U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-QSB
Quarterly Report pursuant to Section 13 of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2000
TELEMETRIX INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-14724 59-345-3156
----------------- ---------------------- ----------------------
(Jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation) Identification Number)
Telemetrix Inc.
c/o J.Doyle, Chief Financial Officer
1225 Sage
Gering, Nebraska 69341
(308) 436-3453
-----------------------------------------------
(Address, including zip code, & telephone number,
of Registrant's principal executive offices)
Indicate by check mark whether the Registrant has: Yes [X] No [ ]
(1) filed all reports to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and
(2) been subject to such filing requirements for the past 90 days.
On March 31, 2000, Registrant had 14,192,147 issued and outstanding common
shares.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
TABLE OF CONTENTS FOR FORM 10-QSB
Page
----
Part I - Financial Information
Item 1. Financial Statements ............................................... 3
Condensed Consolidated Balance Sheets ......................... 3
Consolidated Statements of Operations ......................... 4
Consolidated Statements of Cash flows ......................... 5
Notes to Consolidated Financial Statements .................... 6
Part II - Other Information
Item 2. Management's Discussion & Analysis of Financial Condition
and Results of Operations ......................................... 10
Item 1. Legal Proceedings ................................................. 18
Item 2. Changes in Securities and Use of Proceeds ......................... 18
Item 3. Defaults Upon Senior Securities ................................... 18
Item 4. Submission of Matters to a Vote of Security Holders ............... 18
Item 5. Other Information ................................................. 18
Item 6. Exhibits and Reports on Form 8-K .................................. 19
SIGNATURES .................................................................. 20
NOTE CONCERNING FORWARDLOOKING INFORMATION. This Quarterly Report on SEC Form
10Q contains forward-looking statements that involve substantial risks and
uncertainties that constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. Forward-looking terms such as "may",
"might", "will", "should", "could", "expect", "plans", "anticipate", "believe",
"estimate", "continue" or similar words identify such statements. Investors
should read statements that contain these terms carefully because they: (1)
discuss our future expectations; (2) project our future results of operations or
of its financial condition; or (3) state other "forward-looking" information.
Such statements are not historical facts; they merely explain our expectations
about the future. We believe that it is important to communicate such future
expectations to our investors. However, the accuracy of our expectations and
forwardlooking statements could be affected by:
o our limited operating history and commercial experience;
o market acceptance of T3000;
o availability of additional capital;
o protection of our intellectual property rights;
o evolving technologies and markets;
o competitive developments;
o telecommunications regulatory environment; and
o our ability to manage growth.
These factors might cause actual results to differ materially from the
forwardlooking statements as well as materially & adversely affecting our
business, operating results & financial condition.
2
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<TABLE>
<CAPTION>
TELEMETRIX INC.
(Commission File No. 0-14724)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information as of March 31, 1999 and 2000 is unaudited)
March 31, December 31,
2000 1999
-------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash........................................................................... $ 718 $ 16
Accounts receivable, net of allowance for
doubtful accounts ....................................................... 283 259
Note receivable-- related party ............................................... 348 348
Due from related companies .................................................... 98 54
Prepaid expenses .............................................................. 3 3
-------- --------
Total current assets ....................................................... 1,450 680
Property & equipment ............................................................. 2,352 2,317
Intangibles ...................................................................... 8,102 8,545
-------- --------
Total assets...................................................................... $ 11,904 $ 11,542
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Line of credit ................................................................ $ -- $ 195
Accounts payable............................................................... 1,015 709
Accrued expenses .............................................................. 1,355 1,264
Due to related companies ...................................................... 354 354
Current portion-- long term debt-- related parties ............................ 2,157 2,157
Current portion of long term debt ............................................. 203 8
-------- --------
Total current liabilities ........................................................ 5,084 4,687
-------- --------
Deferred rent liability .......................................................... 133 130
Long term debt-- related party ................................................... 4,711 4,588
Long term debt ................................................................... 647 836
-------- --------
Total longterm liabilities .................................................. 5,491 5,554
-------- --------
Total Liabilities ......................................................... 10,575 10,241
-------- --------
Shareholders equity (deficit):
Common stock, $0.001 par value; 25 million shares authorized;
14,192,147 and 313,897 shares issued and outstanding
at March 31, 2000 and 1999 respectively .................................... 14 13
Additional paidin capital ........................................................ 35,939 33,466
Foreign currency translation ..................................................... (81) 31
Retained earnings (deficit) ...................................................... (34,543) (32,209)
-------- --------
Total Stockholders Equity ........................................................ 1,329 1,301
-------- --------
Total Liabilities and Equity ..................................................... $ 11,904 $ 11,542
======== =========
</TABLE>
Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these
consolidated financial statements
3
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<TABLE>
<CAPTION>
TELEMETRIX INC.
