Richard E. Wilson     |   | Director |   |        |

|                      |   |                                                                                                          |   |        |
|---------------------------|--------|---------------------------------------------------------------------------------------------------------------|--------|-------------|
| /s/ CHRISTOPHER K.BRENNER |   |                                                                                                          |   | May 8, 2003 |
| Christopher K. Brenner    |   | Vice President of Finance andAdministration, ChiefFinancial Officer (PrincipalFinancial Officer) andSecretary |   |        |

| /s/ KENNETH J. UPCRAFT |   |                     |   | May 8, 2003 |
|------------------------|--------|--------------------------|--------|-------------|
| Kenneth J. Upcraft     |   | Executive Vice President |   |        |

| CERTIFICATION OF PERIODIC REPORT |
|----------------------------------|

| I, Douglas O. McKinnon, certify that: |
|---------------------------------------|

| 1. | I have reviewed this annual report on Form 10-KSB/A of USURF America, Inc. |
|----|----------------------------------------------------------------------------|

| 2. | Based on my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report; |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based on my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this annual report; |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The registrant's other certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-14 and 15d-14) for the registrant and we have: |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a) | designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period inwhich this annual report is being prepared; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b) | evaluated the effectiveness of the registrant's disclosure controls and procedures asof a date within 90 days prior to the filing date of this annual report (the"Evaluation Date"); and |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c) | presented in this annual report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate; |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The registrant's other certifying officers and I have disclosed, based on our most recentevaluation, to the registrant's auditors and the audit committee of registrant's board ofdirectors (or persons performing the equivalent function): |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a) | all significant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant's ability to record, process, summarize andreport financial data and have identified for the registrant's auditors any materialweaknesses in internal controls; and |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b) | any fraud, whether or not material, that involves management or other employeeswho have a significant role in the registrant's internal controls; and |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | The registrant's other certifying officers and I have indicated in this annual reportwhether or not there were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our most recentevaluation, including any corrective actions with regard to significant deficiencies andmaterial weaknesses. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Date: May 8, 2003. |
|--------------------|

|   |
|--------|

| /s/ DOUGLAS O. MCKINNON |   |
|-------------------------|--------|

| Douglas O.McKinnon Presidentand CEO |   |
|-------------------------------------|--------|

| I, Christopher K. Brenner, certify that: |
|------------------------------------------|

| 1. | I have reviewed this annual report on Form 10-KSB/A of USURF America, Inc. |
|----|----------------------------------------------------------------------------|

| 2. | Based on my knowledge, this annual report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report; |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Based on my knowledge, the financial statements, and other financial informationincluded in this annual report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this annual report; |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | The registrant's other certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange Act Rules13a-14 and 15d-14) for the registrant and we have: |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a) | designed such disclosure controls and procedures to ensure that materialinformation relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period inwhich this annual report is being prepared; |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b) | evaluated the effectiveness of the registrant's disclosure controls and procedures asof a date within 90 days prior to the filing date of this annual report (the"Evaluation Date"); and |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c) | presented in this annual report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate; |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The registrant's other certifying officers and I have disclosed, based on our most recentevaluation, to the registrant's auditors and the audit committee of registrant's board ofdirectors (or persons performing the equivalent function): |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| a) | all significant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant's ability to record, process, summarize andreport financial data and have identified for the registrant's auditors any materialweaknesses in internal controls; and |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| b) | any fraud, whether or not material, that involves management or other employeeswho have a significant role in the registrant's internal controls; and |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | The registrant's other certifying officers and I have indicated in this annual reportwhether or not there were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our most recentevaluation, including any corrective actions with regard to significant deficiencies andmaterial weaknesses. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Date: May 8, 2003. |
|--------------------|

|   |
|--------|

| /s/ CHRISTOPHER K.BRENNER |   |
|---------------------------|--------|

| Christopher K.Brenner VicePresident of Financeand Administration,Chief FinancialOfficer and Secretary |   |
|-------------------------------------------------------------------------------------------------------|--------|

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

| As of the date of this Annual Report on Form 10-KSB/A, no annual report or proxy materialhas been sent to security holders of USURF America. It is anticipated that an annual report andproxy material will be furnished to security holders subsequent to the filing of this AnnualReport on Form 10-KSB/A. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | USURF AMERICA, INC. ANDSUBSIDIARIES |   |
|--------|-------------------------------------|--------|

|   | FINANCIALSTATEMENTSDECEMBER 31, 2002 |   |
|--------|--------------------------------------|--------|

|   | INDEX TO FINANCIAL STATEMENTS OF USURFAMERICA, INC. |   |
|--------|-----------------------------------------------------|--------|

|   | Page |
|--------|------|

|   | Independent Auditor’s Report | F-2 |
|--------|------------------------------------|-----|

|   | Independent Auditors’ Report | F-3 |
|--------|------------------------------------|-----|

|   | Consolidated Balance Sheets as of December 31, 2002 and 2001 | F-4 |
|--------|--------------------------------------------------------------|-----|

|   | Consolidated Statements of Operations for the Years Ended December 31, 2002and 2001 | F-6 |
|--------|-------------------------------------------------------------------------------------|-----|

|   | Consolidated Statements of Changes in Stockholders' Equity (Deficit) for theYears Ended December 31, 2002 and 2001 | F-8 |
|--------|--------------------------------------------------------------------------------------------------------------------|-----|

|   | Consolidated Statements of Cash Flows for the Years Ended December 31, 2002and 2001 | F-11 |
|--------|-------------------------------------------------------------------------------------|------|

|   | Notes to Consolidated Financial Statements | F-13 |
|--------|--------------------------------------------|------|

|   |
|--------|

| INDEPENDENT AUDITOR'S REPORT |
|------------------------------|

|   |
|--------|

| Board of DirectorsUSURF America,Inc.  ColoradoSprings, CO |   |
|-----------------------------------------------------------|--------|

|   |
|--------|

| We have audited the accompanying consolidated balance sheet of USURF America, Inc. andsubsidiaries (the "Company") as of December 31, 2002, and the related consolidatedstatements of operations, stockholders' equity (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 onour audit. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| We conducted our audit in accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financialstatement 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 allmaterial respects, the financial position of USURF America, Inc. and subsidiaries as ofDecember 31, 2002, and the results of their operations and their cash flows for the year thenended in conformity with accounting principles generally accepted in the United States ofAmerica. |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The accompanying financial statements have been prepared assuming USURF America, Inc.will continue as a going concern.  As more fully described in Note 2, the Company hasrecurring losses, and negative working capital.  These conditions raise substantial doubt aboutthe Company's ability to continue as a going concern (management's plans in regard to thosematters are also described in Note 2).  The financial statements do not include any adjustmentsto reflect the possible future effect on the recoverability and classification of assets or theamounts and classifications of liabilities that may result from the outcome of this uncertainty. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |
|--------|

| /s/ HEIN + ASSOCIATES LLP |
|---------------------------|

| HEIN + ASSOCIATESLLP Denver, Colorado |   |
|---------------------------------------|--------|

| April 21, 2003 |
|----------------|

|   |
|--------|

| INDEPENDENT AUDITORS' REPORT |
|------------------------------|

|   |
|--------|

| To the Board of Directors andStockholders USURF America, Inc.and Subsidiaries Colorado Springs,Colorado |   |
|---------------------------------------------------------------------------------------------------------|--------|

