U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   Form 10-KSB

[X]  Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
     1934 for the Fiscal Year Ended December 31, 2003

[ ]  Transition Report Under Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the Transition Period From ________ to ________

                           Commission File No. 1-15383

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

                 Nevada                             91-2117796
                 ------                             ----------
     (State or Other Jurisdiction of   (IRS Employer Identification Number)
     Incorporation or Organization)

        6005 Delmonico Drive, Suite 140, Colorado Springs, Colorado 80919
        -----------------------------------------------------------------
          (Address of Principal Executive Offices, Including Zip Code)

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

         Securities Registered under Section 12(b) of the Exchange Act:
         --------------------------------------------------------------
     Title of Each Class             Name of Exchange on Which Registered
     -------------------             ------------------------------------
        Common Stock                          OTC Bulletin Board

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

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Registrant's revenues for its most recent fiscal year were $403.764.

The number of shares outstanding of the issuer's classes of common equity as of
April 13, 2004 was 141,920,835 shares of common stock, par value $.0001.

Documents Incorporated by Reference: ______________________________________

Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]

<PAGE>

                                     PART I

Item 1. Description of Business
-------------------------------

The Company
-----------

The Company was incorporated on November 1, 1996, under the name "Media
Entertainment, Inc." In July 1999, the name was changed to "USURF America, Inc."

Our headquarters are located at 6005 Delmonico Drive, Suite 140, Colorado
Springs, Colorado 80919; our telephone number is (719) 260-6455.

Current Overview
----------------

     During 2003, we continued to implement and expand our business plan beyond
solely offering wireless Internet access service. We currently operate as a
provider of video (cable television) and data (Internet) services to business
and residential customers. We also market and sell telecommunications-related
hardware and software.

     In early 2003, we restructured our operations by creating three new
subsidiary corporations that reflect our operating divisions:

     -    NEIGHBORLYNC, Inc. - this subsidiary secures right of entry (ROE)
          agreements for the provision of voice, video and/or data services with
          owners of multiple dwelling unit (MDU) properties, as well as to
          "greenfield" developers, that is, developers of undeveloped land.

     -    USURF Systems & Technologies, Inc. - this subsidiary conducts all of
          our telecommunications-related equipment and software sales operations
          for business communications.

     -    USURF Communications, Inc. - this subsidiary, directly and through
          other subsidiaries, provides video and data services to our customers.

     References to the "Company","us", "our" and "we" include USURF America,
Inc., USURF Development, Inc., NeighborLync. Inc., USURF Systems & Technologies,
Inc. and USURF Communications, Inc.

Our current business plan involves obtaining, through internal growth, as many,
video and data customers as possible as well as voice services in fiscal 2004.
Our growth strategy also includes acquisitions of telecommunications-related
businesses and/or properties which would provide an immediate or potential
customer base for our services.

                                       2
<PAGE>

Industry Background.
--------------------

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

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

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

Our Business
------------

     We currently operate as a provider of video (cable television) and data
(Internet) services to business and residential customers. We also market and
sell telecommunications-related hardware and software.

                                       3
<PAGE>

Our business plan involves the bundling of voice, video and internet services
which enables us to better negotiate and obtain ROE agreements with owners of
MDUs. We plan to expand and market our operations by obtaining new ROE
agreements through internal sales efforts, as well as through the acquisition of
other communications companies. The terms of these ROE agreements range to 20
years.

We also offer a bundled package of video and internet services to small
businesses; as well as obtaining ROE agreements with owners of commercial
properties or multiple tenant units (MTUs). Under these agreements the
owners/managers of the MTUs provide marketing for company products and services.

Telephone (Voice) Services
--------------------------

At December 31, 2003, we did not provide telephone service to any customers,
however we have executed definitive agreements with SunWest Communications Inc.
(SunWest) and Connect Paging, Inc. d/b/a Get A Phone (GAP) and we have executed
a letter of intent with Apollo Communications, Inc. (Apollo) to acquire GAP and
all of the assets of both SunWest and Apollo. SunWest, GAP and Apollo provide
local, long distance and enhanced communication services to Texas and Colorado
customers. These companies are Competitive Local Exchange Carriers (CLECs) and
are subject to regulation by the Texas and Colorado Public Utilities Commissions
(PUC). These transactions for the purchases of GAP and the assets of Sunwest and
Apollo are subject to the prior approval of the PUC.

Cable Television (Video) Services
---------------------------------

The company currently operates as a private cable operator (PCO) whereby it is
not subject to franchise regulations. However, through the company's subsidiary,
Neighborlync, Inc., the company has applied for a franchise in Elbert County
Colorado.

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

                                       4
<PAGE>

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

Internet (Data) Services
------------------------
Wireless Access
---------------
     Wireless Internet Access
     ------------------------

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

                                       5
<PAGE>

     Current Markets
     ---------------

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

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

     In the fourth quarter, 2003 the company began deployment of high speed data
     access to high-end, recreational vehicle, resort communities in the
     Phoenix, Arizona area.

     In each of our markets, our progress in developing our business has been
     impaired by a lack of capital. Unless we obtain needed capital, the growth
     of the business will continue to be slow.

     Cable Access
     ------------

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

Telecommunications Equipment and Software Sales
-----------------------------------------------

In February 2003, we acquired assets from a telecommunications company that have
enabled us to begin to operate as a seller of telecommunications-related
services, hardware and software. We offer a broad array of products and the
start to this part of our business has shown some success. For the year ended
December 31, 2003, revenues from the sale of services, hardware and software
totaled approximately $219,000.

Intellectual Property Sales
---------------------------

On October 2, 2003, the company acquired all the assets of Children's Technology
Group (CTG), a Golden, Colo.-based Internet portal providing a content-protected
online environment for children. CTG's flagship product is Garfield Island(TM),
available via download at www.GarfieldIsland.com , and features the world-famous
cartoon cat. This acquisition was completed with a combination of cash and
common stock.

                                       6
<PAGE>

In October 2003, the Company entered into an agreement to license certain
software acquired in the CTG purchase to ZKid Network Company (OTC Bulletin
Board: ZKID). The company will provide ZKid Network Company's product with an
additional layer of security and greater empowerment to parents for the
soon-to-be released KidsKeep Safe Internet Software Program. The terms of the
agreement called for a license fee payment of $485,000 paid with a combination
of $25,000 cash and two million shares of stock. The agreement also calls for a
monthly fee, based upon sales, with a minimum of $4,000 per month. The license
fee has been recorded as deferred revenue and is being amortized over the two
year term of the agreement using the straight line method. The balance of
deferred revenue at December 31, 2003 was $403,333. At December 31, 2003, the
value of the stock had declined and accordingly, the Company recorded an
unrealized comprehensive loss of $160,000 and reduced the carrying value of the
stock by $160,000. The company has recognized approximately $62,000 of revenue
relating to this agreement during 2003.

Our Sales and Marketing Strategy
--------------------------------

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

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

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

                                       7
<PAGE>

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

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

During 2004 we may enter a new market or new markets, depending on the level of
funding we are able to obtain. We expect a large majority of our new passings
growth will occur from acquisitions with the remaining from internal growth
activities from local marketing efforts.

Key Suppliers
-------------

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

Customer Service and Support
----------------------------

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

                                       8
<PAGE>

Competition
-----------

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

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

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

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

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

                                       9
<PAGE>

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

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

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

Regulation
----------

     General
     -------

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

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

                                       10
<PAGE>

     Telephony Regulation
     --------------------

     The 1996 Act opened the local telecommunications markets to competition by
     mandating the elimination of many legal, regulatory, economic and
     operational barriers to competitive entry. These changes provided us with
     new opportunities to provide local telephone services on a more
     cost-effective basis.

     Cable Television Regulation
     ---------------------------

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

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

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

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

                                       11
<PAGE>

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

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

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

     Wireless Internet Regulation
     ----------------------------

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

     Regulation of Internet Access Services
     --------------------------------------

     We provide Internet access, in part, using telecommunications services
     provided by third-party carriers. Terms, conditions and prices for
     telecommunications services are subject to economic regulation by state and
     federal agencies. As an Internet access provider, we are not currently

                                       12
<PAGE>

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

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

     Regulation of the Internet
     --------------------------

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

     Employees
     ---------

     We have seven employees, including three officers. Two of our officers have
     entered into employment agreements. In addition, we contract for the
     services of a few consultants for engineering and installation services.

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<PAGE>

Risk Factors Concerning Us and Our Common Stock
-----------------------------------------------

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

     We Have A Limited Operating History With Significant Losses And Expect
Losses To Continue For The Foreseeable Future

     We have incurred annual operating losses since our inception. As a result,
at December 31, 2003, we had an accumulated deficit of $43,861,845. Our gross
revenues for the twelve months ended December 31, 2003, were $403,764, with a
loss from operations of $3,583,460 and a net loss of $3,654,356. At December 31,
2002, we had an accumulated deficit of $40,207,489. For the year ended December
31, 2002 our gross revenues were $0, with losses from operations of $3,969,548
and net losses of $4,160,422. As a result of losses and cash flow constraints
the independent auditors report includes a going concern.

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

     The Market Price Of Our Common Stock Is Very Volatile And The Value Of Your
Investment May Be Subject To Sudden Decreases

     The trading price for our common stock has been, and we expect it to
continue to be, volatile. For example, the closing bid price of our stock has
fluctuated between $0.24 per share and $.07 per share since January 1, 2004. The
price at which our common stock trades depends upon a number of factors,
including our historical and anticipated operating results and general market
and economic conditions, which are beyond our control. Factors such as
fluctuations in our financial and operating results, technological innovations
or new commercial products by us or our competitors, could also cause the market
price of our common stock to fluctuate substantially. In addition, the stock
market has, from time to time, experienced extreme price and volume
fluctuations. These broad market fluctuations may lower the market price of our
common stock. Moreover, during periods of stock market price volatility, share
prices of many companies have often fluctuated in a manner not necessarily
related to their operating performance. Accordingly, our common stock may be
subject to greater price volatility than the stock market as a whole.

                                       14
<PAGE>

     A Low Market Price May Severely Limit The Potential Market For Our Common
Stock

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

     Our Stock Has Been De-listed from the American Stock Exchange

     On March 9, 2004, trading of our common stock on the American Stock
Exchange was suspended because the company failed to maintain the continued
listing standards of AMEX. As a result our common stock currently trades on the
NASD's OTC Bulletin Board and is categorized as a "penny stock," as long as it
trades below $5.00 per share. Broker-dealer practices in connection with
transactions in penny stocks are regulated by penny stock rules adopted by the
SEC. The penny stock rules require a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure statement prepared by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, as well as the monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that, prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.

                                       15
<PAGE>

     These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. As long as our stock trades on the OTC Bulletin Board, it can
be expected that investors in our common stock may find it more difficult to
profit on their investments in our stock.


Item 2. Description of Property
-------------------------------

General
-------

We own equipment, including office and network equipment, necessary to conduct
our business.

In Colorado Springs, Colorado, we lease our executive office space for a monthly
rental of $5,500. One of our subsidiaries, USURF Systems and Technologies, Inc.
leases a small office in Parker, Colorado for a monthly rental of $3,000.