(Commission File No. 0-14724)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Information relating to the three month periods ended March 31, 1999 and 2000 is unaudited)
Three Months Ended
March 31,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Revenue:
Equipment sales & rental.......................................... 74 $ --
Service income ................................................... 107 226
Consulting Fees .................................................. -- 232
----------- -----------
Total Revenue .................................................... 181 458
----------- -----------
Expenses:
Cost of Revenue .................................................. $ 62 108
Research & development ........................................... 1,024 --
Selling, general & administrative ................................ 1,340 2,868
----------- -----------
Total Operating Expenses ..................................... 2,427 2,976
----------- -----------
Net loss from operations ............................................ (2,246) (2,518)
----------- -----------
Other Expense:
Interest expense (income) ........................................ 139 32
Interest on capital leases ....................................... -- 2
Other expense (income) ........................................... (5) 31
----------- -----------
Total other expense (income) ................................. 134 65
----------- -----------
Net income (loss).................................................... $ (2,380) $ (2,583)
=========== ===========
Weighted average shares outstanding during period ................... 13,313,814 313,897
=========== ===========
Loss per share ...................................................... $ (.18) $ (8.23)
=========== ===========
</TABLE>
Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these
consolidated financial statements
4
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<TABLE>
<CAPTION>
TELEMETRIX INC.
(Commission File No. 0-14724)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Information relating to the three month periods ended March 31, 1999 and 2000 is unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
<S> <C> <C>
Cash flow from operating activities
Net loss for the period................................................... $ (2,380) $(2,583)
Adjustments to reconcile net loss to cash used in operations
Amortization and depreciation .......................................... 501 2,176
Changes in assets and liabilities
In accounts receivable ............................................... 25 (59)
In accounts payable .................................................. 306 138
In other assets ...................................................... -- 11
In accrued liabilities ............................................... 91 23
------- -------
Total adjustments .................................................... 873 2,289
------- -------
Net cash used in operating activities .............................. (1,507) (294)
------- -------
Cash flow from investing activities
Increase in capital assets ............................................... (93) (123)
------- -------
Net cash used in investing activities ........................... (93) (123)
------- -------
Cash flow from financing activities
Payments on line-of-credit ............................................... (195) --
Proceeds (payments) from longterm debt ................................... 6 (9)
Proceeds from issuance of share capital .................................. 2,474 --
Advances from related companies .......................................... 80 478
Change in Deferred Rent Liability ........................................ 3 (2)
------- -------
Net cash from financing activities .............................. 2,368 467
------- -------
Effect of foreign currency translation on cash .............................. (66) (28)
------- -------
Net increase in cash ........................................................ 702 22
Cash, beginning of period ................................................... 16 113
------- -------
Cash, end of period.......................................................... $ 718 $ 135
======= =======
</TABLE>
Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these
consolidated financial statements
5
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and relating to the nine month periods ended
March 31, 1999 and 2000, is unaudited)
1. Description of Business
Telemetrix Inc. and its subsidiaries (collectively, the "Company") offer
wireless paging service, PCS service, telemetry systems, hardware and software
and communications software and technology to telecommunications carriers and
other businesses. Telemetry involves the use of remote devices for data
collection and analysis. For example, a telemetry device in a vending machine
can transmit the amount of cash receipts and a nightly inventory to the owner's
monitoring computer. The owner can then decide whether to refill the machine,
order more products and add that vending machine to the delivery truck's
itinerary. Telemetry thus requires measurement and transceiver devices,
transmission services, central control devices and management software.
Businesses requiring telemetry applications include electric utilities, alarm
companies and vending machine operations. Telecommunications carriers, such as
Personal Communications Services ("PCS") carriers can use our technology to
provide transmission services for Telemetry Users. With widespread coverage and
easy mobility, wireless telecommunications are especially suitable for telemetry
applications. Wireless telemetry thus presents a new and potentially significant
market for wireless communication service providers.
The Company was formed through a series of corporate combinations during
1999 involving Arnox Corporation (an inactive public corporation) and three
private corporations:
o On January 2, 1999, Telemetrix Resource Group Inc., a Colorado
corporation ("TRG--USA"), acquired Telemetrix Resource Group Limited
("TRG--Canada"), a Nova Scotia corporation from Hartford Holdings Ltd.
("HHL", TRG--Canada's sole shareholder), pursuant to a share exchange
and plan of reorganization.
o On March 22, 1999, Arnox, TRG--USA and Tracy Corporation II d/b/a
Western Total Communication ("WTC") executed a Plan of Reorganization
for a share exchange and reorganization transaction (the
"Combination").
o On April 5, 1999, the first phase of the Combination occurred, whereby
Arnox acquired 100% of the issued and outstanding common shares of
TRG--USA in exchange for 6,127,200 shares of Arnox's common stock.
o On September 22, 1999, the Combination's final phase closed, whereby
the Company acquired 100% of the issued and outstanding common shares
of WTC in exchange for 5,372,800 shares of Arnox's common stock.
