SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF EARLIEST REPORTED EVENT - SEPTEMBER 22, 1999
(THIS CURRENT REPORT AMENDS SEC FORM 8-K FILED OCTOBER 7, 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)
c/o Michael L. Glaser, Secretary
633 Seventeenth Street, Suite 2700
Denver, Colorado 80202
---------------------------------------------------
(Address of Registrant's principal executive offices)
(303) 292-1200
--------------------------------------------------
(Registrant's telephone number, including area code)
(303) 292-1300
--------------------------------------------------
(Registrant's facsimile number, including area code)
<PAGE>
ITEM 4. CHANGES IN THE REGISTRANT'S CERTIFYING ACCOUNTANT.
BDO Dunwoody, LLP ("BDO Dunwoody") whose address is 200 Bay Street, Toronto,
Ontario, Canada M5J 2J8, audited the financial statements for the year ended
12/31/98 for Registrant's subsidiary, Telemetrix Resource Group, Inc., a
Colorado corporation, (now known as Telemetrix Solutions Inc.).
BDO Dunwoody also audited the financial statements for the year ended 12/31/98
for Telemetrix Resource Group Ltd., a Nova Scotia, (Canada) corporation, another
subsidiary of Registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Registrant files the following financial statements for the transaction
described in Item 2 of Registrant's current report on SEC Form 8-K filed October
7, 1999:
(a) Financial statements of businesses acquired.
(i) Financial Statements for the year ended December 31, 1998 for
Registrant's subsidiary, Telemetrix Resource Group, Inc., a Colorado
corporation (now known as Telemetrix Solutions Inc.).
(ii) Financial Statements for the years ended December 31, 1998 and 1997
for Registrant's subsidiary, Telemetrix Resource Group Ltd., a Nova
Scotia, (Canada) corporation.
(iii)Financial Statements for the years ended December 31, 1998 and 1997
for Registrant's subsidiary, Tracy Corporation II, a Nebraska
corporation doing business as Western Total Communications.
(b) Pro forma financial information.
(i) Registrant's Unaudited Pro-Forma Condensed Combining Financial
Statements as at December 31, 1998.
Registrant's SEC Form 10-QSB filed November 19, 1999 reports the results of
operations since the reorganization described in Registrant's Current Reports on
SEC Form 8-K filed April 14, 1999 and October 7, 1999.
(c) Exhibits.
(99.1) List of Registrant's Subsidiaries
2
<PAGE>
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 November 22, 1999
By: /s/ Michael L. Glaser
---------------------------------------------
Michael L. Glaser, Secretary
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TELEMETRIX INC. PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
Introduction.......................................................... F-2
Pro Forma Condensed Combining Balance Sheets.......................... F-3
Pro Forma Condensed Combining Statement of Operations................. F-4
Notes to Pro Forma Condensed Combining Balance Sheets................. F-5
TRACY CORPORATION II D/B/A WESTERN TOTAL COMMUNICATIONS
Independent Auditor's Report.......................................... F-8
Balance Sheets........................................................ F-9
Statements of Income and Changes in Retained Earnings.................F-11
Statements of Cash Flows..............................................F-12
Notes to Financial Statements.........................................F-13
TELEMETRIX RESOURCE GROUP, INC.
Independent Auditor's Report..........................................F-22
Comments by Auditors for U.S. Readers on Canada-U.S.
Reporting Difference.............................................F-23
Balance Sheets........................................................F-24
Statements of Operations..............................................F-25
Statement of Shareholders Equity......................................F-26
Statements of Cash Flows..............................................F-27
Statement of Significant Accounting Policies .........................F-28
Notes to Financial Statements.........................................F-29
TELEMETRIX RESOURCE GROUP LIMITED
Independent Auditor's Report..........................................F-36
Comments by Auditors for U.S. Readers on Canada-U.S
Reporting Difference.............................................F-37
Balance Sheets........................................................F-38
Statements of Operations and Deficit..................................F-39
Statements of Cash Flows..............................................F-40
Statement of Significant Accounting Policies .........................F-41
Notes to Financial Statements.........................................F-42
F-1
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
The following pro forma condensed combining statements of operations are set
forth herein to give effect to the following acquisitions as if such
acquisitions had occurred as of the beginning of each period presented:
o in January 1999, the acquisition of 100% of the shares of Telemetrix
Resources Group Inc. ("TRG"), acquired Telemetrix Resource Group
Limited, a Nova Scotia corporation from TRG's parent, Hartford
Holdings Ltd. pursuant to a share exchange and plan of reorganization.
o on March 22, 1999, Arnox Corporation (an in active public corporation,
TRG and Tracy Corporation II d/b/a Western Total Communication ("WTC")
executed a Plan of Reorganization for a "reverse takeover combination
("Combination").
o in April 1999 Arnox acquired all the outstanding TRG common shares in
exchange for 6,127,200 Arnox common shares (approximately 48%). The
Company accounted for this transaction as a reverse take-over with TRG
as the acquirer, since TRG's former shareholder acquired 81.5% of
Arnox's shares in this transaction.
o in September 1999 the Company issued 5,372,800 shares of common stock
to WTC in exchange for all outstanding WTC stock. Through this
Combination, the stockholders of WTC and TRG ("Principle
Stockholders") acquired a total of 11,500,000 Arnox shares
(approximately 90%) and therefor acquired control of Arnox.
After the Combination, the companies changed their names to reflect their
complementary businesses:
- Arnox become Telemetrix Inc.
- TRG became Telemetrix Solutions Inc.
The Company offers wireless telemetry and communications technology to
telecommunications carriers and other businesses.
The pro forma condensed combining statements of operations combines the
statements of operations of the Company, WTC, and Telemetrix Resource Group Ltd
(TRG Canada) for the year ended December 31, 1998.
The pro forma condensed combining balance sheet data gives effect to the
acquisitions described above as if such acquisitions had occurred on December
31, 1998. The pro forma combined consolidated financial information does not
reflect any potential cost savings, which may be obtained following the
acquisition. The pro forma adjustments and assumptions are based on estimates,
evaluations and other data currently available. The pro forma condensed
combining statements of operations is provided for illustrative purposes only
and is not necessarily indicative of the combined results of operations that
would have been reported had the acquisition occurred on January 1, 1998, nor
does it represent a forecast of the combined future results of operations for
any future period.
All information contained herein should be read in conjunction with the
individual financial statements and the notes thereto of the Company and its
subsidiaries contained in this Form 8-K and the notes to the Unaudited Pro Forma
Condensed Combining Financial Information.
F-2
<PAGE>
<TABLE>
<CAPTION>
Telemetrix Inc.
Unaudited Pro - Forma Condensed Combining Financial Statements
As at December 31, 1998
Telemetrix Inc.
