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 June 30, 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 June 30, 2000, Registrant had 14,702,925 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................................................. 17
Item 2. Changes in Securities and Use of Proceeds......................... 17
Item 3. Defaults Upon Senior Securities................................... 17
Item 4. Submission of Matters to a Vote of Security Holders............... 17
Item 5. Other Information................................................. 17
Item 6. Exhibits and Reports on Form 8-K.................................. 18
SIGNATURES .................................................................. 19
NOTE CONCERNING FORWARD-LOOKING INFORMATION. This Quarterly Report on SEC Form
10-Q 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
financial condition; or (3) state other "forward-looking" information. Such
statements do not recite 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
forward-looking 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
forward-looking statements as well as materially & adversely affecting our
business, operating results & financial condition.
2
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information as of June 30, 2000, is unaudited)
June 30 December 31
2000 1999
------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................................ $ 56 $ 16
Accounts receivable, net of allowance for doubtful accounts ..................... 293 259
Note receivable-- related party ................................................. 369 348
Due from related companies ...................................................... 209 54
Prepaid expenses ................................................................ 2 3
-------- --------
Total current assets ......................................................... 929 680
Property & equipment, net .......................................................... 2,329 2,317
Intangibles ........................................................................ 7,661 8,545
-------- --------
Total assets .............................................................. $ 10,919 $ 11,542
======== ========
LIABILITIES & STOCKHOLDERS' (EQUITY) DEFICIT
Current liabilities
Line of credit .................................................................. $ 200 $ 195
Accounts payable ................................................................ 1,870 709
Accrued expenses ................................................................ 1,326 1,264
Due to related companies ........................................................ 484 354
Current portion-- long term debt-- related parties .............................. 2,156 2,157
Current portion of long term debt ............................................... 202 8
-------- --------
Total current liabilities ..................................................... 6,238 4,687
-------- --------
Deferred rent liability ............................................................ 126 130
Long term debt ..................................................................... 643 836
Long term debt-- related party ..................................................... 4,480 4,588
-------- --------
Total long-term liabilities ................................................... 5,249 5,554
-------- --------
Total Liabilities ........................................................... 11,487 10,241
-------- --------
Stockholders' equity (deficit):
Common stock .................................................................... 15 13
Additional paid-in capital ...................................................... 37,116 33,466
Foreign currency translation .................................................... (30) 31
Retained earnings (deficit) ..................................................... (37,669) (32,209)
-------- --------
Total Stockholders' Equity (deficit) ........................................ (568) 1,301
-------- --------
Total Liabilities and Stockholders' Equity (deficit) ................... $ 10,919 $ 11,542
======== ========
Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these consolidated financial statement
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Information relating to the three-month and six-month periods ended
June 30, 1999 and 2000 is unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Equipment sales & rental......................................... $ 68 $ -- $ 142 $ --
Service income .................................................. 112 499 219 499
------------ ------------ ------------ ------------
Total revenue ............................................... 180 499 361 499
------------ ------------ ------------ ------------
Expenses:
Cost of revenue ................................................. 59 -- 122 --
Research & development .......................................... 1,668 252 2,692 252
Selling, general & administrative ............................... 1,392 2,688 2,732 2,688
------------ ------------ ------------ ------------
Total operating expenses .................................... 3,119 2,940 5,546 2,940
------------ ------------ ------------ ------------
Net loss from operations .......................................... (2,939) (2,441) (5,185) (2,441)
------------ ------------ ------------ ------------
Other Expense:
Interest expense (income) ....................................... 186 53 325 53
Other expense (income) .......................................... -- -- (5) --
------------ ------------ ------------ ------------
Total other expense (income) ................................ 186 53 320 53
------------ ------------ ------------ ------------
Net (loss).......................................................... $ (3,125) $ (2,494) $ (5,505) $ (2,494)
============ ============ ============ ============
Weighted average shares outstanding during period .................. 14,192,147 7,289,381 13,755,064 3,832,129
Loss per
share ......................................................... $ (0.22) $ (0.34) $ (0.40) $ (0.65)