6
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information as of and relating to the three month periods ended
March 31, 1999 and 2000, is unaudited)
Through the Combination, the stockholders of WTC and TRG USA received a total of
11,500,000 shares of Arnox common stock (approximately 90%) and therefore
acquired control of Arnox.
After the Combination, the companies changed their names to reflect their
complementary businesses:
-- Arnox became Telemetrix Inc. ("Telemetrix"; "Arnox"; we use "Arnox"
and "Telemetrix" for activities before and after, respectively, the
Combination);
-- TRGUS will become Telemetrix Solutions Ltd. (" Telemetrix Solutions";
for the collective activities of both TRGUS and TRG--Canada, we use
"TRG" and "TSI" for activities before and after, respectively, the
Combination);
-- WTC will become Telemetrix Technologies Inc. (" Telemetrix
Technologies"; we use "WTC" and "Telemetrix Technologies" for
activities before and after, respectively, the Combination).
Arnox was inactive prior to the acquisition of TRG on April 5, 1999.
As a result of the Combination, Arnox's historical financial statements
become those of TRG--Canada, as TRG--Canada's operations were the ongoing
operations of the combined companies (Arnox, TRG--USA & TRG--Canada).
Consequently, TRG--Canada is treated as the "predecessor" to Telemetrix.
Except for the acquisition of WTC, all transactions comprising the
Combination were accounted for as reverse acquisitions and no goodwill was
recorded. Arnox's assets were recorded at carryover basis and no goodwill
was recorded on the transaction. The Company accounted for the WTC
acquisition as a purchase at fair value, these financial statements include
the activity of WTC only from the acquisition date (i.e., from September
22-30, 1999).
2. Basis of Presentation of Interim Information
The consolidated unaudited financial statements for March 31, 2000, include
the accounts of Telemetrix Inc. (the parent company) and its wholly-owned
subsidiaries (TSI and Telemetrix Technologies), while the consolidated
unaudited financial statements for March 31, 1999, include only the
activities of TRG because the Company accounted for the TRG combination as
a continuation of interest.
The results for the three months ended March 31, 2000, do not necessarily
indicate the results of operations for the full year. These financial
statements and related footnotes should be read in conjunction with the
financial statements and footnotes thereto included in the Company's 1999
Annual Report on SEC Form 10-KSB filed with the U.S. Securities & Exchange
Commission.
7
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information as of and relating to the three month periods ended
March 31, 1999 and 2000, is unaudited)
In Management's opinion, the accompanying unaudited interim financial
statements include all normal adjustments necessary to present fairly the
Company's financial position at March 31, 2000, and the results from
operations for the three months ended March 31, 2000, and the cash flows
for the three months ended March 31, 2000.
3. Related Party Transactions
HHL, the Company's largest shareholder, also controls Mondetta
Telecommunications Inc., Web CCB Systems Inc., The Becker Group of
Companies and Telemetrix Software Factory Inc. (collectively, "Affiliated
Companies"). The Company advanced funds to certain Affiliated Companies and
borrowed funds from HHL and other Affiliated Companies.
Due from Related Companies
Mondetta Telecommunications Inc............. $ 32,000
Web CCB Systems Inc......................... 22,000
Tracy Broadcasting Company.................. 26,000
Telemetrix Software Factory................. 18,000
----------
$ 98,000
==========
Due to Related Companies
Becker Group of Companies................... $ (354,000)
----------
$ (354,000)
==========
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.
HHL is the Parent of WEB, BGC, and Telemetrix Software Factory Inc.,
while Mondetta is controlled by a relative of HHL's sole shareholder.
The Company has a note receivable from the Software Factory, which
matured May 1999. The outstanding balance at March 31, 2000, was $348,000.
The note accrues interest at 7.5% until maturity at which time the interest
rate was adjusted to 15% and a penalty of 15% of the outstanding balance
was incurred. The note is being renegotiated in order for HHL to assume the
note and allow the Company to offset its note payable to HHL.
8
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(Information as of and relating to the three month periods ended
March 31, 1999 and 2000, is unaudited)
4. Commitments & Contingencies
The Company contracted with a vendor for research and development of
software to be used in the Company's telemetry technology. The total
contract amount was $500,000 and is payable as certain milestones in the
project are completed. During the quarter ended March 31, 2000, the Company
paid $65,000 to the vendor. The balance is due upon completion of the
software.
Manufacturing Design Agreements. The Company contracted with a third
party for manufacturing design and implementation to be used in the
Company's telemetry technology. At March 31, 2000, the Company had
committed to pay $1,529,000, and had paid a total of $687,000. The balance
is due upon completion of certain milestones.
Legal Proceedings. The Company is party to various negotiations and
legal proceedings regarding claims on contracts in the normal course of its
business. Management believes that the outcome of such negotiations and
legal proceedings, as well as commitments, will not have a material adverse
effect on the Company's consolidated and combined financial statements.