|   |
|--------|

| We have audited the accompanying consolidated balance sheet of USURF America, Inc. andSubsidiaries as of December 31, 2001 and the related consolidated statements of operations,changes in stockholders' equity and cash flows for the year then ended.  These consolidatedfinancial statements are the responsibility of the Company's management. Our responsibility isto express an opinion on these consolidated financial statements based on our audit. |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| We conducted our audit in accordance with auditing standards generally accepted in theUnited States of America.  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the consolidated financial statements.  An audit also includesassessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall consolidated financial statement presentation.  We believe thatour audit provides a reasonable basis for our opinion. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| In our opinion, the financial statements referred to above present fairly, in all material respects,the financial position of USURF America, Inc. and Subsidiaries as of December 31, 2001 andthe results of their operations and cash flows for the year then ended in conformity withaccounting principles generally accepted in the United States of America. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| As discussed in Note 11 to the financial statements, the consolidated financial statements ofthe Company do not include CyberHighway, Inc., a wholly-owned subsidiary, as a result of thesubsidiary's Chapter 7 bankruptcy.  Due to the bankruptcy, the Company does not have controlof the entity and, therefore, has not been consolidated. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| As discussed more fully in Note 11, the Company is not in compliance with continued listingguidelines of AMEX.  The ultimate outcome of this uncertainty is not determinable at thistime, but could have a significant impact on the Company. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| The accompanying financial statements have been prepared assuming that the Company willcontinue as a going concern. As discussed in Note 2 to the consolidated financial statements,the Company has significant operating losses.  In addition, the Company has excess currentliabilities over current assets of approximately $100,000. These conditions raise substantialdoubt about its ability to continue as a going concern.  Management's plans regarding thesematters are also described in Note 2.  The financial statements do not include any adjustmentsthat might result from the outcome of this uncertainty. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |
|--------|

| /s/ POSTLETHWAITE & NETTERVILLE |
|-------------------------------------|

| Postlethwaite &Netterville Baton Rouge,Louisiana |   |
|------------------------------------------------------|--------|

| April 12, 2002, except as to third paragraph above andNote 11a, which are as of May 7, 2003 |   |
|---------------------------------------------------------------------------------------------|--------|

|   |
|--------|

|   | USURF AMERICA, INC. ANDSUBSIDIARIES COLORADOSPRINGS, COLORADO |   |
|--------|---------------------------------------------------------------|--------|

|   | CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2002 AND 2001 |   |
|--------|-------------------------------------------------------|--------|

|   | ASSETS |   |
|--------|--------|--------|

|   | 2002 |   | 2001 |
|--------|------|--------|------|

| CURRENT ASSETS |   |   |   |
|----------------|--------|--------|--------|

|   | Cash and cash equivalents | $111,568 |   | $10 |
|--------|---------------------------|----------|--------|-----|

|   | Accounts receivable | 224 |   | 0 |
|--------|---------------------|-----|--------|---|

|   | Inventory | 2,715 |   | 134,746 |
|--------|-----------|-------|--------|---------|

|   | Other current assets | 4,942 |   | 0 |
|--------|----------------------|-------|--------|---|

| Total Current Assets | 119,449 |   | 134,756 |
|----------------------|---------|--------|---------|

| PROPERTY AND EQUIPMENT |   |   |   |
|------------------------|--------|--------|--------|

|   | Cost | 73,359 |   | 203,141 |
|--------|------|--------|--------|---------|

|   | Less: accumulated depreciation | (7,336) |   | (125,036) |
|--------|--------------------------------|---------|--------|-----------|

| Total Property and Equipment | 66,023 |   | 78,105 |
|------------------------------|--------|--------|--------|

| INTANGIBLES | 201,604 |   | 16,667 |
|-------------|---------|--------|--------|

| OTHER ASSETS | 20,000 |   | 0 |
|--------------|--------|--------|---|

| TOTAL ASSETS | $407,076 |   | $229,528 |
|--------------|----------|--------|----------|

|                                                             |
|------------------------------------------------------------------|
| The accompanying notes are an integral part of these statements. |

|   |
|--------|

|   | USURF AMERICA, INC. ANDSUBSIDIARIES COLORADOSPRINGS, COLORADO |   |
|--------|---------------------------------------------------------------|--------|

|   | CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2002 AND 2001 |   |
|--------|-------------------------------------------------------|--------|

|   | LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT) |   |
|--------|-----------------------------------------------------|--------|

|   | 2002 |   | 2001 |
|--------|------|--------|------|

| CURRENT LIABILITIES |   |   |   |
|---------------------|--------|--------|--------|

|   | Disbursements in excess of cash balances | 0 |   | $15,539 |
|--------|------------------------------------------|---|--------|---------|

|   | Accounts payable | 131,146 |   | 136,054 |
|--------|------------------|---------|--------|---------|

|   | Note Payable | 87,604 |   | 0 |
|--------|--------------|--------|--------|---|

|   | Accrued payroll | 0 |   | 265,978 |
|--------|-----------------|---|--------|---------|

|   | Notes payable to stockholder | 1,000 |   | 18,521 |
|--------|------------------------------|-------|--------|--------|

| Total Current Liabilities | 219,750 |   | 436,092 |
|---------------------------|---------|--------|---------|

| Commitments and Contingencies (Notes 5, 11,13 &14) |   |   |   |
|--------------------------------------------------------|--------|--------|--------|

| REDEEMABLE COMMON STOCK |   |   |   |
|-------------------------|--------|--------|--------|

|   | Common stock subject to rescission, -0- sharesoutstanding at December 31, 2002, and 2,138,726shares outstanding at December 31, 2001, $.0001par value per share | 0 |   | 1,192,700 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|---|--------|-----------|

| STOCKHOLDERS’ EQUITY (DEFICIT) |   |   |   |
|--------------------------------------|--------|--------|--------|

|   | Common stock, $.0001 par value; Authorized:100,000,000 shares; Issued and outstanding:71,445,338 in 2002 and 23,848,108 in 2001 | 7,145 |   | 2,385 |
|--------|---------------------------------------------------------------------------------------------------------------------------------|-------|--------|-------|

|   | Additional paid-in capital | 40,778,870 |   | 35,642,817 |
|--------|----------------------------|------------|--------|------------|

|   | Accumulated deficit | (40,207,489) |   | (36,047,067) |
|--------|---------------------|--------------|--------|--------------|

|   | Subscriptions receivable | (21,200) |   | 165,750 |
|--------|--------------------------|----------|--------|---------|

|   | Deferred consulting | (370,000) |   | (1,163,149) |
|--------|---------------------|-----------|--------|-------------|

|   | Total Stockholders’ Equity (Deficit) | 187,326 |   | (1,399,264) |
|--------|--------------------------------------------|---------|--------|-------------|

| TOTAL LIABILITIES AND STOCKHOLDERS’EQUITY (DEFICIT) | $407,076 |   | $229,528 |
|-----------------------------------------------------------|----------|--------|----------|

|                                                             |
|------------------------------------------------------------------|
| The accompanying notes are an integral part of these statements. |

|   |
|--------|

|   | USURF AMERICA, INC. ANDSUBSIDIARIES COLORADOSPRINGS, COLORADO |   |
|--------|---------------------------------------------------------------|--------|

|   | CONSOLIDATED STATEMENTS OFOPERATIONS YEARS ENDED DECEMBER31, 2002 AND 2001 |   |
|--------|----------------------------------------------------------------------------|--------|

|   | 2002 |   | 2001 |
|--------|------|--------|------|

| Revenues | $0 |   | $7,446 |
|----------|----|--------|--------|

| Internet access costs, cost of goods sold | (0) |   | (11,999) |
|-------------------------------------------|-----|--------|----------|

| Inventory write-down | (132,031) |   | (97,526) |
|----------------------|-----------|--------|----------|

| Gross profit | (132,031) |   | (102,079) |
|--------------|-----------|--------|-----------|

| OPERATING EXPENSES |   |   |   |
|--------------------|--------|--------|--------|

|   | Depreciation and amortization | 7,336 |   | 70,105 |
|--------|-------------------------------|-------|--------|--------|