============ ============ ============ ============
Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these consolidated financial statement
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Information relating to the six month periods ended June 30, 1999 and 2000 is unaudited)
Six Months
Ended June 30,
--------------------
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities
Net loss for the period........................................................ $ (5,505) $(2,494)
Adjustments to reconcile net loss to cash used in operations
Amortization & depreciation ................................................. 1,004 2,114
Changes in assets and liabilities
In accounts receivable .................................................... (34) (78)
In accounts payable ....................................................... 1,161 108
In other assets ........................................................... 1 --
In accrued liabilities .................................................... 62 --
------- -------
Total adjustments ....................................................... 2,194 2,144
------- -------
Net cash used in operating activities .............................. (3,311) (350)
------- -------
Cash flow from investing activities
Increase in capital assets .................................................... (132) (102)
------- -------
Net cash used in investing activities ................................ (132) (102)
------- -------
Cash flow from financing activities
Net activity on line-of-credit ................................................ 5 --
Advances on notes receivable .................................................. (21) --
Proceeds (payments) from long-term debt ....................................... 1 5
Proceeds (payments) from long-term debt - related party ....................... 920 --
Proceeds from issuance of share capital ....................................... 2,623 --
Advances to related parties ................................................... (155) --
Advances from related companies ............................................... 130 308
Change in deferred rent liability ............................................. (4) (4)
------- -------
Net cash from financing activities ................................... 3,499 309
------- -------
Effect of foreign currency translation on cash ................................... (16) --
------- -------
Net increase (decrease) in cash .................................................. 40 (143)
------- -------
Cash, beginning of period ........................................................ 16 140
------- -------
Cash, end of period............................................................... $ 56 $ (3)
======= =======
Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these consolidated financial statement
</TABLE>
5
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and relating to the three-month and six-month periods ended
June 30, 1999 and 2000, is unaudited)
1. Description of Business
Telemetrix Inc. and its subsidiaries (collectively, the "Company") offer
wireless paging service, PCS service, wireless telemetry systems (hardware and
software) and communications software and technology to telecommunications
carriers and other businesses. Wireless telemetry involves the use of wireless
devices for remote data collection, distribution and monitoring. 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 transceiver
devices, transmission services, central control devices and management software.
Businesses requiring telemetry applications include electric utilities, alarm
companies and vending machine operations ("Telemetry Users"). 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 revenue source 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,
a Nova Scotia corporation ("TRG--Canada"), 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.
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.
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
June 30, 1999 and 2000, is unaudited)
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);
-- TRG-US will become Telemetrix Solutions Ltd. ("Telemetrix Solutions";
for the collective activities of both TRG-US 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 became 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 June 30, 2000, include
the accounts of Telemetrix Inc. (the parent company) and its wholly owned
subsidiaries (Telemetrix Solutions and Telemetrix Technologies), while the
consolidated unaudited financial statements for June 30, 1999, include only the
activities of TRG because the Company accounted for the TRG combination as a
continuation of interest.
The results for three months and six months ended June 30, 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 & footnotes included in the Company's 1999 Annual
Report on SEC Form 10-KSB filed with the U.S. Securities & Exchange Commission.
In Management's opinion, the accompanying unaudited interim financial
statements include all normal adjustments necessary to present fairly the
Company's financial position at June 30, 2000, and the results from operations
for the three and six months ended June 30, 2000, and the cash flows for the six
months ended June 30, 2000.
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
June 30, 1999 and 2000, is unaudited)
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. ................ $ 7,000
Web CCB Systems Inc. ............................ 26,000
Telemetrix Software Factory ..................... 176,000
-----------
$ 209,000
===========
Due to Related Companies
Telemetrix Software Factory ..................... $ (217,000)
Becker Group of Companies ....................... (267,000)
-----------
$ (484,000)
===========
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 U.S. 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 Telemetrix Software Factory,
which matured May 1999. The outstanding balance at June 30, 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.