Employment Contracts. The Company is party to 2 employment contracts.
These contracts indicate that options to purchase 75,000 shares of the
Company's common stock were granted at an exercise price of $5. Legal
counsel is currently reviewing these contracts.
5. Private Placement
During the quarter ended March 31, 2000, the Company successfully
completed a private placement of common stock. The Company sold 101 Units,
each Unit consisting of 12,500 shares of Telemetrix common stock and a
warrant to purchase 6,250 shares of Telemetrix common stock, for
approximately $2.5 million. The Company will use proceeds of the this
private placement for pre-manufacturing design, manufacturing and working
capital for the Company.
6. Subsequent Events
Subsequent to the close of the quarter the Company drew down on its
line of credit with Valley Bank, Scottsbluff Nebraska, for approximately
$200,000. The funds will be used for the continuation of the development of
the T3000 technology.
9
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
Item 2. Management's Discussion & Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the unaudited
Consolidated Financial Statements and related notes. The results presented in
this Report do not necessarily indicate the results to be expected in any future
periods. This discussion contains forwardlooking statements based on our current
expectations, which involve risks and uncertainties. These risks and
uncertainties mean that future events could dramatically differ from our
forward-looking statements.
OVERVIEW. We offer solutions for wireless telemetry and telecommunications
services to businesses and telecommunications carriers, particularly wireless
Personal Communications Services ("PCS"). We are developing the T3000 wireless
telemetry product for data collection, system monitoring, distribution and
billing. The T3000 can be used in a wide variety of applications, such as
automatic utility meter reading, home security, home health alarms, monitoring
vending machines and other specialty applications. Our T3000 wireless telemetry
system includes equipment (e.g., the COMM Center and Optical Reader), network
monitoring services, billing and other support services. We will provide each of
these components of the T3000. We also provide wireless telecommunications
services over our wireless communications network (the "WTC Network"), which
includes two separate wireless communication networks and the total coverage
area encompasses portions of western Nebraska and southeastern Wyoming. Our
Service Bureau located in Toronto provides billing and customer management
services for long distance carriers. Our operations consequently will encompass
research & development, product design, manufacturing, telecommunications
services and carrier support services. Management recently reviewed the
Company's business plan, decided to focus on the T3000 and consequently is
downsizing the Service Bureau.
We entered the telecommunications industry through a corporate
combination ("Combination") between Arnox Corporation, Telemetrix Resource
Group, Inc. ("TRG", now renamed Telemetrix Solutions, Inc.) and Tracy II
Corporation d/b/a Western Total Communications ("WTC", to be renamed Telemetrix
Technologies Inc.) See "Corporate History". Before the Combination (when the
companies operated separately), the only significant business activity was the
WTC paging operations. Otherwise, Arnox was inactive, WTC was inventing T3000
and TRG was just commencing operations. At this early stage for the various
businesses, these constituent companies spent over $30 million to acquire
products and equipment (billing support Software, the T3000 technology and PCS
Licenses) and then to refine and ready those products for sale. Funding for
these development activities was provided by the Company's principal
stockholders through loans ($5.4 million) and equity contributions ($25.5
million). As TRG launched its services, it incurred additional costs to set up
corporate infrastructure and hire operations staff. Since our Company, products
and services are innovative and relatively unknown, we are conducting
"missionary" marketing to create awareness of our products and services. The
Service Bureau has commenced regular operations, but the T3000 system and our
other wireless communications services require further development.
10
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TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
T3000. Telemetrix's immediate objective is getting T3000 into production.
We are beta-testing the T3000 in western Nebraska, and integrating the devices
with the controlling software. We also are modifying the product to integrate a
GSMPCS radio into the system as a module and to add the "Subscriber Line
Interface" for interconnecting the GSMPCS radio with household telephony wiring.
Prototypes for the beta-testing use off-the-shelf GSMPCS handsets and
manuallyproduced circuitry components and customized connecting cables. After
completing testing and software integration, we must obtain the necessary type
approvals, acceptances and certifications, such as FCC certification of the
radio module, and demonstrate compliance with various technical standards (e.g.,
GSM, UL, ITU, ANSI). Then we must develop the manufacturing process and obtain
components; constraints imposed by the manufacturing process and availability of
components may require further modification of the T3000. We estimate that
bringing T3000 to market will require approximately $6.4 million: $1.7 million
for product development (both internal and by third parties), $1.0 million for
technology licensing, $1.0 million for manufacturing, $0.9 million for testing
and certification and $2.0 million for working capital. We hope to obtain FCC
and GSM certification in mid 2000, build initial production units in July 2000
and commence volume production of T3000 units in August 2000. This schedule,
illustrated below, depends upon successfully completing testing and obtaining
the necessary manufacturing contracts.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000
Jan. Feb. March April May June July August Sept. Oct.
| | | || | |
| | | || | |
| --Beta-testing on WTC Network || | ---Begin volume production
| || |--Build first production units.