Pro - Forma Condensed Combining Balance Sheet
As at December 31, 1998
(in thousands)
(unaudited)
Assets Telemetrix Telemetrix Telemetrix Wesstern Pro - Forma
Inc. Solutions Resources Total Pro - Forma Combined
Inc Group Ltd Communications Adjustments Dec 31/98
---------- ---------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current
Cash .................................. -- -- 112 161 -- 273
Accounts receivable ................... -- -- 265 75 -- 340
Prepaid Expenses ...................... -- -- 11 -- -- 11
Due from related companies ............ -- 1 116 -- -- 117
------- ------- ------- ------- ------- -------
-- 1 504 236 -- 741
------- ------- ------- ------- ------- -------
Property, plant & equip, net ............ -- 19,444 756 138 -- 20,338
FCC Licences ............................ -- -- -- 755 -- 755
Patents ................................. -- -- -- 52 -- 52
Construction in progress ................ -- -- -- 1,180 -- 1,180
Organizatonal costs ..................... -- -- -- 87 -- 87
In Process R&D .......................... -- 4(2) --
Goodwill & Other Intangibles ............ -- -- -- -- 7,329 4[2] 7,329
------- ------- ------- ------- ------- -------
-- 19,444 756 2,212 7,329 29,741
------- ------- ------- ------- ------- -------
Total Assets ............................ -- 19,445 1,260 2,448 7,329 30,482
======= ======= ======= ======= ======= =======
Liabilities &
Shareholders'Deficiency
Current
Accounts payable & Accrued .............. -- 5 580 407 992
Current portion of Long term ............ -- -- -- 1,080 1,080
------- ------- ------- ------- ------- -------
-- 5 580 1,487 -- 2,072
------- ------- ------- ------- ------- -------
Obligations under capital lease ......... -- -- 51 -- 51
Leasehold inducements ................... -- -- 144 -- 144
Notes payable ........................... -- -- -- 1,720 (500)4(2) 1,220
Due to related companies ................ -- 93 2,169 -- 2,262
------- ------- ------- ------- ------- -------
-- 93 2,364 1,720 (500) 3,677
------- ------- ------- ------- ------- -------
-- 98 2,944 3,207 (500) 5,749
------- ------- ------- ------- ------- -------
Shareholders'Deficiency
Shares
Share Capital ......................... -- 25,000 1 7 (24,995)4(3) 13
Contrib Surplus ....................... 32 -- -- 148 43,807 4(2)(3) 43,987
Deficit ............................... (32) (5,653) (1,685) (914) (10,983) (19,267)
------- ------- ------- ------- ------- -------
-- 19,347 (1,684) (759) 7,829 24,733
------- ------- ------- ------- ------- -------
Total Liabilities & S/her's Def ......... -- 19,445 1,260 2,448 7,329 30,482
======= ======= ======= ======= ======= =======
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Telemetrix Inc.
Pro - Forma Condensed Combining Statement of Operations
For the Year Ended December 31, 1998
(in thousands)
(unaudited)
Telemetrix Telemetrix Telemetrix Wesstern Pro - Forma
Inc. Solutions Resources Total Pro - Forma Combined
Inc Group Ltd Communications Adjustments Dec 31/98
---------- ---------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Equipment sales & rental ................ -- -- -- 72 72
Service income .......................... -- -- -- 278 278
Royalty income .......................... -- 1 -- -- 1
Fees .................................... -- -- 427 -- 427
------- ------- ------- ------- ------- -------
-- 1 427 350 -- 778
------- ------- ------- ------- ------- -------
Expenses
Amortization ............................ -- 5,556 79 141 1,832 4(2) 7,608
Customer support ........................ -- -- 53 -- 53
Development ............................. -- -- 356 91 447
General & administrative ................ 10 98 519 523 1,150
Operations & implementation ............. -- -- 356 -- 356
------- ------- ------- ------- ------- -------
Sales & marketing ....................... -- -- 244 -- 244
------- ------- ------- ------- ------- -------
Total operating expenses ............... 10 5,654 1,607 755 1,832 9,858
------- ------- ------- ------- ------- -------
Other
Interest expense (income) .............. -- -- 142 108 250
Interest on capital leases ............. -- -- 3 -- 3
Bad debts (recoveries) ................. -- -- -- 14 14
Lease expense( income) .................. -- -- -- (36) (36)
Other expense( income) .................. -- -- (80) 6 (74)
Non recurring organization costs ........ 5,535 4(1) 5,535
Non recurring in process R&D ............ 4,530 4(2) 4,530
------- ------- ------- ------- ------- -------
Total other .......................... -- -- 65 92 10,065 10,222
------- ------- ------- ------- ------- -------
Net loss .................................. (10) (5,653) (1,245) (497) (11,897) (19,302)
Opening Deficit ........................... (22) -- (440) (417) 914 4(2) 35
------- ------- ------- ------- ------- -------
(32) (5,653) (1,685) (914) (10,983) (19,267)
======= ======= ======= ======= ======= =======
</TABLE>
F-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION
1. Description of Business
Telemetrix Inc. (the "Company") was recently formed through a series of
corporate combinations.
o On January 5, 1999, the acquisition of 100% of the shares of
Telemetrix Resources Group Inc. ("TRG"), acquired Telemetrix Resource
Group Limited, a Nova Scotia corporation from TRG's parent, Hartford
Holdings Ltd. pursuant to a share exchange and plan of reorganization.
o On March 22, 1999, Arnox Corporation (an in active public corporation,
TRG and Tracy Corporation II d/b/a Western Total Communication ("WTC")
executed a Plan of Reorganization for a "reverse takeover combination
("Combination").
o On April 5, 1999 Arnox acquired all the outstanding TRG common shares
in exchange for 6,127,200 Arnox common shares (approximately 48%). The
Company accounted for this transaction as a reverse take-over with TRG
as the acquirer, since TRG's former shareholder acquired 81.5% of
Arnox's shares in this transaction.
o On September 22, 1999 the Company issued 5,372,800 shares of common
stock to WTC in exchange for all outstanding WTC stock. Through this
Combination, the stockholders of WTC and TRG ("Principle
Stockholders") acquired a total of 11,500,000 Arnox shares
(approximately 90%) and therefor acquired control of Arnox.
After the Combination, the companies changed their names to reflect their
complementary businesses:
- Arnox become Telemetrix Inc.
- TRG became Telemetrix Solutions Inc.
The Company offers wireless telemetry and communications technology to
telecommunications carriers and other businesses.
2. The unaudited pro forma condensed combining statements of operations for
Telemetrix and its subsidiaries have been prepared as if the acquisition was
completed as of January 1, 1998. The unaudited pro forma combined net loss per
share is based on the weighted average number of common shares of Telemetrix
Common Stock outstanding during the period.
3. The financial statements of TRG Canada have been translated into US dollars
using the following exchange rates. For the 1998 statement of operations
Canadian dollars were translated to US dollars at the rate of $0.641 and for the
December 31, 1998 balance sheet, Canadian dollars were translated to US dollars
at the rate of $0.670.