Intellectual Property
---------------------

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

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


Item 3. Legal Proceedings
-------------------------

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

                                       16
<PAGE>

In July 2002, an adverse arbitration decision was rendered against the Company
in favor of one of our former employees, Christopher L. Weibelt. The decision
arose out of a claim by Mr. Weibelt of wrongful termination under his employment
agreement. The arbitration matter was styled: USURF America, Inc. versus
Christopher L. Wiebelt, American Arbitration Association, Case No.
71-160-00087-01. In September 2003, judgment was entered by a Louisiana District
Court on the arbitration award, plus accrued interest and attorneys fees
totaling approximately $124,000. In February 2004, we entered into a settlement
agreement with Mr. Weibelt under which we agreed to satisfy the judgment by
making an initial payment of $30,000 and six equal monthly payments thereafter
for the balance. Under the settlement agreement, the judgment will be fully
satisfied in August 2004.

In June 2001, a default judgment in the amount of $23,666 was entered against us
in the matter styled: Marcus, Merrick, Montgomery, Christian & Hardee, LLP vs.
USURF America, Inc., District Court of the Fourth Judicial District of the State
of Idaho, in and for the County of Ada, Case No. CV OC 0101693D. The lawsuit,
filed by a law firm in Boise, Idaho, arose out of a dispute regarding legal fees
and went unchallenged as a result of administrative error. In February of 2004,
we settled this matter for the amount of $39,404.74. Counsel for the plaintiff
has filed with the court an acknowledgment of full satisfaction of the judgment.

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

In March 2004, we became aware of a default judgment in the amount of $12,963,
rendered against us on November 13, 2001 in the matter styled Teletronics
International, Inc. v. USURF America, Inc.; Cause No. 0108-07513-D; in the City
Court of Baton Rouge, Louisiana. The lawsuit arose out of a dispute regarding a
vendor invoice and went unchallenged as a result of administrative error. In
March 2004, we settled this matter for the amount of $17,217.20. Counsel for the
plaintiff will file appropriate documents with the court to acknowledgment full
satisfaction of the judgment.

                                       17
<PAGE>

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

On September 22, 2003, USURF America, Inc. held its 2003 Annual Meeting of
Shareholders, originally scheduled for August 8, 2003. The annual meeting was
adjourned, inasmuch as a quorum was not present at the scheduled meeting time.
Upon reconvening the annual meeting, a quorum being present, the following
directors were elected: Douglas O. McKinnon, David M. Loflin, Richard E. Wilson
and Ross S. Bravata; Hein & Associates, LLP was ratified as our auditor for
2003; a proposed amendment to our articles of incorporation was approved; and
our 2002 Stock Ownership Plan was ratified.

On September 23, 2003, we filed a certificate of amendment to our articles of
incorporation, whereby our authorized capital was increased from 100,000,000
shares of common stock, par value $.0001, to 400,000,000 shares of common stock,
$.0001 par value, and 100,000,000 shares of preferred stock, $.0001 par value.


                                     PART II

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

Market Information
------------------

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

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

                                       18
<PAGE>

On March 5, we were notified by the American Stock Exchange ("AMEX") that,
following a hearing on March 4, 2004, a Listing Qualifications Panel of the AMEX
Committee on Securities affirmed a decision by the AMEX staff to delist our
common stock. On March 9, 2004, AMEX suspended trading of our common stock. On
March 10, 2004, our common stock began trading on the "pink sheets" and on March
22, 2004, began trading "over the counter" under the symbol "USUR.OB." The table
below shows the range of high and low bid information for the period March 10,
2004 through March 31, 2004.

     Period Ended                          High             Low
     ------------                          ----             ---
     March 31, 2004                        .11              .06


Holders

On March 24, 2004, there were approximately 1,210 holders of record of our
common stock.
<TABLE>
<CAPTION>

                   Securities Authorized for Issuance Under Equity Compensation Plans
-------------------------------------------------------------------------------------------------------
                                                                                Number of securities
                                                                                remaining available for
                                                                                future issuance under
                             Number of Securities to    Weighted-average        equity compensation
                             be issued upon exercise    exercise price of       plans (excluding
                             of outstanding options,    outstanding options,    securities reflected in
Plan Category                warrants and rights        warrants and rights     column (a))
-------------------------------------------------------------------------------------------------------
<S>                                  <C>                        <C>                    <C>
Equity compensation plans
approved by security                                                                             (1)
holders                               0                          0                      1,060,520

Equity compensation plans
not approved by security
holders                               0                          0                          0

Individual Compensation
Arrangements                          0                          0                         n/a
-------------------------------------------------------------------------------------------------------
Total                                 0                          0                      1,060,520
-------------------------------------------------------------------------------------------------------

Note (1) Represents the number of shares of the Company's common stock remaining
         available for future issuance under the Company's Second Amended and
         Restated 2002 Stock Ownership Plan.

                                       19
<PAGE>
</TABLE>

Dividends

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

Recent Issuances of Unregistered Securities

During the three months ended December 31, 2003, we issued the following
securities:

1.   (a)  Securities Issued. In October 2003, 50,000 shares of the Company's
          common stock were issued.

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

     (c)  Consideration. Such shares were issued pursuant to an employment
          agreement.

     (d)  Exemption from Registration. These securities are exempt from
          registration under the Securities Act of 1933, as amended, pursuant to
          the provisions of Section 4(2) thereof and Rule 506 thereunder, as a
          transaction not involving a public offering. This purchaser is a
          sophisticated investor capable of evaluating an investment in the
          Company.

                                       20
<PAGE>

     (d)  Exemption from Registration. These securities are exempt from
          registration under the Securities Act of 1933, as amended, pursuant to
          the provisions of Section 4(2) thereof and Rule 506 thereunder, as a
          transaction not involving a public offering. This purchaser is a
          sophisticated investor capable of evaluating an investment in the
          Company.

     (e)  Terms of Conversion or Exercise. Exercise price of the options is
          $.128 per share and the options are exercisable for a period of two
          years from issuance.

Information regarding issuance of unregistered securities during the first nine
months of 2003 has been disclosed in each of the Quarterly Report on Form 10-QSB
filed by the Company during 2003.











                                       21
<PAGE>

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

Current Overview

     During the first quarter of 2002, we focused all of our efforts and capital
on the exploitation of our wireless internet access products. Beginning in April
2002, with the arrival of our new president, we began to expand our business. By
the beginning of 2003, we had become a provider of a broad range of video (cable
television) and data (internet) services to business and residential customers.
We also market and sell telecommunications-related hardware and software. We
have begun building our internet network in Denver and Colorado Springs and have
become the preferred communications services provider for a number of
Denver-area MDU properties, providing video and data services.

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

Plan of Operation

We currently operate as a provider of video (cable television) and data
(Internet) services to business and residential customers. We also market and
sell telecommunications-related hardware and software. In 2004 we plan to add
voice (telephone) services to our package of service offerings.

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

                                       22
<PAGE>

2003 Acquisitions

Effective August 26, 2003, USURF acquired the customer base (approximately 510
customers) and related assets of Pipeline Networks of Colorado, LLC,
("Pipeline") a privately-held Denver, Colorado-area provider of high speed
broadband Internet access service. The acquired customers receive their
broadband Internet access via traditional digital subscriber line (DSL) or
cable-modem services. The Pipeline acquisition included all of the assets needed
to provide broadband DSL and cable-modem services at each of the twelve multiple
dwelling unit properties to which we obtained rights of entry. In the
acquisition we used $45,000 of our cash on hand and issued a promissory note,
face amount $111,300, due December 15, 2003, with interest accruing at 8% per
annum. By virtue of a modification and extension agreement executed by the
parties, the promissory note was paid in full in January, 2004. Additionally,
pursuant to the modification and extension agreement, we are obligated to pay to
Pipeline the amount of $156,000, plus accrued interest, in the form of cash or
stock, in our discretion, on or before April 13, 2004. This sum is reflected on
the balance sheet as an "other current liability" at December 31, 2003. Any
stock so issued will be included in a From SB-2 registration to be filed with
the SEC. We have not yet determined whether we will elect to deliver cash or
stock. Through December 31, 2003, USURF recorded revenues of $54,810 related to
the Pipeline transaction. These revenues appear in our statements of operations
for the year ended December 31, 2003.

Effective September 5, 2003, USURF acquired certain assets of Children's
Technology Group, Inc. ("CTG"), a Golden, Colorado-based Internet portal
providing a content-protected online environment for children. In the
acquisition, we used $150,000 of our cash on hand and issued 2,800,000 shares of
our common stock. In addition to revenues from the sale of services directly to
customers, the Company expects to generate significant revenues through the
licensing of the CTG content-filtering software.

In October, 2003 the company signed a $465,000 licensing agreement with ZKid
Network Company (OTC Bulletin Board: ZKID) for CTG's proprietary technology. The
company will provide ZKid Network Company's product with an additional layer of
security and greater empowerment to parents for the soon-to-be released KidsKeep
Safe Internet Software Program. Under the license agreement, USURF received cash
and stock for $465,000 and will receive royalty payments over the next two
years. At December 31, 2003, the value of the stock had declined and
accordingly, the Company recorded an unrealized loss of $160,000 and reduced the
carrying value of the stock by $160,000. The company has recognized
approximately $62,000 of revenue relating to this agreement during 2003.

                                       23
<PAGE>

2004 Acquisitions

In the first quarter of 2003, USURF acquired certain assets from Associated
Equipment Specialists, Inc. ("AES"), a telecommunications company that enabled
USURF to begin to operate as a seller of telecommunications-related hardware and
services. In June 2003, USURF executed a letter of intent to acquire certain
assets of Teleconnex Solutions, LLC ("Teleconnex"), a private company, that
sells telecommunications-related hardware and software. A definitive agreement
related to the Teleconnex acquisition was executed by the parties in February
2004. Through December 31, 2003, USURF recorded revenues of $219,000 related to
the AES and Teleconnex transactions. These revenues appear in our statements of
operations for the period ended December 31, 2003.

SunWest Communications, Inc.

In February, 2004, the Company signed a definitive agreement to acquire the
assets of SunWest Communications, Inc. ("SunWest"). The assets include SunWest's
telecommunications network of fiber optic lines covering over 100 linear miles,
state-of-the-art operations facilities and equipment (including a Lucent 5ESS
switch). SunWest provides PUC licensed telecommunications services to
approximately 7,500 residential and commercial customers in the state of
Colorado. This acquisition provides the company with an integral component in
its business plan to offer a complete voice, video and data service package.

SunWest is based in Colorado Springs, CO and currently generates over $5.0
(unaudited) million in annual revenues and has delivered high quality
telecommunications services for nearly seven years. SunWest serves primarily the
growing southern Colorado market, including Colorado Springs (population
517,000), Pueblo (147,000) and Canon City (45,000). The transaction is subject
to the approval of the Colorado Public Utilities Commission.

Apollo Communications, Inc.

In October 2003, the Company announced that it had signed a Letter of Intent to
acquire the assets of Apollo Communications, Inc. of Colorado Springs
("Apollo"). Apollo provides data and high-speed internet access services as well
as local and long distance telephone services. Apollo has over 5,500 (unaudited)
customers and generates $4.0 million (unaudited) in annual revenues. The
transaction is subject to the approval of the Colorado Public Utilities
Commission.