---Software integration & development--||
|--FCC/GSM certification.
</TABLE>
After initial deployment, T3000 development will focus on integrating other
wireless technologies (CDMA, TDMA, Local Multipoint Distribution System and
satellite) to expand the coverage both in North America and around the world.
Future T3000 enhancements will provide utility companies with flexible billing
solutions and features such as customer energy use profiling and targeted load
shedding.
We have a letter of intent to deploy T3000 over the southwest Colorado
wireless network being installed by REAnet. REAnet is owned by two rural
electric cooperatives, who serve approximately 45,000 customers in the Four
Corners region (the intersection of Colorado, New Mexico, Arizona and Utah). We
also have offered to deploy T3000 on a proposed PCS Network in Manitoba and
Saskatchewan, Canada.
Wireless Services. Our wireless communications services currently consist
of paging operations in Nebraska and Wyoming over the WTC Network. These
operations (paging services plus equipment sales, rentals and repairs) now
11
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TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
generate approximately $30,000 in monthly revenue. Prior to 1997, monthly
revenue was approximately $40,000, but WTC has concentrated on developing T3000,
which sharply curtailed marketing of the paging operations, which in turn
resulted in lower revenue. Also, the market penetration and decreasing cost of
cellular service has affected the paging industry. We will not expand the paging
operations but instead will integrate them into the PCS operations. We acquired
the PCS licenses in 1996, began network deployment in late 1997 and finished
network deployment in April 1999. Testing is underway, and we hope to commence
commercial PCS operations in mid to late 2000.
Service Bureau. TRG acquired its TRACCS software in April 1998 and the
Intro CCB software in June 1998, and completed development of that software
(collectively, "Billing Software") in third quarter 1998. TRG began Service
Bureau customer care operations (where TRG performs customer management services
for long distance carrier customers) in late 1998. For Service Bureau
activities, we expect to charge a fee of 3%-5% of the customer's annual revenue,
lower than the customary 4%-6% fee for telecommunications billing services.
However, we are deemphasizing the Service Bureau, so its activities will
diminish during the next few quarters.
TeleHub Communications Corporation ("TeleHub"), an affiliate of our
principal shareholder, hired us to help them design their billing and customer
care systems; during 1998 and 1999, we billed TeleHub approximately $1.3
million. We also had executed a letter of intent to license TRACCS to TeleHub
for approximately $2.5 million and received a $250,000 deposit for the site
license; however, in August 1999, TeleHub decided not to acquire the TRACCS
license. We applied the $250,000 deposit against billing services that we
rendered to TeleHub; those billing services would have been included in the site
license. On October 27, 1999, a TeleHub subsidiary petitioned for reorganization
under the U.S. Bankruptcy Code. At that time, the subsidiary owed the Company
approximately $606,000 for billing and consulting services. Given the
preliminary stage of this bankruptcy case, the Company has reserved for the
entire amount owed. Until completion of this bankruptcy case, we will not
receive any payment.
DESCRIPTION OF FINANCIAL COMPONENTS
Revenue and Cost of Sales: The following chart summarizes the anticipated
components of revenue and the associated cost of sales (excluding depreciation)
from our proposed operations:
<TABLE>
<CAPTION>
Activity Revenue Source Costs of Sales (excluding depreciation)
- -------- -------------- --------------------------------------
<S> <C> <C>
Service Bureau Service Bureau Compensation for Service
Consulting income Representatives & fulfillment charges.
Wireless telecommunications PCS Services Carrier settlements for airtime charges
Equipment sales Equipment costs
12
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TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
<CAPTION>
Wireless Telemetry Licensing T3000 Manufacturing costs; license fees
T3000 Equipment sales Manufacturing costs; license fees
T3000 software sales License fees
</TABLE>
Operating Expenses. As we develop our products and services and ready them for
market, the operating expenses principally consist of research & development,
pre-production, license and general & administrative costs. When we launch
products and services, then sales & marketing expenses substantially increase,
while research & development, preproduction and license costs decrease. After
sales of products and services reach "regular" levels, the principal operating
expenses will be research & development, sales & marketing, manufacturing,
general & administrative. Since we are still in the initial stages of our
business plan, we believe that operating expenses, particularly for wireless
telemetry and wireless telecommunications, will continue to increase during the
next year as we continue research & development, pre- production manufacturing
and expands our operations.
Research & Development. Our research & development activities will
principally focus on completing T3000 for release in July 2000. We expect
research & development always will constitute a significant operating
expense because we must continually enhance and upgrade our products and
services. For example, we must enhance T3000 to integrate other wireless
technologies such as TDMA and CDMA. We expect to spend about $2.4 million
for research and development costs.
Capital Expenditures. The Service Bureau has volumebased capital
requirements and as this business grows the Company will have to invest in
larger computers and more service representatives to support the growth.