4. The following pro forma adjustments are reflected in the unaudited pro
forma condensed combining financial information:
(1). Reflects the legal and formation costs of $5,535,000 which have been
expensed. The costs were settled in exchange for 1,067,000 shares of the company
(2) The components of the purchase price for WTC and its allocation to assets
and liabilities of the company are as follows:
Total Purchase Price of shares of WTC $13,432,000
Allocation of purchase price:
Stockholders equity of WTC 259,000
In Process R&D (4,530,000)
Cost in excess of net assets acquired $ 9,161,000
----------
Amortization of excess cost over 5 years $ 1,832,000
(3) The pro forma adjustment to record the issuance of shares of TRG and the
transfer of common stock in TRG to contributed surplus are as follows:
Common Stock Acquired $ 25,000,000
Contributed Surplus $(24,994,000)
-----------
Shares of Telemetrix Inc issued $ (6,000)
5. The Pro Forma Condensed Consolidated Financial Information is unaudited
and not necessarily indicative of the consolidated results which actually would
have occurred if the above transactions had been consummated at the beginning of
the period presented, nor does it purport to present the future financial
position and the results of operations for future periods
F-5
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
FINANCIAL STATEMENTS
and
INDEPENDENT AUDITOR'S REPORT
For the Years Ended December 31, 1998 and 1997
F-6
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
TABLE OF CONTENTS
* * * *
Page Number
Independent Auditor's Report 8
Financial Statements
Balance Sheets 9 - 10
Statements of Income and Changes in Retained Earnings 11
Statements of Cash Flows 12
Notes to the Financial Statements 13 - 19
F-7
<PAGE>
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, 1998 and 1997, 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, 1998 and 1997, and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Scottsbluff, Nebraska
May 27, 1999
F-8
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
BALANCE SHEETS
December 31, 1998 and 1997
1998 1997
---- ----
Assets
Current assets:
Cash ........................................... $ 161,497 $ 62,566
Accounts receivable - trade, less
allowance for doubtful accounts
of $1,000 in 1998 and 1997 ................... 47,295 52,403
Accounts receivable - other .................... 26,180 26,416
---------- ----------
Total current assets ......................... $ 234,972 $ 141,385
---------- ----------
Property, plant and equipment:
Land ........................................... $ 13,301 $ 3,000
Buildings and improvements ..................... 13,729 12,910
Office equipment ............................... 75,338 48,869
Communications equipment ....................... 695,016 672,756
Vehicles ....................................... 32,147 32,147
---------- ----------
Total property, plant and equipment .......... $ 829,531 $ 769,682
Less accumulated depreciation ................ 693,298 651,571
---------- ----------
Total property, plant and equipment
net of accumulated depreciation .......... $ 136,233 $ 118,111
---------- ----------
Other assets:
Deferred patronage dividends ................... $ 2,247 $ 2,191
FCC license C & F block, net of accumulated
amortization of $210,131 and $113,570 in
1998 and 1997, respectively .................. 755,477 852,038
Patent, net of accumulated amortization of
$3,898 and $1,569 in 1998 and 1997,
respectively ................................. 52,074 24,028
Construction in progress ....................... 1,180,557 488,045
Deposits ....................................... 605 170,430
Organizational costs ........................... 87,000 --
---------- ----------
Total other assets ........................... $2,077,960 $1,536,732
---------- ----------
Total assets ..................................... $2,449,165 $1,796,228
========== ==========
See accompanying independent auditor's report and notes to the financial
statements.
F-9
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
BALANCE SHEETS (CONTINUED)
December 31, 1998 and 1997
1998 1997
---- ----
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable ............................... $ 256,436 $ 163,683
Accrued interest ............................... 142,018 101,684
Other accrued expenses ......................... 597 758
Customer deposits .............................. 8,185 10,840
Current portion of long-term liabilities ....... 1,080,328 898,786
----------- -----------
Total current liabilities .................... $ 1,487,564 $ 1,175,751
----------- -----------
Long-term liabilities:
Notes payable (net of current portion) ......... $ 1,720,227 $ 882,555
----------- -----------
Total long-term liabilities .................. $ 1,720,227 $ 882,555
----------- -----------
Total liabilities .......................... $ 3,207,791 $ 2,058,306
----------- -----------
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) .................... (913,646) (417,098)
----------- -----------
Total stockholder's equity ................... $ (758,626) $ (262,078)
----------- -----------
Total liabilities and stockholder's equity ....... $ 2,449,165 $ 1,796,228
=========== ===========
See accompanying independent auditor's report and notes to the financial
statements.
F-10
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
STATEMENTS OF INCOME AND CHANGES IN RETAINED EARNINGS
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Sales and services ............................. $ 350,702 $ 381,961
--------- ---------
Gross profit ................................. $ 350,702 $ 381,961
--------- ---------
Expenses:
Depreciation and amortization ................ $ 140,617 $ 125,862
Research and development costs ............... 91,428 91,256
Bad debts .................................... 14,817 11,248
Selling, general and administrative .......... 523,055 313,059
Interest ..................................... 110,508 93,576
--------- ---------
Total expenses ............................. $ 880,425 $ 635,001
--------- ---------
Operating income (loss) .................. $(529,723) $(253,040)
--------- ---------
Other income:
Interest income .............................. $ 2,549 $ --
Lease income ................................. 14,294 16,431
Miscellaneous income ......................... 22,591 17,414
Income (loss) on investments ................. (6,259) --
--------- ---------
Total other income ......................... $ 33,175 $ 33,845
--------- ---------
Net income (loss) .............................. $(496,548) $(219,195)
Retained earnings, beginning of year ........... (417,098) 2,097
Distributions .................................. -- (200,000)
--------- ---------
Retained earnings, end of year ................. $(913,646) $(417,098)
========= =========
See accompanying independent auditor's report and notes to the financial
statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
TRACY CORPORATION II
Scottsbluff, Nebraska
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................... $ (496,548) $ (219,195)
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization ..................... 140,617 125,862
(Increase) decrease in accounts receivable ........ 5,344 72,553
(Increase) decrease in deferred patronage dividends (56) (615)
(Increase) decrease in other assets ............... (175) --
Increase (decrease) in accounts payable ........... 92,753 151,872
Increase (decrease) in other accrued liabilities .. (161) 47
Increase (decrease) in accrued interest ........... 40,334 78,282
Increase (decrease) in customer deposits .......... (2,655) (2,011)
----------- -----------
Net cash flows provided by (used in) operating
activities .................................... $(220,547) $ 206,795
----------- -----------
Cash flows from investing activities:
Cash payments for the purchase of property ............ $ (177,224) $ (42,466)
Cash payments for the purchase of FCC license ......... -- (122,252)
Cash payments for investments in other organizations
and other assets .................................... (522,512) (569,013)
----------- -----------
Net cash flows (used in) investing activities ... $ (699,736) $ (733,731)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .............. $ 1,393,000 $ 788,821
Principal payments on long-term debt .................. (373,786) (1,214)
Dividends paid ........................................ -- (200,000)
----------- -----------
Net cash flows provided by financing activities . $ 1,019,214 $ 587,607
----------- -----------
Net increase in cash and cash equivalents ............... $ 98,931 $ 60,671
Cash and cash equivalents, beginning of year ............ 62,566 1,895
----------- -----------
Cash and cash equivalents, end of year .................. $ 161,497 $ 62,566
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest expense .................................... $ 71,113 $ 15,294
</TABLE>
See accompanying independent auditor's report and notes to the financial
statements.
F-12
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 monthly service charges. 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.
Basisof 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 provides for doubtful accounts by
maintaining a provision for such amounts. This amount was $1,000 for
1998 and 1997.
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
See accompanying independent auditor's report.