Connect Paging, Inc. d/b/a Get A Phone

In March 2004, the Company announced that it had signed a stock purchase
agreement to acquire Connect Paging, Inc. d/b/a Get A Phone ("GAP"). The
purchase price consists of $2,000,000 in cash and 15,000,000 shares of common
stock of the Company. GAP operates as a competitive local exchange carrier
(CLEC) in Texas offering local and long distance telephone services. Gap has
acquired approximately 14,000 (unaudited) customers that will generate over $8.0
million (unaudited) in annual revenues. The transaction is subject to the
approval of the Texas Public Utilities Commission.

                                       24
<PAGE>

Financing Activities

Atlas Capital Services, LLC

In January 2004, the Company entered into an agreement with Atlas Capital
Services, LLC ("Atlas") to provide financing directly or indirectly to the
Company. Under the terms of the agreement, the Company will pay to Atlas a fee
equal to 10% of the principal amount of the Transaction Amount to be paid as
proceeds are received by the Company from each Transaction.

In March 2004, Atlas arranged for the Company to complete the closing of a
private placement totaling $3,100,000. The placement consisted of $1,000,000 in
common stock at $0.10 per share, $2,100,000 in convertible debentures
convertible into common stock at $0.10 per share, and 125% warrant coverage at
an exercise price of $0.12 per share. Under the terms of the private placement,
the investors have the right to purchase up to an amount equal to, at the
election of such investors, $3,000,000 principal amount of additional
debentures. Any additional investment will be on terms identical those set forth
in the private placement, except that, the conversion price of the convertible
debentures shall be $0.12 per share.

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

There were no material changes to our critical accounting policies during fiscal
2003, 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
financial condition as reflected in our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to
accounts receivable; inventory valuation; amortization and recoverability of
long-lived assets, including goodwill; litigation accruals; and revenue
recognition. Management bases its estimates and judgments on our historical
experience and other relevant factors, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources.

                                       25
<PAGE>

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

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

Revenue Recognition
-------------------

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

Asset Impairment - Goodwill
---------------------------

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

Litigation
----------

We have been involved in lawsuits and other claims. We assess the likelihood of
any adverse judgments or outcomes to these matters, as well as the potential
range of probable losses. A determination of the amount of accrual required, if
any, for these contingencies is made after careful analysis of each matter. The

                                       26
<PAGE>

required accrual may change in the future due to new developments in any matter
or changes in approach (such as a change in settlement strategy) in dealing with
these matters. As noted above, we settled the Marcus Merrick matter and the
Weibelt matter in early 2004. The liabilities related to these matters were
accrued at December 31, 2003. Other than the Cyberhighway bankruptcy matter, we
are unaware of any other existing or potential litigation or judgment and have
made no litigation-related accruals at December 31, 2003.

Inventories
-----------

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

Accounts Receivable
-------------------

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

                                       27
<PAGE>

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

     Twelve Months Ended December 31, 2003 and 2002
     ----------------------------------------------

     Revenues

     For the twelve months ended December 31, 2003 USURF had $403,764 in revenue
     and for the twelve months ended December 31, 2002 USURF had no revenues.
     During the twelve months ended December 31, 2003, USURF's revenues were
     derived primarily from the sale of internet access services,
     telecommunications-related hardware and services, satellite-based CATV
     access services and software licensing. These revenues are recognized and
     recorded on an accrual basis.

     Operating Expenses

     For the twelve months ended December 31, 2003 and 2002, operating expenses
     were $3,493,720 and $3,837,517, respectively. During the twelve months
     ended December 31, 2003 and 2002, operating expenses consisted primarily of
     professional and consulting fees of $1,709,556 and $2,794,020,
     respectively, all of which were paid in stock, salaries and commissions of
     $1,028,246 and $899,967, respectively, most of which was paid in stock, and
     other general and administrative expenses of $755,918 and $143,530,
     respectively, consisting primarily of $130,384 and $7,336 in depreciation
     and $113,517 and $20,051 in rent.

     Net loss

     For the twelve months ended December 31, 2003, USURF had a net loss of
     $3,654,356, or $0.04 net loss per share. For the twelve months ended
     December 31, 2002, USURF had a net loss of $4,160,422 or $0.09 net loss per
     share.

Liquidity
---------

Since its inception, USURF has had significant working capital deficits. At
December 31, 2003, USURF had a net working capital deficit of $ 757,040 compared
to $100,301 at December 31, 2002. A net working capital deficit means that
current liabilities exceeded current assets. Current assets are generally assets
that can be converted into cash within one year and can be used to pay current
liabilities. As a result our independent auditors have issued a going concern
opinion.

                                       28
<PAGE>

Currently, USURF believes that it will have sufficient cash from the private
placements of its securities through its arrangement with Atlas Capital
Services, LLC to continue its current business operations. During the twelve
months ended December 31, 2003, USURF received approximately $1,007,000 from the
sale of securities and $1,258,232 from exercise of warrants. At December 31,
2003, USURF had cash on hand of $72,597.

We anticipate that our cash needs over the next 12 months will be approximately
$1,500,000, consisting of general working capital needs of $650,000 and the
satisfaction of our current liabilities of approximately $850,000. Over the long
term, we will require at least $3,500,000 in order to accomplish our business
objectives. Currently, we do not possess enough capital to accomplish all of our
business objectives.

USURF anticipates that its capital needs will be met under its arrangement with
Atlas Capital Services, LLC. USURF may also seek other sources of financing to
fund its operations, although no assurances can be given that it will be
successful in such efforts. It is possible that we will not be able to secure
adequate capital as we need it. Also, without additional capital, it is possible
that we would be forced to curtail or cease operations.

Capital Resources
-----------------

Atlas Capital Services, LLC

In January 2004, the Company entered into an agreement with Atlas Capital
Services, LLC ("Atlas") to provide financing directly or indirectly to the
Company. In March 2004, Atlas arranged for the Company to complete the closing
of a private placement totaling $3,100,000. The placement consisted of
$1,000,000 in common stock at $0.12 per share, $2,100,000 in convertible
debentures convertible into common stock at $0.10 per share, and 125% warrant
coverage at an exercise price of $0.12 per share. Under the terms of the private
placement, the investors have the right to purchase up to an amount equal to, at
the election of such investors, $3,000,000 principal amount of additional
debentures. Any additional investment will be on terms identical those set forth
in the private placement, except that, the conversion price of the convertible
debentures shall be $0.12 per share.

Cash Used or Provided in Operating Activities.

     Cash Used in Operating Activities

During the year ended December 31, 2003, the Company's operations used cash of
$1,056,395 compared to $646,837 used during the year ended December 31, 2002.
For the year 2003, the Company's net loss of $3,654,356 is offset by various
non-cash expenses of $2,379,769. For each year reported, the use of cash was a
direct result of the lack of revenues compared to operating expenses.

                                       29
<PAGE>

     Cash Used in Investing Activities

The total value of our capital expenditures for 2003 was $1,326,009 compared to
only $73,359 during 2002. For the year 2003, this primarily consisted of cash
for acquisitions and future acquisitions.

     Cash Provided by Financing Activities

During the year ended December 31, 2003, the total amount of the Company's
financing activities was $2,343,433 compared to $831,754 in 2002. During 2003,
$2,286,433 of cash was provided through the sale of stock and the exercise of
common stock warrants.


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

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


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

On January 16, 2003, we dismissed Postlethwaite & Netterville as our independent
auditor. At the time of the dismissal, there was no disagreement with respect to
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure. On January 17, 2003, we engaged Hein &
Associates LLP as our new independent auditor, to audit our financial statements
for the year ended December 31, 2002 and succeeding years. The lone member of
the audit committee of our board of directors recommended this change in
auditors and the full board approved the change.


                                       30
<PAGE>

                                    PART III

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

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

The following table sets forth the current officers, directors and significant
employees of USURF America.

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

     Douglas O. McKinnon    53   Director, President and Chief Executive Officer
     Richard E. Wilson      62   Director
     Ross S. Bravata        44   Director
     Kenneth J. Upcraft     54   Executive Vice President
     Ronald Bass            37   Principal Accounting Officer

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

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

Mr. McKinnon became president and chief executive officer of the Company in
April 2002. During the five years prior to his joining the Company, he served as
chief executive officer of IP Services, Inc., a next-generation communications
services provider using broadband Internet Protocol (IP) and Asynchronous
Transfer Mode (ATM) based networks; executive vice president and chief financial
officer of AVIRNEX Communications Group, Inc., a provider of retail
telecommunications service including domestic and international long distance
and enhanced services to small and medium-sized business customers; and
vice-president of ICG Communications, Inc, one of the country's largest
competitive local exchange carriers offering local, long distance, ATM and frame
relay services with a nationwide fiber optic infrastructure. Mr. McKinnon is a
former practicing CPA with the SEC practice section of Coopers & Lybrand.

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

Mr. Wilson was co-founder of The Association of Communications Enterprises
(ASCENT) (formerly the Telecommunications Resellers Association), a leading
trade group representing entrepreneurial and small business communications
companies. He served on that organization's board in 1992 and 1993 and is
currently Chairman Emeritus of ASCENT. At present, Mr. Wilson is a principal and
executive vice president of 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-based telecommunications consulting firm with expertise in
both wireline and wireless telecommunications applications. From May 2000 to
April 2001, Mr. Wilson was president and chief executive officer of Open
Telecommunications North America, a wholly-owned subsidiary of Open

                                       31
<PAGE>

Telecommunications Australia (OT), a publicly-traded company in Australia that
provides telecommunications-network-infrastructure related products and
services. Also, from 2000 through January 2002, Mr. Wilson served as a director
of GlobalNet International Telecommunications, Inc., an Illinois-based provider
of global telecommunications services. GlobalNet was publicly traded under the
symbol GBNE, until acquired by Titan Corporation.

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

Mr. Bravata has, since 1981, worked for Novartis (formerly Ciba Corporation), in
various positions, and currently serves as a Senior Control Systems Technician.
In such capacity, Mr. Bravata supervises the service and maintenance of
electronic instrumentation.

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

Mr. Upcraft joined the Company in August 2002. For more than the five years
prior to that time, he owned and operated Pantel, a consultancy focused on
providing professional services to telecommunications and Internet service
providers, including wireless Internet access providers.

RONALD BASS
-----------

Ronald S. Bass brings more than 13 years of executive finance and operations
experience - Chief Financial Officer of Phantom Group, Chief Financial Officer
of Knovada, former Director of Finance and Operations at Vista Travel Ventures,
Manager Administration at Group Voyagers and business consultant to over
two-dozen start-up businesses. Experienced in equity funding, treasury
management, financial analysis, tax planning, accounting system design and
implementation, business planning, process engineering and risk management.

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

There currently exist two vacancies on our board of directors, one of which is
to be filled by a person named by Evergreen Venture Partners, LLC, pursuant to a
stock purchase agreement. (This agreement with Evergreen Venture Partners, LLC
is discussed below under "Item 12. Certain Relationships and Related
Transactions".) We are making our 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 2003; however, it took action by unanimous
written consent in lieu of a meeting on numerous occasions.

