-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ExkkQObUq/uyMr9D9ygowmfEdGr09L0tvle90iSAXF3sO5ogH0YYbAb9FGTQva5m q+n/fNvc2e4qYiqQWWbBGg== 0000742814-99-000030.txt : 19990426 0000742814-99-000030.hdr.sgml : 19990426 ACCESSION NUMBER: 0000742814-99-000030 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990423 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEMETRIX INC CENTRAL INDEX KEY: 0000742814 STANDARD INDUSTRIAL CLASSIFICATION: LUMBER & WOOD PRODUCTS (NO FURNITURE) [2400] IRS NUMBER: 593453156 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-14724 FILM NUMBER: 99599789 BUSINESS ADDRESS: STREET 1: 1612 N. OSCEOLA AVE CITY: CLEARWATER STATE: FL ZIP: 33755 BUSINESS PHONE: 7274433434 MAIL ADDRESS: STREET 1: 1612 N. OSCEOLA AVENUE CITY: CLEARWATER STATE: FL ZIP: 33755 FORMER COMPANY: FORMER CONFORMED NAME: ARNOX CORP DATE OF NAME CHANGE: 19960612 8-K/A 1 TELEMETRIX 8-K, AMENDMENT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF EARLIEST REPORTED EVENT - MARCH 31, 1999 TELEMETRIX INC. (Exact name of Registrant as specified in its charter) Delaware 0-14724 59-3453156 (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) File Number) Identification Number) 1612 N.Osceola Avenue Clearwater, Florida 33755 (Address of Registrant's principal executive offices) 727-443-3434 (Registrant's telephone number, including area code) 727-443-5240 (Registrant's facsimile number, including area code) Arnox Corporation (Former name or former address, if changed since last report) ITEM 1.CHANGE IN CONTROL OF REGISTRANT General. Telemetrix Inc., a Delaware corporation formerly known as Arnox Corporation (the "Registrant") was incorporated in Delaware in 1983 to develop, manufacture, market and license fire retardant products and technology. The Registrant conducted an initial public offering in August, 1985 pursuant to an effective Form S-1 Registration Statement under the Securities Act of 1933, as amended (the "Securities Act"). In connection with an application to list its Common Stock on the NASDAQ system, the Registrant also registered its Common Stock pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act"). As a result of a 1989 bankruptcy proceeding, the Registrant became an inactive shell that had with no material assets or liabilities and no ongoing business activities. The Registrant remained inactive until it August 1996 when its stockholders approved a plan of reorganization proposed by Capston Network Company of Clearwater, Florida ("Capston") that authorized Capston to seek a suitable business combination opportunity for the Registrant. Capston and its president, Sally A. Fonner, who has also served as the Company's sole director since July 1997, have been actively seeking a business combination opportunity for the Registrant since August 1996. After investigating a number of opportunities, Capston negotiated a business combination on behalf of the Registrant with Telemetrix Resource Group, Inc., a Colorado corporation ("TRG"), Tracy Corporation II d/b/a Western Total Communications, a Nebraska corporation ("WTC"), and the stockholders of TRG and WTC. The parties executed the business combination agreement on March 22, 1999. The business combination. The Registrant acquired TRG and will, upon the receipt of requisite regulatory approvals, acquire WTC in a business combination transaction that was structured as a reverse takeover, or "RTO," in which the stockholders of TRG and WTC agreed to exchange their shares in TRG and WTC for newly issued stock of the Registrant. Immediately prior to the completion of the RTO, the Registrant had no material assets, liabilities or business operations. No relationship existed between the Registrant and TRG or WTC prior to the RTO, other than the contractual relationship under the agreement governing the business combination. No funds of the Registrant were expended to acquire the stock of either TRG or WTC. As consideration for engaging in the business combination, the Registrant issued shares of Common Stock to the former stockholders of TRG and WTC. The amount of consideration given by the Registrant in the RTO was determined by negotiation between the parties. The RTO will accounted for as an acquisition of the Registrant by the stockholders of TRG and WTC in consideration of transfer of TRG and WTC to the Registrant. Until March 31, 1999, the Registrant had 3,439,247 shares of common stock ("Old Common") issued and outstanding. In preparation for the RTO, the Registrant changed its name to Telemetrix Inc, and effected a "reverse split" where the Old Common was consolidated in the ratio of one post-consolidation share ("Common Stock") for every eleven and one-half (11-1/2) shares of Old Common, provided, however, that no single stockholder's holdings were reduced to fewer than 100 shares of Common Stock. In connection with the RTO, the Registrant agreed to acquire all of the issued and outstanding shares of TRG in exchange for 6,127,200 shares of Common Stock and all of the issued and outstanding stock of WTC in exchange for 5,372,800 shares of Common Stock. In addition, the Registrant agreed to issue 1,067,000 shares of Common Stock to certain consultants and advisors (including 300,000 shares of Common Stock issued to certain designees of Capston, 300,000 shares of Common Stock issued to legal counsel for the parties and 467,000 shares of Common Stock issued to certain financial consultants as finders fees). While the acquisition of TRG closed on April 5, 1999, the acquisition of Tracy II is subject to the receipt of final regulatory approval from the Federal Communications Commission which is expected in due course. Taking all of the foregoing into account, there are approximately 7,514,200 shares issued and outstanding on the date of this Report on Form 8-K and there will be approximately 12,887,000 shares of Common Stock issued and outstanding upon the closing of the WTC acquisition. The shares of Common Stock issuable to the former stockholders of TRG and WTC constitute approximately 82.8% of the outstanding Common Stock on the date of this Report on Form 8-K and will constitute approximately 90% of the outstanding Common Stock after upon the closing of the WTC acquisition. In summary, (i) prior to the RTO, the Registrant changed its name and effected a reverse-split of its outstanding Old Common in the ratio of one share of Common Stock for every eleven and one-half (11-1/2) shares of Old Common held by a stockholder, provided, however, that no single stockholder's share ownership was reduced to fewer than 100 shares of New Common, (ii) the Registrant's authorized capitalization was increased to 25,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares of $0.01 par value preferred stock, (iii) the Registrant changed its name to Telemetrix Inc. (iv) all of the outstanding common stock of TRG was transferred to the Registrant in exchange for 6,127,200 shares of Common Stock, (v) subject only to the receipt of the requisite regulatory approvals, the stockholders of WTC agreed to transfer all of the outstanding common stock of WTC to the Registrant in exchange for 5,372,800 shares of Common Stock, and (vi) the Registrant issued 1,067,000 shares of Common Stock to certain consultants and advisors (including 300,000 shares of Common Stock issued to certain designees of Capston, 300,000 shares of Common Stock issued to legal counsel for the parties and 467,000 shares of Common Stock issued to certain financial consultants as finders fees). After giving effect to all of the foregoing into account, there are approximately 7,514,200 shares issued and outstanding on the date of this Report on Form 8-K and there will be approximately 12,887,000 shares of Common Stock issued and outstanding upon the closing of the WTC acquisition. Upon completion of the WTC acquisition, the former stockholders of TRG and WTC will hold approximately 90% of the Registrant's issued and outstanding Common Stock and will control the Registrant. The following table sets forth the number of shares of Common Stock owned, (a) as of the date of this Current Report on Form 8-K and (b) after completion of the WTC Closing, by (i) each executive officer and director, (ii) executive officers and directors as a group, and (iii) each person who will own of record or own beneficially, more than five percent (5%) of the Registrant's outstanding Common Stock.
Name and Address of Beneficial Owner Current Holdings (1) After WTC Closing (2) ---------------- ----------------- Shares Percent Shares Percent Owned of Class Owned of Class Hartford Holdings Ltd. ("HHL") 6,127,200 81.6% 6,900,000 53.6% Box 143,Cayman Islands, British West Indies William W. Becker (Chairman of the Board of Directors). 6,127,200 (4) 81.6% 6,900,000 (5) 53.6% Box 143,Cayman Islands, British West Indies (3) Oz Pedde (Chief Executive Officer & Director) -- -- 0.0% c/o Michael L. Glaser 633 17th Street, Suite 2700, Denver, Colorado 80202 Michael J. Tracy (President, Treasurer & Director) -- 4,140,000 32.2% c/o Michael L. Glaser 633 17th Street, Suite 2700, Denver, Colorado 80202 Michael L. Glaser (Vice President, Secretary & Director) 90,000 1.2% 550,000 (6) 4.3% 633 17th Street, Suite 2700, Denver, Colorado 80202 Executive Officers and Directors as a Group (4 persons) 6,217,200 82.8% 11,590,000 90.0% - -------------- 1) Based on 7,514,200 shares of Common Stock outstanding at the date of this Notice. 2) Based on 12,887,000 shares of Common Stock outstanding after completion of the WTC Closing. 3) William W. Becker exercises sole voting and investment control over shares of Common Stock held by HHL. 4) Includes 6,127,200 shares of Common Stock held by HHL. 5) Includes 6,900,000 shares of Common Stock held by HHL. 6) Includes 90,000 Shares issued to Mr. Glaser as payment for legal fees. 7) Apart from the RTO, there the Company is not aware of any arrangements that may result in a change in control of the Company subsequent to the date of this Notice.
The Agreement permits the former stockholders of TRG and WTC to replace the Registrant's current Board with their own nominees (the "New Directors"). This change in the Board will not become effective and the New Directors will not assume office, until 10 days after the Registrant files an Information Statement and Notice of Change in the Majority of the Board of Directors with the U.S. Securities and Exchange Commission (the "Commission") and sends copies of the Notice to all record stockholders. At that time, Sally A. Fonner the Registrant's sole current director will appoint the New Directors to the Board and then resign. Thereafter, the New Directors and the executive officers they appoint will manage the Registrant's business. In connection with the plan of reorganization approved by the Company's stockholders, certain persons designated by Capston received 300,000 shares of Common Stock for administrative and management services. Ms. Fonner, the Registrant's former sole officer and director, received 110,500 of those shares for her personal account. In addition, 150,000 shares of Common Stock were issued to legal counsel for Capston for services rendered since 1996. A total of 467,000 shares of Common Stock were issued to two finders who assisted in the identification of TRG and WTC as potential business combination candidates, the introduction of TRG and WTC to the Company, the collection and analysis of due diligence information on TRG and WTC, and other financial consulting and advisory services. Mr. Michael Glaser, a proposed New Director and officer of the Registrant, received 90,000 shares of Common Stock for legal services performed in connection with the RTO. In addition, Mr. Glaser's law firm, Haligman Lottner Rubin & Fishman, P.C., received 60,000 shares of Common Stock for legal services performed in connection with the RTO. All shares of Common Stock issued to designees of Capston, legal counsel for the parties and the finders were registered prior to issuance on a Form S-8 Registration Statement under the Securities Act of 1933. The Registrant believes that each of these transactions were on terms no less favorable to the Company than it could have obtained in transactions with unrelated third parties. ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS As described in Item 1, the Registrant is acquiring all of the stock of TRG and WTC in exchange for 11,500,000 shares of Common Stock. The following material relating to the future business of the Registrant was prepared by the management of TRG and WTC for inclusion in this Current Report on Form 8-K. The Registrant will offer customer service facilities and enabling technologies for digital telecommunications networks, particularly wireless Personal Communications Services ("PCS"). The Registrant's complementary products and services include: o A wireless data acquisition system with applications for meter reading, alarm reporting, remote control and monitoring; o Wireless local loop data and voice services; o Development of equipment and standards to support Tier 3 and 4 markets for advanced PCS services; o Provisioning and post-sales support to support deployed products; o Software to perform order fulfillment, rating, bill generation, customer care, fraud control, accounts receivable processes, for comprehensive customer management; and o Software development and maintenance. Potential customers for the Registrant's carrier support services include Incumbent Local Exchange Carriers ("ILECs"), Competitive Local Exchange Carriers ("CLECs"), cable companies, Internet Service Providers ("ISPs"), utilities and interexchange carriers ("IXCs"), in U.S., Canadian and international markets. As telecommunications markets grow and service categories converge, carriers must both expand the scope of their services and retain their customer base with quality customer service. The Registrant believes that its products and services offer both quality customer service management and the ability to expand a carrier's service offerings. TRG, together with its wholly owned Canadian subsidiary, Telemetrix Resource Group Ltd. ("TRG-Canada") has a suite of proprietary software for comprehensive customer management. These packages, Telemetrix Revenue Awareness Customer Care System ("TRACCS") and Intro CCB, have integrated database-driven components for managing Order Processing, Provisioning, Customer Care, Account Development, Billing and Financial Management, Fraud Control, Network Management, Performance Reporting and related and supporting Office Products software. Using TRACCS' built-in reporting capabilities, to sort, organize and present data, wireless and wireline telecommunications carriers can effectively and efficiently utilize their customer and billing information. TRG works closely with its carrier customers to define their needs and then designs, develops and implements user-based billing and customer care solutions based on the existing TRG software offerings. Carriers can either license TRG's software for use in their customer management operations or hire TRG to perform the customer management services. TRG currently has five customers for whom it is providing billing and information management services, producing monthly revenues of $136,500.00. TRG is in negotiations with four additional customers for the provision of similar services. WTC currently provides paging and mobile communications services through numerous licenses issued by the Federal Communications Commission ("FCC") in Western Nebraska, Eastern Wyoming and Northeastern Colorado, and currently holds three PCS licenses issued by the FCC; two licenses for Scottsbluff and one license for McCook, Nebraska. Although WTC has entered into an Agreement with Pinpoint Communications ("Pinpoint") for the sale of WTC's McCook PCS license to Pinpoint, subject to prior approval of the FCC. WTC and Pinpoint have not yet filed an Application seeking fcc approval of this sale. WTC's PCS licensed service areas encompass approximately 138,000 persons including McCook. WTC intends to expand its PCS service offerings to include PCS Wireless Local Loop services (i.e., local exchange services), monitoring, data collection and distribution, meter reading and mobile PCS. WTC also holds 34 paging and mobile telephone licenses serving 27 locations in Western Nebraska, Eastern Wyoming and Northeastern Colorado. WTC also is developing DATATRAK, a name which WTC presently utilizes to describe its system, which is a hardware and software system for data collection, system monitoring, distribution and billing. DATATRAK applications will allow a wide variety of Applications including wireless local loop ("WLL"), and monitoring of vending machines, home security, home health and automatic utility meter reading plus other specialty applications. The DATATRAK system has been designed for use in both wireless and wireline telecommunications. WTC's COMM Center, a proprietary communications hardware and software gateway uses digital communications technology to deliver residential or business local exchange telephony (wireline) bypass. The COMM Center also can be configured to be compatible with different communications protocols and transmission media (i.e., wireless and wireline; Global System for Mobile Communications ("GSM"), Code Division Multiple Access ("CDMA") or Time Division Multiple Access ("TDMA")). The COMM Center can function as a wireless local-loop interface replacing or supplementing existing wireline telephone service equipment or providing additional telephone service. The COMM Center wireless local loop interface will provide wireless basic telephone service over existing in-home or in-business telephone wiring. Using these products, PCS operators (particularly rural operators in areas of low population density) can offer additional services and thereby increase their revenue potential. WTC expects to deploy DATATRAK and COMM Centers in its own wireless and PCS networks to demonstrate their efficacy and to generate additional PCS revenue. The Registrant believes the operations and services of TRG and WTC complement each other and combining their businesses will achieve greater efficiencies and competitiveness. INDUSTRY OVERVIEW The U.S. telecommunications industry has approximately 1,350 service providers, serving more than 90 million households and 25 million businesses (approximately 158 million access lines), and generated revenues approaching $196.3 billion. Telecommunications wireline services are provided in three principal markets: long distance, local exchange and data products and services. Wireless communications services include cellular telephone service, Personal Communications Services ("PCS"), Specialized Mobile Radio ("SMR") and paging. The Registrant believes service providers in each of these market segments can benefit from the Registrant's carrier support services. The DATATRAK and COMM Center technology should appeal to both wireless service providers as well as original equipment manufacturers ("OEMs") who sell their products to telecommunications carriers. The Registrant's TRACCS billing system can facilitate new carriers' entry into the local exchange market by enabling carrier to focus on developing and enhancing their services without sacrificing customer care and administration. The Registrant's systems also have the flexibility to adapt to carriers' changing service offerings and to implementation of new services. The Long Distance Market. The FCC's Statistics of Common Carriers reports that the domestic long distance industry generated revenue of approximately $88.6 billion in 1997. The long distance market is comprised of three tiers. The first tier consists of facilities-based long distance carriers, such as AT&T, MCI, WorldCom and Sprint, who provide long distance communications services using their own equipment to transmit telephone calls. These carriers collectively accounted for approximately 80% of all toll revenues in 1997. "Second tier" carriers, consisting primarily of switched resellers such as Excel Communications Inc., Cable and Wireless, plc., LCI International Inc. and Frontier Corporation ("Frontier"), accounted for approximately 6.0% of toll revenue in 1997. The remaining market share, or "third tier," is held by smaller companies primarily consisting of switchless resellers. The Local Exchange Market. According to FCC data, total revenue from local telecommunications services in 1997 was approximately $103 billion. The U.S. federal Telecommunications Act of 1996 ("Telecommunications Act") seeks to increase competition in the local telecommunications industry and provide a framework for other carriers to compete with LECs by reselling local telephone service, leasing unbundled elements of the ILECs' networks or building new local service facilities. The Telecommunications Act has created many opportunities for new providers to enter the local services market. The Data Products and Services Market. Data products and services has been the highest growth segment of the telecommunications industry in the 1990s. According to Data Communications, data-related products and services accounted for revenues of almost $79.0 billion in 1997--a growth rate of approximately 17% from 1996. According to the Yankee Group, current trends suggest that data revenues will double over the next three years and will grow five times faster than voice revenues. The Wireless Services Market. The wireless communications market, which includes cellular telephone service, Personal Communications Services ("PCS"), Specialized Mobile Radio ("SMR"), paging, and other applications has grown dramatically in recent years. For example, U.S. cellular telephone service revenues grew from $5.8 billion in 1991 to $19.0 billion in 1995, and the number of subscribers increased from 7.6 million in 1991 to 53.3 million in 1997. The growth in wireless communications results from lower prices for consumer equipment (e.g., cellular telephones and pagers), more comprehensive service coverage, lower rates and technological advances that have improved transmission quality and reliability. Other studies forecast approximately 47 million