<PAGE>
TYREX OIL COMPANY
Notice of Annual Meeting of Shareholders
To Be Held on April 30, 1998
Notice is hereby given that the Annual meeting of Shareholders of Tyrex Oil
Company, a Wyoming corporation, will be convened at 3:00 p.m. on Thursday, April
30, 1998 at the offices of the Company, 6886 S. Yosemite Street, Englewood,
Colorado, for the following purposes:
1. To approve a 1:10 reverse stock split of its $0.01 par value common
stock issued and outstanding;
2. To ratify the adoption of the Company's 1998 Stock Option Plan;
3. To elect a Board of Directors consisting of five members to hold
office until the next annual meeting of shareholders and until their
successors shall be elected and shall qualify;
4. To ratify the change in the Company's legal name to 3Si Holdings,
Inc.;
5. To ratify the appointment of John M. Hanson & Company, P.C., as
independent auditors of the Company for the fiscal year ending
June 30, 1998; and,
6. To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
Shareholders of record at the close of business on April 9, 1998 will be
entitled to vote at the Meeting.
A proxy statement explaining the matters to be acted upon at the Annual
Meeting is enclosed.
SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
CANNOT ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE SO THAT YOUR SHARES MAY BE VOTED AT THE MEETING. YOUR VOTE IS
IMPORTANT.
By the Board of Directors,
F. Larry Valdez, Chairman
Englewood, Colorado
April 10, 1998
<PAGE>
TYREX OIL COMPANY
6886 S. YOSEMITE STREET
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 30, 1998
GENERAL
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Tyrex Oil Company (the "Company"), to be
used at the Annual Meeting of Shareholders (the "Meeting") to be held at the
offices of the Company, 6886 S. Yosemite Street, Englewood, Colorado, on
Thursday, April 30,1998 at 3 p.m. MST for the purposes set forth in the
accompanying Notice of Annual Meeting. This statement was sent to
shareholders of the Company on or about April 10, 1998.
SOLICITATION OF PROXIES
The shares covered by the enclosed Proxy, if such is properly executed and
received by the Board of Directors prior to the Meeting, will be voted in favor
of the proposals to be considered, and in favor of the election of five nominees
to the Board of Directors as listed in "Election of Directors" below, unless
such proxy specifies otherwise or the authority to vote in the election of
directors has been withheld. A proxy may be revoked at any time before it is
exercised by giving written notice to the Secretary of the Company at its above
address. Shareholders may vote their shares in person if they attend the
Meeting, even if they have executed and returned a proxy.
PURPOSE OF THE MEETING
The matters to be brought before the Meeting are the approval of the 1:10
reverse stock split of the Company's $0.01 par value common shares issued and
outstanding, approval of the Company's 1998 Stock Option Plan, the election of
directors to serve for the ensuing year, the ratification of the name change of
the Company from Tyrex Oil Company to 3Si Holdings, Inc. and the ratification of
John M. Hanson & Company, P.C. as the Company's auditors.
VOTING SECURITIES
Only shareholders of record at the close of business on April 9, 1998 will
be entitled to vote at the Meeting. On that date, there were issued and
outstanding 33,756,798 shares of Company's $0.01 par value common stock ("Common
Stock"), entitled to one vote per share. In the reverse stock split, 1998 stock
option plan and election of directors, cumulative voting is not permitted.
A majority of the outstanding Common Stock (the presence in person or by
proxy of at least 16,878,400 shares) will constitute a quorum for the
transaction of business at the meeting. The vote of a majority of such quorum
is needed to effect the reverse stock split, approve the stock option plan,
elect directors, ratify the name change and the Company's auditors.
As a result of the merger transaction between Tyrex Oil Company and 3Si,
Inc. in May 1997, the three 3Si shareholders (Frederick J. Slack, Frank W.
Backes, and F. Larry Valdez) hold and vote 83.4% of the Common Shares of the
Company. The 3Si shareholders intend to vote in favor of all the matters (1
through 5 in the Notice of Annual Meeting) to be brought before the Meeting.
2
<PAGE>
REVERSE STOCK SPLIT
The Board of Directors of the Company is proposing a 1:10 reverse stock
split. This reverse stock split will assist the Company in its capital raising
efforts as well as its intent to reapply for qualification on the NASDAQ stock
market. On January 20, 1998, the Company was informed that its appeals to not
be formally de-listed on the NASDAQ stock market were denied. As such, the
Company's stock is currently traded on the over the counter market ("pink
sheets"). Even with the approval and implementation of this reverse stock
split of the Company's Common Stock, there is no guarantee that the Company will
be able to qualify on the NASDAQ stock market.