F-13
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
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 $ 55,972
FCC Franchise License 10 Years 965,608
------------
Total $ 1,021,580
============
Following is an analysis of activity in intangible assets for the
years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Beginning Ending
Balance Additions Removals Balance
1998 --------- --------- -------- -------
----
<S> <C> <C> <C> <C>
Patent ....................... $ 25,597 $ 30,375 $ -- $ 55,972
FCC Franchise License ........ 965,608 -- -- 965,608
---------- ---------- ------------ ----------
Total ...................... $ 991,205 $ 30,375 $ -- $1,021,580
Accumulated
amortization ............... 115,139 98,890 -- 214,029
---------- ---------- ------------ ----------
Net total ................ $ 876,066 $ (68,515) $ -- $ 807,551
========== ========== ============ ==========
<CAPTION>
1997
----
<S> <C> <C> <C> <C>
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
========== ========== ============ ==========
</TABLE>
See accompanying independent auditor's report.
F-14
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
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 $91,428 and $91,256 for the years ended December 31, 1998 and
1997, 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 1998 or 1997.
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 three 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 patents 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.
See accompanying independent auditor's report.
F-15
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
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, 1998 and 1997:
<TABLE>
<CAPTION>
Beginning Ending
Balance Additions Deletions Balance
1998 --------- --------- --------- -------
----
<S> <C> <C> <C> <C>
1998
Land ......................... $ 3,000 $ 10,301 $ -- $ 13,301
Buildings and
improvements ............... 12,910 819 -- 13,729
Office equipment ............. 48,869 26,469 -- 75,338
Communications
equipment .................. 672,756 22,260 -- 695,016
Vehicles...................... 32,147 -- -- 32,147
-------- -------- -------- --------
Total ...................... $769,682 $ 59,849 $ -- $829,531
Accumulated
depreciation ............. 651,571 41,727 -- 693,298
-------- -------- -------- --------
Net total ................ $118,111 $ 18,122 $ -- $136,233
======== ======== ======== ========
<CAPTION>
1997
----
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
See accompanying independent auditor's report.
F-16
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 4 - UNASSERTED CLAIMS AND ASSESSMENTS
On December 8, 1998, the Company, by board resolution, authorized the
issuance of stock to two entities that had notes payable outstanding to the
Company. The issuance of stock under this board resolution was completed
January 2, 1999. The action revised the board resolution of December 16,
1997, authorizing the negotiation of the sale of up to thirty percent of
the Company.
NOTE 5 - LONG-TERM OBLIGATIONS
Federal Communications Commission, C Block - This note payable was effective
September 17, 1996, for the principal sum of $773,888. It 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 $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.
See accompanying independent auditor's report.
F-17
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
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:
1998 1997
---- ----
1998 $ -- $ 898,786
1999 1,080,328 5,328
2000 854,164 11,164
2001 11,879 11,879
2002 54,970 54,970
2003 190,312
Thereafter 608,902 799,214
----------- -----------
Total $ 2,800,555 $ 1,781,341
=========== ===========
NOTE 6 - SUBSEQUENT EVENTS
Tracy Corporation II has entered into agreements with TECORE, Inc. 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 approximately $1,080,000 and $188,700
for the years ended December 31, 1998 and 1997, respectively
On January 2, 1999, the Company by board resolution authorized the issuance
of additional shares of stock in exchange for a portion of the outstanding
debt, accrued interest and other consideration as follows:
Hartford Holdings, Ltd. a Cayman Islands
Corporation 85.35 shares
Michael L. Glaser 85.35 shares
Michael J. Tracy 118.30 shares
The above issuance of stock resulted in the elimination of $557,613 in
notes payable and accrued interest. In addition, $386,441 in goodwill was
acquired.
On February 19, 1999, the Company sold Federal Communications Commission,
McCook F Block for $200,000. This sale is pending subject to regulatory
approval. The net asset value of this asset at December 31, 1998, is
$42,750.
See accompanying independent auditor's report.
F-18
<PAGE>
TRACY CORPORATION II
Scottsbluff, Nebraska
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998 and 1997
NOTE 6 - SUBSEQUENT EVENTS (CONTINUED)
An agreement entered into March 22, 1999, contemplating a corporate
reorganization transaction involving the Corporation, Arnox Corporation and
Telemetrix Resource Group Inc. is pending subject to various regulatory
approvals. Costs incurred by the Company through December 31, 1998,
relating to this reorganization were $87,000. The total cost including
legal expense is estimated to be $175,000. It is contemplated that the
final phase of the agreement requiring Security Exchange Commission
approval will be completed after June 30, 1999.
NOTE 7 - RELATED PARTY DISCLOSURES
The accounts receivable other of $26,180 and $26,416 as of December 31,
1998 and 1997, respectively, were due from corporations with the same
ownership as Tracy Corporation II or the major stockholder. The current
portion of long-term liabilities includes $75,000 and $325,000 for 1998 and
1997, respectively, that is due to Mike Tracy. These notes bear interest at
the rate of 9.75% for 1998 and 7.5% on $125,000 and 9.75% on $200,000 for
1997.
The facility occupied by the Company in Gering, Nebraska, is being leased
at $2,500 per month from the sole stockholder. The lease is month to month.
A management fee of $20,000 per month is paid to a corporation with the
same stockholder ownership. This contract is month to month and includes
all employee related expense.
NOTE 8 - YEAR 2000 ISSUE
The Year 2000 issue is the result of shortcomings in many electronic data
processing systems and other equipment that may adversely affect the
Company's operations as early as fiscal year 1999.
The Company has completed an inventory of computer systems and other
equipment necessary in conducting corporate operations and has procured and
tested the systems that are Year 2000 compliant.
Because of the unprecedented nature of the Year 2000 issue, its effect and
the success of related remediation efforts will not be fully determinable
until the year 2000 and thereafter. Management cannot assure that the
Company is or will be Year 2000 ready, that the Company's remediation
efforts will be successful in whole or in part, or that parties with whom
the Company does business will be Year 2000 ready.
See accompanying independent auditor's report.
F-19
<PAGE>
Telemetrix Resource Group, Inc.
(a development stage company)
Financial Statements
For the year ended December 31, 1998
(in United States dollars)
F-20
<PAGE>
Telemetrix Resource Group, Inc.
(a development stage company)
Financial Statements For the year
ended December 31, 1998 (in United
States dollars)
Contents
- - --------------------------------------------------------------------------------
Auditors' Report 22
Comments by Auditors for U.S. Readers on
Canada U.S. Reporting Difference 23
Financial Statements
Balance Sheet 24
Statement of Operations 25
Statement of Shareholder's Equity 26
Statement of Cash Flows 27
Summary of Significant Accounting Policies 28
Notes to Financial Statements 29
F-21
<PAGE>
- - --------------------------------------------------------------------------------
Auditors' Report
- - --------------------------------------------------------------------------------
To the Shareholder of
Telemetrix Resource Group, Inc.
Delaware, Colorado
We have audited the balance sheet of Telemetrix Resource Group, Inc. (a
development stage company) as of December 31, 1998 and the statements of
operations, shareholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and the
results of its operations and its cash flows for the year then ended in
accordance with generally accepted accounting principles in the United States.
/s/ BDO Dunwoody LLP
BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
August 19, 1999
F-22
<PAGE>
- - --------------------------------------------------------------------------------
Comments by Auditors for U.S. Readers on Canada-U.S.
Reporting Difference
- - --------------------------------------------------------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph(following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the shareholders dated August
19, 1999 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.