Executive Committee
-------------------

Our board of directors created an executive committee to facilitate management
between meetings of the full board of directors. The executive committee is
composed of Douglas O. McKinnon and Richard E. Wilson. Pursuant to our bylaws,
between meetings of the full board, the executive committee has the full power

                                       32
<PAGE>

and authority of the board in the management of our business and affairs, except
to the extent limited by Nevada law. Pursuant to the bylaws of the executive
committee, as adopted by the full board, the executive committee has the
authority to exercise all powers of the board, except the power:

     -    to declare dividends;

     -    to sell or otherwise dispose of all or substantially all of our
          assets;

     -    to recommend to our shareholders any action requiring their approval;
          and

     -    to change the membership of any committee, fill the vacancies thereon
          or discharge any committee.

During 2003, the Executive Committee did not meet in person; however, it took
action by unanimous written consent in lieu of a meeting on numerous occasions.

Audit Committee
---------------

The audit committee of our board of directors is now 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. Our board has determined that Mr. McKinnon has the requisite
education, background or experience to be considered an "audit committee
financial expert" as that term is defined by the SEC. The purposes of the audit
committee are:

     -    to oversee the quality and integrity of the financial statements and
          other financial information we provide to any governmental body or the
          public;

     -    to oversee the independent auditors' qualifications and independence;

     -    to oversee the performance of our independent auditors;

     -    to oversee our systems of internal controls regarding finance,
          accounting, legal compliance and ethics that management and the board
          have established or will establish in the future;

     -    to establish procedures for the receipt, retention and treatment of
          complaints regarding accounting, internal controls, and other auditing
          matters and for the confidential, anonymous submission by our
          employees of concerns regarding questionable accounting or auditing
          matters;

     -    to provide an open avenue of communication among the independent
          auditors, financial and senior management, the internal auditing
          department, and the board, always emphasizing that the independent
          auditors are accountable to the audit committee; and

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

                                       33
<PAGE>

In March 2003, our board approved the amendment and restatement of the audit
committee charter. The board has determined that the audit committee meets the
current applicable rules and regulations of the SEC. Due to resignations by two
of our independent directors and our inability to attract qualified
replacements, the audit committee 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 our former independent auditors,
Postlethwaite & Netterville, and the engagement of Hein & Associates LLP as our
auditors of our financial statements for the year ended December 31, 2002 and
succeeding years.

Code of Ethics
--------------

We have adopted a code of ethics that applies to our executive officers
including Douglas O. McKinnon, Kenneth J. Upcraft and Ronald Bass.

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

Non-employee directors receive annual payments for their service as directors,
nor has our board established a per-meeting stipend. At such time as our cash
position improves, 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 on the board and its committees.

During 2002, one of our directors, Ross S. Bravata, received, for his service as
a director, 200,000 shares of our common stock, valued at $0.06 per share, the
closing price on the date of award, as reported by AMEX, an aggregate value of
$12,000. Mr. Bravata received an additional 150,000 shares of our common stock,
valued at $0.19 per share, the closing price on the date of award, as reported
by AMEX, an aggregate value of $28,500. In March 2003, in connection with his
agreement to become a board member, Richard E. Wilson received 200,000 shares of
our common stock, valued at $.05 per share, the closing price on the date of
award, as reported by AMEX, an aggregate value of $10.000. In November 2003, he
received an additional 200,000 shares valued at $0.19 per share, the closing
price on the date of award, as reported by AMEX, an aggregate value of $38,000.

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

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

                                       34
<PAGE>

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

Compliance with Section 16(a) of the Securities Exchange Act
------------------------------------------------------------

The Company's executive officers and directors, and beneficial owners of more
than 10% of the Common Stock, are required to file initial reports of ownership
and reports of changes of ownership of the Common Stock with the SEC. The SEC's
rules require such person to furnish the Company with copies of all Section
16(a) reports they file. The Company has determined that not all of the reports
required to have been filed during 2003 have been filed. Based solely on a
review of Forms 3 and 4 and amendments thereto furnished to the Company under
Rule 16a-3(e) of the Exchange Act, the Company has determined that Messrs.
McKinnon, Wilson, Bravata and Upcraft have failed to file any reports required
by Section 16(a) of the Exchange Act during 2003 and prior fiscal years, and
that Mr. Brenner failed to timely file a Form 3 in 2002 and 2003. Mr. Brenner
filed a Form 3 late in 2003.


                                       35
<PAGE>

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

Executive Compensation
----------------------

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

                                                     Annual Compensation                 Long-Term Compensation
                                        ---------------------------------------------   ------------------------
   Name, Principal        Fiscal        Salary $             Bonus $        Other       Securities      All
       Position            Year                                             Annual      Underlying     other
                                                                         Compensation   Options #   compensation
                                                                              $                          $
----------------------------------------------------------------------------------------------------------------
<S>                        <C>          <C>                 <C>              <C>        <C>            <C>
Douglas O. McKinnon        2003         $180,000(1)               $0          $0                 0      $0
[President and Chief       2002         $127,500(2)         $310,456(2)
Executive Officer]         2001          NOTE (A)

David M. Loflin            2003          $75,000(3)                0          $0                 0      $0
[former Chairman of the    2002         $150,000(4)         $200,000(4)       $0                 0      $0
Board and former           2001         $150,000(5)         $133,000(6)       $0                 0      $0
President]

Waddell D. Loflin          2003          NOTE (C)
[former Vice President     2002          $79,167(7)         $200,000(9)       $0                 0      $0
and Secretary]             2001         $100,000(8)          $18,000(10)      $0                 0      $0

James Kaufman              2003          NOTE (D)
[former Vice President -   2002          $95,000(11)        $200,000(13)      $0                 0      $0
Corporate Development]     2001         $120,000(12)              $0          $0                 0      $0

Kenneth J. Upcraft         2003         $150,000(14)              $0          $0                 0      $0
[Executive Vice            2002          $62,500(15)         $58,220(15)      $0                 0      $0
President] 2001 NOTE (B)

Christopher K. Brenner     2003         $120,000(16)              $0          $0                 0      $0
[former Vice-President     2002               $0(17)              $0          $0                 0      $0
of Finance and             2001          NOTE(E)
Administration]
</TABLE>

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

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

(C)  Mr. Loflin was resigned, effective March 31, 2003.

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

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

                                       36
<PAGE>

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

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

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

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

(5)  $53,612 of this amount was accrued; Mr. Loflin waived payment of this
     amount, in connection with the Evergreen transaction (described elsewhere
     herein).

(6)  This bonus was paid by the issuance of 700,000 shares to Mr. Loflin, which
     were valued at $.19 per share, the last closing price of the Common Stock,
     as reported by AMEX, prior to their issuance.

(7)  $29,167 of Mr. Loflin's salary amount was accrued; Mr. Loflin waived
     payment of this amount, in connection with the Evergreen transaction
     (described elsewhere herein). $50,000 of Mr. Loflin's salary amount was
     paid by the issuance of 600,000 shares of our common stock, a per share
     value of $.083 per share, a per share price higher than the market price
     that was negotiated by us with Mr. Loflin.

(8)  $24,423 of Mr. Loflin's salary amount was accrued; Mr. Loflin waived
     payment of this amount, 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
     connection with the Evergreen transaction (described elsewhere herein),
     which shares were valued at $.10 per share, the last closing price of the
     Common Stock, as reported by AMEX, prior to their issuance.

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

(11) $35,000 of Mr. Kaufman's salary amount was accrued; Mr. Kaufman waived
     payment of this amount, in connection with the Evergreen transaction
     (described elsewhere herein). $60,000 of Mr. Kaufman's salary amount was
     paid by the issuance of 600,000 shares of our common stock, a per share
     value of $.10 per share, a per share price higher than the market price
     that was negotiated by us with Mr. Kaufman.

                                       37
<PAGE>

(12) $106,270 of this amount was accrued; $96,000 of this amount was payable in
     shares of our common stock. In connection with the Evergreen transaction
     (described elsewhere herein), Mr. Kaufman waived payment of this amount.

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

(14) $70,000 of Mr. Upcraft's salary amount was paid by the issuance of
     1,150,000 shares of our common stock, a per share value of $.07 per share,
     the last closing price of our common stock, as reported by AMEX, on the
     date of issuance.

(15) $47,500 of Mr. Upcraft's salary amount and $22,220 of his bonus amount were
     paid by the issuance of 996,000 shares of our common stock, a per share
     value of $.07 per share, the last closing price of our common stock, as
     reported by AMEX, on the date of issuance. $36,000 of Mr. Upcraft's bonus
     amount was paid by the issuance of 600,000 shares of our common stock, upon
     his executing his employment agreement, which shares were valued at $.06
     per share, the last closing price of our common stock, as reported by AMEX,
     on the date of his executing his employment agreement.

(16) $66,500 of Mr. Brenner's salary amount was paid by the issuance of
     1,100,000 shares of our common stock, a per share value of $.07 per share,
     the last closing price of our common stock, as reported by AMEX, on the
     date of issuance.

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


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

Each of our current executive officers has entered into an employment agreement.

The following table summarizes certain provisions of the employment agreements.

                                                              Annual
  Name of Officer            Position(s)          Term        Salary      Date
  ---------------            -----------          ----      ----------    ----

Douglas O. McKinnon   President and Chief        3 years     $180,000    4/15/02
                      Executive Officer

Kenneth J. Upcraft    Executive Vice President   3 years    $150,000(1)  7/31/02


(1)  80% of this officer's salary may be paid with shares of our common stock,
     in our discretion.

                                       38
<PAGE>

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

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

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

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

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

In March 2002, our board adopted a stock ownership plan for our officers,
directors and consultants known as the 2002 Stock Ownership Plan, as amended and
restated in December 2002. The Plan was further amended and restated in October
2003, as approved by our board.

The 2002 Plan was established by the board as a means to promote our success and
enhance our value by linking the personal interests of participants to our
shareholders, and by providing participants with an incentive for outstanding
performance. The 2002 Plan is further intended to aid us in attracting and
retaining the services of persons upon whose judgment, interest and special
efforts our successful operation and our subsidiaries' operations is dependent.
Persons who are either officers, directors or consultants are eligible to
participate in the 2002 Plan. The board may, at any time and from time to time,
grant shares of our common stock in such amounts and upon such terms and
conditions as it may determine, to include the granting of shares of the Common
Stock and the granting of options to purchase shares of the common stock. A
total of 23,000,000 shares of our common stock have been reserved for issuance
under the 2002 Plan (as amended and restated) and registration statements on
Forms S-8 (SEC File Nos. 333-102167 and 333-110660) relating to the 2002 Plan,
as amended, have been filed with the SEC. Under the 2002 Plan, to date,
21,939,480 shares of our common stock have been issued to officers, directors or
consultants.

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

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

                                       39
<PAGE>

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

Common Stock

As of March 24, 2004, there were 139,938,653 shares of our common stock issued
and outstanding. The following table sets forth certain information regarding
the current beneficial ownership of our common stock, by (1) persons known to be
beneficial owners of more than 5% 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 and                          Number of         Percentage of
        Address of                          Shares              Shares
        Beneficial                       Beneficially        Beneficially
          Owner                              Owned             Owned (1)
          -----                              -----             ---------

Douglas O. McKinnon                        5,400,000             3.59%

Richard E. Wilson(2)                         350,000              *

Ross S. Bravata(3)                           150,000              *

Kenneth J. Upcraft                         2,746,000             1.83%

All executive officer and directors        8,646,000             5.75%
as a group (4 persons)

Evergreen Venture Partners, LLC (4)       15,000,000             9.97%

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

*    Represents beneficial ownership of less than 1%.