The 1:10 reverse stock split of the Company's Common Stock will reduce the
number of shares issued and outstanding on a pro-rata basis and adjust the par
value of the stock to as follows:
<TABLE>
Currently Post-Split
--------- ----------
<S> <C> <C>
Par value $0.01 $0.10
Shares issued 39,762,424 3,976,242
Shares outstanding 33,756,798 3,375,680
Shares in treasury 6,050,626 605,063
Shares held by non-affiliates 5,158,565 515,857
</TABLE>
The Company intends to make the reverse stock split effective as of the
date of this meeting, April 30, 1998. The authorized shares of the Company's
common stock will remain 50,000,000 shares subsequent to the reverse stock
split.
RATIFICATION OF COMPANY'S 1998 STOCK OPTION PLAN
On January 21, 1998, the Board of Directors of the Company adopted,
subject to shareholder approval and ratification, the 3Si 1998 Option Plan
(the "1998 Plan"). The 1998 Plan is intended to advance the interests of the
Company and its shareholders by encouraging and enabling selected officers,
directors and key employees upon whose judgment, initiative and effort the
Company is largely dependent for the successful conduct of its business, to
acquire and retain proprietary interest in the Company by ownership of its
stock. The following summary of the material terms of the 1998 Plan is
qualified in its entirety by reference to the complete text of the 1998 Plan
which is attached as Exhibit 1 to this Proxy Statement.
Under the terms of the 1998 Plan, up to 500,000 shares (post-reverse split)
of the authorized but unissued shares of Common Stock of the Company may be
issued to directors, officers and employees of the Company. All classes of
employees are eligible to participate in the 1998 Plan.
Options are granted by the Board of Directors. The grantee is then notified
of the grant of the option, and if he/she accepts such grant, enters into a
written Stock Option Agreement.
The 1998 Plan shall terminate on March 20, 2008. No option may be exercised
more than ten (10) years after the date the option is granted.
The option price cannot be less than 100% of the fair market value of the
Stock at the time the option is granted. Options are not transferable other
than by will or descent, and may not be pledged or hypothecated.
Upon termination of an optionee's employment with the Company, his or her
option privileges shall be terminated unless the Board of Directors, in its sole
discretion, elects to continue the options. The granting of an option to an
eligible person does not alter in any way the Company's existing rights to
terminate such person's employment at any time for any reason, nor does it
confer upon such person any rights or privileges except as specifically provided
for in the 1998 Plan.
If an optionee dies while in the employ of the Company or any subsidiary, his
or her option privileges shall be limited to the shares which were immediately
purchasable by him/her at the date of death and such option
3
<PAGE>
privileges shall expire unless exercised by his/her successor within one hundred
eighty (180) days after the date of death.
The Board of Directors has the right to suspend or terminate the 1998 Plan at
any time, or to amend it from time to time, provided that no amendment may
increase the maximum number of shares for which options may be granted, change
the option price, change the provisions regarding the expiration date of the
options, or change the term of the 1998 Plan, without stockholder approval.
The Board of Directors recommends that shareholders vote FOR ratification of
the Company's 1998 Stock Option Plan.
ELECTION OF DIRECTORS
The Company has no nominating or similar committee of its Board of Directors;
therefore, it is the recommendation of the Board of Directors that the Board for
the coming year, and until successors have been duly elected and qualified,
shall consist of five members.
Unless the authority is withheld, it is intended that the shares represented
by your proxy will be voted for the election of the five nominees named below,
all of whom are presently members of the Board of Directors, subsequent to the
merger between Tyrex and 3Si. If any nominees should not serve for any reason,
or if a vacancy should occur before the election (which is not anticipated) your
proxy will be voted for any person who is designated by the Board of Directors
to replace such nominee. The Board of Directors has no reason to expect that
any nominee will be unable to serve. There is no arrangement between any of the
nominees and any other person pursuant to which he was or is to be elected as a
director or nominee, nor is there any family relationship between or among any
nominees or the executive officers of the Company.