The most significant capital expenditure will be deploying and equipping
the T3000 Network Operation Center ("T--NOC"). The T--NOC is the central
repository of telemetry information and acts as the gateway between the PCS
service providers and the Telemetry Users of T3000 (e.g., utilities and
alarm companies). We estimate that deployment of the T--NOC could require a
total of $2.6 million; we also are exploring potential outsourcing for the
T--NOC.
Licensing. Our products and services utilize intellectual property of other
parties, which generally requires us to pay license fees. Such license fees
can take the form of initial payments, continuing royalties or both types
of payments. Our current license fees include a lump sum payment to Plextek
Inc. for the right to use their GSM PCS 1900 radio design and a recurring
license to The Technology Partnership ("TTP") to use their GSM protocol
software in that embedded radio. We also must reserve funds to pay licenses
on "essential patents" on the GSM radio and protocols, which is a standard
practice in the industry. The Service Bureau uses several IBM AS/400
computers and smaller PC based computing systems, which will require
periodic maintenance fees and upgrade license fees. We expect to spend
about $825,000 for licensing costs.
Pre-Production. Pre-production costs include certification by the FCC,
Underwriters Laboratory, Canadian Standards Association ("CSA") and GSM
standards organizations, to prove that our T3000 device complies with
electronic emissions, safety and system interoperability standards. A
principal pre-production expense are the costs incurred to develop
13
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TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
manufacturing processes and custom test equipment, as well as the cost of
customized manufacturing test equipment for radio components. We expect to
spend about $900,000 for pre-production and compliance testing costs.
Sales & Marketing. Sales & Marketing expenses include salaries and
commissions for sales staff, trade show expenses, consulting fees and
advertising. Since our Company, products and services are innovative and
relatively unknown, we must conduct considerable "missionary" marketing to
create awareness of our products and services. Similarly, we will incur
high initial marketing expenses when addressing new categories of
customers; for example, when we expand the Service Bureau's target market
from smaller carriers to LECs and utility companies. Such missionary work
will entail significant initial marketing costs. We anticipate lower sales
volumes for 6-12 months before our "missionary" work takes root and sales
reach "regular" levels.
Manufacturing. The largest manufacturing expense will be carrying inventory
on the T3000 units. Since T3000 will include some customized components
(such as Integrated Circuits), we must commit to large volume purchases to
ensure timely delivery and to lower costs. In a similar manner, large
production runs avoid multiple setup charges and therefore are more
economical, especially since third parties will manufacture the T3000 units
for us. We anticipate building to inventory rather than building to actual
orders, which should satisfy our shipping commitments while stabilizing the
demand on our manufacturer. We will maintain an inventory of finished
products to ensure a reliable flow of T3000 units to customers. We expect
to spend about $3.6 million for inventory costs during the second year of
T3000 sales.
General & Administrative. General & administrative expenses primarily
consist of salaries and related expenses of management, support personnel,
occupancy fees, professional fees, noncapitalized research & development,
general corporate and administrative expenses. As the size and scope of our
business grow, we may expand our corporate and administrative staff,
especially accounting and contract management.
Depreciation and Amortization. These noncash expenses include depreciation of
tangible property, networks and equipment plus amortization of intangible assets
(such as FCC Licenses and patents) and goodwill. The goodwill resulted from our
acquisition of WTC and therefore should not increase. Depreciation will increase
due to the increase in capital equipment needed for the network operation
centers.
Interest Expense. Interest expense includes interest incurred from debt. Our
principal interest expense results from amounts we borrowed from our principal
shareholder, which incur interest at annual rates ranging from 7.5% to 8%.
14
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
RESULTS OF OPERATIONS
Quarter ended March 31, 2000, compared to Quarter ended March 31, 1999
During the quarter ended March 31, 2000 ("Recent Period") our prime focus
was manufacturing design, testing and pre-production manufacturing of the T3000
technology. With our decision to focus on the T3000, we are downsizing the
Service Bureau operations. During the quarter ended March 31, 1999 ("Prior
Period"), TRG began initial marketing of Billing Software licenses and Service
Bureau operations. All significant intercompany transactions and balances have
been eliminated.
The following discussion contains only minimal comparisons between the
Recent Period and Prior Period. The financial statements for the Prior Period
include only TRG because WTC was not acquired until September 1999; however, the
financial statements for the Recent Period include Telemetrix, TSI and
Telemetrix Technologies. Since the Prior Period did not include any operations
of WTC, the results of operations for the Recent Period are not comparable to
the Prior Period. We expect that this situation will continue until first
quarter 2001, when both periods being compared will contain WTC's operations.
Revenue totaled $181,000 during the Recent Period, compared to $458,000
during the Prior Period. During the Recent Period, we received $74,000 from
equipment sales and rentals, and $107,000 from Service Bureau clients. We expect
revenue to increase substantially over the next 12 to 18 months as we launch the
T3000 system.