In addition, the Company has a receivable from Mondetta of approximately
$99,000 at June 30, 2000, for services rendered. The Company has a payable to
Mondetta of approximately $23,000, at June 30, 2000 for rent and shared office
expenses. An additional $20,000 is due to Telemetrix Software Factory for shared
expenses at June 30, 2000.
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 $2 million and is payable as (a) certain milestones in the project
are completed and (b) in the form of royalties until the total contract amount
has been paid. During the quarter ended June 30, 2000, the Company paid $65,000
to the vendor.
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
June 30, 1999 and 2000, is unaudited)
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 June 30, 2000, the Company had committed to pay
$1,529,000, and had paid a total of $1.4 million. 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 several employment contracts.
These contracts indicate that options to purchase 225,000 shares of the
Company's common stock were granted at exercise prices ranging from $4.69 to
$10.00. Legal counsel is currently reviewing these contracts.
Borrowings. During the quarter, the Company drew on its line of credit with
Valley Bank, Scottsbluff, Nebraska, for a total of $200,000. The Company also
borrowed $716,000 from two principal shareholders at interest rates ranging from
9% to 11%. All funds will be used for the continuation of the development of the
T3000 technology.
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 used the proceeds of this private placement for
pre-manufacturing design, manufacturing and working capital.
Conversion of Debt to Equity. On June 30, 2000, the Becker Group of
Companies converted notes payable totaling $1.03 million (including principal &
accrued interest) into 510,778 shares of common stock.
9
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 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 forward-looking 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 telecommunications services and solutions for wireless
telemetry to businesses and telecommunications carriers, utilizing wireless
Personal Communications Services ("PCS"). We are developing the T3000 wireless
telemetry product for data collection, system monitoring, and data distribution.
The T3000 can be used in a wide variety of applications, such as automatic
utility meter reading, home security, monitoring vending machines and other
specialty applications. Our T3000 wireless telemetry system includes hardware
(e.g., the COMM Center and Optical Reader), software, network monitoring
services, and support services. We will provide each of these components of the
T3000. We also provide wireless telecommunications services over our licensed
wireless PCS and paging network (the "WTC Network"), which includes two separate
wireless communication networks and the total coverage area encompasses portions
of western Nebraska, northeastern Colorado and southeastern Wyoming. Telemetrix
Solutions is located in Toronto and provides billing and customer management
services for long distance carriers. Our operations consequently encompass
research & development, product design, manufacturing, telecommunications
services, data management and carrier support services. Management recently
reviewed the business plan, decided to focus on the T3000 and downsized the
Service Bureau operations.
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 &
equipment (billing support software, the T3000 technology, international patent
filings and PCS Licenses) and then 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, our market development
activities are creating awareness of our products and services. The
Toronto-based Service Bureau (Telemetrix Solutions) has commenced regular
operations, but the T3000 system and our other wireless communications services
require further development.
10
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
T3000. Telemetrix's immediate objective is transitioning T3000 into
commercial design and production. We have been beta-testing the T3000 in western
Nebraska for the past 18 months, and integrating the devices with the
controlling software. We will soon execute Testing and Evaluation agreements in
various locations including California, Florida, Minnesota and Nebraska. We also
integrate a Telemetrix GSM-PCS radio module of our design and manufacture into
the system and can add a "Subscriber Line Interface" for interconnecting the
GSM-PCS radio module with household telephony wiring. Prototypes for the
beta-testing now use Telemetrix GSM-PCS radio modules and pre-production
circuitry. We have applied for 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). We have
arranged commercial manufacturing processes and capability with industry-leading
contractors and have identified and approved sources for components. We estimate
that completing product development through commercial production will require
approximately $8.0 million: $1.7 million for product development (both internal
and by third parties), $1.0 million for technology licensing, $1.0 million for
manufacturing, $1.8 million for development and testing applications, $0.9
million for testing & certification and $2.0 million for working capital. We
have commercial orders for delivery in October 2000. This following schedule
illustrates our product development activities. 2000
<TABLE>
<CAPTION>
2000
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jan. Feb. March April May June July August Sept. Oct.
| | | | | |
| | | | | |
Beta-testing on WTC Network | | | | Begin volume production
Software integration & development | Build first production units.