The following sets forth information as of the record date for the Meeting
concerning each nominee, including such person's ownership of Common Stock, (the
Company's only class of voting securities) on an individual basis and ownership
by all nominees of the Company as a group:
<TABLE>
Period of Service Shares
Position with as Director or beneficially
Name and Age The Company Officer owned (1) Percent
- ------------ ----------- ------- --------- -------
<S> <C> <C> <C> <C>
Frederick J. Slack President, CEO, and 5/28/97 938,778 27.8%
Age: 43 a Director to present (3Si)
Frank W. Backes Vice President and 5/28/97 938,778 27.8%
Age: 37 a Director to present (3Si)
Felipe L. Valdez Chairman of the Board, 5/28/97 938,778 27.8%
Age: 45 COO and Treasurer to present (3Si)
Tom N. Richardson A Director 7/10/86 18,872 < 1.0%
Age: 48 to present (Tyrex)
Doris K. Backus Secretary and 12/5/91 5,357 < 1.0%
Age: 44 a Director to present (Tyrex)
All Directors as a Group 2,840,563 84.1%
</TABLE>
- ---------------
(1) Post-reverse split shares. Beneficial ownership results in each case from
the possession of sole or shared voting and investment power with respect
to the shares.
FREDERICK J. SLACK has served as Chief Executive Officer and a Director of 3Si
since August 1993. Mr. Slack received his B.A. degree in Education in 1977 from
the University of Northern Colorado. Mr. Slack began his business career as a
Methods and Procedures Analyst for National Farmers Union Insurance in Denver,
where he was first introduced to mainframe computer environments. Mr. Slack
then went to work as the Western Territory Sales Manager for Travenol Labs
selling hospital/medical information systems involving IBM
4
<PAGE>
equipment. In 1986, Mr. Slack became a sales/project manager for Digital
Equipment Corporation. Initially, Mr. Slack served as one of the project
managers within the LSST (Large Systems Selling Team) which focused on large
complex, $1,000,000 solutions to larger customers. LSST selling required
multi-computer system disciplines including hardware, software, consulting,
training and implementation. Mr. Slack then moved his sales expertise and
success, into the Government Sales Division for Digital. Over the next 5
years, Mr. Slack served as project manager for similarly large, sophisticated
government customers with mission critical, classified systems needs. Mr.
Slack's responsibilities included writing "white papers", preparing and
presenting bids and proposals, negotiating contracts, and implementation of
contracts once awarded. Mr. Slack, throughout his career, has been involved
in preparing personal, division and corporate budgets and implementation of
those budgets at all levels.
FRANK W. BACKES has served as Director of Technology and a Director of 3Si
since August 1993. Mr. Backes received his B.S.E.E.degree in Semiconductor
Physics in 1984. Mr. Backes started his career working for Science
Applications International Corporation designing Command and Control systems
for the Department of Defense. Mr. Backes' accomplishments in the field of
Command and Control systems include: research and successful development of
client-server based systems in 1987; dynamic user interface designs in 1988
using Ada and PHIGS; implementing 3-D graphics for display of command center
information in 1989; training and working in combat position as an orbital
analyst in the Space Surveillance Center at NORAD; and, designing and
implementing several command centers pushing the development of state of the
art high availability techniques. In 1989, Mr. Backes went to work for
Digital Equipment Corporation as a computer industry analyst. In addition to
his work in the computer industry Mr. Backes has utilized his skills in
working with and teaching students from elementary schools to high schools.
One project was coordination, management and teaching students to interact,
over the Internet, with the Mars Land Rover developed by Jet Propulsion Lab
for NASA. This project was the first time that anyone outside of NASA was
given the opportunity to send commands over the Internet to the Mars rover.
Other projects include coaching Odyssey of the Mind teams and working as a
tutor for students in math and science.
FELIPE LARRY VALDEZ has served as Chief Operating Officer and a Director of
3Si since August 1993. Mr. Valdez began his career working in
telecommunications electronic manufacturing operations in Logistics,
Production and Inventory planning in 1971. Mr. Valdez moved from
telecommunications manufacturing to computer manufacturing when he joined
Digital Equipment Corporation in 1977 in its Albuquerque Operations as an
Inventory Control Planner. Shortly after that, Mr. Valdez relocated to
Digital's Colorado Springs operations where he was responsible for New
Product introduction on a variety of leading technology storage products.
