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 September 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 September 30, 2000, Registrant had 16,230,165 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
Item 2. Management's Discussion & Analysis of Financial Condition and
Results of Operations............................................. 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 19
Item 2. Changes in Securities and Use of Proceeds......................... 19
Item 3. Defaults Upon Senior Securities................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............... 19
Item 5. Other Information................................................. 19
Item 6. Exhibits and Reports on Form 8-K.................................. 20
SIGNATURES .................................................................. 21
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>
TELEMETRIX INC.
(Commission File No. 0-14724)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Information as of September 30, 2000, is unaudited)
Sept. 30 December 31
2000 1999
ASSETS --------- -----------
<S> <C> <C>
Current assets:
Cash.................................................................................$ 160 $ 16
Accounts receivable, net of allowance for doubtful accounts .......................... 135 259
Note receivable-- related party ...................................................... 363 348
Due from related companies ........................................................... 223 54
Prepaid expenses ..................................................................... 22 3
-------- --------
Total current assets .............................................................. 903 680
Property & equipment, net ............................................................... 1,671 2,317
Investments - Restricted ................................................................ 562
Intangibles and other assets............................................................. 7,975 8,545
-------- --------
Total assets...................................................................$ 11,111 $ 11,542
======== ========
LIABILITIES & STOCKHOLDERS' (EQUITY) DEFICIT
Current liabilities
Line of credit.......................................................................$ 200 $ 195
Accounts payable ..................................................................... 2,033 709
Accrued expenses ..................................................................... 757 1,264
Due to related companies ............................................................. 480 354
Current portion-- long term debt-- related parties ................................... -- 2,157
Current portion of long term debt .................................................... 202 8
-------- --------
Total current liabilities .......................................................... 3,672 4,687
-------- --------
Deferred rent liability ................................................................. -- 130
Long term debt .......................................................................... 1,844 836
Long term debt-- related party .......................................................... 947 4,588
-------- --------
Total long-term liabilities ........................................................ 2,791 5,554
-------- --------
Total Liabilities ................................................................ 6,463 10,241
-------- --------
Stockholders' equity (deficit):
Common stock ......................................................................... 16 13
Additional paid-in capital ........................................................... 44,289 33,466
Foreign currency translation ......................................................... (13) 31
Retained earnings (deficit) .......................................................... (39,644) (32,209)
-------- --------
Total Stockholders' Equity (deficit) ............................................. 4,648 1,301
-------- --------
Total Liabilities and Stockholders' Equity (deficit)........................$ 11,111 $ 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
<PAGE>
<TABLE>
<CAPTION>
TELEMETRIX INC.
(Commission File No. 0-14724)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Information relating to the three-month and nine-month periods ended
September 30, 1999 and 2000 is unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Equipment sales & rental ..................... $ 71 $ 1 $ 213 $ --
Service income ............................... 81 1,017 300 1,985
------------ ------------ ------------ ------------
Total revenue ............................ 152 1,018 513 1,985
------------ ------------ ------------ ------------
Expenses:
Cost of revenue .............................. 22 -- 143 --
Research & development ....................... 735 5,081 3,427 5,393
Selling, general & administrative ............ 1,334 3,026 4,008 14,244
------------ ------------ ------------ ------------
Total operating expenses ................. 2,091 8,107 7,578 19,637
------------ ------------ ------------ ------------
Net loss from operations ....................... (1,939) (7,089) (7,065) (17,652)
------------ ------------ ------------ ------------
Other Expense:
Interest expense (income) .................... 55 101 380 289
Other expense (income) ....................... 5 (91) (10) 16
------------ ------------ ------------ ------------
Total other expense (income) ............. 60 10 370 305
------------ ------------ ------------ ------------
Net (loss) ...................................... $ (1,999) $ (7,099) $ (7,435) $ (17,957)
============ ============ ============ ===========
Weighted average shares outstanding
during period .............................. 14,826,258 5,214,201 13,966,434 8,039,800
Loss per share .................................. $ (0.13) $ (1.36) $ (0.53) $ (2.23)
============ ============ ============ ============
Financial data was rounded to the nearest thousand dollars (except per share data).
The accompanying notes are an integral part of these
consolidated financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
TELEMETRIX INC.
(Commission File No. 0-14724)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Information relating to the nine month periods ended September 30, 1999 and
2000 is unaudited) See note 4.