/s/ BDO Dunwoody LLP
BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
August 19, 1999
F-23
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Balance Sheet
(in United States dollars)
December 31, 1998
- - --------------------------------------------------------------------------------
Assets
Current
Due from related company (Note 2) ....................... $ 166
Capital asset (Note 3) .................................... 19,444,444
------------
$ 19,444,610
================================================================================
Liabilities and Shareholder's Equity
Current
Accounts payable ........................................ $ 5,000
Due to related company (Note 4) ......................... 92,653
------------
97,653
------------
Shareholder's equity Share capital (Note 5)
Authorized
100,000,000 Common shares of no par value
100,000,000 Preferred shares at $.001 par value
Issued
100 Common shares ................................. 100
Additional paid in capital .............................. 24,999,900
Deficit accumulated during the development stage ........ (5,653,043)
------------
19,346,957
------------
$ 19,444,610
================================================================================
On behalf of the Board:
/s/ Oz Pedde
- - ------------------------------
Oz Pedde Director
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-24
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Statement of Operations
(in United States dollars)
For the year ended December 31, 1998
- - --------------------------------------------------------------------------------
Revenue .............................................. $ 166
----------
Expenses
Amortization ....................................... 5,555,556
Professional fees .................................. 5,000
Salaries ........................................... 66,025
Travel ............................................. 26,628
----------
5,653,209
----------
Net loss for the year ................................ $(5,653,043)
================================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-25
<PAGE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Telemetrix Resource Group, Inc.
(a development stage company)
Statement of Shareholder's Equity
(in United States dollars)
For the year ended December 31, 1998
- - --------------------------------------------------------------------------------
Common Additional Comprehensive
Shares Paid in Capital Deficit Loss Total
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 ...... $ -- $ -- $ -- $ -- $ --
April 30, 1998
100 Common shares issued
for $1 per share and Tele-
communications billing and
information management
software .................... 100 24,999,900 -- -- 25,000,000
Comprehensive loss
Net loss for the year ....... -- -- (5,653,043) $ (5,653,043) (5,653,043)
----------- ----------- ----------- ----------- -----------
Comprehensive loss ............ $ 100 $ 24,999,900 $ (5,653,043) $ (5,653,043) $ 19,346,957
=========== =========== ============ =========== ===========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-26
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Statement of Cash Flows
(in United States dollars)
For the year ended December 31, 1998
- - --------------------------------------------------------------------------------
Cash flows from operating activities
Net loss for the year ....................................... $(5,653,043)
Adjustments to reconcile to net cash from operations
Amortization of capital asset ............................. 5,555,556
Changes in assets and liabilities
Increase in accounts payable ............................ 5,000
-----------
(92,487)
-----------
Cash flows from investing activities
Advances to related company ................................. (166)
-----------
Cash flows from financing activities
Advances from related company ............................... 92,653
-----------
Net increase in cash .......................................... --
Cash, beginning of year ....................................... --
-----------
Cash, end of year ............................................. $ --
================================================================================
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-27
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Summary of Significant Accounting Policies
(in United States dollars)
December 31, 1998
- - --------------------------------------------------------------------------------
Nature of Business Telemetrix Resource Group, Inc. (the
"Company") was originally incorporated as
Datapath Communications Corporation on May 8,
1996 in the State of Colorado. The name was
changed on December 16, 1997 and operations
effectively began on April 30, 1998 (see Note
9).
The Company's primary sources of revenue are
non-exclusive licensing agreements for its
telecommunications billing and information
management software. The software addresses
the requirements of a telecommunications
service provider's order fulfilment, customer
care, fraud control, billing, cash remittance
and accounts receivable processes.
Basis of Financial Statements These financial
statements have been prepared by management
in accordance with generally accepted
accounting principles in the United States.
Basis of Accounting The Company uses the accrual
basis of accounting. Under the accrual basis
of accounting, royalty fees revenue is
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 disclosure of contingent assets and
liabilities, and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
Capital Asset Capital asset is stated at cost less
accumulated amortization and is written down
when a permanent impairment in the carrying
value is identified.
Amortization has been provided annually at
rates calculated to amortize the asset over
its estimated useful life as follows:
Telecommunications billing and
information management software - 3 years
straight line
Impairment of Long-Lived
Assets Management reviews assets for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset
may not be recoverable through the estimated
undiscounted future cash flows resulting from
the use of these assets. If deemed impaired,
measurement and recording of an impairment
loss is based on the fair value of the asset.
F-28
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Summary of Significant Accounting Policies (Continued)
(in United States dollars)
December 31, 1998
- - --------------------------------------------------------------------------------
Income Taxes The Company accounts for income taxes under
the asset and liability method. Under this
method, deferred income tax assets and
liabilities are recognized for the future tax
consequences attributable to differences
between the financial reporting and tax bases
of assets and liabilities and available loss
carryforwards. A valuation allowance is
established to reduce deferred tax assets if
it is more likely than not that all or some
portions of such deferred tax assets will not
be realized.
F-29
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Notes to Financial Statements
(in United States dollars)
December 31, 1998
- - --------------------------------------------------------------------------------
1. Basis of Presentation
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has not, to date,
realized any significant revenues, and as a result the Company has
incurred operating losses and a shareholder's deficiency. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The Company's ability to continue as a going concern is dependent
upon achieving profitable operations based on the commercial viability of
the Company's telecommunications billing and information management
software. The financial statements do not include any adjustments that
might result from the outcome of the uncertainty.
The Company plans to minimize working capital requirements and is
dependent on the continued support of its related companies. The continued
support and forbearance of its related companies will be required,
although this is not assured.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of the company to continue as a going concern.
- - --------------------------------------------------------------------------------
2. Due from Related Company
Telemetrix Resource Group Limited $ 166
===========
The amount due from the related company is non-interest bearing and due on
demand. Telemetrix Resource Group Limited, a Nova Scotia corporation, is a
company under common ownership.
- - --------------------------------------------------------------------------------
3. Capital Asset
Accumulated
Cost Amortization
Telecommunications billing
and information management
software $ 25,000,000 $ 5,555,556
----------- ------------
Net book value $ 19,444,444
============
- - --------------------------------------------------------------------------------
4. Due to Related Company
Telemetrix Software Factory Inc. $ 92,653
============
The amount due to the related company is non-interest bearing and due on
demand. Telemetrix Software Factory Inc. is a company under common
ownership.
F-30
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Notes to Financial Statements
(in United States dollars)
December 31, 1998
- - --------------------------------------------------------------------------------
5. Share Capital
(a) Authorized
100,000,000 Common shares at no par value
100,000,000 Preferred shares at par value of $.001 per share
(b) Changes to Issued Share Capital
On April 30, 1998, the Company entered into an asset purchase
agreement with its parent company, Hartford Holdings Ltd.
("Hartford"), a Cayman Islands corporation. Telecommunications
billing and information management software recorded at $25,000,000,
which is the carryover basis, was acquired by the Company in exchange
for 100 shares of the Company's common stock.
- - --------------------------------------------------------------------------------
6. Related Party Transactions
Royalty fees from Telemetrix Resource Group Limited $ 166
Salaries and travel paid by Telemetrix Software Factory Inc. 92,653
All transactions between the related companies are recorded at their
exchange amount as agreed upon by the parties.