|   | Professional fees | 2,794,020 |   | 1,803,751 |
|--------|-------------------|-----------|--------|-----------|

|   | Rent | 20,051 |   | 28,528 |
|--------|------|--------|--------|--------|

|   | Salaries and commission | 899,967 |   | 856,124 |
|--------|-------------------------|---------|--------|---------|

|   | Other general and administrative | 116,143 |   | 93,602 |
|--------|----------------------------------|---------|--------|--------|

|   | Total Operating Expenses | 3,837,517 |   | 2,852,110 |
|--------|--------------------------|-----------|--------|-----------|

| LOSS FROM OPERATIONS | (3,969,548) |   | (2,954,189) |
|----------------------|-------------|--------|-------------|

| OTHER INCOME (EXPENSE) |   |   |   |
|------------------------|--------|--------|--------|

|   | Other income | 5,593 |   | 0 |
|--------|--------------|-------|--------|---|

|   | Litigation settlement | (101,695) |   | 0 |
|--------|-----------------------|-----------|--------|---|

|   | Impairment loss | (94,772) |   | (31,118) |
|--------|-----------------|----------|--------|----------|

|   | Interest expense | 0 |   | (3,066) |
|--------|------------------|---|--------|---------|

|   | Total Other Expense | (190,874) |   | (34,184) |
|--------|---------------------|-----------|--------|----------|

| LOSS BEFORE INCOME TAX | (4,160,422) |   | (2,988,373) |
|------------------------|-------------|--------|-------------|

| INCOME TAX BENEFIT | 0 |   | 0 |
|--------------------|---|--------|---|

| NET LOSS | (4,160,422) |   | $(2,988,373) |
|----------|-------------|--------|--------------|

|   |   |   |   |
|--------|--------|--------|--------|

| Net loss per common share | $(0.09) |   | $(0.16) |
|---------------------------|---------|--------|---------|

|   |   |   |   |
|--------|--------|--------|--------|

| Weighted average number of shares outstanding | 45,008,651 |   | 18,616,434 |
|-----------------------------------------------|------------|--------|------------|

|                                                             |
|------------------------------------------------------------------|
| The accompanying notes are an integral part of these statements. |

|   |
|--------|

|   | USURF AMERICA, INC. AND SUBSIDIARIESCOLORADO SPRINGS, COLORADO |   |
|--------|----------------------------------------------------------------|--------|

|   | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2002 AND 2001 |   |
|--------|------------------------------------------------------------------------------------------------------------------|--------|

|   |   | Shares |   | CommonStock |   | Paid-inCapital |   | Accumulated Deficit |   | SubscriptionsReceivable |   | DeferredConsulting |   | Total |
|--------|--------|--------|--------|-------------|--------|----------------|--------|---------------------|--------|-------------------------|--------|--------------------|--------|-------|

| Balance at 1/1/2001 |   | 16,688,811 |   | $1,669 |   | $34,183,962 |   | $(33,058,694) |   | $933,514 |   | $(1,971,642) |   | $88,809 |
|---------------------|--------|------------|--------|--------|--------|-------------|--------|---------------|--------|----------|--------|--------------|--------|---------|

| Issuance of commonstock for futureservices |   | 2,005,000 |   | 201 |   | 365,049 |   | 0 |   | 0 |   | (365,250) |   | 0 |
|--------------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|-----------|--------|---|

| Professional feespaid by issuance ofcommon stock |   | 1,534,500 |   | 154 |   | 526,956 |   | 0 |   | 0 |   | 0 |   | 527,110 |
|--------------------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Compensationpaid/payable byissuance of commonstock |   | 819,361 |   | 82 |   | 180,865 |   | 0 |   | 96,000 |   | 0 |   | 276,947 |
|----------------------------------------------------|--------|---------|--------|----|--------|---------|--------|---|--------|--------|--------|---|--------|---------|

| Issuance of commonstock for cash |   | 2,500,000 |   | 250 |   | 340,000 |   | 0 |   | 0 |   | 0 |   | 340,250 |
|----------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Stock issuance costs |   | 0 |   | 0 |   | (19,200) |   | 0 |   | 0 |   | 0 |   | (19,200) |
|----------------------|--------|---|--------|---|--------|----------|--------|---|--------|---|--------|---|--------|----------|

| Exercise of warrants |   | 100,000 |   | 10 |   | 14,990 |   | 0 |   | (15,000) |   | 0 |   | 0 |
|----------------------|--------|---------|--------|----|--------|--------|--------|---|--------|----------|--------|---|--------|---|

| Stock issued fordebt conversion |   | 774,162 |   | 77 |   | 943,437 |   | 0 |   | (943,514) |   | 0 |   | 0 |
|---------------------------------|--------|---------|--------|----|--------|---------|--------|---|--------|-----------|--------|---|--------|---|

| Issuance ofsubscriptionagreement |   | 1,545,000 |   | 154 |   | 291,846 |   | 0 |   | (292,000) |   | 0 |   | 0 |
|----------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|-----------|--------|---|--------|---|

| Subscriptionagreement for stockbonus |   | 0 |   | 0 |   | 0 |   | 0 |   | 27,000 |   | 0 |   | 27,000 |
|--------------------------------------|--------|---|--------|---|--------|---|--------|---|--------|--------|--------|---|--------|--------|

| Proceeds onsubscriptionreceivable |   | 0 |   | 0 |   | 0 |   | 0 |   | 359,750 |   | 0 |   | 359,750 |
|-----------------------------------|--------|---|--------|---|--------|---|--------|---|--------|---------|--------|---|--------|---------|

| Issuance of commonstock for settlement |   | 20,000 |   | 2 |   | 7,398 |   | 0 |   | 0 |   | 0 |   | 7,400 |
|----------------------------------------|--------|--------|--------|---|--------|-------|--------|---|--------|---|--------|---|--------|-------|

| Amortization ofdeferred consulting |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 1,173,743 |   | 1,173,743 |
|------------------------------------|--------|---|--------|---|--------|---|--------|---|--------|---|--------|-----------|--------|-----------|

| Net loss |   | 0 |   | 0 |   | 0 |   | (2,988,373) |   | 0 |   | 0 |   | (2,988,373) |
|----------|--------|---|--------|---|--------|---|--------|-------------|--------|---|--------|---|--------|-------------|

| Balance at12/31/2001 |   | 25,986,834 |   | 2,599 |   | 36,835,303 |   | (36,047,067) |   | 165,750 |   | (1,163,149) |   | (206,564) |
|----------------------|--------|------------|--------|-------|--------|------------|--------|--------------|--------|---------|--------|-------------|--------|-----------|

| Less: shares subjectto rescission |   | (2,138,726) |   | (214) |   | (1,192,486) |   | 0 |   | 0 |   | 0 |   | (1,192,700) |
|-----------------------------------|--------|-------------|--------|-------|--------|-------------|--------|---|--------|---|--------|---|--------|-------------|

| Balance at12/31/2001 |   | 23,848,108 |   | 2,385 |   | 35,642,817 |   | (36,047,067) |   | 165,750 |   | (1,163,149) |   | (1,399,264) |
|----------------------|--------|------------|--------|-------|--------|------------|--------|--------------|--------|---------|--------|-------------|--------|-------------|

| Issuance of commonstock for cash |   | 10,685,968 |   | 1,069 |   | 644,131 |   | 0 |   | (10,000) |   | 0 |   | 635,200 |
|----------------------------------|--------|------------|--------|-------|--------|---------|--------|---|--------|----------|--------|---|--------|---------|

| Issuance of commonstock for legal fees |   | 5,975,000 |   | 597 |   | 425,402 |   | 0 |   | 0 |   | (370,000) |   | 55,999 |
|----------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|-----------|--------|--------|