Mr. Valdez was promoted into Digital's Customer Support Center where he led
technical support teams in providing remote support to a variety of customers
on a national level. Mr. Valdez joined Digital's Software Support
organization where he led technical and business consultants in providing
pre- and post-sales support to Digital's Sales Representatives in major
Federal Government and Commercial Accounts. Mr. Valdez' teams were
successful at winning and deploying numerous programs for Digital Equipment
where both he, individually, and his teams, collectively, were recognized
numerous times for their accomplishments. Mr. Valdez obtained Bachelor and
Masters Degrees in Business Administration while employed full-time. In 1997,
Mr. Valdez was selected by the University of Phoenix as a faculty member in
its Organization Behavior studies program where he teaches Organization
Communications courses.
TOM N. RICHARDSON graduated from the University of Wyoming in 1972 with a B.S.
degree in Business Administration. From 1976 to 1980, he worked as a Landman
and Contracts Supervisor for Gulf Oil Corporation in Casper, Wyoming. In 1980,
he joined the Company as Manager of Land. He was elected President and Chief
Financial Officer of the Company in March 1994. He is a Certified Professional
Landman, a member of the Wyoming Association of Professional Landmen and a
member of the American Association of Professional
5
<PAGE>
Landmen. Mr. Richardson has been a member of the Board of Directors of Tyrex
since July 10, 1986. On December 31, 1997, subsequent to the completion of the
Company's self-tender offer, Mr. Richardson tendered his resignation as an
officer of the Company but remains as a member of the Board of Directors. He is
currently an independent oil producer.
DORIS K. BACKUS graduated from the National College of Business in 1974 with
an Associate's Degree as a legal secretary. She has over 20 years experience
in various areas of the oil and gas business and has been employed by the
Company since 1983. Ms. Backus has been a member of the Board of Directors of
Tyrex since December 5, 1991. Ms. Backus is currently the Secretary of the
Company and remains as a member of the Board of Directors. She currently
owns and operates her own candy distribution company, Sweets & Treats.
No family relationship exists between or among any of the nominees and
executive officers of the Company. Except as disclosed above, none of the
nominees are directors of any other company having a class of equity securities
registered under or required to file periodic reports pursuant to the Securities
Exchange Act of 1934, as amended, or any company registered as an investment
company under the Investment Company Act of 1940, as amended.
EXECUTIVE COMPENSATION
COMPENSATION
The following table presents the aggregate compensation which was earned by
the Executive Officers for the fiscal years ended June 30, 1997, 1996 and 1995
for Tyrex and the six months ended June 30, 1997 and the calendar years 1996,
1995 and 1994 for 3Si:
<TABLE>
Long-term compensation
Annual compensation ---------------------------------
------------------------------------- Awards Payouts
Other ---------------------- ------- All
annual Restricted other
Name and compen- Stock Options/ LTIP compen-
principal position Year Salary ($) Bonus sation (1) Awards SARs payouts sation(1)(2)
------------------ ---- ---------- ----- ---------- ------ ---- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TYREX OIL COMPANY:
Tom N. Richardson 1997 $52,500 - - - - - -
President, CFO 1996 52,500 - - $7,813 - - -
1995 52,500 - - - - - -
3SI:
Frederick J. Slack 1997 $37,500 - - - - - $13,279
Chief Executive 1996 68,000 - - - - - 31,871
Officer 1995 68,000 - - - - - 71,518
1994 68,000 - - - - - 45,775
Frank W. Backes 1997 $37,500 - - - - - $13,279
Vice-President 1996 68,000 - - - - - 31,871
1995 68,000 - - - - - 71,518
1994 68,000 - - - - - 45,775
Felipe L. Valdez 1997 $37,500 - - - - - $13,279
Chief Operating 1996 68,000 - - - - - 31,871
Officer 1995 68,000 - - - - - 71,518
1994 68,000 - - - - - 45,775
</TABLE>
(1) Perquisites and other personal benefits or property did not, in
aggregate, exceed $50,000 or 10% of the total compensation.
(2) 3Si was a subchapter S corporation prior to its acquisition by Tyrex.
Amounts indicated are distributions to the three officers of 3Si named
above, made to them in their capacities as shareholders.
There were no aggregated options or SAR exercises during the fiscal year
ended June 30, 1997 and no unexercised options as of April 9, 1998.