FCC/GSM certification.
</TABLE>
After initial GSM deployment, T3000 development will focus on integrating
other wireless technologies (CDMA & TDMA) to expand the coverage both in North
America and around the world. Future T3000 enhancements provides additional
applications, which can be quickly and easily integrated in the T3000.
Wireless Services. Our wireless communications services currently consist
of paging operations in Nebraska, Colorado and Wyoming over the WTC Network.
These operations (paging services plus equipment sales, rentals and repairs) now
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 and resulted in lower
revenue. Also, the market penetration and decreasing subscriber 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.
11
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
Service Bureau. TRG acquired its TRACCS software in April 1998, and
completed development of that software ("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 charge a fee of 3%-5% of the customer's
invoiced revenue (lower than the customary 4%-6% fee for telecommunications
billing services). However, we are de-emphasizing the Service Bureau, so its
activities will diminish during the next few quarters.
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
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, pre-production 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 expanding our operations.
Research & Development. Our research & development activities will
principally focus on completing T3000 for general release in 2000. We
expect research & development always will constitute a significant
operating expense because we must continually enhance and upgrade our
products & 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 those related research & development costs.
Capital Expenditures. 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.
We estimate that deployment of the T--NOC could require a total of $2.6
million.
12
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
Licensing. Some products and services utilize the intellectual property of
other parties, which may 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 royalty 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.
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
standards for electronic emissions, safety and system interoperability.
Principal pre-production expenses are the costs incurred to develop
manufacturing processes & 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 initial marketing to
create awareness of our products and services.
Manufacturing. The largest manufacturing expense will be carrying
manufactured equipment & component inventory on the T3000 units. Since
T3000 will include some specific use customized components, we must commit
to large volume purchases to ensure timely delivery and to lower costs. In
a similar manner, large production runs avoid multiple set-up charges and
therefore are more economical, especially since third parties manufacture
the T3000 units for us. We anticipate building to both inventory and 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, non-capitalized 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 non-cash 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 T--NOC.
13
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
Interest Expense. Interest expense includes interest incurred from debt. Our
principal interest expense results from amounts we borrowed from our principal
shareholders, which incur interest at annual rates ranging from 7.5% to 9.5%.
RESULTS OF OPERATIONS
Three & six months ended June 30, 2000, compared to the three & six months ended
June 30, 1999
During the quarter ended June 30, 2000 ("Recent Quarter") and the six
months ended June 30, 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 June 30, 1999 ("Prior Quarter") and the six
months ended June 30, 1999 ("Prior Period"), TRG began marketing 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 Quarter & Period (collectively, "Latest Periods") and the Prior Quarter &
Period (collectively, "Past Periods"). The financial statements for the Past
Periods include only TRG because WTC was not acquired until September 1999;
however, the financial statements for the Latest Periods include Telemetrix, TSI
and Telemetrix Technologies. Since the Past Periods did not include any
operations of WTC, the results of operations for the Latest Periods are not
comparable to the Past Periods. We expect that this situation will continue
until first quarter 2001, when both periods being compared will contain WTC's
operations.
Revenue totaled $180,000 & $361,000 during the Latest Period (Recent
Quarter & Recent Period, respectively) compared to $499,000 during both Past
Periods; this decrease primarily results from our decision to de-emphasize the
Service Bureau and reduced paging revenues. During the Latest Periods, we
received $68,000 & $142,000 from equipment sales & rentals and $112,000 &
$219,000 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 $3.1 million & $5.5 million during the Latest
Periods. 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 was approximately $59,000 & $122,000 for the Latest
Periods. These expenses primarily consist of salaries and wages for the
sales staff.
Research & Development expenses were approximately $1.7 million & $2.7
million for the Latest Periods. The primary component of this expense is
the $1.4 million paid to an outside company for manufacturing design &
pre-manufacturing setup costs for the T3000. 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.