Nine Months
Ended September 30,
--------------------
2000 1999
---- ----
<S> <C> <C>
Cash flow from operating activities
Net loss for the period......................................................... $ (7,435) $(17,957)
Adjustments to reconcile net loss to cash used in operations
Amortization & depreciation ................................................... 1,565 6,413
Changes in assets and liabilities
In accounts receivable ...................................................... 124 (763)
In accounts payable ......................................................... 1,324 1,245
In other assets ............................................................. (19) --
In other liabilities ........................................................ -- 864
In accrued liabilities ...................................................... 119 --
-------- --------
Total adjustments ......................................................... 3,113 7,759
-------- --------
Net cash used in operating activities ................................ (4,322) (10,198)
-------- --------
Cash flow from investing activities
Investment in subsidiaries and Wireless ......................................... -- (215)
Increase in intangibles ......................................................... -- (9,424)
Increase in capital assets ...................................................... (282) (2,471)
-------- --------
Net cash used in investing activities .................................. (282) (12,110)
-------- --------
Cash flow from financing activities
Net activity on line-of-credit .................................................. 5 --
Advances on notes receivable - related party .................................... (15) --
Proceeds (payments) from long-term debt ......................................... 1,107 --
Proceeds (payments) from long-term debt - related party ......................... 49 --
Proceeds from issuance of share capital ......................................... 3,689 18,973
Advances to related parties ..................................................... (169) --
Advances from related companies ................................................. 126 3,389
-------- --------
Net cash from financing activities ..................................... 4,792 22,362
-------- --------
Effect of foreign currency translation on cash ..................................... (44) --
-------- --------
Net increase (decrease) in cash .................................................... 144 54
-------- --------
Cash, beginning of period .......................................................... 16 112
-------- --------
Cash, end of period................................................................ $ 160 $ 166
======== ========
</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 three-month and nine-month periods ended
September 30, 1999 and 2000, is unaudited)
1. Description of Business
Telemetrix Inc. offers wireless telemetry systems (hardware and software),
communications software and technology to telecommunications carriers, private
businesses and commercial entities that utilize wireless telemetry. Those
companies include gas and electric distribution companies, cities,
municipalities, private commercial enterprises and a complete range of remote
monitoring, remote control, security and alarm type businesses ("Telemetry
Users"). Wireless telemetry uses wireless devices and transmissions 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. Personal
Communications Services ("PCS") carriers can use our technology to provide
transmission services for Telemetry Users. With widespread coverage and easy
mobility, wireless telecommunications companies and providers are especially
suitable for telemetry applications. Telemetrix Inc. wireless telemetry
hardware, software and collection methods thus present new and potentially
significant revenue sources for wireless communication service providers.
Additionally, through its subsidiary, the Company offers wireless paging service
and PCS to businesses and individuals.
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.
6
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continuted)
(Information as of and relating to the three-month and nine-month periods ended
September 30, 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);
-- TRG-US became 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 became 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 September 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 September 30, 1999, include only
the activities of TRG.
The results for three months and nine months ended September 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.
7
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continuted)
(Information as of and relating to the three-month and nine-month periods ended
September 30, 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 September 30, 2000, and the results from
operations for the three and nine months ended September 30, 2000, and the cash
flows for the nine months ended September 30, 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
The Software Factory Inc. (collectively, "Affiliated Companies"). The Company
advanced funds to certain Affiliated Companies and borrowed funds from HHL and
other Affiliated Companies.
(in thousands)
Due from Related Companies
Mondetta Telecommunications Inc....................... $ 10
Tracy Broadcasting.................................... 8
Web CCB Systems Inc................................... 27
The Software Factory.................................. 178
-------
$ 223
=======
Due to Related Companies
The Software Factory.................................. $ 185,000
Becker Group of Companies............................. 295,000
-----------
$ 480,000
===========
HHL is the Parent of WEB, BGC, and The 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 principal balance at September 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
$44,000 at September 30, 2000, for services rendered. The Company has a
receivable from Mondetta of approximately $10,000, at September 30, 2000 for
rent and shared office expenses. An additional $185,000 is due to Telemetrix
Software Factory for shared expenses at September 30, 2000.
4. Supplemental Disclosure of Cash Flow Information
Total cash paid for interest for the nine months ended September 30, 2000
was $90,000. Non-cash investing and financing activities included: During the
three months ended September 30, 2000, the Company issued 50,000 shares of stock
to accredited investors in exchange for investment banking services.
Additionally the Company issued 300,000 shares to accredited investors as part
of a convertible debenture offering. Finally, on September 30, 2000 the Company
issued 1,177,240 shares of stock in a conversion of existing debt.
8
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continuted)
(Information as of and relating to the three-month and nine-month periods ended
September 30, 1999 and 2000, is unaudited)
5. 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 September 30, 2000, the Company paid
$36,000 to the vendor.