new subscribers during the next five years. By 2001, total wireless phone penetration is projected to reach approximately 40%, with more than 55% household penetration. While the major PCS operators will likely focus on mobile telephone services that will compete with cellular telephone services, small and rural PCS operators must offer additional "niche" PCS service offerings in order to increase utilization of their services. Billing Systems. With continued deregulation, increased complexity of products and features, bundled Internet services and the drive to combining multimedia (voice, data and video), telecommunications carriers' billing needs are becoming increasingly complicated. This situation requires a market response with provision of a more robust billing system that is stable and easy to both modify and implement across a multitude of carrier services. The total North American market for billing software is approximately about $3 billion per year and rapidly growing at approximately 25% per year. The Registrant will initially target smaller carriers, which represent about 25% of the total market. Thus the Registrant estimates a potential North American billing software market of $700 million, rising to $900 million by 2000. TECHNOLOGY OVERVIEW To assist understanding of the Registrant's products and services, the following summary briefly describes the configuration of PCS networks and local loops. PCS Networks. Certain wireless communications networks, such as cellular telephone and PCS, use a cellular architecture, where the service region is divided into multiple cells, each containing a Base Station (including a transmitter, receiver and signaling equipment) which is connected to the wireless network switch and which, in turn, is connected to the public switched telephone network "PSTN"). Within a cell, the mobile units (e.g., the handset) communicate with the Base Station using radio waves; to prevent interference, adjacent cells use different radio frequencies. As a mobile unit moves away from the Base Station in a particular cell, the network switch monitors the signal strength of the call and switches the call to a new Base Station in another cell where the signal strength is greater. PCS licensed services use higher radio frequencies than traditional cellular telephone, which reduces the distance PCS transmissions can travel without significant degradation. Consequently, PCS networks require smaller operating cells and more Base Stations than cellular telephone networks. When a mobile unit leaves the wireless carrier's service area, the call will be disconnected unless the wireless carrier in the new service area accepts and handles ("carries") the call. This "roaming" among different wireless carriers requires both technical compatibility and agreements between carriers to carry calls from other carriers' subscribers. Cellular carriers generally have roaming agreements, however, since PCS is still developing and PCS operators are utilizing different technical standards, roaming between PCS systems is somewhat limited. Local Loop: Local wireline telephone systems consist of a network of switches, transmission facilities between switches and the "local loop" connections between subscribers' premises and the nearest local exchange switch. The local exchange switches route calls initiated by subscribers either directly to recipients served by the same switch or, for more remote recipients, to the long distance carriers' points of presence ("POP"). Wireline local loops generally consist of telephone wires that run along aerial or underground rights-of-way to each subscriber premise. Older wireline local loops generally carry analog transmissions and have relatively low capacity, sufficient to carry only a single two-way voice conversation. CLECs generally do not develop their own local loops, due to the expense and effort of obtaining rights-of-way and installing a telephone line to each telephone user. These difficulties are magnified in rural areas with low population density. Consequently, CLECs must utilize the ILEC's local loops, which inhibits competition. This large expense and effort also deters ILECs from upgrading the transmission capacity of the local loop. Thus, the local loop constitutes a significant hindrance to competition and better quality service. WTC's proposed COMM Center is designed to include a Wireless Local Loop ("WLL") capability. Using this feature, CLECs and wireless service providers can replicate the local loop using wireless technology and thereby avoid costly and extensive infrastructure. PRODUCTS AND SERVICES The Registrant will provide customer service capabilities and enabling technologies for telecommunications networks. The Registrant's complementary products and services include: o Software to perform order fulfillment, rating, bill generation, customer care, fraud control, accounts receivable processes, for comprehensive customer management; o A wireless data acquisition system with applications for meter reading, alarm reporting, remote control and monitoring; o Wireless local loop networking; o Hardware designed to implement Rural PCS services; o Provisioning and post-sales support to enhance customer care; and o Software development and maintenance. Customer Care Software. Through TRG, the Registrant offers a portfolio of products that address a carrier's order fulfillment, customer care, fraud control, billing, remittance, and accounts receivable processes. This portfolio offers Year 2000 compliant, feature rich, user friendly convergent billing and information management software products. Carriers are moving away from treating billing as simply an isolated medium for revenue collection and towards using billing as the basis for effective marketing and customer service. TRACCS was originally developed and implemented as an in-house integrated customer care system that supported 124,000 accounts and over 225,000 active access lines for facilities-based long distance telecommunications services providers. TRG acquired this system in 1995 and has continued to develop TRACCS into a fully integrated suite of applications designed for large Tier II through Tier IV telecommunication carriers and providers. TRG also acquired Intro CCB, a PC-based integrated billing and customer care solution suitable for customers who have sophisticated functional demands but do not require the processing power of a mainframe hardware platform. The Management Network Group, a recognized industry expert, independently evaluated TRACCS and concluded that it was more advanced, functionally robust, and performed better than existing billing software products. The DATATRAK System. WTC is developing the DATATRAK system, a new application technology for integrated data collection, transmission, storage, and compilation. The main components of the DATATRAK system are the COMM Center, Optical Meter Reader, Network Operations Center and Access Server Software. The DATATRAK system, compatible with standard digital communications protocols, integrates a Wireless Local Loop ("WLL") to and from the home into existing PCS and other digital communications technology infrastructure. Unlike other WLL technologies, DATATRAK also provides an integrated method to monitor utility meters and security systems, provide complete telemetry functionality and manage utility consumption. These incremental features can be a significant new source of revenue for the wireless service provider. WLL serves as a voice channel provided to the customer's home or business premises. By connecting the COMM Center to a customer's existing telephone wiring, WLL which can be utilized either to replace existing service from the ILEC or as a second line. WLL also can be used as a "follow-me" service, whereby the WLL home or office system is called if the PCS mobile telephone is not answered. In addition, the DATATRAK system utilizes the Short Message Service ("SMS") capability of the existing digital communications system to establish various two-way data applications into the customer's home or business premises. Current solutions for monitoring electric, gas and water utilities are not compatible with each other, nor do they offer WLL. DATATRAK, however, reads different types of meters utilizing the Optical Meter Reader and other interfacing devices, becoming a single reading method and a single source for collection, storage and transmission of data. Once deployed, DATATRAK can be utilized for a suite of applications including voice communications, automatic utility meter reading, home security, home health, vending replenishment as well as other specialty applications. DATATRAK can be also be expanded to include control functions from remote locations and includes a complete data acquisition, distribution, and billing system. The DATATRAK system is currently in beta testing in Gering, Nebraska and is expected to be available for full deployment in the second/third quarter of 1999. DATATRAK's services and applications, when combined with the WLL capability, represent a significant new source of revenue for the digital wireless communications service provider. COMM Center. The heart of the DATATRAK system is the COMM Center, an intelligent device located on or near a customer's premises. The COMM Center has 40 access ports, consisting of twenty intelligent ports able to collect and store data from various sources such as utility meters, plus 20 non-intelligent data registers (bi-directional I/O ports) able to detect and transmit a signal when devices, such as fire alarms, burglar alarms or temperature monitors, have been set off. The COMM Center also provides the ability to remotely control on-premise devices (e.g,. turn off heat or air conditioning), which is necessary for load shedding by utilities as well as whole home or building management services currently under development. It can collect data from multiple sources, such as gas, water and electric meters, store the data in memory and release the data upon request from an authorized polling point (utility). The COMM Center contains a Subscriber Line Interface Circuit ("SLIC") and related proprietary circuitry, which allows direct connection to the customer's in-house telephone wiring. This connection supports up to five extensions and allows some or all of the customer's existing telephone sets to be provided with wireless local service (i.e., WLL). Customers can use this capability to establish a second line (e.g., for fax service) or to eliminate existing service from the incumbent ILEC or service provider altogether. The COMM Center also contains the PCS RF Module, which provides both a Voice Channel and SMS connection to the existing PCS service provider's network. The COMM Center performs all data functions via the SMS system without affecting the overall traffic (data or voice) capacity of a PCS system, and provides WLL. Optical Meter Reader. WTC has an oral agreement with the patent holder of an Optical Meter Reader to "patent" over the reader and include it as a part of the DATATRAK system. WTC expects this agreement to be finalized in writing in the near future. The oral agreement provides that WTC will offer the improved manufactured Optical Meter Reader units to the patent holder for purchase. WTC's price to the patent holder will enable WTC to make a profit on the sales of the reader to the patent holder. The Optical Meter Reader can accurately read utility meters through the glass or plastic meter cover. The Optical Meter Reader can be adapted to provide the same low cost monitoring for anything measured or monitored by a mechanical or electro-mechanical display. The reading obtained can be transmitted to the COMM Center's intelligent ports by either a wired or wireless connection. The low cost Optical Meter Reader offers eliminates the need for costly meter retrofit or meter removal and replacement and the optionally available wireless connection from the meter to the COMM Center eliminates the need for installation of additional costly on-premise wiring. Together, these capabilities can dramatically reduce utilities' costs for automatic meter reading and resource management. The Network Operations Center. The Network Operations Center ("NOC") is a PC-based system, which collects all data transmitted from the COMM Center. The NOC receives data from the various premise-based sources (e. g., alarms, utility meters) and translates it into the appropriate format and/or reports as defined by the individual service providers (e.g., alarm companies, utilities). The formatted data is then transmitted, with appropriate security measures, to the service providers. The Access Server Software. This software can operate on a standard PC located at the service provider's premises. This software interfaces to the Network Operations Center, or in some cases directly to the COMM Center, and receives formatted data or reports as defined by the service provider. In situations requiring control of on-premises devices (e. g., Load Shedding), the Access Server may send the appropriate control signals to activate the on/off ports in the COMM Center Mobile PCS. WTC currently holds three PCS licenses covering a population of 138,000, primarily in western Nebraska and eastern Wyoming. WTC constructed six PCS sites covering a population base of 56,000, and is now testing PCS services for commercial use. By deploying the DATATRAK system, the Registrant will expand its PCS and paging service offerings to include WLL, remote monitoring and access, meter reading, and other data collection and distribution services. Enhanced features available to PCS and paging customers include: o Enhanced Features - Caller identification, call hold, voice mail, numeric paging, plus custom calling features such as call waiting, conference calling and call forwarding. o Messaging and Wireless Data Transmission (DATATRAK) - Digital networks offer voice and data communications, including text messaging, through a single handset, including short message or alphanumeric paging service, mobile office applications (e.g., facsimile, electronic mail and connecting notebook computers with computer/data networks), access to stock quote services, transmission of text, connections of wireless point-of-sale terminals to host computers, monitoring of alarm systems, automation of meter reading and monitoring of status or inventory levels. o Call Security and Privacy - Encryption algorithms provide increased call security, encouraging users to make private, business and personal calls with significantly lower risk of eavesdropping than on analog-based cellular systems. o Smart Card - "SIM" cards, programmed with the user's billing information and a specified service package, allow subscribers to obtain GSM technology based PCS connectivity automatically, simply by inserting their SIM cards into compatible PCS handsets. If the Registrant has a roaming agreement with a local GSM technology based PCS provider, SIM cards could also enable subscribers to obtain service in that region. o Over-the-Air Activation and Over-the Air Subscriber Profile Management The Registrant will be able to transmit changes in the subscriber's feature package, including mobile number assignment and personal directory numbers, directly to the subscriber's handset. This capability eliminates the need to manually program the handset and simplifies the activation process for both the sales agent and the subscriber. o Roaming - The Registrant intends to obtain roaming agreements with carriers that use GSM based technology. Subscribers should be able to roam in substantial portions of the United States, either on other technically compatible PCS systems by using dual-mode handsets that permit operation on systems using different signal transmission technologies or even on existing cellular systems. o Zoned Calling Areas - WTC's service area will feature zoned calling areas permitting subscribers to pay a flat monthly service fee for calls to different coverage areas (zones) outside of the subscriber's base coverage area. The Registrant also expects that providing these enhanced services on its own network will act as a showcase for the DATATRAK System. CLEC License. WTC holds a certificate of public convenience and necessity ("CPCN") from the Nebraska Public Service Commission ("NPSC") to operate as a wireless and wireline competitive local exchange carrier in the state of Nebraska in the market areas served by the major incumbent local exchange carriers such as U.S. West Communications ("US West"), Sprint Corporation ("Sprint"), and Alliant ("Alliant"). The CPCN will enable WTC to offer wireline and wireless local exchange services to residential and business customers in Nebraska in this area. WTC has an application pending before the NPSC to provide wireless and wireline competitive local exchange services in all other areas of the State of Nebraska. POTENTIAL CUSTOMERS AND MARKETS The Registrant believes that its products and services can be utilized by a broad range of utilities and telecommunications service providers both in the United States and Canada and worldwide. Such potential customers include Incumbent Local Exchange Carriers ("ILECs"), Competitive Local Exchange Carriers ("CLECs"), Cable companies, Internet Service Providers ("ISPs"), utilities (gas and electric) and Interexchange Carriers ("IXCs"). In addition, WTC's PCS license areas encompass approximately 138,000 potential subscribers in western Nebraska, eastern Wyoming and eastern Colorado. Since many large telecommunications carriers perform billing and customer care in-house, TRG will first target smaller carriers, such as lower Tier 2 and all Tier 3 and Tier 4 telecommunications service providers (service providers with less than $100 million in annual sales). Tier 2 and Tier 3 service providers generate approximately 25% of all billing records, a market of $600 million. The Registrant believes such carriers are more likely to outsource billing and customer care or traditionally have marginal and inefficient customer care operations. TRG also could offer specific product applications to ILECs and larger companies. With the COMM Center's Wireless Local Loop capability, carriers such as CLECs, IXCs and PCS providers can extend their local service area coverage rapidly by providing wireline access deployment to offices and residences without the necessity for substantial additional capital investments. WTC has signed a letter of intent with a U.S. CLEC for a joint venture aimed at utilizing the DATATRAK system to provide wireless local loop and automated meter reading applications. The Registrant also believes that DATATRAK will appeal to small and rural PCS operators needing additional "niche" PCS service offerings in order to increase utilization of their services. Original Equipment Manufacturers ("OEMs") also may wish to incorporate DATATRAK into products such as PBX systems and vending machines. While utility and energy companies should be the initial customers, the quick, low cost data gathering provided by DATATRAK, COMM Center and the Optical Meter Reader will interest industries that must monitor consumption of any commodity and periodically replenish that commodity. MARKETING AND SALES Since its products and services are innovative and relatively unknown, the Registrant must engage in considerable "missionary" work to create awareness of its products and services. The Registrant will seek out telecommunications and utilities service providers wishing to: o add value to their existing services; o bundle services for additional revenue opportunities; o enter new markets; and o increase their subscriber bases. The Registrant expects new entrants and smaller companies to have these characteristics. While each subsidiary will have its own target markets, the Registrant's portfolio of products and services will have significant overlap. Such overlap offers opportunities for cross-selling. Consistent marketing and communications programs should develop the concept of a "family" of products and services. The Registrant hopes to establish recognition by obtaining a few key accounts and leverage that experience to attract new customers. In addition to direct sales contacts, the Registrant anticipates that industry trade shows (such as CTIA, PCSA `99, Billing World, CBTA, and Telephone Resellers Association) could serve as a primary prospective customer contact point. The Registrant also intends to develop strategic alliances with a few systems integrators and OEMs, to act as indirect sales channels. Customers can either license TRG's software for use in their own customer management operations or hire TRG to perform the customer management services. For in-house licenses, customers will pay an initial fee plus a recurring annual maintenance fee. When performing customer management services, TRG anticipates charging a fee of 3%-5% of the customer's annual revenue, which is generally lower than the customary 4%-6% fee for telecommunications billing services as described in Operations (p. 1 above). TRG is currently providing services to six customers and is negotiating agreements for services with four additional customers. WTC intends to use its wireless network and services as the showcase for small market PCS equipment, service and service offerings for WTC's PCS services and DATATRAK (especially the COMM Center and the Optical Meter Reader). The facility has been designed to met the needs of Tier 3 and Tier 4 markets, to show the scalability of the Registrant's infrastructure equipment and to demonstrate the data gathering operations and services. The WTC PCS network will demonstrate to potential customers how the DATATRAK system operates, the costs for installing the equipment and the revenues from each service segment. WTC will market DATATRAK through direct contact with PCS licensees. The Registrant will participate in regional and national trade shows, conferences and seminars, where WTC will provide demonstrations of its products using the local wireless network. The Registrant expects to license DATATRAK to only one operator or