(1)  Based on 150,397,562 shares outstanding at Marc 24, 2004, including a total
     of 8,476,727 shares underlying currently outstanding and exercisable
     warrants.

(2)  Mr. Wilson's address is P.O. Box 2844, Kirkland, Washington 98083.

(3)  Mr. Bravata's address is 7635 Jefferson Highway, Suite 309, Baton Rouge,
     Louisiana 70809.

(4)  Douglas O. McKinnon was a manager of Evergreen until June 30, 2003.

                                       40
<PAGE>

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

Evergreen Transaction
---------------------

On April 15, 2002, we entered into a securities purchase agreement with
Evergreen Venture 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 common stock purchase warrants to purchase a like number of
shares at an exercise price of $.15 per share and 3,125,000 common stock
purchase warrants to purchase a like number of shares at an exercise price of
$.30 per share. Also, under the Evergreen agreement, Evergreen has the right to
name two persons to become directors. To date, Evergreen has exercised this
right as to one person, Richard E. Wilson, but has not yet named another person
as a director.

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's executing his employment agreement, we issued him 3,000,000
     shares of our common stock. These shares were valued at $210,000.

-    Our former president, David M. Loflin, became chairman of the board,
     reduced the term of his remaining term of employment from approximately
     four years to six months, waived the payment of all accrued and unpaid
     salary and waived the repayment of all loans made to us by him. In
     consideration of Mr. Loflin's executing an amendment to his employment
     agreement that reflected the foregoing provisions, we issued him 2,000,000
     shares of our common stock. These shares were valued at $140,000.

-    Our former vice president and secretary, Waddell D. Loflin, reduced the
     term of his remaining term of employment from approximately four years to
     six months and waived the payment of all accrued and unpaid salary. In
     consideration of Mr. Loflin's executing an amendment to his employment
     agreement that reflected the foregoing provisions, we issued him 2,000,000
     shares of our common stock. These shares were valued at $140,000.

                                       41
<PAGE>

-    Our former vice president of corporate development, James Kaufman, reduced
     the term of his remaining term of employment from one year to six months
     and waived the payment of all accrued and unpaid salary. In consideration
     of Mr. Kaufman's executing an amendment to his employment agreement that
     reflected the foregoing provisions, we issued him 2,000,000 shares of our
     common stock. These shares were valued at $140,000.

As a result of these common stock issuances, we incurred a charge against our
earning of approximately $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 of its executive officers, which shares were valued at $.07 per share,
the closing price of our common stock, as reported by AMEX, on the date of
issuance, as follows:

                                  Accrued Salary         No. of Shares
   Name of Officer               Paid with Shares      Issued in Payment
   ---------------               ----------------      -----------------

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 a consultant 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.

In 2003, we issued shares of our common stock in payment of accrued salary of
certain executive officers, which shares were valued at $0.07 per share, the
closing price of our common stock, as reported by AMEX, on the date of issuance,
as follows:

                                       42
<PAGE>

                               Accrued Salary        No. of Shares
   Name of Officer            Paid with Shares     Issued in Payment
   ---------------            ----------------     -----------------

Douglas O. McKinnon               $ 95,500             1,450,000
David M. Loflin (1)               $ 75,000             1,300,000
Kenneth J. Upcraft                $ 70,000             1,150,000
Christopher K. Brenner(2)         $ 66,500             1,100,000

--------------------
(1)  Mr. Loflin resigned from the Company in October 2003.

(2)  Mr. Brenner resigned from the Company in December 2003.


Employment Agreements
---------------------

Each of our current officers has entered into an employment agreement. The
following table summarizes certain provisions of the employment agreements.
<TABLE>
<CAPTION>

   Name of Officer                  Position(s)               Term      Annual Salary    Date
   ---------------                  -----------               ----      -------------    ----
<S>                          <C>                             <C>         <C>            <C>
Douglas O. McKinnon          President and Chief Executive   3 years      $180,000(1)   4/15/02
                             Officer

David M. Loflin (2)          Chairman of the Board           6 months     $150,000      6/1/99,
                                                                                        amended
                                                                                        4/15/02

Kenneth J. Upcraft           Executive Vice President        3 years      $150,000(1)   7/31/02

Christopher K. Brenner (3)   Vice President of Finance and   2 years      $120,000(1)   2/4/03
                             Administration, Chief
                             Financial Officer and
                             Secretary
--------------------------
</TABLE>
(1)  80% of this officer's salary may be paid with shares of our common stock,
     in our discretion.

(2)  Mr. Loflin resigned from the Company in October 2003.

(3)  Mr. Brenner resigned from the Company in December 2003.

                                       43
<PAGE>

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

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

Under each employment agreement, if the 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 his employment contract.


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

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

     Index to Financial Statements of USURF America
     ----------------------------------------------

     Independent Auditor's Report
     Independent Auditors' Report
     Consolidated Balance Sheets as of December 31, 2003 and 2002
     Consolidated Statements of Operations for the Years Ended December 31, 2003
       and 2002
     Consolidated Statements of Changes in Stockholders' (Deficit) Equity for
       the Years Ended December 31, 2003 and 2002
     Consolidated Statements of Cash Flows for the Years Ended December 31, 2003
       and 2002
     Notes to Consolidated Financial Statements

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

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

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

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

                                       44
<PAGE>

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

During the three months ended December 31, 2003, we filed two Current Reports on
Form 8-K, as follows:

     -    Date of event: September 22, 2003, wherein we reported the holding of
          the Company's annual shareholders' meeting and business transacted
          thereat.

     -    Date of event: August 26, 2003, wherein we amended our previous Form
          8-K, filed on September 3, 2003, reporting the acquisition of business
          assets.

Subsequent to December 31, 2003, we filed three Current Reports on Form 8-K, as
follows:

     -    Date of event: February 6, 2004, wherein we reported the pending
          acquisition of business assets;

     -    Date of event: March 10, 2004, wherein we reported the de-listing of
          our stock by the American Stock Exchange

     -    Date of event: March 23, 2004, wherein we reported that effective
          March 22, 2004 that our common stock is quoted on the Over-the-Counter
          Bulletin Board under the symbol "USUR."


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

As of March 24, 2004, an evaluation was performed by our Principal Accounting
Officer, with the participation of our Chief Executive Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, our management, including our Chief
Executive Officer, concluded that our disclosure controls and procedures were
effective as of March 24, 2004. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal
controls subsequent to March 24, 2004.


                                       45
<PAGE>



                                   SIGNATURES

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

                                          USURF AMERICA, INC.


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


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

/s/ DOUGLAS O. MCKINNON      President and Chief Executive        April 14, 2004
-----------------------      Officer (Principal Executive
Douglas O. McKinnon          Officer) and Director


/s/ ROSS S. BRAVATA          Director                             April 14, 2004
-------------------
Ross S. Bravata


/s/ RICHARD E. WILSON        Director                             April 14, 2004
---------------------
Richard E. Wilson


/s/ RONALD BASS              Principal Accounting Officer         April 14, 2004
---------------
Ronald Bass


/s/ KENNETH J. UPCRAFT       Executive Vice President             April 14, 2004
----------------------
Kenneth J. Upcraft


                                       46
<PAGE>

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

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

<PAGE>


                ------------------------------------------------
                      USURF AMERICA, INC. AND SUBSIDIARIES
                ------------------------------------------------
                 FINANCIAL STATEMENTS DECEMBER 31, 2003 and 2002





                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            PAGE
                                                                            ----

Independent Auditor's Report.................................................F-2

Consolidated Balance Sheets - December 31, 2003 and 2002.....................F-3

Consolidated Statements of Operations - For the Years Ended
     December 31, 2003 and 2002..............................................F-5

Consolidated Statements of Changes in Shareholders' Equity -
     For the Years Ended December 31, 2003 and 2002..........................F-6

Consolidated Statements of Cash Flows - For the Years Ended
     December 31, 2003 and 2002..............................................F-8

Notes to Consolidated Financial Statements...................................F-9





                                      F-1
<PAGE>






                          INDEPENDENT AUDITOR'S REPORT



Board of Directors
USURF America, Inc.
Colorado Springs, Colorado


We have audited the accompanying consolidated balance sheet of USURF America,
Inc. (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USURF America, Inc.
as of December 31, 2003 and 2002, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

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


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

February 27, 2004

                                      F-2
<PAGE>

                      USURF AMERICA, INC. AND SUBSIDIARIES
                           COLORADO SPRINGS, COLORADO
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002

                                     ASSETS

                                                     2003               2002
                                                 -----------        -----------

CURRENT ASSETS
  Cash and cash equivalents                      $    72,597        $   111,568
  Marketable securities                              280,000                  0
  Accounts receivable                                 69,205                224
  Inventory                                           71,906              2,715
  Deposits and other assets                           44,910              4,942
                                                 -----------        -----------
    Total Current Assets                             538,618            119,449
                                                 -----------        -----------

PROPERTY AND EQUIPMENT
  Cost                                               681,511             73,359
  Less: accumulated depreciation                     (98,836)            (7,336)
                                                 -----------        -----------
    Total Property and Equipment                     582,675             66,023
                                                 -----------        -----------

INTANGIBLES                                          909,932            201,604
                                                 -----------        -----------

OTHER LONG TERM ASSETS                               805,000             20,000
                                                 -----------        -----------

TOTAL ASSETS                                     $ 2,836,225        $   407,076
                                                 -----------        -----------



        The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                                USURF AMERICA, INC. AND SUBSIDIARIES
                                     COLORADO SPRINGS, COLORADO
                                     CONSOLIDATED BALANCE SHEETS
                                     DECEMBER 31, 2003 AND 2002

                                LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                             2003            2002
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
CURRENT LIABILITIES
  Notes payable, current portion                                         $    168,300    $     87,604
  Accounts payable                                                            429,954         131,146
  Accrued payroll                                                             119,825
  Other current liabilities                                                   156,379               0
  Deposits                                                                     17,867               0
  Deferred revenues                                                           403,333               0
  Notes payable to stockholder                                                      0           1,000
                                                                         ------------    ------------
    Total Current Liabilities                                               1,295,658         219,750
                                                                         ------------    ------------
  Commitments and Contingencies (Notes 6, 7, 11, 12, 13, & 15)


STOCKHOLDERS' EQUITY
  Preferred stock, $.0001 par value; Authorized: 100,000,000, none
    outstanding (Note 11)
  Common stock, $.0001 par value; Authorized: 400,000,000 shares;
    Issued and outstanding: 114,684,486 in 2003 and 71,445,338 in 2002         11,468           7,145
  Additional paid-in capital                                               47,159,317      40,778,870
  Accumulated deficit                                                     (43,861,845)    (40,207,489)
  Subscriptions receivable                                                          0         (21,200)
  Deferred consulting                                                      (1,608,373)       (370,000)
  Other comprehensive loss                                                   (160,000)              0
                                                                         ------------    ------------
    Total Stockholders' Equity                                              1,540,567         187,326
                                                                         ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $  2,836,225    $    407,076
                                                                         ------------    ------------



                  The accompanying notes are an integral part of these statements.