| Issuance of commonstock for consultingfees |   | 8,549,500 |   | 855 |   | 655,431 |   | 0 |   | 0 |   | 0 |   | 656,286 |
|--------------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Issuance of commonstock for debtconversion |   | 6,000,000 |   | 600 |   | 599,400 |   | 0 |   | 0 |   | 0 |   | 600,000 |
|--------------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Issuance of commonstock forcompensation |   | 6,436,000 |   | 644 |   | 593,876 |   | 0 |   | 0 |   | 0 |   | 594,520 |
|-----------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Issuance of commonstock for exercise ofwarrants |   | 2,700,000 |   | 270 |   | 148,330 |   | 0 |   | (11,200) |   | 0 |   | 137,400 |
|-------------------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|----------|--------|---|--------|---------|

| Issuance of commonstock for services |   | 2,000,000 |   | 200 |   | 142,800 |   | 0 |   | 0 |   | 0 |   | 143,000 |
|--------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Issuance of commonstock foracquisitions |   | 2,200,000 |   | 220 |   | 113,780 |   | 0 |   | 0 |   | 0 |   | 114,000 |
|-----------------------------------------|--------|-----------|--------|-----|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Issuance of commonstock forsubscriptionsreceivable |   | 912,036 |   | 91 |   | 223,813 |   | 0 |   | (165,750) |   | 0 |   | 58,154 |
|----------------------------------------------------|--------|---------|--------|----|--------|---------|--------|---|--------|-----------|--------|---|--------|--------|

| Issuance of warrantsto non-employees |   | 0 |   | 0 |   | 396,604 |   | 0 |   | 0 |   | 0 |   | 396,604 |
|--------------------------------------|--------|---|--------|---|--------|---------|--------|---|--------|---|--------|---|--------|---------|

| Amortization ofdeferred consulting |   | 0 |   | 0 |   | 0 |   | 0 |   | 0 |   | 1,163,149 |   | 1,163,149 |
|------------------------------------|--------|---|--------|---|--------|---|--------|---|--------|---|--------|-----------|--------|-----------|

| Shares no longersubject to rescission |   | 2,138,726 |   | 214 |   | 1,192,486 |   | 0 |   | 0 |   | 0 |   | 1,192,700 |
|---------------------------------------|--------|-----------|--------|-----|--------|-----------|--------|---|--------|---|--------|---|--------|-----------|

| Net loss |   | 0 |   | 0 |   | 0 |   | (4,160,422) |   |   |   |   |   | (4,160,422) |
|----------|--------|---|--------|---|--------|---|--------|-------------|--------|--------|--------|--------|--------|-------------|

| Balance at 12/31/02 |   | 71,445,338 |   | $7,145 |   | $40,778,870 |   | $(40,207,489) |   | $(21,200) |   | $(370,000) |   | $187,326 |
|---------------------|--------|------------|--------|--------|--------|-------------|--------|---------------|--------|-----------|--------|------------|--------|----------|

|                                                             |
|------------------------------------------------------------------|
| The accompanying notes are an integral part of these statements. |

|   |
|--------|

|   | USURF AMERICA, INC. ANDSUBSIDIARIES COLORADOSPRINGS, COLORADO |   |
|--------|---------------------------------------------------------------|--------|

|   | CONSOLIDATED STATEMENTS OF CASHFLOWS YEARS ENDED DECEMBER 31, 2002AND 2001 |   |
|--------|----------------------------------------------------------------------------|--------|

|   | 2002 |   | 2001 |
|--------|------|--------|------|

| CASH FLOWS FROM OPERATING ACTIVITIES |   |   |   |
|--------------------------------------|--------|--------|--------|

|   | Net loss | $(4,160,422) |   | $(2,988,373) |
|--------|----------|--------------|--------|--------------|

|   | Adjustments to reconcile net loss to net cash usedin operating activities |   |   |   |
|--------|---------------------------------------------------------------------------|--------|--------|--------|

|   | Depreciation and amortization | 7,336 |   | 70,105 |
|--------|-------------------------------|-------|--------|--------|

|   | Settlement of accruals and debt paid with stock | 315,501 |   | 0 |
|--------|-------------------------------------------------|---------|--------|---|

|   | Consulting and other fees paid with stock | 1,592,435 |   | 1,623,903 |
|--------|-------------------------------------------|-----------|--------|-----------|

|   | Litigation settlement | 0 |   | 7,400 |
|--------|-----------------------|---|--------|-------|

|   | Impairment loss and write down of assets | 94,772 |   | 31,118 |
|--------|------------------------------------------|--------|--------|--------|

|   | Impairment loss and write down of inventory | 132,031 |   | 97,526 |
|--------|---------------------------------------------|---------|--------|--------|

|   | Legal fees paid with stock | 426,000 |   | 66,000 |
|--------|----------------------------|---------|--------|--------|

|   | Warrants issued to non-employees | 396,604 |   | 0 |
|--------|----------------------------------|---------|--------|---|

|   | Compensation expense paid with stock | 594,520 |   | 303,947 |
|--------|--------------------------------------|---------|--------|---------|

|   | Changes in operating assets and liabilities |   |   |   |
|--------|---------------------------------------------|--------|--------|--------|

|   | Accounts receivable | (224) |   | 0 |
|--------|---------------------|-------|--------|---|

|   | Other assets | (24,942) |   | 0 |
|--------|--------------|----------|--------|---|

|   | Inventory | 0 |   | 1,398 |
|--------|-----------|---|--------|-------|

|   | Accounts payable | (4,908) |   | (41,481) |
|--------|------------------|---------|--------|----------|

|   | Accrued payroll | 0 |   | 107,716 |
|--------|-----------------|---|--------|---------|

|   | Other current liabilities | (15,540) |   | 13,172 |
|--------|---------------------------|----------|--------|--------|

|   | Net cash (used in) operating activities | (646,837) |   | (707,569) |
|--------|-----------------------------------------|-----------|--------|-----------|

| CASH FLOWS FROM INVESTING ACTIVITIES |   |   |   |
|--------------------------------------|--------|--------|--------|

|   | Capital expenditures | (73,359) |   | (12,681) |
|--------|----------------------|----------|--------|----------|

|   | Net cash (used in) investing activities | (73,359) |   | (12,681) |
|--------|-----------------------------------------|----------|--------|----------|

| CASH FLOWS FROM FINANCING ACTIVITIES |   |   |   |
|--------------------------------------|--------|--------|--------|

|   | Payments on subscriptions receivable | 58,154 |   | 359,750 |
|--------|--------------------------------------|--------|--------|---------|

|   | Proceeds on notes payable - stockholder | 1,000 |   | 11,883 |
|--------|-----------------------------------------|-------|--------|--------|

|   | Issuance of common stock for cash | 635,200 |   | 340,000 |
|--------|-----------------------------------|---------|--------|---------|

|   | Warrants exercised | 137,400 |   | 0 |
|--------|--------------------|---------|--------|---|

|   | Disbursements in excess of cash balances | 0 |   | 15,539 |
|--------|------------------------------------------|---|--------|--------|

|   | Fee for stock issuance | 0 |   | (8,000) |
|--------|------------------------|---|--------|---------|

|   | Net cash provided by financing activities | 831,754 |   | 719,172 |
|--------|-------------------------------------------|---------|--------|---------|

| Net increase (decrease) in cash and cash equivalents | 111,558 |   | (1,078) |
|------------------------------------------------------|---------|--------|---------|

| Cash and cash equivalents, beginning of period | 10 |   | 1,088 |
|------------------------------------------------|----|--------|-------|

| Cash and cash equivalents, end of period | $111,568 |   | $10 |
|------------------------------------------|----------|--------|-----|

| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|---------------------------------------------------|