Operating expenses were $2.4 million during the Recent Period. These
expenses are primarily due to design and pre-manufacturing costs for the T3000
technology, marketing and sales expense for the T3000 and the operations of the
Service Bureau.
Costs of Revenue were approximately $62,000 for the Recent Period.
These expenses primarily consist of salaries and wages for the sales staff.
Research & Development expenses were approximately $1.0 million for
the Recent Period. The primary component of this expense is the $687,000
paid to an outside company for the manufacturing design and
pre-manufacturing setup costs for the T3000 project. Additionally, two
other companies were paid for software licensing and development of the
wireless GSM-related technology used by the T3000. We expect licensing fees
to increase when we commence producing and selling the T3000. Research &
development expenses will continue to be substantial until the third
quarter of 2000.
Manufacturing expenses were not incurred during the Recent Period or
the Prior Period. We will start incurring manufacturing expenses for the
T3000 in the second quarter of 2000.
Selling, General & Administrative expenses were $1.3 million for the Recent
Period, principally for salary and other administrative expenses for the Service
Bureau and Telemetrix Technologies operations. SG&A expenses also include
marketing costs for the T3000. The $2.9 million SG&A expenses for the Prior
15
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
Period were primarily salaries in the Service Bureau operations and the
amortization of the billing software (which was written-off in late 1999).
Depreciation and Amortization expense was $501,000 for the Recent Period,
which represents depreciation for capital equipment and amortization of Goodwill
resulting from our acquisition of WTC as well as patents held by WTC. The Prior
Period's $2.2 million of depreciation and amortization expense essentially
represents the amortization for the TRACCS Billing Software. Since we impaired
the remaining value of that software during fourth quarter 1999, we will not
incur further amortization expense for that software.
Interest expense was $139,000 for the Recent Period. This expense
represents primarily the interest charges on related party loans, principally
the loans from HHL. Interest expense for the Prior Period was $32,000, which
also was interest on loans from HHL.
Net loss. We reported a net loss of $2.4 million for the Recent Period. The
principal component of this net loss was the research and development expense
related to the T3000 technology development as well as operating costs for the
Service Bureau and Telemetrix Technologies operations. We did not reflect any
benefit for income taxes due to the uncertainty surrounding the realization of
the favorable tax attributes in future tax returns. Accordingly, we recorded a
valuation allowance against its total net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES. TRG's principal stockholders have financed our
activities through loans (approximately $7.2 million) and equity contributions
($36.0 million). The Service Bureau operations have also provided some funding
for operations and development. During the Recent Period, we used $1.5 million
in cash for operations, primarily for research and development. We used $93,000
of cash for investment purposes primarily to develop WTC's PCS network in
western Nebraska. During the Recent Period we generated cash flow from financing
activities of $2.4 million. During the Recent Period, we completed a private
placement of Shares that raised proceeds of $2.5 million, which we are using for
developing the T3000 technology and for working capital. We must obtain
additional financing in order to fund our operations and would require even more
financing if we fail to operate within the planned operational budget or fail to
obtain revenue from operations. We are pursuing additional lines of credit and
other debt financing. No assurance can be given that additional financing will
be available or that such funds would be available on acceptable terms or in the
amounts or time periods we require.
16
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
FUNDING REQUIREMENTS. In order to pay operating expenses and achieve
selfsustaining operations, we expect to require substantial funding during the
next two years of approximately $25.0 - $30.0 million. We will need funds for:
Research and Development projects include completing the T3000 system,
particularly a tightly coupled billing solution for the utility markets and
the integration of other PCS radio technologies to expand the potential
markets for the T3000 product. We estimate that our research and
development activity over the next two years will require $2.4 million.
Working Capital. As demand for the T3000 product grows, we must build
an inventory of equipment to allow for load balancing the manufacturing
demand while maintaining a short delivery period. This inventory will also
serve as a supply of spare units to cover immediate shipment for warranty
purposes. We will also need working capital (between $10-$15 million) for
developing our corporate infrastructure and paying T3000 marketing costs.
Manufacturing capacity. Projected demand growth of T3000 units will
require additional manufacturing capacity. We expect to contract with an
outside vendor for the manufacturing of the hardware, licensing of the
software and the compliance testing, at an expected cost of $7.0 million.
T3000 Network Operation Center. Capital will be required to equip the
T3000 Network Operation Center ("T--NOC"). The T--NOC is the central
repository of telemetry information and acts as the gateway between the PCS
service providers and the Telemetry Users of T3000 (e.g., utilities and
alarm companies). We estimate that deployment of the T--NOC will require
$2.6 million; we also are exploring potential outsourcing for the T--NOC.
Repay Loans from Related Parties. We plan to repay loans from related
parties as soon as sufficient funding becomes available. The expected
amount of loans that will be repaid is $3.0 million.