6
<PAGE>
CERTAIN TRANSACTIONS
In connection with the sale of Tyrex's producing oil and gas properties on
May 30, 1997, 10% of the purchase price was paid by, and a 10% interest in the
properties was assigned to, Tom N. Richardson. Mr. Richardson paid the same
price for his interest as did the non-affiliated purchasers of the remaining 90%
interest.
Other than as set forth herein, no officer, director or principal shareholder
of Tyrex or 3Si has or proposes to have any direct or indirect material interest
by security holdings, contracts or otherwise in the Company or in any assets
proposed to be acquired by the Company or in any purchase, the value of which
will be affected by the operations of the Company.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors held 6 meetings during the fiscal year ended June 30,
1997. All directors were present for all but two of the meetings when 4 of the
Directors were present. In addition, the Board acted by unanimous written
consent on 2 occasions. The Company's officers have made a practice of keeping
its directors informed of corporate activities by personal meetings and
telephone discussions.
At the present time the Company has no nominating, executive or similar
committees. The Company has an audit committee currently consisting of Messrs.
Slack and Valdez and Ms. Backus and a compensation committee currently
consisting of Messrs. Richardson, Slack and Backes.
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company during the fiscal year ended June 30, 1997, and for
the subsequent quarters ended September 30, 1997, December 31, 1997 and March
31, 1998, the Company is unaware of any officer, director or beneficial
owners of more than 10% of the Company's Common Stock who failed to file
reports required by Section 16 of the Securities Exchange Act of 1934.
PROPOSAL TO RATIFY THE CHANGE OF NAME OF THE COMPANY
The Board of Directors of the Company is proposing to change the name of
the Company from Tyrex Oil Company to 3Si Holdings, Inc. The change in the
name of the Company will help indicate the change in the nature of the
business the Company is now engaged in as well as align the holding company's
name with that of its significant operating subsidiary, 3Si, Inc. The
Company also intends to change its trading symbol for its common stock
currently traded on the over-the-counter market from "TYRX" to "3SIH".
PROPOSAL TO RATIFY THE SELECTION OF JOHN M. HANSON & COMPANY, P.C.
On July 21, 1997, the Board of Directors of the Company determined that it
would: (a) engage the firm of John M. Hanson & Company, P.C. as the Company's
independent auditors; and, (b) not continue to use the services of Hocker,
Lovelett, Hargens & Skogen, P.C. The change was reported on Form 8-K dated
July 21, 1997 to which reference is made for further information. John M.
Hanson & Company, P.C. has no relationship with the Company except in its
capacity as the Company's auditors.
The audit reports of Hocker, Lovelett, Hargens & Skogen, P.C. on the
financial statements of Tyrex as of May 28, 1997 and for each of the years in
the two year period prior to the 11 month period then ended, did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles. In connection with the
audits of the 11 months and two fiscal years ended May 28, 1997, and the
subsequent interim period through July 21, 1997, there were no disagreements
with Hocker, Lovelett, Hargens & Skogen, P.C. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Hocker,
Lovelett, Hargens & Skogen, P.C., would have caused Hocker, Lovelett, Hargens &
Skogen, P.C. to make a reference to the subject matter of the disagreements in
connection with its audit reports.
Although ratification of the appointment of John M. Hanson & Company, P.C. as
the Company's
7
<PAGE>
independent auditors is not required by Wyoming corporate law or by the
Company's Articles of Incorporation or Bylaws, the Board of Directors and the
Audit Committee recommends this selection be ratified and approved by the
shareholders. If shareholder approval is not received, the Board of Directors
will reconsider the appointment of its auditors.
It is expected that a representative of John M. Hanson & Company, P.C. will
be present at the Meeting and will be given an opportunity to make a statement
if he/she desires to do so. It is also expected that the representative will be
available to respond to appropriate questions from shareholders.
OTHER MATTERS
The Board of Directors is aware of no other matters to be brought before the
Meeting which requires a shareholder vote; if other matters properly come before
the Meeting, it is the intention of the persons named in the solicited proxy to
vote such proxy in accordance with their judgment.
No compensation will be paid to any person in connection with solicitation of
proxies. Brokers, banks, and other entities will be reimbursed out-of-pocket
and reasonable clerical expenses incurred in obtaining instructions from
beneficial owners of the Common Stock. Special solicitation of proxies may in
certain instances be made personally or by telephone by officers and employees
of the Company and by employees of certain banking and brokerage houses. All
expenses, estimated to be normal in connection with this solicitation, will be
borne by the Company.
