Omnicity seeks financial turnaround, has 28 acquisitions in mind

A private investor in a Carmel-based wireless broadband provider has quietly taken the company
public and has lofty plans to expand nationwide.

Dick Beltzhoover, now president and CEO of Omnicity Corp. following a change of management, was
fed up with losing money over the last several years, including a combined loss for fiscal 2007 and 2008
of $1.9 million.

He and
Chief Operating Officer Greg Jarman have been remaking the company, which provides broadband service to 30 rural counties.
They intend to position Omnicity as "the premier consolidator of rural market broadband nationwide," seeing economies
of scale as a path to profitability.

In February, Beltzhoover took Omnicity public on the cheap, through a transaction with as many
legal twists and turns as the country roads used by its customers. Essentially, Omnicity was rolled into
the shell of a publicly traded Nevada company, Bear River Resources, that had acquired mining rights
but was no longer active.

Apparently, the change in strategy was none too soon for 6-year-old Omnicity.

After reviewing Omnicity financial statements for the year ended July 31, accounting firm BGBC
declared it had "substantial doubt about the company’s ability to continue as a going concern,"
stated Omnicity filings with the Securities and Exchange Commission.

BGBC’s Indianapolis auditors last year cited recurring losses from operations, negative working
capital and the company’s reliance "on cash inflows from private investors to fund working capital
deficits."

Beltzhoover
and Jarman dumped previous management, then stepped in and began cutting costs. And they’re using the company’s
stock, which trades over the counter for less than $1 a share, to entice investors. For example, Omnicity recently launched
a private placement to raise an additional $315,000, at 35 cents a share. Those shares can be converted later for common shares.

"We now have a currency we can use for
acquisitions," said Tom Bennett, chief financial officer of Indianapolis-based Schwarz Partners
LP. Schwarz, which has investments in nearly 20 companies, including Indianapolis-based trucking firm TransCorr,
first put cash into Omnicity in 2006 and now holds 17 percent of shares.

Omnicity has a country appetite for gobbling up other rural wireless providers.

It has within the last year announced a half-dozen
deals, including acquisitions of NDWave Inc., in Madison County; Fore-Point Networks, in Lafayette; North
Central Communications, in Peru; and Mooreland Wireless, which operates in Henry County. Those four deals
alone bring 3,100 new subscribers.

Omnicity, with an operations center in Rushville, currently has about 6,000 subscribers.

The cost to acquire the four wireless firms is $2.7 million, of which nearly $1 million will be
paid in common stock, according to SEC filings.

Last month, Omnicity said it bought Cue Connex of Hartford City, which also delivers wireless
telephone and television service to rural areas.

"We have 28 acquisitions in the pipeline right now," said Beltzhoover, who was the initial
investor in Omnicity six years ago. He’s helped fund and steer a number of companies over the years,
including Indy Connection, which was acquired by Carey Limousine.

Beltzhoover wouldn’t identify the other pending acquisitions. But Illinois, Kentucky, Ohio and
Minnesota are among the states Omnicity has been scouting for targets, said Larry Morningstar, who handles
investor relations for the company.

In the next 18 months, Omnicity wants to expand into 100 additional "small and rural" markets. Management hopes
to grow revenue to at least $5 million and become profitable by year-end. Its business plan calls for
$76 million in revenue and 166,000 subscribers by the end of 2013.

Omnicity says it expects the average acquisition will add 630 subscribers and $33,000 in monthly
revenue. Many rural residents are hungry for high-speed Internet service, Bennett said. "Once you
get the customer, you have a pretty good shot at keeping them. So it’s recurring revenue."

Economies of scale

That a wireless broadband company
serving a rural area would adopt an aggressive growth strategy doesn’t surprise Vince Vittore, an analyst
in the Chicago office of Boston-based Yankee Group.

Wireless broadband is less expensive than installing land lines would be for a phone company,
but operational costs are still high considering the relatively sparse population over wide geographic
areas, he said.

"The
business case for wireless rural broadband is extremely difficult. It’s very difficult to do without some type of scale,"
Vittore said.

One advantage
of achieving a large scale is to centralize certain back-office functions, such as billing.

The average wireless Internet service provider, or WISP, serves fewer than 2,000 homes. Many of
the providers have been built by mom and pops, which put antennas atop grain elevators, silos and cell
phone towers. But many of these operators are now constrained in terms of capital to grow, so they’re
looking for an exit strategy, Beltzhoover said.

Some WISPs also are now facing competition from DSL internet service, "often at predatory prices,"
said Steve Stroh, a Redmond, Wash.-based wireless technology expert.

They also face increasing regulatory burdens, and to the extent their markets overlap, they sometimes
go up against big WISPs with deeper pockets and efficiencies in the form of centralized billing or joint
buying power.

"Taken
together, these developments make it really tough to stay in business as a small wireless ISP, and when an offer comes
from someone doing rollups, it’s really, really tempting to sell out," Stroh said.

But rollups are no panacea, he said, noting that customer service can suffer if big WISPs don’t
properly manage their diverse territories by, for example, making sure there is always a technician available
if a tower goes down

"There’s
an astonishing number of ways for a wireless-related rollup to go wrong," Stroh said.

Co-ops key partners


One way Omnicity has sought to gain the confidence of new customers—including
municipalities, for which it provides services such as remote water-meter reading—is by aligning
itself with rural electric membership cooperatives.

Omnicity formed a partnership with Service Concepts, a service organization owned by 29 of Indiana’s
REMCs that conducts marketing services for them. Omnicity even has a cooperative representative—Wabash
County REMC head Rob Pearson—on its board.

The REMC strategy appears to be a smart one, Vittore said, noting how many rural customers have a
trusted relationship with the rural electric providers.

That trust goes both ways in this business, which at times relies on farmers to keep the system
operating. Beltzhoover recalled how one farmer agreed to allow the company to place an antenna atop his
silo in exchange for free broadband service for him and a relative. One day, the farmer forgot the antenna
was there and tore down that silo to make way for a new one.

"He felt so bad he rented a crane" to serve as the tower until his new silo was built,
Beltzhoover recalled.

Omnicity is also trying to earn the trust of the federal government. Last month, President Obama signed a $7 billion rural
broadband stimulus program to expand broadband in rural areas. Beltzhoover and his team have spent time in Washington in recent
months, meeting with the state’s congressional delegation to figure out how to tap into the money.

"We think we know what it means [to serve rural
areas] because we’ve been doing it for the last six years."

SEC filings show that directors and officers own the biggest chunk of Omnicity, at 7.5 million,
or 23 percent. Beltzhoover owns 18 percent.

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