| Cash paid for interest | $0 |   | $0 |
|------------------------|----|--------|----|

| Stock issued for purchase of intangible assets | $114,000 |   | $0 |
|------------------------------------------------|----------|--------|----|

| Stock issued for forgiveness of debt | $600,000 |   | $0 |
|--------------------------------------|----------|--------|----|

|                                                             |
|------------------------------------------------------------------|
| The accompanying notes are an integral part of these statements. |

|   |
|--------|

|   | USURF AMERICA, INC. ANDSUBSIDIARIES COLORADOSPRINGS, COLORADO |   |
|--------|---------------------------------------------------------------|--------|

|   | NOTES TO CONSOLIDATED FINANCIALSTATEMENTS |   |
|--------|-------------------------------------------|--------|

| 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES |   |
|---------------------------------------------------------------|--------|

|   | Basis of Presentation |   |
|--------|-----------------------|--------|

|   | USURF America, Inc. (the “Company”), formerly Internet Media Corporation, wasincorporated as Media Entertainment, Inc. in the State of Nevada on November 1, 1996.The Company currently provides telecommunications services to customers in Coloradoand Arizona. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Principles of Consolidation |   |
|--------|-----------------------------|--------|

|   | The accompanying consolidated financial statements include all the accounts of theCompany and all wholly owned subsidiaries. Intercompany transactions and balances havebeen eliminated in the consolidation.  For the years ended December 31, 2002 and 2001,CyberHighway, Inc., a wholly-owned subsidiary, is not consolidated.  As a result of thesubsidiary’s Chapter 7 bankruptcy, the Company does not have control of the entity and,therefore, has not been consolidated (Note 11). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Use of Estimates |   |
|--------|------------------|--------|

|   | The preparation of financial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differfrom those estimates. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash Equivalents |   |
|--------|------------------|--------|

|   | The Company considers all highly liquid investments with original maturities of threemonths or less from the date of purchase to be cash equivalents. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Inventory |   |
|--------|-----------|--------|

|   | Inventories are stated at the lower of cost or market, and represents modems purchasedfrom suppliers.  During 2002 and 2001, the Company determined that certain items of itsinventory had become impaired and recorded a write-down of its inventory in theapproximate amounts of $132,000 and $98,000, respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Property and Equipment |   |
|--------|------------------------|--------|

|   | Property and equipment are stated at cost and are depreciated using by the straight-linemethod over the estimated useful lives (5 years) of the assets. In the event that facts andcircumstances indicate that the carrying value of long-lived assets may be impaired, anevaluation of recoverability would be performed.  If an evaluation is required, theestimated future undiscounted cash flows associated with the asset would be compared tothe asset’s carrying amount to determine if a write-down to market value or discountedcash flow value is required. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenue Recognition |   |
|--------|---------------------|--------|

|   | The Company charges its customers monthly service fees and recognizes the revenue in themonth the services are provided or equipment is sold. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | Costs of Access Revenues |   |
|--------|--------------------------|--------|

|   | Costs of access revenues primarily consist of telecommunications expenses inherent in thenetwork infrastructure. |
|--------|------------------------------------------------------------------------------------------------------------------|

|   | Comprehensive Income/Loss |   |
|--------|---------------------------|--------|

|   | SFAS No. 130 establishes standards for reporting and display of comprehensiveincome/loss, its components and accumulated balances.  Comprehensive income/loss isdefined to include all changes in equity except those resulting from investments by ownersand distributions to owners.  Comprehensive income/loss was the same as net income(loss) in 2002 and 2001. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Income Taxes |   |
|--------|--------------|--------|

|   | The Company accounts for income taxes under the liability method of SFAS No. 109,whereby current and deferred tax assets and liabilities are determined based on tax ratesand laws enacted as of the balance sheet date. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Financial Instruments and Concentration of Credit Risk |   |
|--------|--------------------------------------------------------|--------|

|   | Financial instruments, which potentially subject the Company to concentrations of creditrisk, consist principally of cash.  The Company maintains its cash in bank depositaccounts, which, at times, may exceed federally insured limits.  The Company has notexperienced any losses in such accounts and believes it is not exposed to any significantcredit risk on cash. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Fair Values of Financial Instruments |   |
|--------|--------------------------------------|--------|

|   | The carrying amounts of financial instruments including cash, trade receivables, accountspayable and accrued expenses approximate fair value because of the immediate or short-term maturities of these instruments. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Loss Per Common Share |   |
|--------|-----------------------|--------|

|   | The loss per common share is presented in accordance with the provisions of SFAS No.128, Earnings Per Share.  Basic loss per common share has been computed by dividing thenet loss available to the common stockholder by the weighted average number of shares ofcommon stock outstanding for the period.  The effect of considering all potential dilutivesecurities (totaling 12,558,727 and 4,899,727 at December 31, 2002 and 2001,respectively) is not presented as the effects would be anti-dilutive. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Intangible Assets |   |
|--------|-------------------|--------|

|   | Intangible assets are stated on the basis of cost and consist of contracts to providetelecommunications services to apartment complexes and other buildings.  These assets areamortized on a straight-line basis, over the life of the contract, between 10 and 15 years.For the year ended December 31, 2002, amortization expense on the contracts wasimmaterial. The Company assesses the recoverability of intangible assets by determiningwhether the amortization of the intangible asset balance over its remaining life can berecovered through undiscounted future operating cash flows of the acquired operation.The amount of impairment, if any, is measured based on projected discounted futureoperating 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 estimatedfuture operating cash flows are not achieved. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Other Assets |   |
|--------|--------------|--------|

|   | As of December 31, 2002, the Company had paid cash as earnest money for the acquisitionof another entity.  The purchase was completed subsequent to year end and these fundswere applied to the final purchase price. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Stock Based Compensation |   |
|--------|--------------------------|--------|

|   | Transactions in equity instruments with non-employees for goods or services are accountedfor on the fair value method, as described in SFAS No. 123. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Stock for Services |   |
|--------|--------------------|--------|

|   | The Company has issued stock pursuant to various consulting agreements. Deferredconsulting costs, which are valued at the stock price on the date of the agreements, arerecorded as a reduction of stockholders' equity and are amortized over the respective livesof the agreements. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Impact of Recently Issued Accounting Pronouncements |   |
|--------|-----------------------------------------------------|--------|