ANNUAL REPORT AND FINANCIAL STATEMENTS
You are referred to the Company's Form 10-K filed with the Securities and
Exchange Commission October 10, 1997, including financial statements filed
therein for the fiscal year ended June 30, 1997. Attached for your information
is recent information regarding the Company's financial results subsequent to
June 30, 1997. The Form 10-K and other financial information is not
incorporated in this proxy statement and is not to be considered part of the
soliciting material. Copies of the Company's Annual Report for the fiscal year
ended June 30, 1997, as filed with the Securities and Exchange Commission on
Form 10-K, including financial statements and schedules thereto may be obtained
by written request from Frederick J. Slack, 3Si, Inc., 6886 S. Yosemite Street,
Englewood, Colorado 80112.
DEADLINE OF RECEIPT OF SHAREHOLDER PROPOSALS FOR
ANNUAL MEETING SCHEDULED TO BE HELD DECEMBER 1998
Any proposal by a shareholder to be presented at the Company's next Annual
Meeting of Shareholders scheduled to be held in December, 1998 must be received
at the Company's offices, 6886 S. Yosemite Street, Englewood, Colorado 80112, no
later than July 7, 1998. Such proposals may be included in next year's Proxy
Statement if they comply with certain rules and regulations promulgated by the
SEC.
By Order of the Board of Directors
/s/ Doris K. Backus
---------------------------------------
Doris K. Backus, Corporate Secretary
8
<PAGE>
TYREX OIL COMPANY
(and its current subsidiary, 3Si, Inc.)
April 9, 1998
Dear Tyrex/3Si Shareholders:
We are pleased to forward to you the Proxy Statement for the Annual Meeting
to be held April 30, 1998 at the 3Si offices in Englewood, Colorado and some
selected current financial information.
On May 28, 1997, Tyrex Oil Company (Tyrex) merged with 3Si, Inc. (3Si)
3Si is a wholly owned subsidiary of Tyrex although for financial statement
purposes the merger has been accounted for as a purchase of Tyrex by 3Si.
As such, the information attached is predominantly that of 3Si both past and
present versus Tyrex. On May 30, 1997, Tyrex sold all of its oil and gas
properties. The operations of Tyrex subsequent to the merger include only
a limited amount of operating expenses and interest income.
3Si (Solution, System and Service Integration) has provided comprehensive
computer information systems solutions for over 18 years to clients throughout
the continent. Founded in 1979, as Kimbrough Computer Sales, Inc., 3Si offers a
wide array of systems integration services, including Internet and network
security services, software development, business needs assessments, hardware
sales, maintenance and support, and technical consulting, training and
education. Based on the increasing growth and future of 3Si products, the
Board of Directors has recommended that the corporate name be changed from
Tyrex Oil Company to 3Si Holdings, Inc.
3Si is headquartered in Englewood, Colorado and has sales offices in Colorado
Springs, Colorado; Albuquerque, New Mexico; St. Louis, Missouri; and, Raleigh,
North Carolina. The Raleigh office directly supports 3Si's technical consulting
sub-contract with the U.S. Postal Service while the Albuquerque office directly
supports 3Si's Equipment and Services Schedule Contract (ESS Contract) with the
State of New Mexico. As of December 31, 1997, 3Si had 136 employees.
3Si is currently in the process of developing certain proprietary products,
including technical feasibility, marketability and economic feasibility relative
to products applicable to the Internet Security and Help Desk markets. We
continue to explore ways to increase the value of our efforts for our
shareholders in areas of efficiency, productivity and proprietary opportunities.
We at 3Si are certainly excited about our activities and we look forward to
serving you, our shareholders, into the future.
Sincerely,
Tyrex Oil Company
/S/ FREDERICK J. SLACK
FREDERICK J. SLACK, CEO
F-1
<PAGE>
TYREX OIL COMPANY
Selected Financial Information
Quarter and Six Months Ended December 31, 1997 and 1996
(Unaudited)
This information is excerpted from the Company's Form 10-Q filed with the SEC
on February 13, 1998. The accounting policies followed by the Company are those
set forth in Note 1 to the Company's financial statements in the Company's
report on Form 10-K and readers are advised to consider this information in
conjunction with the Company's financial statements and footnotes thereto in its
Forms 10-K and 10-Q's previously filed with the SEC. Operating results for the
quarter and six months ended December 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1998.