carrier in a market. The licensee will pay an equipment fee based on the number of households in the licensed market or area, plus a commission on revenue produced by the Registrant's products. WTC also will seek joint ventures with CLECs, ILECs and IXCs. Such joint ventures would focus on Tier 1 and Tier 2 markets, while WTC conducts direct marketing to Tier 3 and Tier 4 markets. WTC has executed a letter of intent with a CLEC for such a joint venture. As DATATRAK and WLL applications become widely accepted, the Registrant will begin to license its technology to manufacturers of PCS equipment, security systems, and vending systems. To obtain PCS subscribers in its license territory, WTC will offer several attractive rate packages based on a monthly fixed fee. WTC's PCS offerings include features not offered by cellular competitors that, in combination with its rate plans, should create significant subscriber interest for WTC's PCS services. COMPETITION The telecommunications services industry is highly competitive, rapidly evolving and subject to constant technological change. In particular, there are numerous companies offering wireless services and local exchange services, and the Registrant expects competition to increase in the future. The Registrant believes that existing competitors are likely to continue to expand their service offerings to appeal to existing or potential customers of the Registrant. Many of the Registrant's existing competitors have financial, personnel and other resources, including brand name recognition, substantially greater than that of the Registrant. Billing Systems. There are more than 10 large billing system providers, such as CBIS, Billing Concepts, LHSG, ITDS, USCS and Saville, all public companies with sales in excess of $100 million. Other large billing systems companies include privately-held Kenan Systems and EDS which has many other non-billing activities. The Registrant also expects many small suppliers to provide competition for TRG. The Registrant believes that there is no dominant smaller system supplier. Mobile, Personal and Wireless Communications Industry. Numerous carriers offer wireless communications, presenting significant competition. Competition for wireless service subscribers is based principally upon the services and features offered, the technical quality of the wireless system, customer service, system coverage, capacity and price. Such competition may increase to the extent that licenses are transferred from smaller, stand-alone operators to large, better capitalized and more experienced wireless communications operators who may be able to offer subscribers certain network advantages similar to those offered by the Registrant. WTC expects to face increased competition from companies providing other communications technologies and services. There may be up to six PCS licensees in each PCS market. The Registrant's principal competitors in its PCS business are Sprint Spectrum and Western Wireless Communications, Inc. as well as the two existing cellular providers in its PCS markets Alliant Cellular and Cellular One. The Registrant also competes with paging, dispatch and landline telephone service providers. One-way or two-way paging or beeper services that feature voice messaging and data display as well as tone only service may be adequate for potential subscribers who do not need to speak to the caller. The FCC has licensed Specialized Mobile Radio ("SMR") dispatch system operators to construct digital mobile communications systems on existing SMR frequencies, referred to as ESMR, in many areas throughout the United States. When constructed, ESMR systems could be competitive with the Registrant's wireless service but these systems probably will not deploy rapidly in rural areas, and then most likely will initially deploy along interstate highways. Similarly, several companies have announced plans to design, construct, deploy and operate satellite-based telecommunications systems worldwide. Continuing technological advances in communications and FCC policies encourage development of new spectrum-based technologies may result in new technologies that compete with the Registrant's PCS systems. Data Collection Systems and WLL. Immediate competition to DATATRAK comes from existing utility meter reading companies that read utility meters manually or use the control channel of cellular companies or 800 MHz radio systems. Numerous carriers, for example AT&T, are attempting to deploy wireless local loop technology. REGULATION The following summary of regulatory developments and legislation does not purport to describe all present and proposed federal, state and local regulations and legislation affecting the telecommunications industry. Other existing federal, state and local legislation and regulations are currently the subject of judicial proceedings, legislative hearings and administrative proposals which could change, in varying degrees, the manner in which this industry operates. Neither the outcome of these proceedings, nor their impact upon the telecommunications industry or the Registrant, can be predicted at this time. This section summarizes regulatory issues pertaining to the Registrant's operation. WTC's wireless telecommunications services are subject to significant regulation. To the extent the Registrant's business strategy changes, the Registrant could become subject to additional regulatory requirements. Pursuant to the Communications Act of 1934, as amended (the "Communications Act") including as amended by the Telecommunications Act of 1996, the FCC exercises jurisdiction over all of WTC's facilities and services used to provide, originate, or terminate interstate or international communications. Provision of PCS and other wireless services requires radio frequency licenses from the FCC or a contractual arrangement with a licensee. The provision of local exchange service through wireless local loop may be subject to state regulation. Approvals from state and local governments may be required to utilize public rights-of-way necessary to install and to operate networks, transmission towers, equipment, and other facilities. The FCC and numerous state agencies also impose prior approval requirements on transfers of control of certificated carriers and assignments of regulatory authorizations. The Communications Act restricts foreign ownership of companies that directly or indirectly hold radio frequency licenses. However, the FCC has authority to approve certain levels of foreign ownership and recently has approved substantial foreign ownership in PCS licenses when the public interest is served. The Registrant has significant indirect foreign ownership and has requested FCC approval of its current ownership. The Registrant anticipates that the FCC will approve its indirect foreign ownership of WTC's radio licenses. The FCC and state regulatory agencies generally retain the right to sanction a carrier, impose forfeitures, mandate refunds or impose other penalties in the event of regulatory non-compliance by a carrier. The jurisdictional reach of federal, state and local regulatory authorities is subject to continuous change, controversy and judicial review. The Registrant is unable to predict the effect or outcome of such changes, controversy or judicial review. INTELLECTUAL PROPERTY RIGHTS The Registrant believes its technologies provide a competitive advantage. The Registrant has three pending patent applications for the DATATRAK and COMM Center products. TRG owns all intellectual property rights in TRACCS and Intro CCB systems. The Registrant will file additional patent applications and amendments as it develops technologies and will use intellectual property protections, such as patents, copyrights, trademarks, trade secrets and non-disclosure agreements to protect its technologies and prevent competitors from duplicating the Registrant's products. The Registrant believes that its expertise in developing technology is of far greater importance than protecting technological issues through patents, and it will rely upon beating its competition with better technology. However, it will vigorously defend its intellectual property rights as its success depends in part on its ability to enforce intellectual property rights for its proprietary billing software technology, both in the United States and in other countries. Patents are "intellectual property" conferred by congressional legislation and authorized by the U.S. Constitution. Utility patents are available for new, useful and non-obvious process, methods, machines, manufactured articles, compositions of matter or improvements of these items. U.S. patents are awarded based upon a first-to-invent system, rather than a first-to-file system. When more than one inventor seeks patent rights to the same invention, the method for deciding who was the "first" to invent and therefore entitled to the patent rights, is to identify the inventor that: (1) first formulated a definite and permanent idea of the complete and operative invention (referred to as "conception"); and (2) first "reduced the invention to practice." Reduction to practice may be either constructive (i.e., filing a patent application) or actual (i.e., building the invention). Patent applications must be filed by the first and original inventor, and the application must be filed either before or within one year after the date of any commercial exploitation of the invention. The average time period from the filing date of a patent application to issuance or abandonment is approximately 18 months although some applications have been pending for more than a decade. Patent applications are usually kept strictly secret until the patent is allowed to issue. After an application is filed, an examiner in the U.S. Patent and Trademark Office ("PTO") reviews the application to determine whether the patent constitutes a new, useful and non-obvious invention. Upon examination, the PTO Examiner invariably objects or rejects the application, which requires the applicant to provide responsive arguments and amendments to the application. If the application is ultimately allowed, the Examiner will issue a Notice of Allowance and a further government issue fee is then required. A short description of the invention is published in the PTO Official Gazette when the patent is officially issued. Patents allow the holders to exclude others from making, using, or selling the patented invention in the United States; the duration of utility patents is 17 years. The scope of protection provided under a patent is determined by the breadth and width of the invention identified in the claims." Patent holder may file suit in the federal district courts to enforce patents; as a defense to an infringement action, a purported infringer may attack the patent's validity. Infringement of a valid patent can result in injunctive relief, a monetary award for up to three times the amount of damages, together with interest and costs, and in exceptional cases, attorney fees. LITIGATION Neither the Registrant, WTC nor TRG are currently engaged in any legal proceedings. RISK FACTORS Stockholders should consider carefully the risk factors set forth below as well as the other information contained in this Current Report on Form 8-K when evaluating the Registrant. Developmental Stage of Business, Products and Services. As a result of a 1989 bankruptcy proceeding, the Registrant was an inactive shell that had no material assets or liabilities and no ongoing business activities until the completion of the RTO. In addition, the proposed products, services and associated technology of TRG and WTC are still under development. For example, WTC's Optical Meter Reader, DATATRAK systems and COMM Center have been operated only in limited trials. TRG has only began marketing software and services in the latter party of 1998. Thus, there is little information for evaluating the Registrant's viability. The Registrant expects to incur significant operating losses and to generate negative cash flows from research and development and manufacturing activities during the completion of the initial development period. There can be no assurances as to the Registrant's ultimate success. New Business. Since the Registrant was inactive until completion of the RTO and WTC and TRG (the "Subsidiaries") have had only limited operations, the Registrant must be considered to be essentially a new business. Thus, the Registrant will face the customary risks for a new business; availability of capital; interest rates for debt financing; manufacturing products; rendering services; management and administration; creating marketing strategies; obtaining sales and employing experienced personnel. Minimal Commercial Experience. To achieve profitable operations, the Registrant must successfully develop, manufacture and market its products, generate significant demand for its communications services and manage diverse products and services. The Registrant has never operated on a consolidated basis, while the Subsidiaries have little experience in developing manufacturing, marketing and selling products or services. No assurance can be given that the Registrant's development efforts will be successfully completed, that the products can be successfully manufactured, or the products and services will be successfully marketed or will achieve market acceptance. In addition, TRG expects that services to affiliated companies will constitute approximately 40% of its revenue during the first year of operations; however, certain of those affiliated companies have restrictions on related party transactions. Moreover, while the Registrant's products and services are related, there can be no assurance of the successful integration of the Subsidiaries. Consequently, the Registrant projects operating losses for the foreseeable future. In addition, the Registrant is subject to certain risk factors that may cause the Registrant's plans to change. Factors that might cause such changes include, but are not limited to; evolving technologies and markets; competitive developments; ability to attract and retain motivated qualified persons; development of technologies and strategies and commercialization of products incorporating such technologies. The failure of the Registrant to generate significant customer traffic, implement its products and related technology in a timely manner, effectively manage customer services, or operate its business at a profit could have a material adverse effect on the Registrant's business, operating results and financial condition. Need for Additional Funds and Negative Cash Flow. The development of the Registrant's products and services will require significant capital in order to complete prototype development, pre-production testing, continued research and development and manufacture tooling. The Registrant will require substantial capital to fully expand its operations, marketing, sales and distribution network along with its product development. There can be no assurance that such funds will be forthcoming, or, if provided, will be available on a timely basis or on favorable terms, or that raising additional funds would not result in a substantial additional dilution to existing stockholders. Furthermore, operating expenses and capital expenditures will result in the Registrant incurring negative cash flow until sufficient products and services are sold to cover the cost of operations. Management. The Registrant's Board and its management will operate and manage the Registrant's business and the Stockholders will have no direct control over the Registrant's business and operations. There can be no assurance the Registrant will be managed profitably or efficiently. The success of the Registrant will depend to a large extent upon the ability of management to hire experienced and competent personnel to expand the market for the Registrant's products and keep the Registrant profitable. Forward Looking Information. Certain statements contained or incorporated by reference in this Current Report on Form 8-K, including without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Registrant, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Certain of these factors are discussed in detail below and elsewhere herein. Given these uncertainties, stockholders are cautioned not to place undue reliance on such forward-looking statements. Sales and Marketing. The Registrant has limited experience in this type of sales, marketing or distribution. To market its products and services, the Registrant must develop a substantial sales force with technical expertise. Since the Registrant's products and services are relatively new and unproven, demand is only speculative. There can be no assurance that actual demand will arise for the Registrant's products and services. Moreover, the Registrant currently does not have many existing contracts for the provision of its products and services. There can be no assurance that the Registrant will be able to build a sales force or that its sales and marketing efforts will be successful. Technological Uncertainty. The Registrant's business strategy relies upon the DATATRAK systems and the COMM Center and demonstrating its viability through its own and other wireless communications service offerings. Enhancements to these products and to TRG's software are continually under development. Unforeseen problems could emerge with respect to the products and software. The limited testing and operation that have occurred do not necessarily prove the viability or efficacy of the products and services when fully deployed or in a situation with heavy telecommunications traffic. The telecommunications industry is subject to rapid and significant changes in technology. There can be no assurance that the Registrant will maintain competitive services or develop new technologies on a timely basis or on satisfactory terms. Failure to maintain competitive services or to develop new technologies could have a material adverse effect on the Registrant's business, operating results and financial condition or possibly even render stockholders' investments worthless. Customers. The Registrant currently has few customers but believes that its products and services can be marketed to a wide range of telecommunications companies, such as PCS providers, ILECs, CLECs, IXCs and OEMs. Many of the Registrant's likely customers could be new entrants or smaller companies, who themselves face significant risks, especially competition from large established companies, need for substantial additional capital and development of their own businesses. Consequently, the Registrant may be dependent upon such companies becoming successful. Larger industry participants, such as the Regional Bell Operating Companies ("RBOCs"), have substantial embedded investment. As a class, they have demonstrated a tendency to be risk averse and are distrustful of change or technological innovation without cautious, time-consuming testing and evaluation. They also tend to purchase from major hardware and software vendors that they have utilized previously and with whom they have ongoing business relationships. This phenomenon, sometimes referred to as "the inertia of capital commitment" is a barrier to market acceptance of the Registrant's products and services. Without some level of market acceptance, the probability of the Registrant's long-term success is greatly diminished. Patents and Proprietary Rights. The Registrant relies on a combination of patent, copyright and trademark laws, and on trade secrets, confidentiality and non-disclosure agreements and other contractual provisions to protect its proprietary rights, which measures afford only limited protection. The Registrant currently has several pending patent applications. There can be no assurances that patents will be timely issued or that the Registrant's means of protecting its proprietary rights in the United States or abroad will be adequate or that competitors will not independently develop similar technologies. The Registrant's future success will partly depend on its ability to protect its proprietary rights to the technologies used in its principal products. Despite the Registrant's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Registrant's products or obtain and use information that the Registrant regards as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights as fully as do the laws of the United States. There can be no assurance that any issued patent will preserve the Registrant's proprietary position, or that others will not be able to develop technologies similar to or superior to the Registrant's technology. Failure of the Registrant to enforce and protect its intellectual property rights could have a material adverse effect on the Registrant's business, operating results and financial condition. In the future, third parties, including competitors of the Registrant, might assert patent, copyright and other intellectual property rights to technologies that are important to the Registrant or that are relevant to products that might be of interest to the Registrant. The Registrant also might receive notices of claims of the intellectual property rights that such third parties have obtained. The Registrant might be subject to infringement claims as the number of products and competitors in the telecommunications industry grow and the functionality of products overlap. Any infringement claim or other litigation against or by the Registrant could materially adversely affect the Registrant's business, operating results and financial condition. Limited Intellectual Property Protections. The Registrant is still obtaining copyrights, patents and other intellectual property protections. The Registrant also must maintain intellectual property rights and trade secret protection and must operate without infringing on the proprietary rights of third parties. There can be no assurance that the Registrant can obtain such intellectual property protections, that the Registrant will develop additional proprietary products that will receive intellectual property protection, that any intellectual property rights will provide the Registrant with any competitive advantages or will not be challenged by any third parties, or that the intellectual property rights of others will not adversely affect the Registrant's ability to conduct business. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate any of the Registrant's services, or, if intellectual property rights are issued to the Registrant, design around those intellectual property rights. No assurance can be given that any licenses the Registrant may be required to obtain to patents or other proprietary rights of third parties would be made available on terms acceptable to the Registrant. If the Registrant does not obtain such licenses, it could encounter delays in market introductions while it attempts to design around such intellectual property rights, or could find that the development, manufacture or sale of products requiring such licenses could be foreclosed. In addition, the Registrant could incur substantial costs in defending itself in suits brought against the Registrant on such intellectual property rights or in suits in which the Registrant's intellectual property rights may be asserted by the Registrant against another party. Intellectual Property Rights of Employees, Contractors and Consultants. The Registrant has utilized employees, contractors and consultants in the development of its products and received assignments of intellectual property rights from such employees, consultants and contractors, and their respective employees. Based on these assignments and the "work-for-hire" doctrine, the Registrant should have full intellectual property rights in its products. There can be no assurances, however, that such employees, contractors and consultants and will not attempt to assert rights to the products. Management of Growth. The Registrant's expected growth may place significant strains on its management, staff, working capital and operating and financial control systems. There can be no assurance that management, staff, working capital and systems will be adequate to support the Registrant's future anticipated growth. The failure to recruit qualified staff, to continue to upgrade operating and financial control systems or to respond effectively to difficulties encountered during expansion could have a material adverse effect on the Registrant's business, financial condition and results of operations. Competition. The telecommunications services industry is highly competitive, rapidly evolving and subject to constant technological change. In particular, there are numerous companies offering wireless services and local exchange services, and the Registrant expects competition to increase in the future. The Registrant believes that existing competitors are likely to continue to expand their service offerings to appeal to existing or potential customers of the Registrant. Many of the Registrant's existing competitors have financial, personnel and other resources, including brand name recognition, substantially greater than that of the Registrant. New competitors are likely to enter the telecommunications market, some of whom may have financial, personnel and other resources, including brand name recognition, substantially greater than that of the Registrant. In addition, the telecommunications regulatory environment is undergoing significant change. As this regulatory environment evolves, changes could create greater or unique competitive advantages for all or some of the Registrant's current or potential competitors, or could make it easier for additional parties to provide services or products. Regulation. Telecommunications services are subject to significant regulation at the federal, state, local and international levels, affecting the Registrant and its existing and potential competitors. Delays in receiving the required regulatory approvals or the enactment of new and adverse legislation, regulations or regulatory requirements may have a material adverse effect on the Registrant's business, operating results and financial condition. In addition, future legislative, judicial and regulatory agency actions could alter competitive conditions in the markets where the Registrant intends to operate, in ways disadvantageous to the Registrant. The Registrant currently is subject to federal and state regulation of its wireless communications services, local wireless loop services and may be subject to regulation of any future services that are deemed local exchange services. At the federal level, provision of PCS and other wireless services requires radio frequency licenses from the FCC or a contractual arrangement with a licensee. The Registrant must maintain tariffs containing the currently effective rates, terms and conditions for those services. Although the FCC eliminated the tariffing requirements for interstate non-dominant carriers, such carriers must continue to file interstate tariffs until a federal court completes reviewing such detariffing and declares that the detariffing order is lawful. WTC will file interstate tariffs with the FCC and state tariffs with the State of Nebraska and the states where the Registrant is certified to provide wireless local exchange services. Intrastate services and local exchange services are subject to various state laws and regulations, including certification, notification, registration and tariffing requirements. The FCC and numerous state agencies also impose prior approval requirements on transfers of control of certificated carriers and assignments of regulatory authorizations. States also often require prior approvals or notifications for the issuance of stock, bonds or other forms of indebtedness. The FCC and state regulatory agencies generally retain the right to sanction a carrier, impose forfeitures, mandate refunds or impose other penalties in the event of regulatory non-compliance by a carrier. There can be no assurance that future regulatory, judicial or legislative activities will not have a material adverse effect on the business, operating results and financial condition of the Registrant or that domestic or international regulators or third parties will not raise material issues with regard to the Registrant's compliance or non-compliance with applicable laws and regulations. Restrictions on the Registrant's Ownership or Operation of Radio Licenses. WTC currently holds radio frequency licenses to provide PCS and other wireless services including paging. The Communications Act imposes restrictions on foreign ownership of companies holding radio frequency licenses. However, the FCC has authority to approve certain levels of foreign ownership. A principal stockholder of the Registrant is not a U.S. citizen, so the Registrant must obtain FCC approval before acquiring WTC, and has made an application for FCC consent to the transaction. Based on the FCC's current policies, Telemetrix believes that the FCC will approve its acquisition of WTC. However, there can be no assurance that the Reorganization will be acceptable to the FCC. If the FCC does not approve Telemetrix's acquisition of WTC, WTC's licenses must be transferred to a qualified owner before the Registrant could acquire WTC. Dependence on Key Personnel. The Registrant must procure and retain exceptional key personnel to achieve substantial, sustainable growth and profitability. The Registrant's success depends to a significant degree upon the continuing contributions of key management, sales, marketing, engineering and product development personnel. The Registrant's business is currently managed by a small number of key management and operating personnel. The Registrant believes that its future success will depend in large part upon its ability to attract and retain highly skilled managerial, sales, marketing and product development personnel. The loss of the services of key personnel, or the inability to attract, recruit and retain sufficient or additional qualified personnel, could significantly impede the Registrant's ability to achieve its financial, expansion, marketing and other objectives, with a corresponding material adverse effect on the Registrant. Concentration of Voting Power. Certain principal stockholders have a substantial percentage of the total voting power. After completion of the WTC acquisition, the Registrant's principal stockholders will hold, in the aggregate, approximately 91% of the Registrant's Common Stock. As a result, the principal stockholders, if they act together, could exercise control over the Registrant's business, policies and affairs, and would have the power to approve or disapprove all actions requiring Stockholder approval, including amendments to the Certificate of Incorporation and Bylaws, purchases and sales of properties, and removal of management. Limited Market for the Securities. While the Registrant's Common Stock is quoted on the NASD's Over-The-Counter Bulletin Board ("OTC-BB"), there currently is a very limited market for the resale of the Common Stock and the Registrant's Common Stock has not traded actively since the late 1980s. Therefore, the Registrant's existing stockholders might be unable to sell or to otherwise dispose of all or any portion of their shares of Common Stock. In the future, the Registrant will apply for listing on the Nasdaq or other national securities exchanges. There can be no assurance that the Registrant's Common Stock will qualify for listing on the Nasdaq or any securities exchange or that any trading market that does develop will be active or sustained. The lack of an exchange listing will prevent access to larger public trading markets with a possible corresponding loss of appeal to private markets, thereby reducing the liquidity of the Registrant's Common Stock. Absence of Dividends on Common Stock. The Registrant intends to retain any future earnings to finance the development and expansion of its business. The Registrant therefore does not anticipate paying any dividends on its Common Stock in the foreseeable future. Indemnification of Management. The Registrant's Certificate of Incorporation and By-laws are intended to take full advantage of the enabling provisions of the General Corporation Law of the State of Delaware ("GCLD") with respect to limiting the personal liability of its officers, directors, employees and agents. The Certificate of Incorporation and By-laws provide that the Registrant may indemnify current and former directors, officers, employees and agents, and persons serving in similar capacities in the subsidiaries or other entities in which the Registrant has an interest to the fullest extent permitted by the GCLD. Thus, the Registrant may be prevented from recovering damages for certain alleged errors or omissions by the officers and directors of the Registrant. Under the Registrant's By-laws, indemnification payments may only be made upon a determination that the indemnified person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Registrant and, with respect to a criminal proceeding, had no reasonable cause to believe such conduct was unlawful. Such determination shall be made (i) by a majority of the disinterested members of the Board of Directors, (ii) by independent legal counsel in a written opinion, or (iii) by the stockholders. It is the position of the SEC that exculpation from and indemnification for liabilities arising under the Act and the rules and regulations thereunder is against public policy and therefore unenforceable. Year 2000 Incompatibility. The term "Year 2000 Issue" generally describes the various problems that might result from improper processing of dates and date-sensitive calculations involving dates in the Year 2000 and beyond. The "Year 2000 Issue" results from computer programs using two digits rather than four digits to define the applicable year, so that all dates are interpreted as being between 1900 and 1999. Computers and other equipment using such programs will incorrectly interpret dates after the year 1999. Such misinterpretation might cause system failures or miscalculations and thereby disrupt operations, for example, temporary inability to process transactions, to send invoices, or to engage in similar normal business activities. The Registrant believes that its computer systems, products and services are Year 2000 compatible; however, the Registrant has not yet fully assessed the Year 2000 compatibility of all its equipment, products and services, or of third parties with whom the Registrant transacts business. The Registrant believes that adequate resources have been allocated for the purpose of evaluating its Year 2000 compatibility and does not expect to incur significant expenditures to address this issue. However, there can be no assurance that the Registrant will identify all Year 2000 problems in its systems in advance of their occurrence or that the Registrant can successfully remedy any problems that are discovered. The expenses of the Registrant's efforts to address such problems, or the expenses or liabilities to which the Registrant may become subject as a result of such problems, could materially adversely affect the Registrant's business, prospects, operating results, financial condition and its ability to service and repay indebtedness. In addition, the revenue stream and financial stability of existing customers may be adversely impacted by Year 2000 problems, which could cause fluctuations in the Registrant's revenues and operating profitability. MANAGEMENT The business affairs of the Registrant are managed by a Board of Directors, which presently consists of one member, Ms. Sally A. Fonner. Effective at 8:00 a.m., Denver Time, on April 25, 1999, Ms. Fonner will resign her position as the Registrant's sole director and appoint a successor Board consisting of four New Directors nominated by the former stockholders of TRG and WTC. The day to day business affairs of the Registrant are entrusted to its executive officers. The officers, who are appointed by the Board, hold office for the periods specified in their respective employment agreements. In connection with the RTO, the former stockholders of TRG and WTC have nominated a slate of four New Directors who will assume their positions on April 25, 1999. Immediately thereafter, the newly constituted Board will nominate certain officers to manage the affairs of the Registrant. The nominees of the former stockholders of TRG and WTC, and the positions to be held by each such nominee are set forth below. After their appointment, it is anticipated that the newly appointed directors and officers of the Registrant will continue to serve in such capacities for the foreseeable future. Name Age Positions William W. Becker................... 70 Chairman of the Board Oz Pedde............................ 57 Chief Executive Officer & Director Michael J. Tracy.................... 53 President, Treasurer & Director Michael L. Glaser................... 59 Secretary & Director William W. Becker, Chairman of the Board. Mr. Becker is the authorized representative of HHL and also serves as Chairman of TeleHub Communications Corporation, a telecommunications services provider, and SkyConnect Inc., a Colorado-based cable services firm. He has been active in the industry for a number of years, most recently as an initial investor and developer of IntelCom Group Inc. (now known as ICG Communications, Inc.), an American Stock Exchange-listed competitive access provider. Mr. Becker has founded and controls a number of companies involved in telecommunications, cable TV, oil and gas, real estate development, and other industries. Oz (Oswald) Pedde, Chief Executive Officer and Director. Mr. Pedde became associated with Telecommunications Resource Group Inc. in October 1998. He previously was President and CEO of Watson & Associates, a Toronto based telecommunications service and consulting firm from January 1998 to October 1998. From 1995 to 1998, Mr. Pedde was self-employed as a consultant. From 1991 to 1995, Mr. Pedde was President and CEO of Manitoba Telephone Systems, a diversified Canadian telecommunications company and was one of the founding members of the Council of CEOs that created the "Stentor Alliance," an association of Canada's major telephone companies. During such period, Mr. Pedde was also a director of Telesat, Canada's satellite carrier. Mr. Pedde also has been as a director of TeleHub Communications Corporation (an affiliate of HHL) since March 1998. Michael J. Tracy, President, Treasurer & Director. Mr. Tracy currently is President of Tracy Broadcasting Corporation, licensee of KMOR, KOAQ and KOLT AM/FM radio in Scottsbluff, Nebraska. He is also President of Tracy II, Western Total Communications (WTC). Mr. Tracy's professional career began in 1969, as Director of Instrumental Music with a Nebraska secondary school. A year later he became Vice President of City and Country Insurance company. He started Tracy Broadcasting Corporation in 1976 and in 1982, developed Western Total Communications (WTC), a paging, PCS and mobile telephone company. His years of experience with WTC led to the development of the DATATRAK system, a unique package of communications services for home and business that includes Wireless Local Loop, utility meter reading, alarm monitoring, appliance control and much more. Mr. Tracy has been a member of several civic and professional boards, as well as a lecturer for the University of Nebraska. Michael L. Glaser, Vice President, Secretary & Director. Mr. Glaser has over thirty years legal and regulatory experience in the telecommunications field. Mr. Glaser currently is a stockholder of Haligman Lottner Rubin & Fishman, P.C., the Registrant's legal counsel in Denver, Colorado, which he joined in January 1996. Previously, Mr. Glaser was a director and stockholder of Hopper and Kanouff, P.C., from July 1992 to January 1996, and a partner at Holme Roberts & Owen from July 1990 through June 1992. Mr. Glaser serves as Co-Chairman of the Telecommunications Law Forum of the Colorado Bar Association, and is licensed to practice in Colorado, Maryland and the District of Columbia. Mr. Glaser received both his undergraduate degree and law degree (with honors) from the George Washington University. The Board currently does not have any committees; after the appointment of the New Directors, the Board intends to form an Audit Committee and a Compensation Committee. The Audit Committee will review the services provided by the Registrant's independent accountants, consult with the independent accountants on audits and proposed audits of the Registrant and review certain filings with the SEC and the need for internal auditing procedures and the adequacy of internal controls. The Compensation Committee will determine executive compensation and review transactions between the Registrant and its affiliates, including any associates of affiliates. Executive Compensation Compensation of Executive Officers and Directors. No officer or director of the Registrant has received any cash compensation for services performed during the four years prior to the RTO. In connection with the plan of reorganization approved by the Company's stockholders, certain persons designated by Capston received 300,000 shares of Common Stock for administrative and management services. Ms. Fonner, the Registrant's former sole officer and director, received 110,500 of those shares for her personal account. The Registrant's new directors and officers (who are also the principal stockholders) initially will not receive any compensation. After the Registrant formulates and begins implementing its business plans, the Board of Directors' Compensation Committee will address executive and director compensation. Compensation Committee Interlocks and Insider Participation in Compensation Decisions. During 1998, the Board did not have a Compensation Committee; the Board has the responsibility to review all Executive Officer compensation issues. The current Board will establish a Compensation Committee to adopt executive compensation policies. Executive Employment Contracts. There are no employment agreements between the Registrant and any of its current or former officers. Certain Transactions. TeleHub Communications Corporation ("TeleHub"), an affiliate of HHL, recently hired TRG to provide billing processing and consulting services. TRG billed TeleHub approximately $458,000 for these services during 1998, and TRG continues to provide such services during 1999. Additionally, in February 1999, TRG entered into a letter of intent to sell TeleHub a license for the TRG billing software license for approximately $2.5 million. In March 1999, TeleHub advanced $250,000 to TRG, which represents 10% of the software license fee. This advance is refundable, less outstanding fees for any services rendered. Michael J. Tracy ("Tracy") owns the building in Gering, Nebraska from which WTC conducts its operations. WTC pays Tracy a monthly rental rate of $2,500. The terms and conditions of the rental arrangement are market conditions. Item 4. CHANGES IN THE REGISTRANT'S CERTIFYING ACCOUNTANT. The financial statements of the Registrant. for the years ended December 31, 1998 and 1997 were audited by the firm of Want & Ender, Certified Public Accountants. In connection with the acquisition of TRG and WTC, the firm of Fred A. Lockwood & Company, Certified Public Accountant, was retained to audit the financial statements of WTC as of December 31, 1998 and their related statements of income, cash flows and shareholders equity for the year then ended, and the Company is currently negotiating a retainer with BDO Seidman, LLP, in Denver, Colorado, with respect to the audit of TRG's financial statements as of December 31, 1998 and their related statements of income, cash flows and shareholders equity for the year then ended. During the fiscal years ended December 31, 1998 and 1997, and the subsequent interim periods preceding the appointment of the foregoing, there were no reportable disagreements between the Registrant and the firm of Want & Ender, Certified Public Accountants, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Item 5. OTHER EVENTS Based on a resolution approved by the affirmative vote of a majority in interest of its stockholders, the Registrant changed its name from Arnox Corporation to Telemetrix Inc. on March 31, 1999. Item 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS. No director has resigned or declined to stand for re-election to the Board of Directors since the date of the last annual meeting of stockholders because of any disagreement with the Registrant on any matter relating to the Registrant's operations, policies or practices. As a condition of the RTO, Ms. Fonner agreed to resign as the Company's sole director and appoint four New Directors nominated by the stockholders of TRG and WTC. The New Directors will not assume office, until 10 days after the Company mails the Notice required by SEC Rule 14(f)-1 to all record stockholders. At that time, Ms. Fonner will appoint a successor Board consisting of four New Directors and resign from the Board. Thereafter, the New Directors and the executive officers they appoint will manage the Company's business. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial statements of businesses acquired. (i) Financial Statements for Telemetrix Resource Group, Inc., a Colorado corporation. TRG recently completed its fiscal year and is in the process of preparing audited financial statements for the periods specified in Item 310(c) of Regulation S-B. Consequently, it is impracticable to provide the required financial statements for TRG with this filing. The Registrant expects to file the required audited financial statements for TRG under cover of Form 8 within 60 days after this Current Report was filed. (ii)Financial Statements for Tracy II Corporation, a Nebraska corporation. WTC recently completed its fiscal year and is in the process of preparing audited financial statements for the periods specified in Item 310(c) of Regulation S-B. Consequently, it is impracticable to provide the required financial statements for WTC with this filing. The Registrant expects to file the required audited financial statements for WTC under cover of Form 8 within 60 days after this Current Report was filed. (b) Pro forma financial information. While the Registrant has commenced the preparation of pro forma financial statements for the periods specified in Item 310(d) of Regulation S-B, the financial statements from which the pro forma financial statements will be derived are currently undergoing audit and are not expected to be completed until mid-June. This Current Report on Form 8-K will be amended to provide the pro-forma financial statements required by Item 310(d) of Regulation S-B within the prescribed period of time. (c) Exhibits. (2.1) Reorganization Agreement, dated March 22, 1999, between and among the Registrant, TRG, WTC and the stockholders of TRG and WTC SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TELEMETRIX INC., a Delaware corporation (formerly known as Arnox Corporation) April 14, 1999 By: /s/ Sally A. Fonner, Chief Executive Officer - -------- 1 The U.S. PCS markets have been divided into Basic Trading Areas ("BTAs") as defined by Rand-McNally and then sorted by size and segmented into four tiers. These tiers are defined by total population as: - Tier 1 - Top 10 BTAs by population - Population = 74,444,000 - Tier 2 - Next 40 BTAs by population Population = 72,140,000 - Tier 3 - Next 100 BTAs by population - Population = 55,584,000 - Tier 4 - Rest of U.S. markets - Population = 50,366,000 EX-2 2 REORGANIZATION AGREEMENT REORGANIZATION AGREEMENT This REORGANIZATION AGREEMENT ("Agreement") is made as of this 22nd day of March, 1999, between and among Arnox Corporation ("Company"), Tracy Corporation II, a Nebraska corporation, ("Tracy II"), and Telemetrix Resource Group, Inc., a Colorado corporation ("Telemetrix Resource"), and the persons identified in Exhibit A (the "Shareholders"). WHEREAS, the Shareholders own, and have the unrestricted right to sell, transfer and convey, one hundred percent (100%) of the issued and outstanding common stock of Tracy II, and Telemetrix Resource (the "Securities"); and WHEREAS, the Company wishes to acquire the Securities, solely in exchange for Company Securities; and WHEREAS, the Company's Shareholders previously approved, subject only to the closing of this Reorganization Agreement, a reverse stock split which positions the Company to complete the transactions contemplated by this Agreement; and WHEREAS, the shareholders of the Company have previously approved, subject only to the closing of this Reorganization Agreement, a change in the name of the Company to Telemetrix, Inc. NOW, THEREFORE, in consideration of the mutual covenants, obligations and benefits hereinafter set forth, the parties hereto agree as follows: 1. REPRESENTATIONS AND WARRANTIES BY TRACY II. Tracy II hereby warrants to the Company: a. Tracy II is a corporation duly organized, validly existing and in good standing under the laws of the State of Nebraska and has the corporate power to own its property and carry on its business in the State of Nebraska. Certified copies of Tracy II's Certificate of Incorporation and By-Laws have heretofore been furnished to the Company by Tracy II and/or the Shareholders, and all such copies are true, correct and complete copies of the original Certificate of Incorporation and By-Laws, including all amendments thereto. b. Tracy II has the corporate authority to issue a total of 1,000 shares of Common Stock with a par value of $10.00, of which 939 shares have been validly issued, are now outstanding and are held of record by the Shareholders identified in Exhibit A, Schedule A-1. c. The audited financial statements of Tracy II dated as of December 31, 1995, December 31, 1996 and December 31, 1997, and the unaudited balance sheet dated as of December 31, 1998, which are attached hereto as Exhibit B are in all material respects true and correct statements of the financial condition of Tracy II and of Tracy II's assets and liabilities as of such date. Except as described in the notes to such financial statements, Tracy II has not: (1)issued any shares of its Common Stock or any other capital stock, or any options or rights to acquire such securities, to any person other than the persons listed in Exhibit A, Schedule A-1; (2)paid or declared any dividends or distributions of capital, surplus, or profits with respect to any of its issued and outstanding shares of capital stock; (3)paid or agreed to pay any consideration in redemption of any of its issued and outstanding common stock; or (4)entered into any other transaction or agreement which would, or might, materially impair their shareholders' equity of Tracy II as reflected in such financial statements. d. Since October 31, 1997, Tracy II has not engaged in any material transactions other than transactions in the normal course of the operation of its business, which would, or reasonably could be expected to, materially impair the shareholder's equity of Tracy II. e. Tracy II is not involved in any pending or threatened litigation which would, or reasonably could be expected to, materially affect its financial condition and which has not been: (1) provided for in the financial statements attached as an exhibit to Tracy II's Business Plans; or (2) disclosed to the Company in writing. f. Tracy II has good and marketable title to all of the property and assets shown in its balance sheets free and clear of any and all liens, encumbrances or restrictions, except for: (1) the liens, encumbrances and restrictions which are set forth in its balance sheets and the notes thereto; (2) liens, taxes and assessments which may become due and payable after the date of this Agreement; and (3) easements or other minor restrictions with respect to its property which do not materially affect the present use of such property. g. There are no unpaid assessments or proposed assessments of federal income taxes pending against Tracy II. All liabilities for federal and state income or franchise taxes, as shown on the tax returns filed, or to be filed, by Tracy II for the periods prior to the date hereof have been paid or the liability therefor have been provided for in the attached financial statements of Tracy II, and all federal and state income or franchise taxes for periods subsequent to the periods covered by said returns likewise have been paid or adequately accrued. h. Except pursuant to Paragraph 9(b) herein, Tracy II represents and warrants to the Company and its principal stockholders that they have not dealt with and do not know of any person, firm or corporation asserting any right to receive a brokerage commission, finder's fee or similar fee in connection with the making or negotiation of this Agreement or the completion of the transactions contemplated hereby. Tracy II will indemnify and hold the Company and its principal stockholders harmless against and with respect to all claims for brokerage commissions, finder's fees or similar fees with respect to this Agreement or the closing of the transactions contemplated hereby, based on any agreements, arrangements, or understandings claimed to have been made by Tracy II with any third party. Tracy II further represents and warrants that all of the representations and warranties set forth above are true as of the date of this Agreement, shall be true at the Closing Date and shall survive the closing for a period of three (3) years from the Closing Date. 2. REPRESENTATIONS AND WARRANTIES BY TELEMETRIX RESOURCE. Telemetrix Resource warrants to the Company: a. Telemetrix Resource is a corporation duly organized, validly existing, and in good standing under the laws of the State of Colorado and has the corporate power to own its property and carry on its business in the State of Colorado. Certified copies of Telemetrix Resource's Certificate of Incorporation and By-Laws have heretofore been furnished to the Company by Telemetrix Resource and/or the Shareholders, and all such copies are true, correct and complete copies of the original Certificate of Incorporation and By-Laws, including all amendments thereto. b. Telemetrix Resource has the corporate authority to issue a total of 100,000,000 Common Shares with no par value and 100,000,000 Preferred Shares with a par value of $0.00l, of which 101 Common Shares have been validly issued, are now outstanding and are held of record by the Shareholders identified in Exhibit A, Schedule A-2. c. The developmental stage balance sheet of Telemetrix Resource dated as of December 31, 1998, which is attached hereto as Exhibit B, is in all material respects a true and correct statement of the financial condition of Telemetrix Resource and of Telemetrix Resource's assets and liabilities as of such date. As of the date of such balance sheet, Telemetrix Resource has not: (1) issued any shares of its Common Stock or any other capital stock, or any options or rights to acquire such securities, to any person other than the persons listed in Exhibit A, Schedule A-2; (2) paid or declared any dividends or distributions of capital, surplus, or profits with respect to any of its issued and outstanding shares of capital stock; (3) paid or agreed to pay any consideration in redemption of any of its issued and outstanding common stock; or (4) entered into any other transaction or agreement which would, or might, materially impair their shareholders' equity of Telemetrix Resource as reflected in such balance sheet. d. Since October 31, 1997, Telemetrix Resource has not engaged in any material transactions other than transactions in the normal course of the operation of its business, which would, or reasonably could be expected to, materially impair the shareholder's equity of Telemetrix Resource as reflected in its balance sheet. e. Telemetrix Resource is not involved in any pending or threatened litigation which would, or reasonably could be expected to, materially affect its financial condition and which has not been: (1) provided for in the balance sheet attached as an exhibit to Telemetrix Resource's Business Plans; or (2) disclosed to the Company in writing. f. Telemetrix Resource has good and marketable title to all of the property and assets shown in its balance sheets free and clear of any and all liens, encumbrances or restrictions, except for: (1) the liens, encumbrances and restrictions which are set forth in its respective balance sheets and the notes thereto; (2) liens, taxes and assessments which may become due and payable after the date of this Agreement; and (3) easements or other minor restrictions with respect to its property which do not materially affect the present use of such property. g. There are no unpaid assessments or proposed assessments of federal income taxes pending against Telemetrix Resource. All liabilities for federal and state income or franchise taxes, as shown on the tax returns filed, or to be filed, by Telemetrix Resource for the periods prior to the date hereof have been paid or the liability therefor has been provided for in the attached financial statements of Telemetrix Resource, and all federal and state income or franchise taxes for periods subsequent to the periods covered by said returns likewise have been paid or adequately accrued. h. Telemetrix Resource represents and warrants to the Company and its principal stockholders that it has not dealt with and does not know of any person, firm or corporation asserting any right to receive a brokerage commission, finder's fee or similar fee in connection with the making or negotiation of this Agreement or the completion of the transactions contemplated hereby Telemetrix Resource and it will indemnify and hold the Company and its principal stockholders harmless against and with respect to all claims for brokerage commissions, finder's fees or similar fees with respect to this Agreement or the closing of the transactions contemplated hereby, based on any agreements, arrangements, or understandings claimed to have been made by Telemetrix Resource with any third party. Telemetrix Resource further represents and warrants that all of the representations and warranties set forth above are true as of the date of this Agreement, shall be true at the Closing Date and shall survive the closing for a period of three (3) years from the Closing Date. 3. REPRESENTATIONS AND WARRANTIES BY THE SHAREHOLDERS. The Shareholders hereby jointly and severally warrant to the Company: a. The Shareholders have full power and authority to exchange the Tracy II and Telemetrix Resource Common Stock which are held by them upon the terms and conditions provided for in this Agreement, and when delivered to the Company in accordance with the terms of this agreement, the Tracy II and Telemetrix Resource Common Stock will be free and clear of any lien or other encumbrance on the Closing Date specified herein. b. The Shareholders are acquiring the Common Stock of the Company solely for their own account, for investment, and not with a view to any subsequent "distribution" thereof within the meaning of that term as defined in the Securities Act of 1933, as amended (said Act and rules and regulations promulgated thereunder being hereinafter referred to as the "1933 Act"). The Shareholders understand that the Common Stock of the Company has not been registered under the Act or securities laws of any State ("State Act") by reason of the specific exemptions therefrom, which exemptions depend in part upon the Shareholders subjective investment intent as expressed herein. In furtherance of the foregoing, each Shareholder shall be required to execute and deliver to the Company an Investment Letter, in the form attached hereto as Exhibit C, as a condition precedent to the issuance of a certificate for the Common Stock of the Company that will be issued to him. c. The Shareholders hereby jointly acknowledge that they are either: (1) "Accredited Investors" as such term is defined in Regulation D promulgated under the Act; or (2) That they have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of the proposed exchange of Tracy H's and Telemetrix Resource's securities, respectively, for Common Stock of the Company; and that they are able to bear the economic risks of the investment and are able to protect their own interests in an investment of this nature. The Shareholders further represent and warrant that all of the representations and warranties set forth above are true as of the date of this Agreement, shall be true at the Closing Date and shall survive the closing for a period of three (3) years from the Closing Date. 4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby represents and warrants to Tracy II, Telemetrix Resource and the Shareholders: a. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power to own its properties and carry on its business as now being conducted. Certified copies of the Company 5 Certificate of Incorporation and By-Laws have heretofore been furnished to Tracy II and Telemetrix Resource and/or the Shareholders by the Company, and all such copies are true, correct and complete copies of the original Certificate of Incorporation and By-Laws including all amendments thereto. b. The Company has the corporate authority to issue a total of 10,000,000 shares of $0.001 par value Common Stock and 1,000,000 shares of $0.01 par value Preferred Stock, of which 3,439,247 common shares ("Old Common Stock" or "Old Common Shares") are presently issued and outstanding. The beneficial owners of the Old Common Shares, as reflected on the records of the Company, are identified in Exhibit D to this Agreement (the "Existing Company Shareholders"). c. Prior to the closing date of this Reorganization Agreement, the Company will effect a reverse split of all issued and outstanding shares of the Company's Old Common Stock in the ratio of one (1) share of the Company's new common stock ("New Common Shares" or "New Common Stock") for each eleven and one-half (11.5) shares presently outstanding; provided, however, that (a) no fractional shares shall be issued and all calculations that would result in the issuance of a fractional share shall be rounded up to the nearest whole number and (b) no stockholder who was the beneficial owner of at least 100 shares of Old Common Stock shall receive fewer than 100 shares of New Common Stock and all calculations that would result in the issuance of fewer than 100 shares of New Common Stock to such a stockholder will be rounded up to 100 shares; so that immediately thereafter the Company will have approximately 320,000 shares of New Common Stock issued and outstanding, all of which shares are fully paid, validly issued and nonassessable. Except as specifically provided herein and in certain agreements between the parties and their respective legal counsel, no other capital stock of the Company or any rights whatsoever to purchase additional capital stock of the Company will be outstanding on the Closing Date; except as specifically provided herein and in such agreements with legal counsel, no stockholder of the Company will have or obtain any registration rights with respect to any shares of the Company's capital stock that are issued and outstanding on the Closing Date. d. The Company certifies that as of the closing date of this Reorganization Agreement, there are no Company convertible or non-convertible preferred shares of any class or series ("Preferred Shares" or "Preferred Stock") issued and outstanding, nor are there any agreements granting any party rights with respect to Preferred Stock or Company common stock resulting from the exercise of conversion rights of Preferred Stock. The Company hereby indemnifies and holds harmless Tracy II, TRG, and the Shareholders from any damage resulting from a claim of any party alleging ownership of Preferred Stock or Company common stock resulting from the exercise of conversion rights of Preferred Stock. e. Prior to the closing date of this Reorganization Agreement, the Company will amend its Certificate of Incorporation to increase the authorized Common Stock of the Company from 10,000,000 shares to 25,000,000 shares and to increase the authorized Preferred Stock of the Company from 1,000,000 shares to 5,000,000 shares. f. The Company's audited Financial Statements for the period ending 12/31/98, which are attached hereto as Exhibit E, constitute a substantially true and correct statement of the financial condition of the Company and the Company's assets, liabilities and income as of such date. Since the date of such Balance Sheet, the Company has not: (1) issued any shares of its Common Stock, convertible or nonconvertible Preferred Stock, or any other capital stock, or any options or rights to acquire such securities, to any person; (2) converted any Company convertible Preferred Stock to Common Stock; (3) paid or declared any dividends or distributions of capital, surplus, or profits with respect to any of its issued and outstanding shares of Common Stock; (4) paid or agreed to pay any consideration in redemption of any of its issued and outstanding shares of Common Stock; or (5) entered into any other transaction or agreement which would, or might, materially impair the Shareholder's Equity of the Company as reflected in such Balance Sheet. g. The Company has the corporate power and authority to execute and perform all of its duties and obligations under the terms of this Agreement and to issue and deliver to the Shareholders the Common Stock that is required to be issued and delivered under the terms of this Agreement. h. The execution and delivery of this Agreement, and the issuance of Common Stock required to be issued hereunder, will have been duly authorized by all necessary corporate action and neither the execution nor delivery of this Agreement nor the issuance of Common Stock nor the performance, observance or compliance with the terms and provisions of this Agreement will violate any provision of law, any order of any court or other governmental agency, the Certificate of Incorporation or By-Laws of the Company or any indenture, agreement or other instrument to which the Company is a party, or by which it is bound