|   | In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statements ofFinancial Accounting Standards No. 141, Business Combinations and No. 142, Goodwilland Other Intangible Assets.  SFAS 141 requires all business combinations initiated afterJune 30, 2001, to be accounted for under the purchase method.  For all businesscombinations for which the date of acquisitions is after June 30, 2001, SFAS 141 alsoestablishes specific criteria for the recognition of intangible assets separately fromgoodwill and requires unallocated negative goodwill to be written off immediately as anextraordinary gain, rather than deferred and amortized.  SFAS 142 changes the accountingfor goodwill and other intangible assets after an acquisition.  The most significant changesmade by SFAS 142 are: (1) goodwill and intangible assets with indefinite lives will nolonger be amortized; (2) goodwill and intangible assets with indefinite lives must be testedfor impairment at least annually; and (3) the amortization period for intangible assets withfinite lives will no longer be limited to forty years. The Company has performed a detailedvaluation analysis in connection with the adoption of these statements and has determinedthat there is no impairment to its carrying value for goodwill. The adoption of SFAS 142had no effect on the Company’s net loss. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In June 2001, the FASB also approved for issuance SFAS 143, Asset RetirementObligations.  SFAS 143 establishes accounting requirements for retirement obligationsassociated with tangible long-lived assets, including (1) the timing of the liabilityrecognition, (2) initial measurement of the liability, (3) allocation of asset retirement costto expense, (4) subsequent measurement of the liability and (5) financial statementdisclosures.  SFAS 143 requires that an asset retirement cost should be capitalized as partof the cost of the related long-lived asset and subsequently allocated to expense using asystematic and rational method.  The Company will adopt the statement effective no laterthan January 1, 2003, as required.  The transition adjustment resulting from the adoption ofSFAS 143 will be reported as cumulative effect of a change of accounting principle.  Atthis time, the Company cannot reasonably estimate the effect of the adoption of thisstatement on its financial position, results of operation or cash flows. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In April 2002, the FASB approved for issuance Statements of Financial AccountingStandards No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment ofSFAS 13, and Technical Corrections.  SFAS 145 rescinds previous accounting guidance,which required all gains and losses from extinguishment of debt be classified as anextraordinary item. Under SFAS 145, classification of debt extinguishment depends on thefacts and circumstances of the transaction.  SFAS 145 is effective for fiscal yearsbeginning after May 15, 2002, and adoption is no expected to have a material effect on theCompany’s financial position or results of its operations. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In July 2002, the FASB issued Statements of Financial Account Standards No. 146,Accounting for Costs Associated with Exit or Disposal Activities.  SFAS 146 requirescompanies to recognize costs associated with exit or disposal activities when they areincurred rather than at the date of commitment to an exit or disposal or exit.  Examples ofcosts covered by SFAS 146 include lease termination costs and certain employee severancecosts that are associated with a restructuring, discontinued operation, plant closing, orother exit or disposal activity.  SFAS 146 is to be applied prospectively to exit or disposalactivities initiated after December 31, 2002.  The adoption of SFAS 146 is not expected tohave a material effect on the Company’s financial position or results of operations. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In December 2002, the FASB issued Statements of Financial Accounting Standards No.148, Accounting for Stock-Based Compensation - Transition and Disclosure - AnAmendment of FASB Statement 123 (SFAS 123).  For entities that change theiraccounting for stock-based compensation from the intrinsic method to the fair valuemethod under SFAS 123, the fair value method is to be applied prospectively to thoseawards granted after the beginning of the period of adoption (the prospective method).The amendment permits two additional transition methods for adoption of the fair valuemethod.  In addition to the prospective method, the entity can choose to either (1) restateall periods presented (retroactive restatement method) or (2) recognize compensation costfrom the beginning of the fiscal year of adoption as if the fair value method had been usedto account for awards (modified prospective method).  For fiscal years beginningDecember 15, 2003, the prospective method will no longer be allowed.  The Companycurrently accounts for its stock-based compensation using the intrinsic value method asprescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees”, and plans on continuing using this method to account for stock options,therefore, it does not intend to adopt the transition requirements as specified in SFAS 148.The Company has adopted new SFAS 148 disclosure requirements in these financialstatements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. 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 inthe normal course of business over a reasonable length of time.  The accompanyingfinancial statement shows that current liabilities exceed current assets by approximately$100,000 at December 31, 2002.  The appropriateness of using the going concern basis isdependent upon obtaining additional financing or equity capital and, ultimately, to achieveprofitable operations. The uncertainty about these conditions raises substantial doubt aboutits ability to continue as a going concern. The financial statements do not include anyadjustments that might result from the outcome of this uncertainty. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Management plans to raise capital by obtaining financing and, eventually, through publicofferings. Management intends to use the proceeds from any borrowings to acquire anddevelop markets to implement its business plan and sell its telecommunications servicesand telecommunications-related equipment.  The Company believes that these actions willenable it to carry out its business plan and ultimately to achieve profitable operations.  (SeeNote 14). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. PROPERTY AND EQUIPMENT |   |
|---------------------------|--------|

|   | Classifications of property and equipment and accumulated depreciation were as follows atDecember 31, 2002 and 2001: |
|--------|----------------------------------------------------------------------------------------------------------------------|

|   |   | 2002 |   | 2001 |
|--------|--------|------|--------|------|

|   | Furniture, fixtures and equipment | $73,359 |   | $203,141 |
|--------|-----------------------------------|---------|--------|----------|

|   | Accumulated depreciation | (7,336) |   | (125,036) |
|--------|--------------------------|---------|--------|-----------|

|   | Property and equipment, net | $66,023 |   | $78,105 |
|--------|-----------------------------|---------|--------|---------|

|   | For the years ending December 31, 2002 and 2001, the Company recognized $7,336 and$70,105 of depreciation expense, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

| 4. INTANGIBLES |   |
|----------------|--------|

|   | Classification of intangibles and accumulated amortization at December 31 were asfollows: |
|--------|-------------------------------------------------------------------------------------------|

|   |   | 2002 |   | 2001 |
|--------|--------|------|--------|------|

|   | Website | $0 |   | $25,000 |
|--------|---------|----|--------|---------|

|   | Intangible assets | 201,604 |   | 0 |
|--------|-------------------|---------|--------|---|

|   | Accumulated amortization | 0 |   | (8,333) |
|--------|--------------------------|---|--------|---------|

|   | Intangible assets | $201,604 |   | $16,667 |
|--------|-------------------|----------|--------|---------|

|   | During 2002, the Company’s website was completely changed and, as a result, thecapitalized costs associated with the old website have been written off.  The balance ofintangible assets at December 31, 2002, is represented by contracts for services as a resultof certain acquisitions. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. LICENSES AND RIGHTS TO LEASES OF LICENSES |   |
|----------------------------------------------|--------|

|   | The Company owns licenses or rights to leases of licenses in the following wireless cableand community television markets: |
|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | Wireless Cable Market   |   | Expiration Date   |   |
|--------|-------------------------|--------|-------------------|--------|
|   | Poplar Bluff, Missouri  |   | October 16, 2006  |   |
|   | Lebanon, Missouri       |   | October 16, 2006  |   |
|   | Port Angeles,Washington |   | December 21, 2003 |   |
|   | Astoria, Oregon         |   | December 21, 2003 |   |
|   | Sand Point, Idaho       |   | August 09, 2006   |   |
|   | The Dalles, Oregon      |   | August 09, 2006   |   |
|   | Fallon, Nevada          |   | August 09, 2006   |   |

|   | Application for renewal of licenses must be filed within a certain period prior toexpiration. |
|--------|-----------------------------------------------------------------------------------------------|

| 6. NOTE PAYABLE |   |
|-----------------|--------|

|   | In connection with an acquisition made by the Company, the Company’s balance sheetreflects a note payable obligation of the acquired subsidiary.  At December 31, 2002, thebalance of this note was $87,604, due in full in August 2003, with interest accruing at 8%per annum, without collateral. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7. NOTE PAYABLE TO STOCKHOLDER |   |
|--------------------------------|--------|

|                                                                                               | 2002   |   | 2001    |
|----------------------------------------------------------------------------------------------------|--------|--------|---------|
| Note payable to stockholder, interest accrues at8%, due on demand and unsecured, withoutcollateral | $1,000 |   | $18,521 |

| 8. INCOME TAXES |   |
|-----------------|--------|

|   | The significant components of deferred tax assets and liabilities were as follows atDecember 31st: |
|--------|----------------------------------------------------------------------------------------------------|

|   | 2002 |   | 2001 |
|--------|------|--------|------|

|   | Deferred tax assets |   |
|--------|---------------------|--------|

|   | Net operating loss carryforwards | $5,950,000 |   | $4,589,000 |
|--------|----------------------------------|------------|--------|------------|

|   | Less - valuation allowance | (5,950,000) |   | (4,589,000) |
|--------|----------------------------|-------------|--------|-------------|