<TABLE>
Quarter Ended Six Months Ended
Operating Statement Information: December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $7,866,614 5,917,634 $15,168,256 10,286,052
Net earnings (loss) $51,859 (197,079) $97,007 (213,675)
Earnings (loss) per common share $0.00 (656.93) $0.00 (712.25)
Weighted average shares outstanding(1) 38,605,153 300 38,949,289 300
Balance Sheet Information: December 31, 1997 June 30, 1997
(Audited)
Total Current Assets $7,264,572 6,258,151
Total Property and Equipment, Net 383,813 362,742
Total Other Assets 631,595 642,930
Total Assets $8,279,980 7,263,823
Total Current Liabilities $7,219,827 4,490,749
Total Long-Term Debt 48,558 64,502
Total Stockholders' Equity 1,011,595 2,708,572
Total Liabilities and Stockholders' Equity $8,279,980 7,263,823
</TABLE>
Fred Slack, CEO of 3Si said, "We feel the substantial increase in sales (32.9%)
and profitability for the quarter and year-to-date are a result of our
completing the merger with Tyrex, paying off the royalty ($625,000) to 3Si's
former stockholders, and refinancing our bank debt with a $5 million revolving
line of credit facility. This afforded us the ability to successfully increase
our sales for the quarter and year-to-date. More importantly, CALENDAR year
sales grew from $19 million in 1996 to over $25 million in 1997."
Tyrex President Tom N. Richardson said, "Tyrex is pleased with the second
quarter and year-to-date results as well as its completion of its self-tender
offer on December 23, 1997 (whereby it paid $1,851,366 to acquire 6,005,626
shares into its treasury). Tyrex continues to be excited about the potential
this merger creates to enhance shareholder values."
(1) Earnings per share for the quarter and six months ended December 31, 1997
is computed on the basis of the weighted average number of Tyrex common
stock shares and includes shares issued as part of the Tyrex/3Si merger
(i.e. subsequent to the merger). Shares outstanding for the quarter and
six months ended December 31, 1996 are calculated using the 300 shares of
3Si ONLY outstanding at that time (prior to the merger).
F-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
With the merger of Tyrex and 3Si, the Company believes it has the financial
resources to meet the Company's financial needs for its operations during the
next fiscal year. As of December 31, 1997, the Company had working capital of
approximately $45,000, which is subsequent to the completion of the self-tender
offer discussed below.
Management expects to meet long-term liquidity requirements through cash flows
generated by operations supplemented from time to time by short-term borrowings
on the revolving line of credit (discussed below).
On October 27, 1997, the Company commenced its self-tender offer for up to
6,000,000 shares of its common stock (exclusive of shares issued in the 3Si
merger) at a price of $0.30 per share. The offer was made pursuant to a
Statement filed under Section 13e of the Securities Exchange Act of 1934 and
Rule 13e-4 adopted thereunder. The self-tender was completed December 23,
1997. The Company, pursuant to the terms of the self-tender, paid $1,851,366
to acquire 6,005,626 shares (including fractional shares) into its treasury
including offering costs of $49,678. Subsequent to completion of the
self-tender, the Company has 33,756,798 shares outstanding and 6,050,626
shares in treasury of the 50,000,000 shares authorized of its $.01 par value
common stock.
On September 30, 1997, the Company replaced its note payable with a bank with
a revolving line of credit facility with another financial institution. The
new revolving line of credit is at the prime rate of interest and permits the
Company to borrow up to $5 million collateralized by accounts receivable and
inventory computed under the terms of the agreement. The line is secured by
substantially all of the assets of the Company. The line does require the
Company to maintain certain financial ratios and limits the Company's ability
to pay dividends. At December 31, 1997, due primarily to the completion of
the self-tender offer, the Company is not in compliance with certain of its
financial ratio covenants and is working with the lender to establish new
covenants.
RESULTS OF OPERATIONS
QUARTER ENDED DECEMBER 31, 1997 COMPARED TO QUARTER ENDED DECEMBER 31, 1996
OVERVIEW
The Company realized net earnings from operations of $51,859 during the quarter
ended December 31, 1997. The net earnings is created by 3Si's success in
generating sales of approximately $7.9 million for the quarter, primarily in
product sales as discussed further below. The Company also continues to invest
in the Internet security business it commenced in July, 1996. Included in
earnings from operations for the quarter is a loss by 3Si's Internet security
business of approximately $129,000. This loss is attributable to the startup
nature of the business whereby revenues generated by the Internet security
division have not yet covered expenses.
