SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TELEMETRIX INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 6770 (Primary Standard Industrial Classification Code Number) | 470830931 |
6650 Gunpark Drive, Suite 100, Boulder, CO 80301 |
(303) 652-0103 |
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller Reporting company) | Accelerated filer ¨ Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
At August 7, 2008, the number of shares outstanding of the registrant’s common stock, no par value (the only class of voting stock), was 181,483,368.
Table of Contents
TELEMETRIX INC.
INDEX
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Telemetrix, Inc.
Consolidated Balance Sheets
June 30, 2008 | December 31, 2007 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Current assets: | |||||||
Cash | $ | 373,584 | $ | 46,652 | |||
Accounts receivable, net | 31,464 | 38,756 | |||||
Deposits | 127,618 | 2,918 | |||||
Total current assets | 532,666 | 88,326 | |||||
Property and equipment, net | 462,322 | 635,875 | |||||
Total assets | $ | 994,988 | $ | 724,201 | |||
Liabilities and stockholders' (deficit) | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 941,453 | $ | 873,795 | |||
Accrued expenses | 397,846 | 378,013 | |||||
Accrued interest-Convertible debentures | 703,128 | 649,252 | |||||
Convertible debentures | 1,200,000 | 1,200,000 | |||||
Convertible note | 750,000 | - | |||||
Notes payable - affiliates | 5,629,109 | 5,084,109 | |||||
Accrued Interest - affiliates | 1,442,251 | 994,597 | |||||
Current portion of long-term debt | 221,155 | 164,859 | |||||
Total current liabilities | 11,284,942 | 9,344,625 | |||||
Long-term debt | 497,559 | 553,855 | |||||
Stockholders' (deficit): | |||||||
Preferred stock, $.001 par value, 25,000,000 shares authorized | |||||||
none issued or outstanding | - | - | |||||
Preferred stock, series D, $.001 par value, convertible, | |||||||
liquidation preferences $30 per share, 250,000 authorized | |||||||
none issued or outstanding | - | - | |||||
Common stock, $.001 par value, | |||||||
750,000,000 shares authorized, | |||||||
181,483,368 shares issued and outstanding | 181,484 | 180,484 | |||||
Paid in capital | 72,840,407 | 72,831,407 | |||||
Accumulated (deficit) | (83,809,404 | ) | (82,186,170 | ) | |||
Total stockholders' (deficit) | (10,787,513 | ) | (9,174,279 | ) | |||
Total liabilities and stockholders' (deficit) | $ | 994,988 | $ | 724,201 |
See the accompanying notes to the consolidated financial statements.
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Telemetrix, Inc.
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2008 and 2007
(Unaudited)
Three months | Six months | ||||||||||||
2008 | 2007 | 2008 | 2007 | ||||||||||
Revenue: | |||||||||||||
Cellular services | $ | 66,674 | $ | 51,603 | $ | 174,134 | $ | 95,295 | |||||
Cost of revenue | 52,145 | 39,738 | 117,901 | 82,380 | |||||||||
Gross margin | 14,529 | 11,865 | 56,233 | 12,915 | |||||||||
Operating expenses: | |||||||||||||
Selling, general and administrative expenses | 591,709 | 377,366 | 1,125,036 | 900,736 | |||||||||
(Loss) from operations | (577,180 | ) | (365,501 | ) | (1,068,803 | ) | (887,821 | ) | |||||
Other (income) expense: | |||||||||||||
Gain on the settlement of debt | - | - | - | (80,330 | ) | ||||||||
Interest expense | 304,374 | 194,596 | 554,431 | 385,279 | |||||||||
Total other (income) expense | 304,374 | 194,596 | 554,431 | 304,949 | |||||||||
Net (loss) | $ | (881,554 | ) | $ | (560,097 | ) | $ | (1,623,234 | ) | $ | (1,192,770 | ) | |
Per share information - basic and fully diluted: | |||||||||||||
Weighted average shares outstanding | 181,153,698 | 180,483,368 | 180,818,533 | 180,483,368 | |||||||||
Net (loss) per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) |
See the accompanying notes to the consolidated financial statements.
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Telemetrix, Inc.
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2008 and 2007
(Unaudited)
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net cash (used in) operating activities | $ | (968,068 | ) | $ | (711,903 | ) | ||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | - | (39,550 | ) | |||||
Net cash (used in) investing activities | - | (39,550 | ) | |||||
Cash flows from financing activities: | ||||||||
Convertible notes payable-affiliates | 545,000 | 785,350 | ||||||
Proceeds from notes payable | 750,000 | 718,714 | ||||||
Payments on long term debt and notes payable-affiliates | - | (718,714 | ) | |||||
Net cash provided by financing activities | 1,295,000 | 785,350 | ||||||
Net increase in cash | 326,932 | 33,897 | ||||||
Beginning - cash balance | 46,652 | 45,872 | ||||||
Ending - cash balance | $ | 373,584 | $ | 79,769 | ||||
Supplemental cash flow information: | ||||||||
Cash paid for income taxes | $ | - | $ | - | ||||
Cash paid for interest | $ | 38,068 | $ | - |
See the accompanying notes to the consolidated financial statements.
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TELEMETRIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008 (Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and Rule 8.03 of Regulation SX. They do not include all of the information and footnotes for complete financial statements as required by GAAP. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Company's financial statements as of December 31, 2007, and for the two years then ended, including notes thereto included in the Company's Form 10-KSB.