YEAR 2000 READINESS. The term "Year 2000 Issue" generally describes the various
problems that might result from improper processing of dates and datesensitive
calculations involving dates in the Year 2000 and beyond. Such problems might
cause system failures or miscalculations and thereby disrupt operations, for
example, temporary inability to process transactions, to send invoices, or to
engage in other normal business activities. Year 2000 Issues could affect us
through the Year 2000 incompatibility of our own computer systems and equipment
as well as the Year 2000 incompatibility of third parties, such as vendors,
suppliers or customers. We have not yet encountered any Year 2000 problems, we
do not expect to incur significant expenditures to resolve Year 2000 Issues and
we have allocated sufficient resources for remediating any Year 2000 issues.
17
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending legal proceedings against Registrant.
Item 2. Changes in Securities and Use of Proceeds.
(a) Not Applicable.
(b) Not Applicable.
(c) Issuance of Unregistered Securities. The following tables summarize
all securities that we issued or sold during the quarter ended March
31, 2000, in unregistered offerings:
<TABLE>
<CAPTION>
Deemed Per
Date Title of Security Amount Class of Purchaser Exemption Share Price Proceeds
---- ----------------- ------ ------------------ --------- ----------- --------
<S> <C> <C> <C> <C> <C>
3/31/00 Common Stock(1) 1,250,000 Accredited Investors Rule 506 $2.00(2) $2,500,000
3/31/00 Warrants(1) 625,000 Accredited Investors Rule 506 $3.00(3) (4)
3/31/00 Common Stock(5) 61,250 Accredited Investors Rule 506 $2.00 (5)
3/31/00 Warrants(5) 30,625 Accredited Investors Rule 506 $3.00(3) (6)
3/31/00 Warrants(5) 8,750 Accredited Investors Rule 506 $2.00(3) (6)
--------------------
</TABLE>
(1) Sold in Private Placement of Units consisting o 12,500 Shares and
a Warrant to purchase 6,250 Shares. The Company paid finders'
fees of $106,250 in cash, plus 61,250 shares of common stock plus
warrants to purchase 39,375 shares of common stock (see note 5).
(2) The $2 per share price was set on January 3, 2000, which was the
highest trading price for the Common Stock during December 1999.
(3) Warrant Exercise Price.
(4) Issued as part of the Units, so no cash consideration was
received specifically for these Warrants.
(5) Issued as finders' fees for the Private Placement described in
note 1.
(6) Issued as finders' fees, so no cash consideration was received
specifically for these Warrants.
(d) Not Applicable.
Item 3. Defaults Upon Senior Securities.
(a) Not Applicable.
(b) Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted for a vote of Security Holders.
18
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8K.
(a) Exhibits.
(27) Financial Data Schedules.
(b) Reports on Form 8K. On March 8, 2000, Registrant filed a Current
Report on SEC Form 8K reporting:
Item 4: Changes in the Company's Certifying Accountants
(see Item 8 above).
This Report was amended March 21, 2000, and further amended April 20,
2000, to include the comment letters from the former certifying
accountants ("Auditors").
As explained in the March 8 report, during the two most recent
fiscal years and subsequent interim periods preceding the change in
Auditors, the Company and the former Auditors did not disagree on any
matter of accounting principle or practices, financial statement
disclosure, or auditing scope or procedure that would have caused the
former Auditors to refer to the subject matter of the disagreement(s)
in connection with their report. The former Auditors' reports on the
financial statements of Arnox, TRG and WTC for the past two years
contained only a modification of their opinion as to the Company's
ability to continue as a "going concern". The Company previously
reported the change in Auditors on SEC Form 8K and requested comments
from the former Auditors. In their letters addressed to the SEC, the
former Auditors did not disagree with the Company's disclosure.
19
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELEMETRIX INC., a Delaware corporation
May 19, 2000 By: /s/ JAMES DOYLE
----------------------------------------------------
James Doyle
Signing for Registrant and as Chief Financial Officer
20
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended March 31, 2000
INDEX TO EXHIBITS FILED WITH THIS QUARTERLY REPORT
Exhibit
Exhibit Page
- ------- -------
(27) Data Schedule....................................................... 2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 718,000
<SECURITIES> 0
<RECEIVABLES> 283,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,450,000
<PP&E> 3,439,000
<DEPRECIATION> 1,120,000
<TOTAL-ASSETS> 11,904,000
<CURRENT-LIABILITIES> 5,084,000
<BONDS> 5,358,000
0
0
<COMMON> 14,000
<OTHER-SE> 1,315,000
<TOTAL-LIABILITY-AND-EQUITY> 11,904,000
<SALES> 74,000
<TOTAL-REVENUES> 181,000
<CGS> 62,000
<TOTAL-COSTS> 2,427,000
<OTHER-EXPENSES> (5,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,000
<INCOME-PRETAX> (2,380,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,380,000)
<EPS-BASIC> (.18)
<EPS-DILUTED> (.18)
</TABLE>