In June 1998, the Company entered into a five year non-exclusive licence
agreement with Telemetrix Resource Group Limited, a Nova Scotia
corporation (see Note 9) to use the Company's telecommunications billing
and information management software in Canada and worldwide. The Company
receives a monthly royalty of 1% of all fees received from services using
and sublicensing the software.
- - --------------------------------------------------------------------------------
7. Economic Dependence
Currently, 100% of the Company's revenue is derived from royalty fees
received from Telemetrix Resource Group Limited which became a wholly
owned subsidiary effective January 2, 1999 (see Note 9).
F-31
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Notes to Financial Statements
(in United States dollars)
December 31, 1998
- - --------------------------------------------------------------------------------
8. Income Taxes
The Company is taxable at the federal and state levels within the United
States. The Company is not taxable in any other jurisdictions.
The difference between income taxes computed at the federal statutory rate
and the income tax provision reflected in the statement of operations is
primarily due to a full valuation allowance against deferred tax assets at
December 31, 1998, as described below.
The net deferred tax assets (liability) consists of the following at
December 31, 1998:
Net operating loss carry forwards @ 45% tax rate $ (2,543,869)
Valuation allowance 2,543,869
-------------
$ --
=============
The Company has provided a full valuation allowance against deferred tax
assets at December 31, 1998, due to uncertainties as to the Company's
ability to utilize its net operating losses. The net operating loss
carryforwards in the amount of $5,653,043 expire in the year 2005.
- - --------------------------------------------------------------------------------
9. Subsequent Events
On January 2, 1999, the share exchange and plan of reorganization between
the Company, the Company's parent, Hartford, and its wholly owned
subsidiary, Telemetrix Resource Group Limited ("TRG"), a Nova Scotia
corporation was completed. Hartford transferred all its issued and
outstanding shares of TRG to the Company in exchange for 100 common shares
of the Company's capital stock. Therefore, TRG became a wholly owned
subsidiary of the Company.
Effective April 5, 1999, the Company completed, by way of an exchange of
shares a reverse take-over of Arnox Corporation ("Arnox") . Under the
agreement, Arnox, an inactive public shell corporation, acquired all of the
outstanding common stock of the Company in exchange for 6,127,200 shares of
common stock of Arnox. Prior to the acquisition, Arnox had no operations.
This transaction was equivalent to the issuance of stock of the Company for
the net assets of Arnox, accompanied by a recapitalization. Arnox's assets
were recorded at carryover basis and no goodwill was recorded from this
transaction. Arnox's historical financial statements became those of the
Company. This business reorganization was accounted for as a reverse
take-over with the Company being deemed the acquirer, because this exchange
of shares left the former shareholder of the Company with 81.5% of the
shares of Arnox.
Upon the business reorganization, Arnox became the legal parent and changed
its name to Telemetrix Inc. ("Telemetrix") and the Company became its wholly
owned subsidiary.
Upon receipt of regulatory approval from the Federal Communications
Commission, Telemetrix will issue 5,372,800 shares of common stock to Tracy
Corporation II d/b/a Western Total Communications ("Tracy II") in exchange
for all of the outstanding stock of Tracy II. This transaction will be
accounted for as an acquisition of Tracy II at fair value. Upon completion
of this transaction, the Company's and Tracy II's former shareholders will
own 53.5% and 32.1% respectively of Telemetrix.
On June 29, 1999, the Company changed its name to Telemetrix Solutions Inc.
F-32
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group, Inc.
(a development stage company)
Notes to Financial Statements
(in United States dollars)
December 31, 1998
- - --------------------------------------------------------------------------------
10. Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. SFAS No.
133 requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting
from changes in the fair values of those derivatives would be accounted
for in current earnings unless specific hedge criteria are met. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value of cash
flows. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. The Company is currently determining the additional disclosures and
accounting treatments, if any, that may be required under this
pronouncement.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs
of Computer software Developed or Obtained for Internal Use." This
standard requires companies to capitalize qualifying computer software
costs which are incurred during the application development stage and
amortize them over the software's estimated useful life. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The Company
does not expect that there will be any material impact as a result of SOP
98-1 on its financial statements and related disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires that all start-up costs related to new
operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP 98-5 is
adopted. The Company will be required to implement SOP 98-5 for its fiscal
year ended December 31, 1999. There will be no material effect on the
financial statements.
F-33
<PAGE>
Telemetrix Resource Group Limited
Financial Statements
For the years ended December 31, 1998 and 1997
F-34
<PAGE>
Telemetrix Resource Group
Limited
Financial Statements
For the years ended December 31, 1998 and
1997
Contents
- - --------------------------------------------------------------------------------
Auditors' Report 36
Comments by Auditors for U.S. Readers on
Canada U.S. Reporting Difference 37
Financial Statements
Balance Sheets 38
Statements of Operations and Deficit 39
Statements of Cash Flows 40
Summary of Significant Accounting Policies 41
Notes to Financial Statements 42
F-35
<PAGE>
- - --------------------------------------------------------------------------------
Auditors' Report
- - --------------------------------------------------------------------------------
To the Shareholders of
Telemetrix Resource Group Limited
We have audited the balance sheets of Telemetrix Resource Group Limited as at
December 31, 1998 and 1997 and the statements of operations and deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and 1997
and the results of its operations and its cash flows for the years then ended in
accordance with Canadian generally accepted accounting principles.
/s/ BDO Dunwoody LLP
BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
August 6, 1999
F-36
<PAGE>
- - --------------------------------------------------------------------------------
Comments by Auditors for U.S. Readers on Canada-U.S.
Reporting Difference
- - --------------------------------------------------------------------------------
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 2 to the financial statements. Our report to the shareholders dated August
6, 1999 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.