or by which any of its property is bound. i. The execution of this Reorganization Agreement and the performance of the Company's obligations hereunder will not constitute a material default under any contract, lease, sublease, license or agreement nor will it create a conflict between the Company and any third party and the Company is not obligated to obtain the consent of any third-party prior to the execution of this Reorganization Agreement and the performance of the Company's obligations hereunder. j. The Company is not involved in any pending or threatened litigation, nor does the Company have knowledge of any event which is likely to result in litigation, which would, or might, materially affect its financial condition and which has not been: (1) identified in the financial statements attached hereto as Exhibit E; or (2) expressly disclosed to Tracy II and Telemetrix Resource and the Shareholders in writing. k. Except as specifically disclosed to Tracy II and Telemetrix Resource and the Shareholders in writing, the Company has no subsidiaries, all former subsidiaries have been legally dissolved in accordance with applicable law and no person has any claim of any nature against the Company with respect to the operations of any former subsidiary of the Company. l. The Company filed a voluntary petition under Chapter 11 of the Bankruptcy Act on September 11, 1989 in the U.S. Bankruptcy Court for the District of New Jersey (Case # 89-02801) which was subsequently converted to a case under Chapter 7 of the Bankruptcy Act on December 18, 1989 and later closed on July 12, 1994. As a result of the Bankruptcy, the Company was inactive and engaged in no business activities until June 10, 1996, when its corporate charter was restored. On June 13, 1996, the Company filed with the Securities and Exchange Commission an omnibus Annual Report on Form 10-K for the fiscal years ended December 31, 1989 through December 31, 1995. Since June 13, 1996, the Company has filed all registration statements, reports and other documents required to be filed by it with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and each such registration statement, report or other document contained, at the time it was filed, such information as was required to be included in such registration statement, report or other document and all such information was correct and complete in all material respects; the Company has made all reports to shareholders required by law to be made by the Company and each such report was correct and complete in all material respects; to the best of the Company's knowledge, no event has occurred or is likely to occur that required or would require an amendment to any registration statement, report or other document referred to herein that has not been filed or distributed as required. m. There are no unpaid assessments or proposed assessments of Federal income taxes pending against the Company. All liabilities for federal and state income or franchise taxes, as shown on the tax returns filed, or to be filed, by the Company, have been paid or the liability therefor has been provided for in the attached Balance Sheet and all federal and state income or franchise taxes for periods subsequent to the periods covered by the Company's returns have also been paid or properly accrued. n. Except as disclosed on the Balance Sheet, there are no liabilities of any kind or nature and all contingent liabilities of every kind have likewise have been paid or properly accrued. o. The Common Stock which will be delivered to the Shareholders pursuant to the terms of this Agreement will, on delivery in accordance with the terms hereof, be duly authorized, validly issued and fully paid and nonassessable. p. Except as contemplated by this Agreement, the Company represents and warrants to Tracy II and Telemetrix Resource and the Shareholders that it has not dealt with and does not know of any person, firm or corporation asserting any right to receive a brokerage commission, finder's fee or similar fee in connection with the making or negotiation of this Agreement or the completion of the transactions contemplated hereby and the Company will indemnify and hold Tracy II and Telemetrix Resource and the Shareholders harmless against and with respect to all claims for brokerage commissions, finder's fees or similar fees with respect to this Agreement or the closing of the transactions contemplated hereby, based on any agreements, arrangements, or understandings claimed to have been made by the Company with any third party. The Company further represents and warrants that all of the representations and warranties set forth above are true as of the date of this Agreement, shall be true at the Closing Date, and shall survive the closing for a period of three (3) years from the Closing Date. 5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company hereunder shall be subject to the following conditions: a. The Company shall not have discovered any material error, misstatement or omission in any of the representations and warranties made by Tracy II and Telemetrix Resource or the Shareholders herein and all the terms and conditions of this Agreement to be performed and complied with have been performed and complied with. b. There shall have been no material adverse changes in the financial condition, business or operations of Tracy II and Telemetrix Resource taken as a whole from December 31, 1998, until the Closing Date, except for changes resulting from operations in the usual and ordinary course of its business, and between such dates no business and assets of Tracy II and Telemetrix Resource shall have been materially adversely affected as the result of any fire, explosion, earthquake. flood, accident, strike, lockout, combination of the workmen, condemnation of any assets by any governmental authorities, riot, activities of armed forces, or Acts of God or of the public enemies. c. The Company shall have received the opinion of Haligman Lottner Rubin & Fishman, P.C., legal counsel for Tracy II and Telemetrix Resource, to the effect that: (1) Tracy II is a corporation duly organized, validly existing and in good standing under the laws of Nebraska and has the power and authority to own its properties and to carry on its business in the State of Nebraska as of the Closing Date; (2) Telemetrix Resource is a corporation duly organized, validly existing and in good standing under the laws of Colorado and has the power and authority to own its properties and to carry on its business in the State of Colorado as of the Closing Date; (3) Tracy II's outstanding Common Stock is validly issued, fully paid and nonassessable; (4) Telemetrix Resource outstanding Common Stock is validly issued, fully paid and nonassessable; and (5) This Agreement has been duly executed and delivered by Tracy II and Telemetrix Resource and the Shareholders and constitutes a legal, valid and binding obligation of the Shareholders enforceable in accordance with its terms. 6. CONDITIONS TO THE OBLIGATIONS OF TRACY II AND TELEMETRIX RESOURCE AND THE SHAREHOLDERS. The obligations of the Tracy II and Telemetrix Resource and the Shareholders hereunder are subject to the following conditions: a. The Shareholders shall not have discovered any material error or misstatement in any of the representations and warranties made by the Company herein and all the terms and conditions of this Agreement to be performed and complied with by the Company have been performed and complied with. b. There shall have been no material adverse changes in the financial condition, business or operations of the Company, from December 31, 1998 until the Closing Date, except for changes resulting from those operations in the usual ordinary course of the business. C. The Shareholders shall have received the opinion of John L. Petersen, legal counsel for the Company, to the effect that: (1) The Company is a corporation duly organized and validly existing under the laws of the State of Delaware and has the power to own and operate its properties wherever the same shall be located as of the Closing Date; (2) The execution, delivery and performance of this Agreement by the Company has been duly authorized by all necessary corporate action and constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms; (3) When delivered to the Shareholders, the Common Stock to be delivered to the Shareholders pursuant to the terms of this Agreement will be validly issued, fully paid and nonassessable; (4) The Common Stock of the Company which was issued and outstanding prior to the Closing Date of this Agreement has been (a) issued pursuant to a valid claim of exemption under Section 4(2) of the Securities Act of 1933, (b) issued pursuant to an effective registration statement under the Securities Act of 1933, or (c) issued in violation of the applicable registration requirements of the Securities Act of 1933, but at a date sufficiently remote from the Closing Date that purchasers of such shares are precluded from initiating or maintaining an action in law or in equity based on the sale and issuance of such shares; and (5) The Common Stock of the Company is fully registered under the Securities Exchange Act of 1934 and the Company has, for the preceding 12 months, filed all reports required to be filed under Sections 12 and 15 of the Exchange Act. (6) As of the closing date of this Reorganization Agreement, the Company has no convertible or non-convertible preferred shares of any class or series ("Preferred Shares" or "Preferred Stock") issued and outstanding, nor any agreements granting any party rights with respect to Preferred Stock or the Company's common stock resulting from the exercise of conversion rights of Preferred Stock, and that Preferred Stock previously issued and outstanding, if any, no longer exists, whether abrogated through bankruptcy or other method or operation of law. Such opinion shall further state that the Company is in a position to validly indemnify and hold harmless Tracy II, TRG, and the Shareholders from any damage resulting from a claim of any party alleging rights in connection with Preferred Stock or the Company's common stock resulting from the exercise of conversion rights of Preferred Stock. 7. CLOSING DATE. The final closing of this Agreement shall take place in Denver. Colorado on or about March 31, 1999, or at such other reasonable time and place as the parties hereto shall agree upon (the "Closing" or "Closing Date"). 8. EXCHANGE OF SECURITIES. Subject to the terms and conditions set forth herein, and at the time of the Closing set forth in Section 7 and the conditions to which are specified in Sections 5 and 6, the Company will issue and deliver to the Shareholders share certificates evidencing the ownership of a total of 11,500,000 of the Company's New Common Stock to each respective Shareholder for the number of shares specified in Exhibit A, Schedule A-3. Concurrently therewith the Shareholders shall deliver to the Company: a. certificates evidencing the ownership of all issued and outstanding capital stock of Tracy II, duly endorsed to the Company; b. certificates evidencing the ownership of all issued and outstanding capital stock of Telemetrix Resource, duly endorsed to the Company. 9. ISSUANCE OF SECURITIES. At or subsequent to the Closing, the Company will issue and deliver share certificates evidencing the ownership of the Company's New Common Stock in the following amounts to the following parties: a. 300,000 of the Company's New Common Shares to Capston Network Company as compensation for services rendered in connection with the Company and the transaction contemplated by this Agreement (the "Compensation Shares"); b. 467,000 of the Company's New Common Shares to be issued in payment of a Finder's Fee, using the "reversed stretched Lehman formula" based on a transaction value of $21,131,581 (the "Transaction Value") and calculated as follows: 1 % of the first $2 million in Transaction Value; 2% of the second $2 million in Transaction Value, 3 % of the third $2 million in Transaction Value, 4% of the fourth $2 million in Transaction Value and 5 % of any Transaction Value in excess of $8 million. Such shares may be registered under the Securities Act prior to issuance. Notwithstanding the foregoing, no finder's fees will be paid to Capston Network Company or any of its officers, directors, employees, agents or affiliates without the prior consent of the Stockholders. 10. ACTIONS AT THE CLOSING. At the final Closing of this Agreement, the Company and the Shareholders will each deliver, or cause to be delivered to the other, the shares of stock to be exchanged in accordance with Section 8 of this Agreement and each party shall pay any and all federal and state taxes required to be paid in connection with the issuance and the delivery of their own securities. All stock certificates shall be in the name of the party to which the same are deliverable, as specified herein. In addition to the above-mentioned exchange of certificates, the following transactions will take place at the final Closing. c. The Company will deliver to the Shareholders and Tracy II and Telemetrix Resource: (1) Duly certified copies of corporate resolutions and other corporate proceedings taken by the Company to authorize the execution, delivery and performance of this Agreement; (2) The opinion of John Petersen, Esquire, counsel for the Company, as provided for in Section 6(c) hereof; (3) A certificate executed by a principal officer of the Company attesting that the foregoing representations and warranties of the Company are true and correct as of the Closing Date and that all of the conditions to the obligations of the Shareholders which are to be performed by the Company have been performed as of the Closing Date; (4) A certificate of corporate good standing for the Company from the Delaware Secretary of State which shall be dated no more than 60 days prior to the Closing Date; and (5) Duly executed resignations of all existing officers and directors of the Company, effective as of 8:00 a.m. on the Closing Date. d. The Shareholders and Tracy II and Telemetrix Resource will deliver to the Company: (1) The opinion of Haligman Lottner Rubin & Fishman, P.C., counsel for Tracy II and Telemetrix Resource, as provided for in Section 5(d) hereof; (2) A certificate of corporate good standing for Tracy II from the Nebraska Secretary of State which shall be dated no more than sixty (60) days prior to the Closing Date; (3) A certificate of corporate good standing for Telemetrix Resource from the Colorado Secretary of State which shall be dated no more than sixty (60) days prior to the Closing Date; (4) A certificate by a principal officer of each of Tracy II and Telemetrix Resource that each of the representations and warranties of the Shareholders and Tracy II and Telemetrix Resource, respectively, are true and correct as of the Closing Date and that all of the conditions to the obligations of the Company which are to be performed by Tracy II and Telemetrix Resource and the Shareholders have been performed as of the Closing Date. 11. CONDUCT OF BUSINESS. Between the date hereof and the Closing Date, the Company, Tracy II and Telemetrix Resource shall conduct their business in the same manner in which it has heretofore been conducted and the Shareholders will not permit Tracy II and Telemetrix Resource to (1) enter into any contract, other than in the ordinary course of business, or (2) declare or make any distribution in the nature of a dividend or return of capital to the Shareholders without first obtaining the written consent of the Company. Likewise, the Company will not 1) enter into any contract, other than in the ordinary course of business, or (2) declare or make any distribution in the nature of a dividend or return of capital to its shareholders without first obtaining the written consent of the Shareholders. 12. BOARD OF DIRECTORS. Promptly after compliance with Securities Act Section 14(f), the Board of Directors of the Company shall have a meeting, at which all of the present directors of the Company shall resign, and they shall elect as members of the Company's Board of Directors, in accordance with the By-Laws of the Company, such individuals as the Shareholders shall designate to the Company in writing. 13. FUTURE REGISTRATION OF COMMON STOCK. The Shareholders understand that because the New Common Stock has not been registered under the Act or any state Act, they must hold the New Common Stock for a minimum of two years from the date of the closing of this Agreement and cannot dispose of any or all of the New Common Stock unless such New Common Stock is subsequently registered under the Act and any applicable State Act, or exemptions from registration are available. The Shareholders acknowledge and understand that they have no independent right to require the Company to register the shares of New Common Stock. The Shareholders further understand that the Company may, as a condition to the transfer of any of the New Common Stock, require that the request for transfer by a Shareholder be accompanied by an opinion of counsel, in form and substance satisfactory to the Company, provided at such Shareholder's expense, to the effect that the proposed transfer does not result in violation of the Act or any applicable State Act, unless such transfer is covered by an effective registration statement under the Act and is in compliance with all applicable State Acts. 14. TRANSFERABILITY. All certificates for shares of New Common Stock which are issued to the Shareholders pursuant to the terms of this Agreement shall be restricted securities within the meaning of Regulation D of the 1933 Act. The Company shall issue stop transfer instructions to the transfer agent for its New Common Stock with respect to the of New Common Stock and shall place the following legend on the certificates representing such of New Common Stock: "The shares represented by this certificate have been acquired pursuant to a transaction effected in reliance upon an exemption under the Securities Act of 1933, as amended (the "Act"), and have not been the subject to a Registration Statement under the Act or any state securities act. The securities may not be sold or otherwise transferred in the absence of such registration or applicable exemption therefrom under the Act or any applicable state securities act." 15. ACCESS TO INFORMATION. Either previously or concurrently herewith, the Company has delivered to the Shareholders correct and complete copies of all documents and records requested by the Shareholders. In addition, the Shareholders have had the opportunity to ask questions of, and receive answers from, officers and directors of the Company, and persons acting on its behalf concerning the terms and conditions of the Agreement, and has received sufficient information relating to the Company to enable them to make an informed decision with respect to the acquisition of the New Common Stock. 16. NO SOLICITATION. At no time were the Shareholders presented with or solicited by any leaflet, public promotion meeting, circular, newspaper or magazine article, radio or television advertisement, or any other form of general advertising in connection with its acquisition of the New Common Stock. 17. EXPENSES. The Shareholders, Tracy II and Telemetrix Resource and the Company shall each pay their respective expenses incident to this Agreement and the transactions contemplated hereby, including all fees of their counsel and accountants, whether or not such transactions shall be consummated; provided that Tracy II and Telemetrix Resource may pay the reasonable fees and expenses of the Shareholders counsel and their accountants in connection with this Agreement, the proposed transactions contemplated hereby, as well as travel and lodging expenses of its officers related to the negotiation of this Agreement with said payment being made by way of issuance of additional shares of the Company's New Common Stock. The Shareholders shall pay all other fees and expenses incurred by them or by Tracy II and Telemetrix Resource by reason of this Agreement and the proposed transactions contemplated hereby. 13. ATTORNEYS FEES. In the event of any litigation among the parties related to this Agreement, the prevailing party shall be entitled to reasonable attorneys fees and costs to be fixed by the Court, said fees to include appeal and collection of judgment. 19. ARBITRATION. All disputes concerning this Agreement or the transactions contemplated herein will be submitted to binding arbitration in Denver, Colorado, in accordance with the rules of the American Arbitration Association. The decisions of the Arbitrator must be delivered in writing accompanied by written findings of fact and conclusions of law. Any court of competent jurisdiction may enter judgment upon the Arbitrator's awards. The prevailing party, as part of its damages, shall be entitled to recover its reasonable attorneys fees and expenses incurred in such arbitration from the losing party. 