Manufacturing Design Agreements. The Company contracted with Plexus
Corporation for manufacturing design and implementation to be used in the
Company's telemetry technology. At September 30, 2000, the Company had
committed to pay $2.2 million and had paid a total of $1.8 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
Borrowings. The Company has drawn on its line of credit with Valley
Bank, Scottsbluff, Nebraska, for a total of $200,000. The Company also
borrowed $907,000 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 and for working capital.
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.
9
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continuted)
(Information as of and relating to the three-month and nine-month periods ended
September 30, 1999 and 2000, is unaudited)
Conversion of Debt to Equity. On June 30, 2000, the Becker Group of
Companies converted notes payable totaling $1.03 million (including
principal and accrued interest) into 510,778 shares of common stock. On
September 30, 2000, Hartford Holdings converted notes payable totaling
$6.47 million (including principal and accrued interest) into 1,177,240
shares of common stock
Convertible Debentures. On September 8, 2000, the Company completed a
$1.2 million placement of Convertible Debentures. The Debentures mature on
December 31, 2001 and bear an interest rate of 6% per annum, compounded
semi-annually. Interest will accrue but not be paid until redemption or
repayment.
In conjunction with issuance of the debentures, the note holders
received 300,000 shares of common stock which have been deferred as debt
issuance costs. The shares were valued at market and will be recognized as
interest expense over the life of the debenture.
10
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 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. The Company received patents on January 11, 2000, for our method and
system of using the short message service portion of digital communications
systems to transmit telemetry data. This technology allows data to be sent over
the existing communications systems, without affecting the overall voice and
data capacity of the system. This technology does not require any modification,
alteration or other changes to the communications network hardware or software.
We have developed the PCS e-Telemetry Data products, which consist of hardware
and software for data collection, data distribution, and system monitoring. The
T3000 can be used in a wide variety of applications, including automatic utility
meter reading, home security, monitoring vending machines and other specialty
applications. Our T3000 PCS telemetry system includes hardware (e.g., the
CommCenter and Optical Reader), software, network monitoring services, and
support services.
We provide all of the 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 systems.
The total coverage area encompasses portions of western Nebraska, northeastern
Colorado and southeastern Wyoming. Our operations consequently encompass
research & development, applications development, product design, manufacturing,
training, installation support and management, telecommunications services, data
management and carrier support services.
T3000. Telemetrix is transitioning T3000 into commercial production and is
currently conducting testing and evaluation programs with several utility-based
commercial clients and is currently establishing the marketing and distribution
network. We have beta-tested the T3000 in western Nebraska for the past 27
months, and are designing the hardware and software that integrate the system
and the Management and Information Points ("MIPs"). We have executed Testing and
Evaluation agreements in California, Florida, Minnesota, Virginia Washington and
Nebraska. We use a Telemetrix GSM-PCS radio module of our design and
manufacture. We can add a "Subscriber Line Interface" for interconnecting the
T3000 GSM-PCS radio module with existing household telephony wiring. We also
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). In August 2000, we
received notification of GSM certification for our GSM-PCS radio module. We have
contracted with Plexus Corporation for commercial manufacturing and have
11
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 30, 2000
identified and approved sources for components. All vendors and manufacturers
are ISO 9001 compliant. We estimate that completing product development through
commercial production will require a total amount of approximately $11.0
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, $2.6 million for the Network Operations Center and $2.0 million
for working capital. We have commercial orders for delivery in December 2000.
This following schedule illustrates our product development activities.
<TABLE>
<CAPTION>
2000 2001
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June July August Sept. Oct. Nov. Dec. Jan. Feb.
| | | | | | |
| | Begin volume production | |
Software integration & development | | Implement Managed Services
FCC/GSM certification. Begin volume installations
</TABLE>
In year 2001, we expect to integrate TDMA wireless hardware and technology
into T3000, which will expand the available market coverage primarily in North
and South America and other international markets. Concurrent future T3000
enhancements will provide CDMA wireless transmission technology, Bluetooth
capability and other advanced communication capabilities. Because of the modular
construction and design of the T3000 these features and enhancements should be
quickly and easily integrated into the hardware and software products.
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. We acquired the PCS licenses
in 1996, began network deployment in late 1997 and finished network deployment
in April 1999. PCS network testing is underway, and we hope to commence
commercial PCS operations in first quarter 2001. The PCS network has been used
for the past 27 months as a research and development facility for the
development of the T3000 hardware and software.
Service Bureau. TRG acquired the TRACCS software in April 1998, and
completed software development ("Billing Software") in the third quarter 1998.