/s/ BDO Dunwoody LLP
BDO Dunwoody LLP
Chartered Accountants
Toronto, Ontario
August 6, 1999
F-37
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Balance Sheets
December 31 1998 1997
- - --------------------------------------------------------------------------------
Assets
Current
Cash .......................................... $ 173,769 $ 6,719
Accounts receivable ........................... 413,251 --
Prepaid expenses .............................. 17,821 9,125
Due from related companies (Note 3) ........... 181,848 --
---------- ----------
786,689 15,844
Capital assets (Note 6) ......................... 1,179,947 96,992
---------- ----------
$1,966,636 $ 112,836
========== ==========
Liabilities and Shareholders' Deficiency
Current
Accounts payable .............................. $ 907,322 $ 67,455
Due to related companies (Note 3) ............. 3,393,881 702,832
---------- ----------
4,301,203 770,287
Obligations under capital lease (Note 7) ........ 78,819 --
Leasehold inducement (Note 8) ................... 223,833 --
---------- ----------
4,603,855 770,287
---------- ----------
Shareholders' deficiency
Share capital
Authorized
1,000,000 Common shares
Issued
1 Common share ........................ 1 1
Deficit ....................................... (2,637,220) (657,452)
---------- ----------
(2,637,219) (657,451)
---------- ----------
$1,966,636 $ 112,836
========== ==========
- - --------------------------------------------------------------------------------
On behalf of the Board:
/s/ Oz Pedde
- - ---------------------------
Oz Pedde Director
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-38
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Statements of Operations and Deficit
For the year ended December 31 1998 1997
- - --------------------------------------------------------------------------------
Revenues
Fees ................................... $ 637,592 $ --
Disbursements .......................... 101,916 --
----------- -----------
739,508 --
----------- -----------
Expenses
Amortization ........................... 117,573 16,433
Customer support ....................... 79,812 --
Development ............................ 531,843 --
General and administrative ............. 775,315 --
Interest ............................... 212,102 43,927
Interest on capital leases ............. 3,964 --
Operational and implementation ......... 634,583 --
Sales and marketing .................... 364,084 --
Start up costs (Note 4) ................ -- 597,092
----------- -----------
2,719,276 657,452
----------- -----------
Net loss for the year .................... (1,979,768) (657,452)
Deficit, beginning of year ............... (657,452) --
----------- -----------
Deficit, end of year ..................... $(2,637,220) $ (657,452)
=========== ===========
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-39
<PAGE>
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Telemetrix Resource Group Limited
Statements of Cash Flows
For the year ended December 31 1998 1997
- - --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net loss for the year .............................. $(1,979,768) $ (657,452)
Adjustments to reconcile to net cash from operations
Amortization of capital assets ................... 117,573 16,433
Amortization of leasehold inducement liability ... (25,167) --
Changes in assets and liabilities
Accounts receivable ............................ (413,251) --
Prepaid expenses ............................... (8,696) (9,125)
Accounts payable ............................... 839,867 67,455
----------- -----------
(1,469,442) (582,689)
----------- -----------
Cash flows from investing activities
Advances to related companies ...................... (181,848) --
Purchase of capital assets ......................... (1,116,211) (113,425)
----------- -----------
(1,298,059) (113,425)
----------- -----------
Cash flows from financing activities
Repayment of capital lease liability ............... (5,498) --
Increase in leasehold inducement liability ......... 249,000 --
Increase of payable to related companies ........... 2,691,049 702,832
Proceeds from issue of share capital ............... -- 1
----------- -----------
2,934,551 702,833
----------- -----------
Net increase in cash ................................. 167,050 6,719
Cash, beginning of year .............................. 6,719 --
----------- -----------
Cash, end of year .................................... $ 173,769 $ 6,719
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest ......................................... $ 3,964 $ --
----------- -----------
Supplemental disclosure of non-cash financing
and investing activities
Assets acquired under capital lease .............. $ 84,317 $ --
----------- -----------
</TABLE>
- - --------------------------------------------------------------------------------
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
F-40
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Summary of Significant Accounting Policies
December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
These financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada, the more significant of
which are outlined below. A reconciliation to accounting principles generally
accepted in the United States is shown in Note 13.
Use of Estimates The preparation of the Company's financial
statements requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and
liabilities, and the reported amounts of
revenues and expenses during the reporting
period. Actual results could differ from
those estimates.
Capital Assets Capital assets are recorded at cost less
accumulated amortization and are written down
when a permanent impairment in the carrying
value is identified.
Amortization has been provided on both the
diminishing balance and straight-line basis
at the following annual rates:
Computer and billing equipment - 30%
Computer equipment held under capital
lease - 30%
Furniture and equipment - 20%
Leasehold improvements - 10 years
Revenue Recognition Consulting and programming related revenues
are recognized as the services are provided.
Leased Assets Leases entered into that transfer
substantially all the benefits and risks
associated with ownership are recorded as the
acquisition of a capital asset and the
incurrence of an obligation. The asset is
amortized in a manner consistent with assets
owned by the Company, and the obligation,
including interest thereon, is liquidated
over the term of the lease.
Foreign Currencies Foreign currency accounts are translated to
Canadian dollars as follows:
At the transaction date, each asset,
liability, revenue or expense is translated
into Canadian dollars by the use of the
exchange rate in effect at that date. At the
year end date, monetary assets and
liabilities are translated into Canadian
dollars by using the exchange rate in effect
at that date and the resulting foreign
exchange gains and losses are included in
income in the current period.
Financial Instruments It is management's opinion that the Company
is not exposed to significant interest rate,
currency or credit risks arising from its
financial instruments.
The Company's cash is held by one financial
institution and $96,013 of the cash balance
is foreign currency denominated in U.S.
dollars. Included in accounts receivable and
accounts payable are foreign currency
denominated in U.S. dollars in the amount of
$270,217 and $13,101 respectively.
F-41
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Summary of Significant Accounting Policies (Continued)
December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
Income Taxes The Company accounts for income taxes under
the asset and liability method. Under this
method, deferred income tax assets and
liabilities are recognized for the future tax
consequences attributable to differences
between the financial reporting and tax bases
of assets and liabilities and available loss
carryforwards. A valuation allowance is
established to reduce deferred tax assets if
it is more likely than not that all or some
portions of such deferred tax assets will not
be realized.
Impairment of Assets Management reviews assets for impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset
may not be recoverable, and, if deemed
impaired, measurement and recording of an
impairment loss is based on the fair value of
the asset.
Leasehold Inducements Leasehold inducements are capitalized as a
deferred liability and are amortized over the
useful life of the leasehold improvement.
F-42
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Notes to Financial Statements
December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
1. Description of Business
The Company was incorporated on August 15, 1996 in the Province of Nova
Scotia, but effectively began operations on January 1, 1997.
The Company's product offerings specifically address the requirements of a
telecommunications service provider's order fulfilment, customer care,
fraud control, billing, cash remittance and accounts receivable processes.
The Company works closely with customers in defining their requirements
and then designs, develops and implements user-based billing and customer
care programs.
- - --------------------------------------------------------------------------------
2. Basis of Presentation
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has not, to date,
realized any significant revenues, and as a result, the Company has
incurred operating losses, has a deficit working capital, has negative
cash flows from operations and a shareholders' deficiency. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The Company's ability to continue as a going concern is dependent
upon achieving profitable operations and on financing provided by related
parties. The financial statements do not include any adjustments that
might result from the outcome of the uncertainty.
- - --------------------------------------------------------------------------------
3. Due from Related Companies
1998 1997
---------- ---------
Mondetta Telecommunications Inc. ("Mondetta") $ 70,099 $ --
Web CCB Systems Inc. ("WEB") 45,000 --
Telemetrix Software Factory Inc. 66,749 --
---------- ---------
$ 181,848 $ --
========== =========
Due to Related Companies
Hartford Holdings Ltd. $ 3,092,842 $ 702,832
The Becker Group of Companies Inc. ("BGC") 300,784 -
Telemetrix Resource Group, Inc. ("TRG") 255 -
---------- ---------
$ 3,393,881 $ 702,832
========== =========
The amounts due from related companies are non-interest bearing and due on
demand. The amounts due to related companies are due on demand bearing
interest at US prime except amount due to TRG which is non-interest
bearing and due on demand. Hartford Holdings Ltd. is the Parent of the
Company, WEB, BGC, TRG and Telemetrix Software Factory Inc. Mondetta is
controlled by a person related to the shareholder of Hartford Holdings
Ltd.
Included in accounts receivable is the amount of $389,000 owing from
Telehub Communications Corporation, where the substantial shareholder is
Hartford Holdings Ltd. Included in accounts payable is interest in the
amount of $256,029 (1998 - $43,927) due to related companies. Royalty fees
in the amount of $255 are included in general and administrative expenses.