14
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
Manufacturing expenses were not incurred during the Latest Periods or
the Past Periods. We will start incurring manufacturing expenses for the
T3000 in the third quarter of 2000.
Selling, General & Administrative expenses were $1.4 million & $2.7
million for the Latest Periods. The primary component of the SG& A expense
is depreciation and amortization; $1.0 million & $2.1 million for the
Latest Periods. Amortization includes the amortization of goodwill from the
acquisition of WTC and amortization of patents and FCC licenses. SG&A
expenses also include marketing costs for the T3000 and salaries and
administrative costs of Telemetrix Solutions and Technologies. The $2.7
million SG&A expenses for the Prior Period were primarily salaries in the
Service Bureau operations and the amortization of the Billing Software
(which we wrote off in late 1999).
Interest expenses were $186,000 & $325,000 for the Latest Periods. This
expense represents primarily the interest charges on related party loans,
principally the loans from HHL. Interest expense for the Prior Period was
$53,000, which also was interest on loans from HHL.
Net loss. We reported a net loss of $3.1 million & $5.5 million for the
Latest Periods. The principal components of this net loss were the research &
development expense for the T3000 as well as operating costs. 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 $7.7 million) and equity contributions
($37.0 million). The Service Bureau operations have also provided some funding
for operations and development. During the Recent Period, we used $3.3 million
in cash for operations, primarily research & development. We used $121,000 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 $3.5 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 also 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.
15
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
FUNDING REQUIREMENTS. In order to pay operating expenses and achieve
self-sustaining operations, we expect to require substantial funding during the
next two years of approximately $25.0 to $30.0 million. We will need funds for:
Research and Development projects include completing the T3000 system,
particularly a data 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 also will 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
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.
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.
16
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 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 table summarizes
all securities that we issued or sold during the quarter ended June
30, 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> <C>
6/30/00 Common Stock(1) 510,778 Accredited Investor Sec. 4(2) $1.50-$3.02(2) $1,029,278
5/01/00 Options(3) 300,000 Affiliates Sec. 4(2) $4.69-$10.00(4) --
</TABLE>
--------------------
1 Conversion of existing debt into Common Stock.
2 The deemed per-Share prices reflect the trading price for the
Common Stock when the loans were originally made.
3 Options to Officers & Directors pursuant to Company's Stock
Option Plan.
4 Trading price of the Common Stock on date the Options were
issued.
(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.
Item 5. Other Information
In May 2000, Registrant executed a Teaming Agreement with Ericsson
Messaging Systems Inc. Under that agreement, Registrant and Ericsson may refer
customers to the other party and may submit proposals incorporating products and
services of both companies. The agreement also specifies procedures when
submitting joint bids or when a party provides products & services to the other
party.
17
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(10) Material Contracts.
(10.1) Teaming Agreement dated May 2000, between Registrant
and Ericsson Messaging Systems Inc.
(27) Financial Data Schedules.
(b) Reports on Form 8-K. On April 20, 2000, Registrant filed a Current
Report on SEC Form 8-K that further amended its previous reports filed
March 8, 2000 and amended March 21, 2000, which reported:
Item 4: Changes in the Company's Certifying Accountants (see
Item 8 above).
The March 8, 2000, report explained that 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 8-K 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.
The March 21, 2000, and April 20, 2000, amendments included the
comment letters from the former certifying accountants.
18
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 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
August 11, 2000 By: /S/ JAMES DOYLE
----------------------------------
James Doyle
Signing for Registrant and as
Chief Financial Officer
19
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended June 30, 2000
INDEX TO EXHIBITS FILED WITH THIS QUARTERLY REPORT
Exhibit
Exhibit Page
------- -------
(10) Material Contracts
(10.1) Teaming Agreement dated May 2000, between Registrant and
Ericsson Messaging Systems Inc. ........................... 2
(27) Financial Data Schedule ........................................... 7