20. MISCELLANEOUS. a. This Agreement shall be controlled, construed and enforced in accordance with the laws of the State of Colorado without giving effect to conflict of laws principles thereof. b. This Agreement shall not be assignable by any party without prior written consent of the others. c. All Section headings herein are inserted for convenience only. This Agreement may be executed in several counterparts, each of which shall be deemed an original, which together shall constitute one and the same instrument. Facsimile signatures shall constitute original signatures. d. This Agreement sets forth the entire understanding between the parties, there being no terms, conditions, warranties or representations other than those contained herein and specifically supersedes the letter of intent between the parties dated December 11, 1997 and accepted December 17, 1997, and no amendments hereto shall be valid unless made in writing and signed by the parties hereto. e. This Agreement shall be binding upon and shall inure to the benefit of the heirs, executors, administrators and assigns of the Shareholders and Tracy II and Telemetrix Resource and upon the successors and assigns of the Company. f. All notices, requests, instructions, or other documents to be given hereunder shall be in writing and sent by registered mail: If to the Shareholders, Tracy II or Telemetrix Resource, copies to: Michael J. Tracy P.O. Box 1225 Scottsbluff, Nebraska 69363 Telephone: 308 / 436-4090 Facsimile: 308 / 436-7101 With copies to: Michael L. Glaser, Esquire Haligman Lottner Rubin & Fishman PC 633 Seventeenth Street - Suite 2700 Denver, Colorado 80202-3635 Telephone: 303 / 292-1200 Facsimile: 303 / 292-1300 If to the Company: Ms. Sally Fonner 1612 North Osceola Avenue Clearwater, Florida 34615 Telephone: 727 / 433-3434 Facsimile: 727 / 443-5240 with copies to: John L. Petersen, Esquire 5616 San Felipe Houston, Texas 77056 Telephone: 713 / 627-0019 Facsimile: 713 / 627-0927 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. ARNOX CORPORATION BY: /s/ Sally A. Fonner Sally A. Fonner, President and chairman of the Board TRACY CORPORATION II BY: /s/ Michael J. Tracy Michael J. Tracy, President TELEMETRIX RESOURCE GROUP, INC. By: /s/ Michael L. Glaser Michael L. Glaser, Secretary SHAREHOLDERS IDENTIFIED IN EXHIBIT A, SCHEDULE A-1 By: /s/ Michael J. Tracy Michael J. Tracy, Shareholder HARTFORD HOLDING LTD., a Cayman Island corporation, Shareholder By: /s/ William W. Becker William W. Becker By: /s/ Michael L. Glaser Michael L. Glaser, Shareholder EXHIBIT A Shareholders Name and Address of Shareholder Hartford Holdings Ltd P.O. Box 143 Cayman Islands BWI Michael J. Tracy 731 East 3 8th Street Scottsbluff, Nebraska 69361 Michael L. Glaser 2324 S. Jackson Street Denver Colorado 80211 Schedule A-1 Shareholders of Tracy Corporation II Name and Address of # of Shares Percentage Shareholder Owned Owned Hartford Holdings Ltd. .... 85.35 9.09% P.O. Box 143 Cayman Islands, BWI Michael J. Tracy .......... 768.30 81.82% 731 East 38th Street Scoffsbluff, Nebraska 69361 Michael L. Glaser ......... 85.35 9.09% 2324 S. Jackson Street Denver, Colorado 80211 TOTALS .................... 939.00 Shares 100.00% Schedule A-2 Shareholders of Telemetrix Resource Group, Inc. Name and Address # of Shares Owned Percentage Owned of Shareholder Hartford Holdings Ltd. 101 100.0 P.O. Box 143 Cayman Islands, BWI Schedule A-3 Number of Company Shares to be Issued by the Company to the Shareholders at the Closing Name and Adress of Shareholder # of Shares to be Issued Hartford Holdings Ltd. 6,900,000 P.O. Box 143 Cayman Islands, BWI Michael J. Tracy 4,140,000 731 East 38th Street Scottsbluff, Nebraska 69361 Michael L. Glaser 460,000* 2324 S. Jackson Street Denver, Colorado 80211 TOTAL 11,500,000 * In addition, Mr. Glaser is being issued 90,000 shares as payment for legal services rendered, for a total of 550,000 shares. EXHIBIT B Audited Financial Statements of Tracy Corporation II and Balance Sheet of Telemetrix Resource Group, Inc. [first document] TRACY CORPORATION II Scottsbluff, Nebraska CONSOLIDATED FINANCIAL STATEMENTS and INDEPENDENT AUDITOR'S REPORT For the Years Ended December 31, 1996 and 1995 TRACY CORPORATION II Scottsbluff, Nebraska TABLE OF CONTENTS * * * * Page Number Independent Auditor's Report 1 Financial Statements Balance Sheets 2 - 3 Statements of Income and Changes in Retained Earnings 4 Statements of Cash Flows 5 Notes to the Financial Statements 6 - 10 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Tracy Corporation II Scottsbluff, Nebraska We have audited the accompanying balance sheets of Tracy Corporation II as of December 31, 1996 and 1995, and the related statements of income and changes in retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financials 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 our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tracy Corporation II as of December 31, 1996 and 1995, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. Gering, Nebraska January 28, 1998
1996 1995 Assets .............................................. Current assets: Cash ......................................... $ 1,895 $ 343 Accounts receivable - trade .................. 54,557 15,890 Accounts receivable - other .................. 96,815 100,340 ---------- ---------- Total current assets ....................... $ 153,267 $ 116,573 ---------- ---------- Property, plant and equipment: Land ......................................... $ 2,000 $ 2,000 Buildings and improvements ................... 11,549 11,549 Office equipment ............................. 37,151 34,601 Communications equipment ..................... 644,369 648,818 Vehicles ..................................... 32,147 28,497 ---------- ---------- Total property, plant and equipment ........ $ 727,216 $ 725,465 Less accumulated depreciation .............. 619,430 595,776 ---------- ---------- Total property, plant and equipment net of accumulated depreciation ........ $ 107,786 $ 129,689 ---------- ---------- Other assets: FCC auction deposit .......................... $ 100,000 $ -- Deferred patronage dividends ................. 1,576 161 FCC license C block (net of amortization) .... 822,272 -- Patent (net of amortization) ................. 14,725 -- Investments in other organizations ........... -- 245,733 Deposits ..................................... -- 20 ---------- ---------- Total other assets ......................... $ 938,573 $ 245,914 ---------- ---------- Total assets ................................... $1,199,626 $ 492,176 ========== ==========
1996 1995 Liabilities and Stockholder's Equity .................................................. Current liabilities: Accounts payable ................................. $ 11,811 $ -- Accrued interest ................................. 23,402 1,635 Other accrued expenses ........................... 711 -- Customer deposits ................................ 12,851 19,316 Current portion of long-term liabilities ......... 219,846 311,500 ---------- ---------- Total current liabilities ...................... $ 268,621 $ 332,451 ---------- ---------- Long-term liabilities: Notes payable (net of current portion) ........... $ 773,888 $ -- ---------- ---------- Total long-term liabilities .................... $ 773,888 $ -- ---------- ---------- Total liabilities ............................ $1,042,509 $ 332,451 ---------- ---------- Stockholder's equity: Capital stock-authorized 1,000 common shares, $10 par value; issued 652 shares ............... $ 6,520 $ 6,520 Capital surplus .................................. 148,500 148,500 Retained earnings ................................ 2,097 4,705 ---------- ---------- Total stockholder's equity ..................... $ 157,117 $ 159,725 ---------- ---------- Total liabilities and stockholder's equity ......... $1,199,626 $ 492,176 ========== ==========
1996 1995 Sales and services .......................... $ 467,872 $ 442,696 --------- --------- Gross profit .............................. $ 467,872 $ 442,696 --------- --------- Expenses: Depreciation and amortization ............. $ 57,723 $ 53,341 Research and development costs ............ 84,000 8,000 Bad debts ................................. 15,214 9,358 Selling, general and administrative ....... 319,213 327,924 Interest .................................. 36,851 9,306 --------- --------- Total expenses .......................... $ 513,001 $ 407,929 --------- --------- Operating income (loss) ............... $ (45,129) $ 34,767 --------- --------- Other income: Interest income ........................... $ -- $ 8,978 Lease income .............................. 15,182 -- Miscellaneous income ...................... 11,545 8,908 Gain (loss) on sale of assets ............. 23,959 -- Income (loss) on investments .............. ( 8,165) ( 4,267) --------- --------- Total other income ...................... $ 42,521 $ 13,619 --------- --------- Net income (loss) ..................... $( 2,608) $ 48,386 Retained earnings, beginning of year ........ 4,705 $( 43,681) --------- --------- Retained earnings, end of year .............. $ 2,097 $ 4,705 ========= =========
1996 1995 Cash flows from operating activities: Net income (loss) ................................ ( 2,608) $ 48,386 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization .................. 57,723 53,341 (Gain) loss on sale of assets .................. ( 23,959) ----------- (Increase) decrease in accounts receivable ..... ( 35,142) ( 1,834) Increase (decrease) in accounts payable ........ 11,811 -- Increase (decrease) in accrued liabilities ..... 711 ( 1,495) Increase (decrease) in interest payable ........ 21,767 -- Increase (decrease) in customer deposits ....... ( 6,465) ( 21,169) ----------- ----------- Net cash flows provided by (used in) operating activities ................................. $ 23,838 $ 77,229 ----------- ----------- Cash flows from investing activities: Cash payments for the purchase of property ....... $ (19,841) $ (69,003) Cash proceeds from the sale of property .......... 29,398 -- Cash payments for the purchase of FCC license .... ( 843,356) ----------- Cash proceeds (payments) from investments in other organizations and other assets ................. 129,279 ( 245,894) ----------- ----------- Net cash flows provided by (used in) investing activities ................................. $( 704,520) $( 314,897) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt ......... $ 1,027,985 $ 304,000 Principal payments on long-term debt ............. ( 345,751) ( 76,442) ----------- ----------- Net cash flows provided by (used in) financing activities ................................. $ 682,234 $ 227,558 ----------- ----------- Net increase (decrease) in cash and cash equivalents $ 1,552 $ (10,110) Cash and cash equivalents, beginning of year ....... 343 10,453 ----------- ----------- Cash and cash equivalents, end of year ............. $ 1,895 $ 343 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for Interest expense ............................... $ 15,084 $ 7,671
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business - Tracy Corporation II (Company) is a Nebraska corporation operating for profit in western Nebraska and Eastern Wyoming. The Company's primary sources of revenue are the sales and rental of communication pagers and the monthly service charges for the equipment. In the course of its business, the Company extends credit to its customers for the purchase and rental of paging equipment and the provision of service thereon. During 1996, the Company acquired 100% interest in a partnership investment. This acquisition enabled the Company to have all the rights granted in the FCC Franchise License issued for Basic Trading Area (BTA) 411, which covers much of Western Nebraska and a portion of Eastern Wyoming. This license permits the operation of Personal Communications Systems (PCS) in this designated area. Basis of Accounting - The Company uses the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when they are earned, and expenses are recognized when they are incurred. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounts Receivables - The Company uses the direct charge off method for doubtful receivables. When management determines an account to be uncollectible, it is written off to bad debt expense. Investments in Other Organizations - The investment in the Wireless Communications Co. is stated at cost increased or decreased for the amount of income or loss reflected on the income tax return attributable to the Company. Property, Plant and Equipment and Depreciation - Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for major betterments are capitalized. Maintenance and repairs are charged to operations in the year incurred. Gain or loss on sale, retirement or other disposition of property, plant and equipment is credited or charged to operations in the year sustained. Depreciation is provided on an accelerated basis in accordance with generally accepted accounting principles over the estimated useful lives of the respective assets using the following lives: Buildings and improvements 5 - 31.5 years Office equipment 5 - 7 years Communications equipment 5 - 7 years Vehicles 5 years NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible Assets - Intangible assets subject to amortization include patents and franchise rights. These assets are amortized on a straight-line basis using the following economic lives: Term Cost Patent 15 Years $ 15,059 Covenants not to Compete FCC Franchise License 10 Years 843,356 ----------- Total $ 858,415 =========== Following is an analysis of activity in intangible assets for the fiscal year ended December 31, 1996: Beginning Ending Balance Additions Removals Balance Patent $ - $ 15,059 $ - $ 15,059 FCC Franchise License - 843,356 - 843,356 ----------- ----------- ----------- ----------- Total $ - $ 858,415 $ - $ 858,415 Accumulated amortization - 21,418 - 21,418 ---------- ----------- ----------- ----------- Net total $ - $ 836,997 $ - $ 836,997 ========== =========== =========== =========== Research and Development Costs - Company sponsored research and development expenses related to present and future products are expensed as incurred. Research and development costs determined in accordance with FASB Statement No. 2, "Accounting for Research and Development Costs", were $84,000 and $8,000 for the years ended December 31, 1996 and 1995, respectively. Income Taxes and Deferred Taxes - The Company has elected to be taxed for federal and state purposes as a Subchapter S Corporation. This election transfers the income tax liability to the stockholders of the corporation. There are no taxes for the Company in 1996 or 1995. Cash and Cash Equivalents - For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. NOTE 2 - CONCENTRATION OF RISK The Company through a partnership investment and subsequent acquisition of the entire interest, was the successful bidder for an FCC Franchise License for Wireless Communications. In order for this franchise license to be profitable, a substantial sum of capital will be required before any return on investment is realized. Start up costs will be substantial before any revenue is received. Management has estimated the time frame for realization of revenue to be up to two years from the acquisition of the franchise license. The Company has applications pending for patents which operate in conjunction with various types of digital communications systems and system technologies. The number of patent claims which will ultimately be granted is not known and it is not possible to place a value on the patent applications. The patens deal with systems and technologies that reduce the overall cost of consolidating and delivering data, including such things as electrical and gas meter information, security services, and vending replenishment information. The technology will be first deployed on the Company's Personal Communications Systems in Basic Trading Area 411. Upon successful deployment, the Company will license the use of the technology and equipment to other digital communications providers thoughout the world. NOTE 3 - PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION Following is an analysis of changes in property, plant and equipment and accumulated depreciation for the years ended December 31, 1996 and 1995:
Beginning Ending Balance Additions Deletions Balance 1996 Land $ 2000 $ - $ - $ 2,000 Buildings and improvements 11,549 - - 11,549 Office equipment 34,601 2,550 - 37,151 Communications equipment 648,818 7,491 11,940 644,369 Vehicles 28,497 9,800 6,150 32,147 ----------- ----------- ----------- ----------- Total $ 725,465 $ 19,841 $ 18,090 $ 727,216 Accumulated depreciation 595,776 36,305 12,651 619,430 ----------- ----------- ----------- ----------- Net total $ 129,689 $( 16,464) $( 5,439) $ 107,786 =========== =========== =========== ===========
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION (CONTINUED) Beginning Ending Balance Additions Deletions Balance 1995 Land ............... $ 2000 $ -- $ -- $ 2,000 Buildings and improvements ..... 11,549 -- -- 11,549 Office equipment ... 28,333 6,268 -- 34,601 Communications equipment ........ 596,445 52,373 -- 648,818 Vehicles ........... 18,135 10,362 -- 28,497 ------------ ------------ ------------ ------------ Total ............ $ 656,462 $ 69,003 $ -- $ 725,465 Accumulated depreciation ... 542,435 53,341 -- 595,776 ------------ ------------ ------------ ------------ Net total ...... $ 114,027 $ 15,662 $ -- $ 129,689 ============ ============ ============ ============ NOTE 4 - INVESTMENTS IN OTHER ORGANIZATIONS On June 8, 1995, the Company acquired a fifty percent interest in Wireless Communications Company (a Partnership). The net investment in the partnership as of December 31, 1995, was $245,733. The Company acquired the entire interest in the Partnership June 11, 1996. The primary asset of the Partnership was the FCC Franchise License that is reflected on the December 31, 1996, Balance Sheet. NOTE 5 - UNASSERTED CLAIMS AND ASSESSMENTS On December 30, 1996, the Company by board resolution, authorized the negotiation of the sale of up to thirty percent of the Company. The claims outstanding regarding this board resolution, relate to two entities. Each is entitled to receive fifteen percent of the stock of the Company. The acquisition price is to be negotiated. NOTE 6 - LONG-TERM OBLIGATIONS Federal Communications Commission, C Block - Effective September 17, 1996, this note is due on quarterly installments of approximately $55,874 beginning December 31, 2002. The installment payments include interest calculated at an annual interest rate of 7%. Interest up to the date of December 31, 2002, will be paid as follows: one annual interest payment on September 30, 1997, of approximately $56,128; quarterly installment interest payments of approximately $13,543 due on the last day of the month and every 90 days thereafter beginning on December 31, 1997, through and including September 30, 2002. The note is secured by the FCC License No. PBB411C. The annual requirements for the extinguishment of long-term liabilities for the next five years and thereafter are as follows: 1996 1995 ------------ ------------ 1996 $ - $ - 1997 219,846 - 1998 - - 1999 - - 2000 - - 2001 - - Thereafter 773,888 - ----------- ----------- Total $ 993,734 $ 311,500 NOTE 6 - RELATED PARTY The accounts receivable other of $96,815 and $100,340 as of December 31, 1996 and 1995, respectively, was due from Tracy Broadcasting Corporation and Tracy Corporation. Both amounts were paid off entirely April 29, 1997. The two entities have the same ownership as Tracy Corporation II. TRACY CORPORATION II Scottsbluff, Nebraska CONSOLIDATED FINANCIAL STATEMENTS and INDEPENDENT AUDITOR'S REPORT For the Years Ended December 31, 1997 and 1996 TRACY CORPORATION II Scottsbluff, Nebraska TABLE OF CONTENTS * * * * Page Number Independent Auditor's Report 1 Financial Statements Balance Sheets 2 - 3 Statements of Income and Changes in Retained Earnings 4 Statements of Cash Flows 5 Notes to the Financial Statements 6 - 11 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Tracy Corporation II Scottsbluff, Nebraska We have audited the accompanying balance sheets of Tracy Corporation II as of December 31, 1997 and 1996, and the related statements of income and changes in retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financials 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 our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tracy Corporation II as of December 31, 1997 and 1996, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. [SIGNED] Gering, Nebraska July 31, 1998
1997 1996 Assets Current assets: Cash ............................................. $ 62,566 $ 1,895 Accounts receivable - trade less allowance for doubtful accounts of $1,000 and $0 in 1997 and 1996, respectively ................................... 52,403 54,557 Accounts receivable - other ...................... 26,416 96,815 ---------- ---------- Total current assets ........................... $ 141,385 $ 153,267 ---------- ---------- Property, plant and equipment: Land ............................................. $ 3,000 $ 2,000 Buildings and improvements ....................... 12,910 11,549 Office equipment ................................. 48,869 37,151 Communications equipment ......................... 672,756 644,369 Vehicles ......................................... 32,147 32,147 ---------- ---------- Total property, plant and equipment ............ $ 769,682 $ 727,216 Less accumulated depreciation .................. 651,571 619,430 ---------- ---------- Total property, plant and equipment net of accumulated depreciation ............ $ 118,111 $ 107,786 ---------- ---------- Other assets: FCC auction deposit .............................. $ -- $ 100,000 Deferred patronage dividends ..................... 2,191 1,576 FCC license C & F block net of accumulated amortization of $113,570 and $21,084 in 1997 and 1996, respectively .................... 852,038 822,272 Patent net of accumulated amortization of $1,569 and $334 in 1997 and 1996, respectively ................................... 24,028 14,725 Construction in progress ......................... 488,045 -- Deposits ......................................... 170,430 -- ---------- ---------- Total other assets ............................. $1,536,732 $ 938,573 ---------- ---------- Total assets ....................................... $1,796,228 $1,199,626 ========== ==========