                                               F-4
<PAGE>

                      USURF AMERICA, INC. AND SUBSIDIARIES
                           COLORADO SPRINGS, COLORADO
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                       2003            2002
                                                   ------------    ------------

REVENUES
  Revenues                                         $    329,297    $          0
  License revenues                                       74,467
  Internet access costs, cost of goods sold            (493,504)              0
  Inventory write-down                                        0        (132,031)
                                                   ------------    ------------
Gross profit (loss)                                     (89,740)       (132,031)
                                                   ------------    ------------
*
OPERATING EXPENSES
  Professional fees                                   1,709,556       2,794,020
  Salaries and commissions                            1,028,246         899,967
  Rent                                                  113,517          20,051
  Depreciation and amortization                         130,384           7,336
  Other general and administrative                      512,017         116,143
                                                   ------------    ------------
    Total Operating Expenses                          3,493,720       3,837,517
                                                   ------------    ------------

LOSS FROM OPERATIONS                                 (3,583,460)     (3,969,548)
                                                   ------------    ------------

OTHER INCOME (EXPENSE)
  Other income                                           27,048           5,593
  Litigation settlement                                 (42,235)       (101,695)
  Impairment loss                                             0         (94,772)
  Interest expense                                      (55,709)              0
                                                   ------------    ------------
    Total Other Expense                                 (70,896)       (190,874)
                                                   ------------    ------------

LOSS BEFORE INCOME TAX                               (3,654,356)     (4,160,422)
                                                   ------------    ------------

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

NET LOSS                                           $ (3,654,356)   $ (4,160,422)
                                                   ------------    ------------

Net loss per common share                          $      (0.04)   $      (0.09)
                                                   ------------    ------------

Weighted average number of shares outstanding        89,186,106      45,008,651
                                                   ------------    ------------



        The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>

                          USURF AMERICA, INC. AND SUBSIDIARIES
                               COLORADO SPRINGS, COLORADO
               CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                         YEARS ENDED DECEMBER 31, 2003 AND 2002


                                                                 Common        Paid-in
                                                  Shares         Stock         Capital
                                               ------------   ------------   ------------

Balance at 12/31/2001                            23,848,108   $      2,385   $ 35,642,817
Issuance of common stock for cash                10,685,968          1,069        644,131
Issuance of common stock for legal fees           5,975,000            597        425,402
Issuance of common stock for consulting fees      8,549,500            855        655,431
Issuance of common stock for debt conversion      6,000,000            600        599,400
Issuance of common stock for compensation         6,436,000            644        593,876
Issuance of common stock for exercise of
  warrants                                        2,700,000            270        148,330
Issuance of common stock for services             2,000,000            200        142,800
Issuance of common stock for acquisitions         2,200,000            220        113,780
Issuance of common stock for subscriptions
  receivable                                        912,036             91        223,813
Issuance of warrants to non-employees                  --             --          396,604
Amortization of deferred consulting                    --             --             --
Shares no longer subject to rescission            2,138,726            214      1,192,486
Net loss                                               --             --             --
                                               ------------   ------------   ------------
Balance at 12/31/02                              71,445,338   $      7,145   $ 40,778,870
                                               ------------   ------------   ------------
Issuance of common stock for cash                 6,994,865            699      1,006,301
Issuance of common stock for legal fees             400,000             40         99,960
Issuance of common stock for consulting fees      3,981,500            398        653,727
Issuance of common stock for debt conversion        600,000             60         95,940
Issuance of common stock for compensation         4,525,000            452        284,298
Issuance of common stock for exercise of
  warrants                                       12,244,500          1,224      1,257,008
Issuance of common stock for services            10,918,283          1,092      2,028,113
Issuance of common stock for acquisitions         3,575,000            358        585,642
Proceeds on subscriptions receivable                   --             --             --
Amortization deferred consulting                       --             --             --
Issuance of warrants to non-employees                  --             --          325,258
Interest on convertible note                           --             --           44,200

Unrealized loss-marketable securities                  --             --             --
Net loss                                               --             --             --
                                               ------------   ------------   ------------
Comprehensive loss                                     --             --             --
Balance at 12/31/03                             114,684,486   $     11,468   $ 47,159,317
                                               ------------   ------------   ------------

Table continues on following page.

                                          F-6
<PAGE>

                                       USURF AMERICA, INC. AND SUBSIDIARIES
                                            COLORADO SPRINGS, COLORADO
                           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                YEARS ENDED DECEMBER 31, 2003 AND 2002 (CONTINUED)


                                               Accumulated     Subscriptions     Deferred      Comprehensive
                                                 Deficit        Receivable      Consulting         Income           Total
                                               ------------    ------------    ------------     ------------    ------------

Balance at 12/31/2001                          $(36,047,067)   $    165,750    $ (1,163,149)            --      $ (1,399,264)
Issuance of common stock for cash                      --           (10,000)           --               --           635,200
Issuance of common stock for legal fees                --              --          (370,000)            --            55,999
Issuance of common stock for consulting fees           --              --              --               --           656,286
Issuance of common stock for debt conversion           --              --              --               --           600,000
Issuance of common stock for compensation              --              --              --               --           594,520
Issuance of common stock for exercise of
  warrants                                             --           (11,200)           --               --           137,400
Issuance of common stock for services                  --              --              --               --           143,000
Issuance of common stock for acquisitions              --              --              --               --           114,000
Issuance of common stock for subscriptions
  receivable                                           --          (165,750)           --               --            58,154
Issuance of warrants to non-employees                  --              --              --               --           396,604
Amortization of deferred consulting                    --              --         1,163,149             --         1,163,149
Shares no longer subject to rescission                 --              --              --               --         1,192,700
Net loss                                         (4,160,422)           --              --               --        (4,160,422)
                                               ------------    ------------    ------------     ------------    ------------
Balance at 12/31/02                            $(40,207,489)   $    (21,200)   $   (370,000)            --      $    187,326
                                               ------------    ------------    ------------     ------------    ------------
Issuance of common stock for cash                      --              --              --               --         1,007,000
Issuance of common stock for legal fees                --              --          (100,000)            --                 0
Issuance of common stock for consulting fees           --              --          (320,000)            --           334,125
Issuance of common stock for debt conversion           --              --              --               --            96,000
Issuance of common stock for compensation              --              --              --               --           284,750
Issuance of common stock for exercise of
  warrants                                             --              --              --               --         1,258,232
Issuance of common stock for services                  --              --        (1,464,000)            --           565,205
Issuance of common stock for acquisitions              --              --              --               --           586,000
Proceeds on subscriptions receivable                   --            21,200            --               --            21,200
Amortization deferred consulting                       --              --           645,627             --           645,626
Issuance of warrants to non-employees                  --              --              --               --           325,258
Interest on convertible note                           --              --              --               --            44,200

Unrealized loss-marketable securities                  --              --              --           (160,000)       (160,000)
Net loss                                         (3,654,356)           --              --               --        (3,654,356)
                                               ------------    ------------    ------------     ------------    ------------
Comprehensive loss                                     --              --              --               --        (3,814,356)
Balance at 12/31/03                            $(43,861,845)   $          0    $ (1,608,373)    $   (160,000)   $  1,540,567
                                               ------------    ------------    ------------     ------------    ------------


                         The accompanying notes are an integral part of these statements.

                                                       F-7
<PAGE>

                        USURF AMERICA, INC. AND SUBSIDIARIES
                             COLORADO SPRINGS, COLORADO
                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                       YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                               2003           2002
                                                           -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                 $(3,654,356)   $(4,160,422)
  Adjustments to reconcile net loss to net cash used in
    operating activities
    Depreciation and amortization                              130,384          7,336
    Settlement of accruals and debt paid with stock                  0        315,501
    Consulting and other fees paid with stock                1,174,957      1,592,435
    Legal fees paid with stock                                 370,000        426,000
    Compensation expense paid with stock                       284,750        594,520
    Warrants issued to non-employees                           325,258        396,604
    Impairment loss and write down of assets                    50,000         94,772
    Accrection of interest expense on convertible debt          44,200
    Unrealized loss on marketable securities                  (160,000)
    Impairment loss and write down of inventory                      0        132,031

  Changes in operating assets and liabilities
    Accounts receivable                                        (68,981)          (224)
    Marketable Securities                                     (280,000)             0
    Inventory                                                  (69,191)             0
    Other assets                                               (39,986)       (24,942)
    Accounts payable                                           298,887         (4,908)
    Deferred revenue                                           403,333              0
    Accrued expenses and other current liabilities             134,350        (15,540)
                                                           -----------    -----------
      Net cash used in operating activities                $(1,056,395)   $  (646,837)
                                                           -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures for property and equipment          $  (346,009)   $   (73,359)
  Cash paid for future acquisitions                           (785,000)
  Cash paid for acquisitions                                  (195,000)   $   (73,359)
                                                           -----------    -----------
    Net cash used in investing activities                  $(1,326,009)   $   (73,359)
                                                           -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Payments received on subscriptions receivable            $    21,200    $    58,154
  Proceeds on notes payable - stockholder                            0          1,000
  Issuance of common stock for cash                          1,007,000        635,200
  Warrants exercised                                         1,258,233        137,400
  Proceeds from convertible debt                                57,000              0
                                                           -----------    -----------
    Net cash provided by financing activities                2,343,433        831,754
                                                           -----------    -----------
    Net increase (decrease) in cash and cash equivalents       (38,971)       111,558
  Cash and cash equivalents, beginning of period               111,568             10
                                                           -----------    -----------
  Cash and cash equivalents, end of period                 $    72,597    $   111,568
                                                           -----------    -----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest                                   $    11,509    $         0
                                                           -----------    -----------
  Stock issued for acquisition of assets                   $   586,548    $   114,000
                                                           -----------    -----------
  Notes issued and accruals for acquisition of assets      $   267,600    $         0
                                                           -----------    -----------
  Stock issued for forgiveness of debt                     $    96,000    $   600,000
                                                           -----------    -----------


          The accompanying notes are an integral part of these statements.

                                        F-8
</TABLE>
<PAGE>

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

1. BUSINESS AND BACKGROUND

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include all the accounts of
the Company and all controlled wholly owned subsidiaries. Intercompany
transactions and balances have been eliminated in the consolidation. For the
years ended December 31, 2003 and 2002, CyberHighway, Inc., a wholly-owned
subsidiary, is not consolidated. As a result of the subsidiary's Chapter 7
bankruptcy, the Company does not have control of the entity and, therefore, has
not been consolidated (Note 13).

Use of Estimates

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

Cash Equivalents

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

Marketable Securities

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

Receivables and Credit Policies

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

Other Long Term Assets

Other long term assets consists promarily of notes receivable representing
advances made to entities which the Company has agreements in place to acquire.
Should the acquisition not occur, the Company has the rights to the assets of
the entities under collateral agreements.

                                      F-9
<PAGE>

Inventory

Inventories are stated at the lower of cost or market, and represents equipment
purchased from suppliers. During 2002, the Company determined that certain items
of its inventory had become impaired and recorded a write-down of its inventory
in the approximate amounts of $132,000. No impairment was deemed necessary
during 2003.

Property and Equipment

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

                  Description                     Life
                  -----------                     ----

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

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

Revenue Recognition

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

Costs of Access Revenues

Costs of access revenues primarily consist of telecommunications expenses
inherent in the network infrastructure.