|   |   | $-0- |   | $-0- |
|--------|--------|------|--------|------|

|   | The increase in the valuation allowance was approximately $1,361,000 and $850,000 forthe years ended December 31, 2002 and 2001, respectively.  In assessing the realizabilityof deferred tax assets, management considers whether it is more likely than not that someportion or all of the deferred tax assets will not be realized.  The ultimate realization ofdeferred tax assets is dependent upon the generation of future taxable income during theperiods in which those temporary differences become deductible. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company has net operating loss carryforwards of approximately $17,500,000 and$13,500,000 for 2002 and 2001, respectively.  These losses are available to offset futureincome for income tax reporting purposes and will begin to expire in 2011. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | During 2002, there was an equity purchase and change in management (Note 10).  Thisresulting ownership change could limit the availability of the net loss carryforwards underfederal tax law section 382.  The Company does not anticipate any limitations of theselosses, but a formal analysis has not been performed to date. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9. CONCENTRATIONS |   |
|-------------------|--------|

|   | The Company relies, in part, on local telephone companies and other companies to providecertain  telecommunications services.  Although management believes alternativetelecommunications facilities could be found in a timely manner, any disruption of theseservices could have an adverse effect on operating results. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10. STOCKHOLDERS’ (DEFICIT) EQUITY |   |
|------------------------------------------|--------|

|   | 2002 Stock Ownership Plan |   |
|--------|---------------------------|--------|

|   | In March 2002, the Board adopted a stock ownership plan for officers, directors andconsultants of the Company known as the 2002 Stock Ownership Plan, as amended andrestated in December 2002 (the “2002 Plan”). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The 2002 Plan was established by the Board as a means to promote the success andenhance the value of the Company by linking the personal interests of participants to thoseof the Company’s shareholders, and by providing participants with an incentive foroutstanding performance. The 2002 Plan is further intended to aid the Company inattracting and retaining the services of persons upon whose judgment, interest and specialefforts the successful operation of the Company and its subsidiaries is dependent.  Personswho are either officers, directors or consultants of the Company are eligible to participatein the 2002 Plan.  The Board may, at any time and from time to time, grant shares of theCompany’s common stock in such amounts and upon such terms and conditions as it maydetermine, to include the granting of shares of Company common stock and the granting ofoptions to purchase shares of Company common stock.  11,000,000 shares of Companycommon stock were reserved for issuance under the 2002 Plan and a RegistrationStatement on Form S-8 (SEC File No. 333-102167) relating to the 2002 Plan, as amended,has been filed with the SEC.  Under the 2002 Plan, at December 31, 2002, a total of3,150,000 shares had been issued to consultants. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Stock Compensation |   |
|--------|--------------------|--------|

|   | In 2001, 700,000 shares were issued to an officer as a bonus for his services as an officer.Compensation expense of approximately $133,000 was recorded based on the fair value ofthe common stock on the date of issue. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Also, in 2001, 200,000 shares were awarded to an officer as a bonus for his services as anofficer.  Compensation expense of approximately $18,000 was recorded based on the fairvalue of the common stock on the date of issue.  These shares were authorized in 2001 andwere issued in 2002. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In 2002, the Company issued a total of 6,436,000 shares in payment of salaries in the totalamount of $594,520, the fair value of the common stock on the respective dates of issue. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Stock for Settlement of Debt |   |
|--------|------------------------------|--------|

|   | In 2002, the Company issued a total of 4,404,000 shares of common stock in payment of atotal of $291,450 in accrued salary of certain of its officers and former officers, inconnection with the equity purchase and change in control.  These shares were valued at$.07 per share, the closing price of the Common Stock, as reported by AMEX, on the dateof issuance.  In connection with the same transaction, the Company issued 1,596,000shares of common stock as payment for all loans outstanding. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Potential Rescission Claims |   |
|--------|-----------------------------|--------|

|   | From January 2000 through June 2001, a total of 4,906,549 shares of the common stock ofthe Company may have been issued in violation of Section 5 of the Securities Act of 1933,as amended.  The aggregate value assigned to these shares upon their issuance totaled$5,090,252.  For a period of one year from issuance, the issuees of these shares have orhad, as the case may be, a potential claim for rescission of their respective issuancetransactions. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | At December 31, 2001, 2,138,726 of these shares have been reflected under theredeemable stock caption on the accompanying balance sheet with an assigned value of$1,192,700. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | At December 31, 2002, none of these shares remained under the redeemable stock captionon the accompanying balance sheet. |
|--------|--------------------------------------------------------------------------------------------------------------------------|

|   | The diminishing number of shares subject to potential rescission claims was caused eitherby the expiration of the respective statute of limitations periods or by the transfer of thesubject shares by the original issuees. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Other Transactions |   |
|--------|--------------------|--------|

|   | During 2002, the Company issued 10,685,968 shares of common stock for cash of$644,131, based on the market price at the time of issuance. $10,000 of this amount isreflected as a subscription receivable at December 31, 2002. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company issued 16,524,500 shares of common stock to consultants and professionalsfor services to be performed during 2002.  The stock price was determined to be marketprice on the date of issuance.  As of December 31, 2002, $370,000 of services were notperformed and are shown as a reduction to stockholders’ deficit. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In connection with the acquisition of two subsidiaries and their related intangibles anddebt, the Company issued 2,200,000 shares of common stock, valued at $113,780 to theformer owners of these entities. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As of December 31, 2001, the Company had received $165,750 of cash related to the saleof common stock for cash, but had not issued certificates to these stockholders.  During2002, these certificates were issued.  Also during 2002, the Company issued stock for cashand, as of December 31, 2002, $21,200 remained outstanding and due from third parties. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Warrant Exercises |   |
|--------|-------------------|--------|

|   | In 2002, the Company issued 2,700,000 shares to non-employees upon the exercise ofwarrants for a total consideration of $148,000 in cash. $11,200 of this amount is reflectedas a subscription receivable at December 31, 2002. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The following table is a table of warrants issued during 2002 and 2001: |
|--------|-------------------------------------------------------------------------|

|   | Warrants Outstanding, January 1, 2001 |   | 875,477 |   |
|--------|---------------------------------------|--------|---------|--------|

|   | Warrants issued |   | 4,124,250 |   |
|--------|-----------------|--------|-----------|--------|

|   | Warrants exercised |   | (100,000) |   |
|--------|--------------------|--------|-----------|--------|

|   | Warrants expired |   | 0 |   |
|--------|------------------|--------|---|--------|

|   | Warrants Outstanding, December 31,2001 |   | 4,899,727 |   |
|--------|----------------------------------------|--------|-----------|--------|

|   | Warrants issued |   | 10,569,000 |   |
|--------|-----------------|--------|------------|--------|

|   | Warrants exercised |   | (2,700,000) |   |
|--------|--------------------|--------|-------------|--------|

|   | Warrants expired |   | (210,000) |   |
|--------|------------------|--------|-----------|--------|

|   | Warrants Outstanding, December 31,2002 |   | 12,558,727 |   |
|--------|----------------------------------------|--------|------------|--------|

|   | Warrants for 10,569,000 shares were granted in 2002.  The weighted average remainingcontractual life for all warrants as of December 31, 2002, was approximately 2.2 years.  AtDecember 31, 2002, all outstanding warrants were fully vested and exercisable. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | If not previously exercised, warrants outstanding December 31, 2002, will expire asfollows: |
|--------|---------------------------------------------------------------------------------------------|

|   | Range |   |
|--------|-------|--------|

|   | Year |   | Low |   | High |   | Number ofWarrants |   | Weighted Average ExercisePrice |   |
|--------|------|--------|-----|--------|------|--------|-------------------|--------|--------------------------------|--------|

|   | 2003 |   | $0.20 |   | $1.50 |   | 493,334 |   | $0.47 |   |
|--------|------|--------|-------|--------|-------|--------|---------|--------|-------|--------|

|   | 2004 |   | $0.15 |   | $3.50 |   | 3,090,143 |   | $0.28 |   |
|--------|------|--------|-------|--------|-------|--------|-----------|--------|-------|--------|