TRG began Service Bureau customer care operations (where TRG performs customer
management services for long distance carrier customers) in late 1998. The
service bureau company faced strong competition during 1999 and therefore did
not obtain the forecasted number of contracts and resultant revenues. During
first quarter 2000, management reviewed the operations of the Service Bureau and
determined that those operations and the ultimate direction of TRG did not fit
the Company's business plan. During the second and third quarter, the Company
actively sought a buyer for the Service Bureau and in August 2000, we sold the
assets of the Service Bureau operations. This sale reduced our monthly operating
overhead, eliminate the deficits created by this operation, focus on our core
competencies and redirect management and operation's efforts to commercializing
and deploying of the T3000 system.
12
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 30, 2000
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
(Sold in August 2000) Consulting income Representatives & fulfillment charges
Wireless telecommunications PCS services Carrier settlements for airtime charges
Equipment sales Equipment costs
Paging services Operating overhead
Paging equip. sales Equipment costs
Wireless Telemetry
T3000 equipment sales Manufacturing costs; license fees
T3000 software sales License fees
Managed Services Monthly active port fee
Short message fee Carrier settlements for airtime charges
System sales Hardware and software costs
</TABLE>
Operating Expenses. Our operating expenses consist principally of research &
development, marketing, pre-production, license and general & administrative
costs. Upon launching products and services, sales & marketing expenses will
substantially increase, while research & development, pre-production and license
costs gradually and moderately decrease. After sales of products and services
reach forecast levels, the principal operating expenses will be sales &
marketing, manufacturing, general & administrative, research & development and
operation costs for managed services and application services.
Research & Development and Application Development. Our research &
development activities principally focus on commercialization of the T3000
system. Research & development always constitutes a significant operating
expense and will continue to do so. We must enhance T3000 through the
integration of new wireless technologies such as Bluetooth, and
enhancements to GSM, TDMA and CDMA. Application development resources will
be increased as the T3000 technology is adapted to specific customer
requirements. We expect to spend about $2.4 million for those related
research & development costs during 2001.
Capital Expenditures. A 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 (customers) of
T3000. We will implement a Telemetry Services Operation Center (T-SOC),
which will include the T-NOC and a Customer Service Center. We estimate
that the deployment of the T-NOC could require as much as $2.6 million. In
addition to the T-NOC and T-SOC, we will acquire an Ericsson Short Message
Service Center (eSMSC), which will allow the short messages from the T3000
to be exchanged with the T-NOC. We estimate the cost of the eSMSC at
approximately $600,000.
13
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 30, 2000
T-NOC and T-SOC Operation. The expenses to deploy and operate the Telemetry
Services Operation Center and the Telemetrix Customer Service Centers
include customer service representatives, network managers, hardware and
software technicians and management for this 7/24 customer service and
telemetry service facility.
Licensing. Some products and services utilize the intellectual property of
other parties, which may require us to pay license fees. Such license fees
are payments, continuing royalties or both. 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 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. The development of a marketing organization, sales
organization and associated support is anticipated to cost approximately
$750,000 over the next year, which includes trade show expense, staff
salaries, benefits and travel expenses.
Manufacturing. T3000 includes some specific use customized components; we
must commit to large volume purchases, and in some cases make advance
payment for critical components to ensure timely delivery and to control
costs. We estimate inventory costs to amount to $3.6 million during the
second year of T3000 sales. Inventory costs include substantially completed
T3000 units waiting for final assembly prior to installation at the
customers' locations
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 will expand our corporate and administrative staff.
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.
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 & nine months ended September 30, 2000, compared to the three & nine
months ended September 30, 1999
During the quarter ended September 30, 2000 ("Recent Quarter") and the nine
months ended September 30, 2000 ("Recent Period"), our prime focus was
manufacturing design, testing and pre-production manufacturing of the T3000
technology while working to sell the billing software asset of Telemetrix
Solutions and create an orderly transition for the employees that were
associated with that division. All significant intercompany transactions and
balances have been eliminated.
14
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 30, 2000
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 $152,000 & $513,000 during the Latest Periods (Recent
Quarter & Recent Period, respectively) compared to $1.0 million and $2.0 million
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 $71,000 & $213,000 from equipment sales & rentals and
$81,000 & $300,000 from Service Bureau clients. We expect revenue to increase
substantially upon launch of the T3000 system.
Operating expenses were $2.1 million & $7.6 million during the Latest
Periods. These expenses are primarily due to design and pre-manufacturing costs
for the T3000 technology, amortization of goodwill resulting from the
acquisition of WTC, and the operations of the Service Bureau.
Costs of Revenue was approximately $22,000 & $143,000 for the Latest
Periods. These expenses primarily consist of the costs of the equipment
sold and salaries and wages of employees related to the sales.