Comprehensive Income/Loss

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

                                                    2003           2002
                                                -----------    -----------

     Net loss                                   $(3,654,356)   $(4,160,422)
     Unrealized loss on Marketable securities      (160,000)             0
                                                -----------    -----------
     Comprehensive net loss                     $(3,814,356)   $(4,160,422)
                                                ===========    ===========

     Loss per share                             $     (0.04)   $     (0.09)


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 rates and 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 credit risk, consist principally of cash. The Company maintains its cash in
bank deposit accounts, which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash.

Fair Values of Financial Instruments

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

                                      F-10
<PAGE>

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 the net loss available to the common stockholder by the weighted
average number of shares of common stock outstanding for the period. The effect
of considering all potential dilutive securities (totaling 8,476,727 and
12,558,727 at December 31, 2003 and 2002, respectively) is not presented as the
effects would be anti-dilutive.

Intangible Assets

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

           Description                          Life
           -----------                          ----

           Contracts                           15 years
           Right of entry agreements            7 years
           Customer base                        7 years
           Websites and graphics                7 years
           Software                             7 years

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

Stock Based Compensation

Transactions in equity instruments with non-employees for goods or services are
accounted for on the fair value method, as described in SFAS No. 123. During
2003 and 2002 no options were granted to employees, officers or directors.

Stock for Services

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

Impact of Recently Issued Accounting Pronouncements

SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities, was issued in April 2003 and amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, and for
hedging relationships designated after June 30, 2003. The adoption of SFAS No.
149 did not have a material impact on its financial position or results of
operations.

SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity, was issued in May 2003 and requires issuers to
classify as liabilities (or assets in some circumstances) three classes of
freestanding financial instruments that embody obligations for the issuer. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have
a material impact on its financial position or results of operations.

The FASB issued Interpretation ("FIN") No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, in November 2002 and FIN No. 46, Consolidation of
variable Interest Entities, in January 2003. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to

                                      F-11
<PAGE>

guarantees issued after December 2002; however, disclosure requirements are
effective immediately. FIN No. 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee and expands the required disclosures to be
made by the guarantor about its obligation under certain guarantees that it has
issued. The adoption of FIN No. 45 did not have a material impact on the
Company's financial position or results of operations. FIN No. 46 requires that
a company that controls another entity through interest other than voting
interest should consolidate such controlled entity in all cases for interim
periods beginning after June 15, 2003. The adoption of FIN No. 46 did not have a
material impact on its financial position or results of operations.

3. GOING CONCERN

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

Management plans to raise capital by obtaining financing and, eventually,
through public offerings. Management intends to use the proceeds from any
borrowings to acquire and develop markets to implement its business plan and
sell its telecommunications services and telecommunications-related equipment.
The Company believes that these actions will enable it to carry out its business
plan and ultimately to achieve profitable operations. (See Note 14).

4. PROPERTY AND EQUIPMENT

Classifications of property and equipment and accumulated depreciation were as
follows at December 31, 2003 and 2002:

                                                2003          2002
                                              ---------    ---------
          Furniture, fixtures and equipment   $ 681,511    $  73,359
          Accumulated depreciation              (98,836)      (7,336)
                                              ---------    ---------
          Property and equipment, net         $ 582,675    $  66,023
                                              ---------    ---------


For the years ending December 31, 2003 and 2002, the Company recognized $91,500
and $7,336 of depreciation expense, respectively.

5. INTANGIBLES

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

                                             2003          2002
                                           ---------    ---------
               Contracts                   $ 201,622    $ 201,604
               Right of entry agreements      40,000
               Customer base                  79,613
               Website and graphics           86,000
               Software                      541,582
                                           ---------    ---------
                                             948,817      201,604
                                           ---------    ---------
               Accumulated amortization      (38,885)           0
                                           ---------    ---------
               Intangible assets, net      $ 909,932    $ 201,604
                                           ---------    ---------

For the year ending December 31, 2003, the Company recognized $38,885 of
amortization expense. Additions to intangible assets in 2003 are the result of
certain acquisitions (Note 12).

                                      F-12
<PAGE>

6. LICENSES AND RIGHTS TO LEASES OF LICENSES

The Company owns licenses or rights to leases of licenses in the following
wireless cable and community television markets:

              Wireless Cable Market             Expiration Date
              ---------------------             ---------------
              Poplar Bluff, Missouri            October 16, 2006
              Lebanon, Missouri                 October 16, 2006
              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
to expiration.

7. NOTES PAYABLE

In December 2003, the Company executed a convertible loan agreement under which
the Company could borrow up to $700,000. At December 31, 2003, the balance of
the loan was $57,000. The loan(s) are due one year from funding, pay interest at
the rate of ten percent (10%) per annum and are convertible into common stock of
the Company at a conversion price of $0.15 per share. Additionally, the
agreement called for the issuance of two warrants with an exercise price of
$0.18 and $0.26 respectively for each share converted. The entire proceeds from
the convertible promissory note were allocated to the warrants and the
beneficial conversion feature based on a calculation using the Black-Scholes
model. As of December 31, 2003 interest expense related to the accretion of the
convertible promissory note to its face value for $44,200 was recorded as the
notes are convertible immediately. Subsequent to year end, the Company borrowed
an additional $543,000 under the agreement bringing the balance to $600,000.
This amount was converted into 5,000,000 shares of common stock. In connection
with the conversion, the conversion price and the exercise price of the warrants
were reduced to $0.12 per share.

In connection with an acquisition made by the Company in 2003, the Company's
balance sheet reflects a note payable obligation of $111,300 (see Note 12).

In connection with an acquisition made by the Company in 2002, the Company's
balance sheet reflected a note payable obligation of the acquired subsidiary. At
December 31, 2002, the balance of this note was $87,604. In August 2003, the
note holder agreed to exchange the note and accrued interest for 600,000 shares
of common stock of the Company.


8. NOTE PAYABLE TO STOCKHOLDER

                                                                2003     2002
                                                               ------   ------
 Note payable to stockholder, interest accrues at 8%, due on
   demand and unsecured, without collateral                    $    0   $1,000


9. INCOME TAXES

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

                                                 2003           2002
                                             -----------    -----------
        Deferred tax assets
          Net operating loss carryforwards   $ 7,231,000    $ 5,950,000
          Less - valuation allowance          (7,231,000)    (5,950,000)
                                             -----------    -----------
                                             $         0    $         0
                                             -----------    -----------

The increase in the valuation allowance was approximately $1,281,000 and
$1,361,000 for the years ended December 31, 2003 and 2002, respectively. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.

                                      F-13
<PAGE>

The Company has net operating loss carryforwards of approximately $21,300,000
and $17,500,000 for 2003 and 2002, respectively. These losses are available to
offset future income for income tax reporting purposes and will begin to expire
in 2011.

During 2002, there was an equity purchase and change in management. This
resulting ownership change could limit the availability of the net loss
carryforwards under federal tax law section 382. The Company does not anticipate
any limitations of these losses, but a formal analysis has not been performed to
date.

10. CONCENTRATIONS

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

11. STOCKHOLDERS' EQUITY

Common and Preferred Stock

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

2002 Stock Ownership Plan

In March 2002, the Board adopted a stock ownership plan for officers, directors
and consultants of the Company known as the 2002 Stock Ownership Plan, as
amended and restated in December 2002 (the "2002 Plan").

The 2002 Plan was established by the Board as a means to promote the success and
enhance the value of the Company by linking the personal interests of
participants to those of the Company's shareholders, and by providing
participants with an incentive for outstanding performance. The 2002 Plan is
further intended to aid the Company in attracting and retaining the services of
persons upon whose judgment, interest and special efforts the successful
operation of the Company and its subsidiaries is dependent. Persons who are
either officers, directors or consultants of the Company are eligible to
participate in the 2002 Plan. The Board may, at any time and from time to time,
grant shares of the Company's common stock in such amounts and upon such terms
and conditions as it may determine, to include the granting of shares of Company
common stock and the granting of options to purchase shares of Company common
stock. 23,000,000 shares of Company common stock were reserved for issuance
under the 2002 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 2002 Plan, at December 31, 2003, a total of 21,939,480 shares had been
issued to consultants.

Stock Compensation

During 2003 and 2002, the Company issued a total of 4,525,000 shares and
6,436,000 shares in payment of salaries in the total amount of $284,750 and
$594,520, respectively, 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 $291,450 in accrued salary of certain of its officers and former
officers, in connection 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 date of issuance. In connection with the same
transaction in 2002, the Company issued 1,596,000 shares of common stock as
payment for all loans outstanding from a former officer.

Other Transactions

During 2003, the Company issued 6,994,865 shares of common stock for cash of
$1,007,000 based on the market price at the time of issuance.

                                      F-14
<PAGE>

During 2003 and 2002 the Company issued 15,299,783 and 16,524,500 shares of
common stock, respectively. to consultants and professionals for services to be
performed during 2002, 2003 and 2004. The stock price was determined to be
market price on the date of issuance. As of December 31, 2003 and 2002,
$1,608,373 and $370,000, respectively, of services were not performed and are
shown as a reduction to stockholders' equity.

Warrant Exercises

During 2003 and 2002, the Company issued 12,244,250 and 2,700,000 shares,
respectively to non-employees upon the exercise of warrants for a total
consideration of $1,258,232 and $148,000 in cash.

The following table is a table of warrants issued during 2003 and 2002:

             Warrants Outstanding, January 1, 2002       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 issued                           8,162,250
               Warrants exercised                      (12,244,250)
               Warrants expired                                  0
                                                       -----------
             Warrants Outstanding, December 31, 2003     8,476,727
                                                       ===========

Warrants for 8,162,250 and 10,569,000 shares were granted in 2003 and 2002. The
weighted average remaining contractual life for all warrants as of December 31,
2003, was approximately 2.4 years. At December 31, 2003, all outstanding
warrants were fully vested and exercisable.

If not previously exercised, warrants outstanding December 31, 2003, will expire
as follows:

                      Range
                ----------------
                                                          Weighted Average
     Year        Low        High     Number of Warrants    Exercise Price
     ----        ---        ----     ------------------    --------------
     2004       $0.15      $0.30         2,785,477              $0.22
     2006       $0.19      $0.45         3,661,250              $0.19
     2008       $0.05      $0.30         2,030,000              $0.16
                                         ---------
                                         8,476,727              $0.19
                                         =========

For the years ended December 31, 2003 and 2002, the Company recognized $325,258
and $396,604 of compensation expense related to issuance of warrants to
non-employees in accordance with SFAS No. 123. During 2002 the Company repriced
certain warrants, which resulted in a charge to earnings of $106,609. This
amount is included in the compensation expense of $396,604 recognized in 2002.

Options

During 2003 and 2002 no options were granted to employees, officers or
directors.

12. 2003 ACQUISITION

Pipeline Networks of Colorado, LLC
----------------------------------

On August 25, 2003, the Company , through its subsidiary, USURF Communications,
Inc., acquired the customer base and substantially all of the tangible and
intangible assets and rights used in connection with the Internet services
business operated by Pipeline Networks of Colorado, LLC ("Pipeline"). This
purchase was entered into to add customers and agreements to offer services in
areas that the Company had not previously been providing service. The

                                      F-15
<PAGE>

acquisition was effected pursuant to an Asset Purchase Agreement (the "APA"),
dated August 25, 2003 and modified effective December 15,2003. The members of
Pipeline were paid a total of $312,600, comprised of the following: $45,000 in
cash, a promissory note for $111,300 due December 15, 2003, and $156,300 in
stock due December 15, 2003. Effective December 15, 2003, the Company entered
into a Modification and Extension Agreement (the"MEA") amending the original
terms of the APA. The MEA changed the interest rate to 18%, the due date on the
note to March 15, 2004 and the stock due date to April 13, 2004. The note and
accrued interest were paid in cash in February 2004 and the shares were issued
in April 2004.