F-43
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Notes to Financial Statements
December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
4. Related Party Transactions
1998 1997
Purchases of capital assets from BGC $ 161,000 $ --
Purchases of net leasehold improvements from BGC 22,000 --
Net cash advances to BGC 10,000 --
Cash advances to WEB 45,000 --
Payment of rent to Northern Cablevision Ltd. ("NCL") 137,000 --
Royalty fees paid to TRG 255 --
Sales to Telehub Communications Corporation 612,000 --
All transactions between the related companies are recorded at their
exchange amount as agreed upon by the parties.
In June 1998, the Company entered into a five year non-exclusive license
agreement with Telemetrix Resource Group, Inc. ("TRG"), a Colorado
corporation (see Note 10), to use TRG's telecommunications billing and
information management software in Canada and worldwide. The Company pays
a monthly royalty of 1% of all fees received from services using and
sublicensing the software.
In 1997 the start up costs were funded by Hartford Holdings Ltd. on behalf
of the Company.
Northern Cablevision Ltd. is controlled by a person related to the
shareholder of Hartford Holdings Ltd.
- - --------------------------------------------------------------------------------
5. Economic Dependence
Approximately 96% of the Company's sales and 94% of accounts receivable is
derived from Telehub Communications Corporation.
- - --------------------------------------------------------------------------------
6. Capital Assets
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
<S> <C> <C> <C> <C>
Computer and billing equipment .............. $ 799,528 $ 74,369 $ 101,808 $ 15,271
Computer equipment held
under capital lease ....................... 84,317 12,648 -- --
Furniture and equipment ..................... 160,724 18,164 11,617 1,162
Leasehold improvements ...................... 269,383 28,824 -- --
---------- ---------- ---------- ----------
$1,313,952 $ 134,005 $ 113,425 $ 16,433
---------- ---------- ---------- ----------
Net book value .............................. $1,179,947 $ 96,992
---------- ----------
</TABLE>
F-44
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Notes to Financial Statements
December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
7. Commitments
(a) The principal repayments on the capital leases (see note 4) are as
follows:
1999 - $43,400
2000 - 24,300
2001 - 11,100
(b) The Company entered into a lease for shared office space with NCL
during the year which has committed the Company to an annual rental
payment of approximately $228,000. The effective term of the lease is
from June 1, 1998 to May 31, 2008.
- - --------------------------------------------------------------------------------
8. Leasehold Inducement
1998 1997
Leasehold inducement $ 249,000 $ --
Accumulated amortization 25,167 --
---------- ----------
$ 223,833 $ --
========== ==========
During the year the Company received an inducement from NCL to subsidize
leasehold improvement expenditures. The inducement has been capitalized as
a deferred liability and will be amortized over the same 10 year useful
life as the leasehold improvements. Approximately $25,000 in amortization
of the inducement has been recognized as a reduction of general and
administrative expense during the year.
- - --------------------------------------------------------------------------------
9. Income Taxes
The Company is taxable at the federal and provincial levels within Canada.
The Company is not taxable in any other jurisdictions.
The difference between income taxes computed at the federal statutory rate
and the income tax provision reflected in the statement of operations is
primarily due to a full valuation allowance against deferred tax assets at
December 31, 1998 and 1997, as described below.
The net deferred tax assets (liability) consists of the following at
December 31, 1998 and 1997:
1998 1997
----------- ----------
Net operating loss carry forwards
@ 45% tax rate $ (1,186,749) $ (295,853)
----------- ----------
Valuation allowance 1,186,749 295,853
----------- ----------
$ -- $ --
----------- ----------
The Company has provided a full valuation allowance against deferred tax
assets at December 31, 1998 and 1997, due to uncertainties as to the
Company's ability to utilize its net operating losses. The net operating
loss carryforwards in the amounts of $657,452 and $1,979,768 expire in the
years 2004 and 2005 respectively.
F-45
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Notes to Financial Statements
December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
10. Subsequent Event
On January 2, 1999, the Company's shareholder exchanged shares with
Telemetrix Resource Group , Inc., (TRG) a Colorado corporation. Therefore,
the Company became a wholly owned subsidiary of TRG, a Colorado
corporation.
- - --------------------------------------------------------------------------------
11. Segmented Information
The Company's consulting and programming services are provided primarily
to clients in the U.S. As Canadian operations are not yet significant, the
Company has determined that it operates in one segment.
The following table presents information related to the Company by
geographic area:
Canada United States
---------- -------------
For the year ended December 31, 1998
Revenue $ -- $ 739,508
Operating loss -- (1,979,768)
Assets 1,966,636 --
---------- ------------
For the year ended December 31, 1997
Revenue $ -- $ --
Operating loss -- (657,452)
Assets 112,836 --
---------- ------------
- - --------------------------------------------------------------------------------
12. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000.
If the Year 2000 Issue is not addressed by the Company and its major
customers, suppliers and other third party business associates, the impact
on the Company's operations and financial reporting may range from minor
errors to significant systems failure which could affect the Company's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-46
<PAGE>
- - --------------------------------------------------------------------------------
Telemetrix Resource Group Limited
Notes to Financial Statements
December 31, 1998 and 1997
- - --------------------------------------------------------------------------------
13. Reconciliation of Results Reported in Accordance
with Generally Accepted Accounting Principles
(GAAP) in Canada with United States ("U.S.") GAAP
There are no significant adjustments required to give effect to the
differences between United States GAAP and Canadian GAAP which is the
basis of presentation of the financial statements of the Company.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. SFAS No.
133 requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting
from changes in the fair values of those derivatives would be accounted
for in current earnings unless specific hedge criteria are met. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value of cash
flows. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. The Company is currently determining the additional disclosures and
accounting treatments, if any, that may be required under this
pronouncement. In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 ("SOP 98-1"), "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use." This standard requires companies to capitalize qualifying computer
software costs which are incurred during the application development stage
and amortize them over the software's estimated useful life. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The Company
is currently evaluating the impact of SOP 98-1 on its financial statements
and related disclosures. In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities." SOP 98-5 requires that all start-up
costs related to new operations must be expensed as incurred. In addition,
all start-up costs that were capitalized in the past must be written off
when SOP 98-5 is adopted. The Company will be required to implement SOP
98-5 for its fiscal year ended December 31, 1999.
F-47
<PAGE>
EXHIBIT TABLE
......... Exhibit Page #
------- ------
......... 99.1
List of Registrant's Subsidiaries
<TABLE>
<CAPTION>
Percentage Owned by
Name of Subsidiary Jurisdiction Registrant
- - ------------------ ------------ -------------------
<S> <C> <C>
Telemetrix Resource Group Ltd.1 Nova Scotia, Canada 100%
Telemetrix Solutions Inc.2 Colorado 100%
Tracy Corporation II Nebraska 100%
dba Western Total Communications
</TABLE>
- - -----------
1 Registrant owns 100% of Telemetrix Solutions Inc., a Colorado corporation,
which in turn owns 100% of Telemetrix Resource Group, Ltd., a Nova Scotia,
Canada corporation
2 Formerly known as Telemetrix Resource Group, Inc., a Colorado corporation