Research & Development expenses were approximately $735,000 & $3.4
million for the Latest Periods. The primary component of this expense is
the $2.2 million to Plexus Corporation 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. Licensing fees will increase upon
production of the T3000. Research & development expenses will continue to
be substantial through the fourth quarter of 2000.
Manufacturing expenses were not incurred during the Latest Periods or
the Past Periods. We will incur manufacturing expenses for the T3000 in the
fourth quarter of 2000.
Selling, General & Administrative expenses were $1.3 million & $4.0
million for the Latest Periods. The primary component of the SG&A expense
is depreciation and amortization; $0.6 million & $1.6 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 $14.2
million SG&A expenses for the Prior Period were primarily salaries in the
Service Bureau operations and the amortization of the Billing Software
(which was written off in late 1999).
Interest expenses were $55,000 & $380,000 for the Latest Periods. This
expense represents primarily the interest charges on related party loans,
including loans from HHL. The HHL loans were converted to equity. Interest
expense for the Prior Period was $289,000, also interest on loans from HHL.
15
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 30, 2000
Net loss. We reported a net loss of $2.0 million & $7.4 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.
LIQUIDITY AND CAPITAL RESOURCES. During the Latest Period, we used $5.1 million
in cash for operations, primarily research & development. We used $282,000 of
cash for investment purposes primarily to develop WTC's PCS network in western
Nebraska. During the Latest Period we generated cash flow from financing
activities of $5.5 million.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
market value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending on the use of the derivative and whether
it qualifies for hedge accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. Management believes that the adoption of SFAS No.
133 will have no material effect on its financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which was
effective July 1, 2000, except that certain conclusions in this Interpretation,
which cover specific events that occur after either December 15, 1998 or January
12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. The Company believes its existing stock
based compensation policies and procedures are in compliance with FIN 44 and
therefore, the adoption of FIN 44 had no material impact on the Company's
financial condition, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 101, which provides guidance on applying generally
accepted accounting principles to selected revenue recognition issues.
Management believes that the Company's revenue recognition policies are in
accordance with SAB 101.
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 $10 to $12 million. We will need funds for:
Research and Development projects include expanding the capabilities of
the T3000 system, particularly the integration of other PCS radio
technologies to expand the potential markets. 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 $2 - 5 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 will contract with outside
vendors for manufacturing, licensing of the software and the compliance
testing, at an expected cost of $2.0 million.
T3000 Network Operation Center. Capital will be required to equip the
T-NOC and T-SOC. We estimate that deployment of the T-NOC and T-SOC will
require $2.6 million.
Repay Loans from Related Parties. We plan must repay loans from related
parties as soon as sufficient funding becomes available. The expected
amount of loans that will be repaid is $1.0 million.
16
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 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 September 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>
8/01/00 Common Stock(1) 20,000 Accredited Investor Sec. 4(2) $2.00(3) $ 40,000
9/1/00 Common Stock(1) 30,000 Accredited Investor Sec. 4(2) $2.00(3) $ 60,000
9/1/00 Common Stock(5) 300,000 Accredited Investor Sec. 4(2) $2.00(3) $ 600,000
9/30/00 Common Stock(2) 1,177,240 Accredited Investor Sec. 4(2) $5.5002(2) $ 1,029,278
</TABLE>
--------------------
(1) Shares issued in exchange for investment banking services.
(2) Conversion of existing debt into Common Stock.
(3) Share price based on negotiated value.
(4) Trading price of the Common Stock on the conversion date.
(5) Shares issued with convertible debenture.
(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 September 30, 2000
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(10) Material Contracts.
(10.2) TRACCS Software Purchase Agreement
(10.3) Employment Agreement for James Doyle
(10.4) Employment Agreement for Marguerite McKee
(10.5) Employment Agreement for Joseph Schon
(27) Financial Data Schedules.
(b) Reports on Form 8-K. None.
18
<PAGE>
TELEMETRIX INC.
(Commission File No. 0-14724)
Quarterly Report on SEC Form 10-QSB for the Quarter ended September 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
November 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 September 30, 2000
INDEX TO EXHIBITS FILED WITH THIS QUARTERLY REPORT
Exhibit
Exhibit Page
------- -------
(10) Material Contracts
(10.2) TRACCS Software Purchase Agreement....................... 21
(10.3) Employment Agreement for James Doyle...................... 36
(10.4) Employment Agreement for Marguerite McKee................. 44
(10.5) Employment Agreement for Joseph Schon..................... 53
(27) Financial Data Schedule.......................................... 63