The following table summarized the assets acquired and liabilities assumed by
the Company in the transaction:

              Property and Equipment                   $ 207,177
              Intangibles: Customer Base               $  79,613
              Intangibles: Right-of Entry Agreements   $  40,000
              Customer Deposits                        $ (14,190)

The preliminary estimate of assets represents management's best estimate based
on currently available information; however, such estimate may be revised within
the one-year period following the acquisition date. Intangibles will be
amortized using the straight line method over 7 years.

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

                                                                        Proforma        Proforma
                                        Company         Pipeline      Adjustments       Combined
                                      ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>             <C>
Revenues                              $    403,764    $    154,091                    $    557,855
   Expenses
     Internet access cost                  493,504         106,985                         600,489
     Depreciation and amortization         130,384          54,410   (1)    12,073         196,867
     General and administrative          3,363,336         218,256                       3,581,592
                                      ------------    ------------    ------------    ------------
   Total Operating Expenses              3,987,224         379,651          12,073       4,378,948

Operating loss                          (3,583,460)       (225,560)        (12,073)     (3,821,093)
Other Income (expense)                     (70,846)         24,281   (2)     3,642         (42,973)
                                      ------------    ------------    ------------    ------------
Net loss                              $ (3,654,356)   $   (201,279)         (8,431)   $ (3,864,066)
                                      ============    ============    ============    ============

Net loss per common share             $     (0.041)                                   $     (0.041)
Weighted average shares outstanding     89,186,106                                      89,186,106


     (1)  To record amortization of intangible assets
     (2)  To eliminate interest expense related to the purchase


                                      F-16
<PAGE>

The following proforma condensed statements of operations assumes the Pipeline
acquisition occurred on January 1, 2002 and presents proforma financial
information for the year ended December 31, 2002. In the opinion of management,
all adjustments necessary to present fairly such proforma condensed statements
of operations have been made.
                                                                        Proforma        Proforma
                                        Company         Pipeline      Adjustments       Combined
                                      ------------    ------------    ------------    ------------

Revenues                              $          0    $     98,276                    $     98,276
   Expenses
     Internet access cost                                  107,995                         107,995
     Inventory write down                  132,031                                         132,031
     Depreciation and amortization           7,336          57,979   (1)    21,495          86,810
     General and administrative          3,830,181         256,535                       4,086,716
                                      ------------    ------------    ------------    ------------
   Total Operating Expenses              3,969,548         422,509          21,495       4,413,552

Operating loss                          (3,969,548)       (324,233)        (21,495)     (4,315,276)
Other Income (expense)                    (190,874)          1,654                        (189,220)
                                      ------------    ------------    ------------    ------------
Net loss                              $ (4,160,422)   $   (322,579)        (21,495)   $ (4,504,496)
                                      ============    ============    ============    ============

Net loss per common share             $     (0.092)                                   $     (0.100)
Weighted average shares outstanding     45,008,651                                      45,008,651

     (1)  To record amortization of intangible assets

</TABLE>

Children's Technology Group, Inc.
---------------------------------

In September 2003, the Company acquired certain assets of Children's Technology
Group, Inc. ("CTG") a provider of content-filtering internet services for a
total of $682,548, consisting primarily of $150,000 in cash and 2,800,000 shares
of common stock. The content-filtering software and related assets were acquired
to complement the Company's Internet services product offerings

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

              Property and Equipment                     $ 54,966
              Intangibles:  Website and graphics         $ 86,000
              Intangibles:  Content Filtering Software   $541,582

The preliminary estimate of assets represents management's best estimate based
on currently available information; however, such estimate may be revised within
the one-year period following the acquisition date. Intangibles will be
amortized using the straight line method over 7 years.

In October 2003, the Company entered into an agreement to license certain
software acquired in the CTG purchase. The terms of the agreement called for a
license fee payment of $485,000 paid with a combination of $25,000 cash and two
million shares of stock. The agreement also calls for a monthly fee, based upon
sales, with a minimum of $4,000 per month. The license fee has been recoreded as
deferred revenue and is being amortized over the two year term of the agreement
using the straight line method. The balance of deferred revenue at December 31,
2003 was $403,333.

Others

In 2003, the Company issued 775,000 shares of stock for investment in two
entities, totaling approximately $54,000. During 2003, the value of these
investments was impaired and the carrying value was reduced by $50,000.

                                      F-17
<PAGE>

13. CONTINGENCIES

A. Involuntary Bankruptcy

On September 29, 2000, three creditors of CyberHighway filed an involuntary
petition in the 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 and the motion failed.

At December 31, 2003 and 2002, approximately $953,561 of accounts payable of
CyberHighway are not reflected on the balance sheet. As a result of the
bankruptcy, this subsidiary is not consolidated with the Company.

B. Litigation

We have been involved in lawsuits and other claims. We assess the likelihood of
any adverse judgments or outcomes to these matters as well as the potential
range of probable losses. A determination of the amount of accrual required, if
any, for these contingencies is made after careful analysis of each matter. The
required accrual may change in the future due to new developments in any matter
or changes in approach (such as a change in settlement strategy) in dealing with
these matters. As noted in footnote 15. below, we settled certain litigation
early 2004. The liabilities related to these matters were accrued at December
31, 2003 and 2002 in the amounts of $42,235 and $126,048, respectively.
Management is unaware of any other existing or potential litigation or judgment
and have made no litigation-related accruals at December 31, 2003

C. Leases

The Company subleases office space in Colorado Springs, Colorado, through 2004.
The future rental payments for 2004 are approximately $66,000, but does not
include the proportionate obligation of property taxes (approximately $2,500 per
month for the term of the sublease agreement). The Company has a small office in
Denver during 2004 as well as leased space for communications equipment located
in co-locations facilities, on towers and roofs of various buildings. These
leases are generally on a month to month basis.

Rent expense for the years ended December 31, 2003 and 2002, was $113,517 and
$20,051, respectively.

14. SEGMENT DISCLOSURE

The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information," during the fourth quarter of 2000. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by chief operating decision makers or decision making groups, in
deciding how to allocate resources and in assessing performance. Through
December 31, 2003, the Company's operations contained no individual segments
that are required to be reported pursuant to SFAS 131.

15. SUBSEQUENT EVENTS

A. American Stock Exchange Listing

On March 5, we were notified by the American Stock Exchange ("AMEX") that,
following a hearing on March 4, 2004, a Listing Qualifications Panel of the AMEX
Committee on Securities affirmed a decision by the AMEX staff to delist our
common stock. On March 9, 2004, AMEX suspended trading of our common stock. On
March 10, 2004, our common stock began trading on the "pink sheets" and on March
22, 2004, began trading "over the counter" under the symbol "USUR.OB."

B. Litigation Settlements

In July 2002, an adverse arbitration decision was rendered against the Company
in favor of one of our former employees, Christopher L. Weibelt. The decision
arose out of a claim by Mr. Weibelt of wrongful termination under his employment
agreement. The arbitration matter was styled: USURF America, Inc. versus
Christopher L. Wiebelt, American Arbitration Association, Case No.
71-160-00087-01. In September 2003, judgment was entered by a Louisiana District
Court on the arbitration award, plus accrued interest and attorneys fees
totaling approximately $124,000. In February 2004, we entered into a settlement
agreement with Mr. Weibelt under which we agreed to satisfy the judgment by
making an initial payment of $30,000 and six equal monthly payments of $15,700
thereafter for the balance. Under the settlement agreement, the judgment will be
fully satisfied in August 2004. All settlement amounts have been accrued as of
December 31, 2003.

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<PAGE>

In June 2001, a default judgment in the amount of $23,666 was entered against us
in the matter styled: Marcus, Merrick, Montgomery, Christian & Hardee, LLP vs.
USURF America, Inc., District Court of the Fourth Judicial District of the State
of Idaho, in and for the County of Ada, Case No. CV OC 0101693D. The lawsuit,
filed by a law firm in Boise, Idaho, arose out of a dispute regarding legal fees
and went unchallenged as a result of administrative error. In February of 2004,
we settled this matter for the amount of $39,404. Counsel for the plaintiff has
filed with the court an acknowledgment of full satisfaction of the judgment.

In March 2004, we became aware of a default judgment in the amount of $12,963,
rendered against us on November 13, 2001 in the matter styled Teletronics
International, Inc. v. USURF America, Inc.; Cause No. 0108-07513-D; in the City
Court of Baton Rouge, Louisiana. The lawsuit arose out of a dispute regarding a
vendor invoice and went unchallenged as a result of administrative error. In
March 2004, we settled this matter for the amount of $17,217. Counsel for the
plaintiff will file appropriate documents with the court to acknowledgment full
satisfaction of the judgment.

C. Financing Activities (Unaudited)

In January 2004, the Company entered into an agreement with Atlas Capital
Services, LLC ("Atlas") to provide financing directly or indirectly to the
Company. Under the terms of the agreement, the Company will pay to Atlas a fee
equal to 10% of the principal amount of the transaction amount to be paid as
proceeds are received by the Company from each transaction.

In March 2004, Atlas arranged for the Company to complete the closing of a
private placement totaling $3,100,000. The placement consisted of $1,000,000 in
common stock at $0.10 per share, $2,100,000 in convertible debentures
convertible into common stock at $0.10 per share, and 125% warrant coverage at
an exercise price of $0.12 per share. Under the terms of the private placement,
the investors have the right to purchase up to an amount equal to, at the
election of such investors, $3,000,000 principal amount of additional
debentures. Any additional investment will be on terms identical those set forth
in the private placement, except that, the conversion price of any additional
convertible debentures shall be $0.12 per share.

D. Acquisitions (Unaudited)

SunWest Communications, Inc.

In February, 2004, the Company signed a definitive agreement to acquire the
assets of SunWest Communications, Inc. ("SunWest"). The assets include SunWest's
telecommunications network of fiber optic lines covering over 100 linear miles,
state-of-the-art operations facilities and equipment (including a Lucent 5ESS
switch). SunWest provides PUC licensed telecommunications services to
approximately 7,500 residential and commercial customers in the state of
Colorado. This acquisition provides the company with an integral component in
its business plan to offer a complete voice, video and data service package.

SunWest is based in Colorado Springs, CO and currently generates over $5.0
million (unaudited) in annual revenues and has delivered high quality
telecommunications services for nearly seven years. SunWest serves primarily the
growing southern Colorado market, including Colorado Springs (population
517,000), Pueblo (147,000) and Canon City (45,000). The transaction is subject
to the approval of the Colorado Public Utilities Commission.

Apollo Communications, Inc.

In October 2003, the Company announced that it had signed a Letter of Intent to
acquire the assets of Apollo Communications, Inc. of Colorado Springs
("Apollo"). Apollo provides data and high-speed internet access services as well
as local and long distance telephone services. Apollo has over 5,500 (unaudited)
customers and generates $4.0 million (unaudited) in annual revenues. The
transaction is subject to the approval of the Colorado Public Utilities
Commission.

Connect Paging, Inc. d/b/a Get A Phone

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

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