1997 1996 Liabilities and Stockholder's Equity ................................................... Current liabilities: Accounts payable .................................. $ 163,683 $ 11,811 Accrued interest .................................. 101,684 23,402 Other accrued expenses ............................ 758 711 Customer deposits ................................. 10,840 12,851 Current portion of long-term liabilities .......... 898,786 219,846 --------------- --------------- Total current liabilities ....................... $ 1,175,751 $ 268,621 --------------- --------------- Long-term liabilities: Notes payable (net of current portion) ............ $ 882,555 $ 773,888 --------------- --------------- Total long-term liabilities ..................... $ 882,555 $ 773,888 --------------- --------------- Total liabilities ............................. $ 2,058,306 $ 1,042,509 --------------- --------------- Stockholder's equity: Capital stock-authorized 1,000 common shares, $10 par value; issued 652 shares ................ $ 6,520 $ 6,520 Capital surplus ................................... 148,500 148,500 Retained earnings (deficit) ....................... ( 417,098) --------------- --------------- 2,097 Total stockholder's equity ...................... $ (262,078) $ 157,117 --------------- --------------- Total liabilities and stockholder's equity .......... $ 1,796,228 1,199,626 =============== ===============
1997 1996 ................................................... Sales and services .................................... $ 381,961 $ 467,872 ----------- ----------- Gross profit ........................................ $ 381,961 $ 467,872 ----------- ----------- Expenses: Depreciation and amortization ....................... $ 125,862 $ 57,723 Research and development costs ...................... 91,256 84,000 Bad debts ........................................... 11,248 15,214 Selling, general and administrative ................. 313,059 319,213 Interest ............................................ 93,576 36,851 ----------- ----------- Total expenses .................................... $ 635,001 $ 513,001 ----------- ----------- Operating income (loss) ......................... $ (253,040) $ (45,129) ----------- ----------- Other income: Lease income ........................................ $ 16,431 $ 15,182 Miscellaneous income ................................ 17,414 11,545 Gain (loss) on sale of assets ....................... -- 23,959 Income (loss) on investments ........................ -- (8,165) ----------- ----------- Total other income ................................ $ 33,845 $ 2,521 ----------- ----------- Net income (loss) ..................................... $ (219,195) $ (2,608) Retained earnings, beginning of year .................. 2,097 4,705 Distributions ......................................... (200,000) ----------- ----------- Retained earnings, end of year ........................ $ (417,098) $ 2,097 =========== ===========
1997 1996 Cash flows from operating activities: Net income (loss) ................................... $ (219,195) $ (2,608) Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization ..................... 125,862 57,723 (Gain) loss on sale of assets ..................... -- (23,959) (Increase) decrease in accounts receivable ........ 72,553 (35,142) (Increase) decrease in deferred patronage dividends (615) ----------- ----------- Increase (decrease) in accounts payable ........... 151,872 11,811 Increase (decrease) in other accrued liabilities .. 47 711 Increase (decrease) in accrued interest ........... 78,282 21,767 Increase (decrease) in customer deposits .......... (2,011) (6,465) ----------- ----------- Net cash flows provided by (used in) operating activities .................................... $ 206,795 $ 23,838 ----------- ----------- Cash flows from investing activities: Cash payments for the purchase of property .......... $ (42,466) $ (19,841) Cash proceeds from the sale of property ............. -- 29,398 Cash payments for the purchase of FCC license ....... (122,252) (843,356) Cash proceeds (payments) from (for) investments in other organizations and other assets .............. (569,013) 129,279 ----------- ----------- Net cash flows provided by (used in) investing activities .................................... $ (733,731) $ (704,520) ----------- ----------- Cash flows from financing activities: Proceeds from issuance of long-term debt ............ $ 788,821 $ 1,027,985 Principal payments on long-term debt ................ (1,214) (345,751) Dividends paid ...................................... (200,000) (--) ----------- ----------- Net cash flows provided by (used in) financing activities .................................... $ 587,607 $ 682,234 ----------- ----------- Net increase (decrease) in cash and cash equivalents .. $ 60,671 $ 1,552 Cash and cash equivalents, beginning of year .......... 1,895 343 ----------- ----------- Cash and cash equivalents, end of year ................ $ 62,566 $ 1,895 =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for Interest expense .................................. $ 15,294 $ 15,084
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business - Tracy Corporation II (Company) is a Nebraska corporation operating for profit in Western Nebraska and Eastern Wyoming. The Company's primary sources of revenue are the sales and rental of communication pagers and the monthly service charges for the equipment. In the course of its business, the Company extends credit to its customers for the purchase and rental of paging equipment and the provision of service thereon. During 1996, the Company acquired 100% interest in a partnership investment. This acquisition enabled the Company to have all the rights granted in the FCC Franchise License issued for Basic Trading Area (BTA) 411, which covers much of Western Nebraska and a portion of Eastern Wyoming. This license permits the operation of Personal Communications Systems (PCS) in this designated area. Basis of Accounting - The Company uses the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when they are earned, and expenses are recognized when they are incurred. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounts Receivables - The Company uses the direct charge off method for doubtful receivables. When management determines an account to be uncollectible, it is written off to bad debt expense. Property, Plant and Equipment and Depreciation - Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for major betterments are capitalized. Maintenance and repairs are charged to operations in the year incurred. Gain or loss on sale, retirement or other disposition of property, plant and equipment is credited or charged to operations in the year sustained. Depreciation is provided on an accelerated basis in accordance with generally accepted accounting principles over the estimated useful lives of the respective assets using the following lives: Buildings and improvements 5 - 31.5 years Office equipment 5 - 7 years Communications equipment 5 - 7 years Vehicles 5 years NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Intangible Assets - Intangible assets subject to amortization include patents and franchise rights. These assets are amortized on a straight-line basis using the following economic lives: Term Cost Patent 15 Years $ 25,597 Covenants not to Compete FCC Franchise License 10 Years 965,607 ----------- Total $ 991,204 =========== Following is an analysis of activity in intangible assets for the years ended December 31, 1997 and 1996:
Beginning Ending Balance Additions Removals Balance 1997 Patent ................ $ 15,059 $ 10,538 $ -- $ 25,597 FCC Franchise License . 843,356 122,252 -- 965,608 ------------ ------------ ------------ ------------ Total ............... $ 858,415 $ 132,790 $ -- $ 991,205 Accumulated amortization ........ 21,418 93,721 -- 115,139 ------------ ------------ ------------ ------------ Net total ......... $ 836,997 $ 39,069 $ -- $ 876,066 ============ ============ ============ ============
1996 Patent ................ $ -- $ 15,059 $ -- $ 15,059 FCC Franchise License . -- 843,356 -- 843,356 ------------ ------------ ------------ ------------ Total ............... $ -- $ 858,415 $ -- $ 858,415 Accumulated amortization ........ -- 21,418 -- 21,418 ------------ ------------ ------------ ------------ Net total ......... $ -- $ 836,997 $ -- $ 836,997 ============ ============ ============ ============
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Research and Development Costs - Company sponsored research and development expenses related to present and future products are expensed as incurred. Research and development costs determined in accordance with FASB Statement No. 2, "Accounting for Research and Development Costs", were $91,256 and $84,000 for the years ended December 31, 1997 and 1996, respectively. Income Taxes and Deferred Taxes - The Company has elected to be taxed for federal and state purposes as a Subchapter S Corporation. This election transfers the income tax liability to the stockholders of the corporation. There are no taxes for the Company in 1997 or 1996. Cash and Cash Equivalents - For purposes of the statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. NOTE 2 - CONCENTRATION OF RISK The Company through a partnership investment and subsequent acquisition of the entire interest, was the successful bidder for an FCC Franchise License for Wireless Communications. In order for this franchise license to be profitable, a substantial sum of capital will be required before any return on investment is realized. Start up costs will be substantial before any revenue is received. Management has estimated the time frame for realization of revenue to be up to two years from the acquisition of the franchise license. The Company has applications pending for patents which operate in conjunction with various types of digital communications systems and system technologies. The number of patent claims which will ultimately be granted is not known and it is not possible to place a value on the patent applications. The patens deal with systems and technologies that reduce the overall cost of consolidating and delivering data, including such things as electrical and gas meter information, security services, and vending replenishment information. The technology will be first deployed on the Company's Personal Communications Systems in Basic Trading Area 411. Upon successful deployment, the Company will license the use of the technology and equipment to other digital communications providers thoughout the world. NOTE 3 - PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION Following is an analysis of changes in property, plant and equipment and accumulated depreciation for the years ended December 31, 1997 and 1996:
Beginning Ending Balance Additions Deletions Balance 1997 Land $ 2,000 $ 1,000 $ -- $ 3,000 Buildings and improvements 11,549 1,361 -- 12,910 Office equipment 37,151 11,718 -- 48,869 Communications equipment 644,369 28,387 -- 672,756 Vehicles 32,147 -- -- 32,147 ----------- ----------- ----------- ----------- Total $ 727,216 $ 42,466 $ -- $ 769,682 Accumulated depreciation 619,430 32,141 -- 651,571 ----------- ----------- ----------- ----------- Net total $ 107,786 $ 10,325 $ -- $ 118,111 =========== =========== =========== ===========
1996 Land $ 2,000 $ -- $ -- $ 2,000 Buildings and improvements 11,549 -- -- 11,549 Office equipment 34,601 2,550 -- 37,151 Communications equipment 648,818 7,491 11,940 644,369 Vehicles 28,497 9,800 6,150 32,147 ----------- ----------- ----------- ----------- Total $ 725,465 $ 19,841 $ 18,090 $ 727,216 Accumulated depreciation 595,776 36,305 12,651 619,430 ----------- ----------- ----------- ----------- Net total $ 129,689 $( 16,464) $( 5,439) $ 107,786 =========== =========== =========== ===========
NOTE 4 - UNASSERTED CLAIMS AND ASSESSMENTS On December 30, 1996, the Company by board resolution, authorized the negotiation of the sale of up to thirty percent of the Company. The claims outstanding regarding this board resolution, relate to two entities. Each is entitled to receive fifteen percent of the stock of the Company. The acquisition price is to be negotiated. NOTE 5 - LONG-TERM OBLIGATIONS Federal Communications Commission, C Block - Effective September 17, 1996, this note is due in quarterly installments of approximately $55,874 beginning December 31, 2002. The installment payments include interest calculated at an annual rate of 7%. Interest up to the date of December 31, 2002, will be paid as follows: one annual interest payment on September 30, 1997, of approximately $56,128; quarterly installment interest payments of approximately $13,543 due on the last day of the month and every 90 days thereafter beginning on December 31, 1997, through and including September 30, 2002. The note is secured by the FCC License No. PBB411C. Federal Communications Commission, F Block - This note payable was effective April 28, 1997, for the principal sum of approximately $74,467. It is due in quarterly installments of approximately $2,974 beginning July 28, 1999. The installment payment includes interest calculated at an annual rate of 6.25%. Interest up to the date of July 28, 1999, will be paid in equal quarterly installments of approximately $1,163 due on July 28, 1997, and every quarter thereafter on October 28, January 28, April 28 and July 28 through and including April 28, 1999. The entire unpaid principal amount plus accrued and unpaid interest is due and payable on April 28, 2007, if not paid sooner. The note payable is secured by the FCC License No. CWB411F. Federal Communications Commisssion, F Block - This note payable was effective April 28, 1997, for the principal sum of $34,200. It is due in quarterly installments of approximately $1,366 beginning July 28, 1999. The installment payment includes interest calculated at an annual rate of 6.25%. Interest up to the date of July 28, 1999, will be paid in equal quarterly installments of approximately $534 due on July 28, 1997, and every quarter thereafter on October 28, January 28, April 28 and July 28 through and including April 28, 1999. The entire unpaid principal amount plus accrued and unpaid interest is due and payable on April 28, 2007, if not paid sooner. The note payable is secured by the FCC License No. CWB270F. NOTE 5 - LONG-TERM OBLIGATIONS (CONTINUED) The annual requirements for the extinguishment of long-term liabilities for the next five years and thereafter are as follows: 1997 1996 ------------ ------------ 1997 $ - $ 219,846 1998 898,786 - 1999 5,328 - 2000 11,164 - 2001 11,879 - 2002 54,970 - Thereafter 799,214 773,888 ----------- ----------- Total $ 1,781,341 $ 993,734 =========== =========== NOTE 6 - SUBSEQUENT EVENTS Tracy Corporation II has entered into agreements with TECORE, Inc., Spectrum Wireless and UNISYS. These agreements are for the purchase of communications equipment to utilize the FCC Franchise License for Personal Service Communications in Basic Trading Area 411. The amount that has been obligated for the payment of the communications equipment is $1,080,000. NOTE 7 - RELATED PARTY The accounts receivable other of $26,416 and $96,815 as of December 31, 1997 and 1996, respectively, were due from corporations with the same ownership as Tracy Corporation II or the major stockholder. The current portion of long-term liabilities for 1997 includes $325,000 due to Mike Tracy and bears interest at the rate of 7.5% on $125,000 and 9.75% on $200,000. Telemetrix Resource Group, Inc. Balance Sheet Telemetrix Resource Group, Inc. Balance Sheet As of December 31, 1998 - -------------------------------------------------------------------------------- ASSETS Current Assets Accounts Receivable .............. $ 166 Property and Equipment Billing and Information Management $ 25,000,000 Software Accumulated Depreciation ......... $ (6,250,000) Other Assets ................................ $ 28,113 Organizational Costs ............. $ (5,623) ------------ Accumulated Amortization TOTAL .......................................... $ 18,772,657 ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Accounts Payable ................................ $ 31,113 Stockholders' Equity (Deficit) Common Stock, no par value, 100 shares authorized $ 25,000,000 and outstanding Retained Earnings ............................... $ (6,258,456) ------------ TOTAL ......................................................... $ 18,772,657 ============ Telemetrix Resource Group, Inc. Statement of Operations For the Nine Months Ended 12/31/98 - -------------------------------------------------------------------------------- REVENUE Royalty Revenue .... $ 166 ----------- Total Revenue .... $ 166 ----------- EXPENSES Legal and Accounting $ 3,000 Depreciation and ... $ 6,255,623 Amortization Expense ----------- Total Expenses ... $ 6,258,623 ----------- NET LOSS ......................... $(6,258,456) =========== Telemetrix Resource Group, Inc. Statement of Cash Flow For the Nine Months Ended 12/31/98 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ........................................... $(6,258,456) Adjustment to reconcile net loss to net cash used by operating activites: Depreciation ........................... $ 6,255,623 Accounts Receivable .................... $ (166) Increase Accounts Payable Increase .............. $ 31,113 ----------- Net Cash Used in Operating ........... $ 28,114 Activities ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capitalized Organizational Costs ................... $ (28,114) ----------- Net Cash Used in Investing ........... $ (28,114) Activities ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS ............ $ -- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... $ -- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ -- =========== EXHIBIT C Form of Shareholder Investment Letter [Shareholder] [Shareholder's Address] Arnox Corporation 1612 North Osceola Avenue Clearwater, Florida 34615 Re: Issuance of Arnox Corporation common shares Gentlemen: Under that certain Reorganization Agreement dated March 22, 1999, between and among Arnox Corporation ("Arnox"), Tracy Corporation II, ("Tracy II"), and Telemetrix Resource Group, Inc. ("TRG"), Arnox, Tracy II, and TRG will undergo a reorganization ("Reorganization"). Concurrently with the Reorganization, __________________common shares (the "Common Stock" or "Common Shares") in the post-reorganization entity (the "Company") will be issued to the undersigned investor ("Investor"). This letter shall confirm that Investor is acquiring the Common Shares solely for Investor's own account, and, at the time of the acquisition, no other person will have a direct or indirect beneficial interest in Investor's Common Shares. Investor is acquiring the Common Shares for investment purposes only, with no intention of distributing, reselling, assigning or otherwise transferring the Common Shares. Investor is not a Distributor, Dealer or any person acting on behalf of the foregoing, and has not made any pre-arrangement, arrangements or entered into any agreement for the resale or distribution of Company securities. Investor understands that the Common Stock has not been registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") or under any U.S. state securities law ("Blue Sky Laws"). The Common Stock will be "restricted securities" (as defined in SEC Rule 144) and therefore may not be resold or otherwise transferred except pursuant to the registration provisions of the Securities Act and Blue Sky Laws or pursuant to an exemption from such registration provisions. Investor is not acquiring the Common Shares as part of a plan or scheme to evade the registration provisions of the Securities Act or any Blue Sky Laws. Investor has sufficient knowledge and expertise in financial and business matters to evaluate the merits and risks of the proposed exchange of Tracy II's and TRG's securities, as applicable, for the Common Shares. The Common Shares are the type of securities that Investor wishes to hold for investment and the nature and amount of the Common Shares are consistent with Investor's investment program. Investor is able to bear the economic risks of the investment in the Common Shares. Investor has adequate means of providing for Investor's current needs and contingencies, Investor has no present need for liquidity in the Common Shares, and Investor can afford to hold the Common Shares for an indefinite period. Investor is able to protect Investor's own interests in an investment of this nature, Investor can afford a complete loss of an investment in the Common Shares, and Investor is willing to accept such investment risks. Investor acknowledges that investing in the Common Shares is a speculative and uncertain undertaking. Investor is familiar with the risks involved in such investment and has considered such risks in making its decision to acquire the Common Shares. Investor understands that no U.S. federal or state agency has made any finding or determination about the fairness of the proposed investment nor has recommended or endorsed the Common Shares. Investor was not solicited to acquire the Common Shares through any leaflet, public promotional meeting, circular, newspaper article, magazine article, radio advertisement, television commercial or any other form of general advertising. Investor had access to all available material and relevant information concerning the Company and its subsidiaries, its management, its current and proposed business and other details of the investment sufficient for Investor to make an informed investment decision whether to acquire the Common Shares. Investor had an opportunity to ask questions about the Company and the Common Shares and those questions were answered to Investor's satisfaction. All information requested by Investor was furnished except for information that was unavailable or would require unreasonable effort or expense. Investor carefully reviewed all available material and relevant information concerning the Company and the Common Shares, evaluated the reasonableness of all assumptions and projections, conducted due diligence by investigating the facts and circumstances, and therefore, is familiar with the business and financial condition of the Company. Investor has not relied on the Company to evaluate or make the investment decision to acquire the Common Shares. Investor relied solely on its own tax, legal, and investment advisors concerning the income tax and investment considerations of ownership of the Units. Very truly yours, By: Investor EXHIBIT D BENEFICIAL OWNERS OF COMPANY SHARES [NOT INSERTED] EXHIBIT E AUDITED BALANCE SHEET OF THE COMPANY Refer to 10-K filings of ARNOX. -----END PRIVACY-ENHANCED MESSAGE-----