COMPARATIVE ANALYSIS
Sales were approximately $7,867,000 during the quarter ended December 31, 1997.
Total sales were up from the same period in the previous year by approximately
$1,949,000 or 32.9%. This change is primarily the result of the Company's
success in increasing product sales during the quarter and the United States
Postal Service ("USPS") sub-contract. Product sales increased approximately
$986,000, or 21.7% as sales to government agencies continued to increase from
the same quarter last year. The USPS sub-contract sales for the second fiscal
quarter of FY1998 and FY1997 were approximately $1,346,000 and $744,000,
respectively, as employees on the contract increased from 43 in December 1996 to
80 in December 1997.
The Company's gross margin increased between quarters changing from 24.6% of
sales in FY1997 to 30.5% in FY1998 due to the USPS sub-contract creating
higher, consulting based margins (i.e. the compensation related to the delivery
of the consulting sales is included in selling and administrative expenses
versus cost of goods sold) offsetting lower product sales margins. Product
sales margins continued to decline due to the effect of increased competition
from 10.4% in the second quarter of FY1997 to 8.6% in the same quarter of
FY1998. The Company also experienced a favorable impact on its gross
F-3
<PAGE>
margins due to the elimination of the royalty payment to 3Si's former
stockholders. As part of the merger with Tyrex, Tyrex paid $625,000 to
satisfy the License and Royalty agreement with 3Si's former stockholders.
This payment has been capitalized as an intangible asset and is being
amortized using the straight-line method over 20 years.
Selling and administrative expenses increased approximately $788,000, or
51.1% due primarily to the addition of the labor costs associated with the
USPS sub-contract. During the second quarter of FY1998, the Company
incurred additional labor costs of approximately $510,000 relative to the
USPS sub-contract; additional labor costs of approximately $154,000 relating
to increased commissions paid during the quarter on increased gross margin
derived; approximately $35,000 of Tyrex operating expenses which ceased
December 31, 1997; and, the remainder relates to various other expenses
including labor costs relating to the increase in personnel in general.
FISCAL SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1996
The same dynamics which effected the quarter (and discussed above), impact
the fiscal year-to-date results.
The Company realized net earnings from operations of $97,007 for the six
months ended December 31, 1997 due to the Company's increased sales to
approximately $15,168,000 compared to $10,286,000 for the same period last
year. The increase is due to increases in hardware sales (approximately
$3,105,000, or 40.1%) and increases in the USPS sub-contract revenues
(approximately $1,210,000, or 87.1%).
The Company's gross margin increased between periods changing from 27.2% of
sales in FY1997 to 30.4% in FY1998 due to the USPS sub-contract creating
higher, consulting based margins offsetting lower product sales margins.
Product sales margins declined from 11.4% for the first six months of FY1997
to 9.2% for the first six months of FY1998. The Company also experienced a
favorable impact on its gross margins due to the elimination of the royalty
payment to 3Si's former stockholders.
Selling and administrative expenses increased approximately $1,639,000, or
56.8% due primarily to the addition of the labor costs associated with the
USPS sub-contract. During the first six months of FY1998, the Company
incurred additional labor costs of approximately $987,000 relative to the
USPS sub-contract. Additional selling and administrative expenses include:
labor costs of approximately $415,000 relating to increased commissions paid
during the quarter on increased gross margin derived; approximately $70,000
of Tyrex operating expenses which ceased December 31, 1997; and, the
remainder relates to various other expenses including labor costs relating to
the increase in personnel in general.
Interest expense decreased approximately $82,000 and $81,000 during the
quarter and six months ended December 31, 1997, respectively, compared to the
prior periods due to the Company's replacement of its note payable with a
bank which was at prime plus 2.5% with a revolving line of credit facility
with another financial institution at the prime rate of interest.
At December 31, 1997, the Company had 136 employees, including 80 servicing
the USPS sub-contract in Raleigh, NC and 2 in Wyoming versus having had 102
in total at December 31, 1996 including 43 servicing the USPS sub-contract.
F-4