|   | 2005 |   | $0.05 |   | $0.30 |   | 8,169,000 |   | $0.19 |   |
|--------|------|--------|-------|--------|-------|--------|-----------|--------|-------|--------|

|   | 2006 |   | $0.25 |   | $0.45 |   | 806,250 |   | $0.35 |   |
|--------|------|--------|-------|--------|-------|--------|---------|--------|-------|--------|

|   | 12,558,727 |   |
|--------|------------|--------|

|   | For the year ended December 31, 2002, the Company recognized $396,604 ofcompensation expense related to issuance of warrants to non-employees in accordancewith SFAS No. 123.  The Company repriced certain warrants, which resulted in a charge toearnings of $106,609.  This amount is included in the compensation expense of $396,604recognized in 2002. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Significant Equity Purchase |   |
|--------|-----------------------------|--------|

|   | In April 2002, the Company entered into a securities purchase agreement with a thirdparty, whereby the Company is to issue 3,125,000 units of its securities, each unitconsisting of one share of common stock, one common stock purchase warrant to purchaseone share at an exercise price of $.15 per share and one common stock purchase warrant topurchase one share at an exercise price of $.30 per share, for cash in the amount of$250,000 payable in two equal increments at the initial closing and 60 days thereafter.Also pursuant to this agreement, the Company hired a new president and chief executiveofficer, who became a director of the Company, and, as a signing bonus, issued him3,000,000 shares of common stock; the current president became Chairman of the Board,reduced the term of his remaining term of employment from approximately four years tosix months, waived the payment of all accrued and unpaid salary and waived therepayment of all loans made by him to the Company, in consideration of 2,000,000 sharesof common stock being issued to him; two of the Company’s vice presidents reduced theterms of their remaining terms of employment from approximately four years to sixmonths and one year to six months, respectively, and waived the payment of all accruedand unpaid salary, in consideration of 2,000,000 shares of common stock being issued toeach of them; and the other vice president of the Company terminated his employmentwith the Company. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 11. CONTINGENCIES |   |
|-------------------|--------|

|   | A. Involuntary Bankruptcy |   |
|--------|---------------------------|--------|

|   | On September 29, 2000, three creditors of CyberHighway filed an involuntary petition inthe Idaho Federal Bankruptcy Court, styled In Re:CyberHighway, Inc..  In December 2000,CyberHighway and the petitioning creditors filed a joint motion to dismiss this proceeding.However, some of CyberHighway’s creditors objected to the joint motion to dismiss andthe motion failed. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | At December 31, 2002 and 2001, approximately $953,561 of accounts payable ofCyberHighway is not reflected on the balance sheet.  As a result of the bankruptcy, thissubsidiary is not consolidated with the Company.  The effect of not consolidatingCyberHighway on the Company’s December 31, 2001, financial statements had no effecton net income before extraordinary items, eliminated the extraordinary item and increasedthe net loss by $489,905. The effect on net loss per common share was an increase of $.03per share of net loss. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. Outstanding Judgments |   |
|--------|--------------------------|--------|

|   | In 2000, the Company began arbitration proceedings against a former vice president forviolations of his employment agreement with the Company, and, in 2002, an award of$75,000, plus reimbursement of legal expenses of approximately $25,000 was awarded tothe former officer.  Also during 2002, the Company was informed of a default judgmentfrom unchallenged litigation in the amount of $22,000.  These amounts are included inaccounts payable on the balance sheet. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. Subleases |   |
|--------|--------------|--------|

|   | The Company subleases office space in Colorado Springs, Colorado, through 2004.  Thefollowing table reflects the future rental payments, but does not include the proportionateobligation of property taxes (approximately $2,500 per month for the term of the subleaseagreement): |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Year |   | Amount |   |
|--------|------|--------|--------|--------|

|   | 2003 |   | $54,000 |   |
|--------|------|--------|---------|--------|

|   | 2004 |   | 66,000 |   |
|--------|------|--------|--------|--------|

|   | $120,000 |   |
|--------|----------|--------|

|   | Rent expense for the years ended December 31, 2002 and 2001, were $20,051 and$28,528, respectively. |
|--------|-----------------------------------------------------------------------------------------------------|

|   | D. American Stock ExchangeListing |   |
|--------|-----------------------------------|--------|

|   | Currently, the Company is not in compliance with the continued listing guidelines ofAMEX.  During the second quarter of 2001, AMEX first inquired with respect to our planfor achieving compliance with its continued listing guidelines.  The Company’s responseto AMEX included an explanation of its anticipated future funding under the first FusionCapital agreement and the positive effects this funding would likely have on theCompany’s business and financial condition, particularly in increasing its total assets andstockholders’ equity.  In July 2002, the Company was notified by AMEX that it had fallenbelow the continued listing standards of AMEX.  The Company has 18 months in which toregain compliance with AMEX’s continued listing standards.  The Company has fallenbelow certain of AMEX’s continued listing standards: (1) losses from operations in its twomost recent fiscal years with shareholders’ equity below $2 million; and (2) sustainedlosses so substantial in relation to the company’s overall operations or its existing financialresources, or its financial condition in relation to its overall operations or its existingfinancial resources, or its financial condition has become so impaired that it appearsquestionable, in the opinion of AMEX, as to whether the company will be able to continueoperations and/or meet its obligations as they mature.  After AMEX reviewed theCompany’s plan for regaining compliance, it was granted an extension of time (18 months)to regain compliance with the continued listing standards.  The Company is subject toperiodic review by the AMEX staff during the extension period.  Failure to make progressconsistent with the plan or to regain compliance with the continued listing standards by theend of the extension period could result in the Company’s being delisted from AMEX. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 12. SEGMENT DISCLOSURE |   |
|------------------------|--------|

|   | The Company adopted SFAS No. 131 “Disclosures about Segments of an Enterprise andRelated Information,” during the fourth quarter of 2000.  SFAS No. 131 establishedstandards for reporting information about operating segments in annual financialstatements and requires selected information about operating segments in interim financialreports issued to stockholders.  It also established standards for related disclosures aboutproducts and services and geographic areas.  Operating segments are defined ascomponents of an enterprise about which separate financial information is available that isevaluated regularly by chief operating decision makers or decision making groups, indeciding how to allocate resources and in assessing performance.  Through December 31,2002, the Company’s operations contained no individual segments that are required to bereported pursuant to SFAS 131. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 13. FINANCING TRANSACTION |   |
|---------------------------|--------|

|   | In May 2001, the Company signed an amended and restated common stock purchaseagreement with an unrelated company to sell up to 6,000,000 shares of common stock forup to $10,000,000.  This agreement terminated in March 2003, upon the purchase of thelast available shares under the agreement.  During its term, the purchase price of the sharesunder the purchase agreement varied, based on market prices of the Company's commonstock.  The registration statement filed with respect to this financing transaction becameeffective on June 29, 2001.  The commencement date of the purchase agreement was July10, 2001.  The Company received a total of $585,000 in proceeds under the purchaseagreement during 2001, 2002 and 2003, in consideration of 6,000,000 shares. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14. SUBSEQUENT EVENTS |   |
|-----------------------|--------|

|   | In March 2003, the Company signed a common stock purchase agreement with anunrelated company to sell up to $10,000,000 of Company common stock.  The purchaseprice per share under this purchase agreement varies, based on market prices of theCompany's common stock.  The purchase agreement calls for the Company to meet certainrequirements and maintain certain criteria with respect to its common stock in order toavoid an event of default.  Upon the occurrence of the event of default the buyer is nolonger obligated to purchase any additional shares of common stock.  A registrationstatement is expected to be filed in the near future with respect to this financingtransaction.  There is no assurance that the Company will benefit from such agreement. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|