NOTE 2. EARNINGS PER SHARE
The Company calculates net income (loss) per share as required by SFAS 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.
NOTE 3. NOTES PAYABLE – RELATED PARTIES
The Company has outstanding notes payable to four affiliates of the Company in the principal amount of $5,629,109 at June 30, 2008. The Company has recorded accrued interest expense of $1,442,251 as of June 30, 2008 related to these notes.
Type of Debt | Interest | Conversion | Maturity | Amount | ||||||
Rate | Price | Date | of Principal | |||||||
Convertible notes | 15 | % | $.010 per share | 12/31/08 | $ | 1,648,259 | ||||
Convertible notes | 15 | % | $.010 per share | 12/31/08 | 1,875,043 | |||||
Convertible notes | 15 | % | $.010 per share | 12/31/08 | 1,638,806 | |||||
Convertible notes | 10 | % | $.020 per share | 12/31/06 | 467,000 | |||||
Debt discount, less amortization of $467,000 | - | |||||||||
Total | $ | 5,629,108 |
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The Company has issued convertible promissory notes to Nyssen LP (“Nyssen”) totaling $1,648,259 for advances from November 30, 2004 through June 30, 2008. The notes pay interest at 15% per annum and mature on December 31, 2008. During the six months ended June 30, 2008, Nyssen, advanced $275,000 and the Company recorded interest expense of $145,466.
The Company has issued convertible promissory notes to Becker Capital Management LLC (“Becker”) totaling $1,875,043 for advances from May 17, 2005 through June 30, 2008. The notes pay interest at 15% per annum and mature on December 31, 2008. During the six months ended June 30, 2008, Becker advanced $0 and the Company recorded interest expense of $143,204.
The Company has issued convertible promissory notes to LB Becker Consulting (“LB Becker”) totaling $1,638,806 for advances from April 7, 2006 through June 30, 2008. The notes pay interest at 15% per annum and mature on December 31, 2008. During the six months ended June 30, 2008, LB Becker advanced $270,000 and the Company recorded interest expense of $127,904.
On December 31, 2004, the Company recorded a $467,000 promissory note to Tracy Broadcasting Corporation for advances recorded by the Company in 2002 and 2003. The notes bear interest at 10% per annum and have a conversion feature of $.020 per share. The Company used the intrinsic value method to determine proceeds that should be allocated to the embedded beneficial conversion feature for the $467,000 convertible note. The Company recorded $31,078 of interest expense on this note during the six months ended June 30, 2008 (See Note 7).
NOTE 4. NOTES PAYABLE |
The Company entered into a Business Loan Agreement on March 30, 2007, and borrowed $718,714 on a variable rate loan due on March 31, 2011. The business loan agreement was modified March 30, 2008. Under the modified terms, the Company will pay this loan in accordance with the following payment schedule: 5 monthly consecutive interest payments, beginning April 30, 2008, with interest calculated on the unpaid principal balances at an interest rate based on the Wall Street Journal Prime Rate (currently at 5.0%); 30 monthly consecutive principal and interest payments in the initial amount of $24,865 each, beginning September 30, 2008, with the interest calculated on the unpaid principal balances at the interest rate based on the Wall Street Journal Prime Rate. The current portion of this balance of this loan is $221,155 with $497,559 classified as long-term debt. The Company entered into a Security Agreement granting to Lender a security interest in certain equ ipment. The Company had previously granted a security interest in the equipment to Becker Capital Management and LB Becker Consulting, who assigned the security interest to this Lender. The Company paid interest of $20,728 related to this note during the six months ended June 30, 2008.
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Future minimum principal payments pursuant to long-term debt agreements are as follows:
2008 | $ | 87,247 |
2009 | 271,335 | |
2010 | 286,135 | |
2011 | 73,997 | |
$ | 718,714 |
$1,200,000 Convertible debentures – interest at 6.25% per annum, conversion feature allows the holder to use the debenture as payment for a like value of securities should the Company complete a stock offering of $6,000,000 at January 1, 2001. Such an offering was not completed. The debentures are currently in default. The Company recorded $53,875 of interest expense on these debentures for the six months ended June 30, 2008. Total interest payable on these debentures is $703,127 at June 30, 2008.
NOTE 5. CONVERTIBLE NOTE PAYABLE
The Company signed a Promissory Note on May 13, 2008, borrowing $750,000 at 15% per annum. The Company paid a 2% loan origination fee, $15,000, to the lender. At the Lender’s option, all, or a portion of, the principal and accrued interest may be converted into common stock of the Company at a conversion price of $.03 per share. No monthly payments are required under the Promissory Note; the note and accrued interest are payable May 12, 2009. Principal plus accrued interest payable at maturity is $862,500. Interest accrued through June 30, 2008 is $14,835. The Company provided the lender with guarantees of payment from three principals of Telemetrix, Inc.
NOTE 6. GOING CONCERN
The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has experienced significant losses from operations. For the six months ended June 30, 2008, the Company incurred a net loss of $1,623,234. In addition, the Company has an accumulated deficit of $83,809,404 and working capital and stockholders’ deficits of $10,752,276 and $10,787,513 at June 30, 2008.
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The Company’s ability to continue as a going concern is contingent upon its ability to expand its service operations and secure additional financing. The Company is pursuing financing for its operations and seeking to expand its operations. Failure to secure such financing or expand its operations may result in the Company not being able to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
NOTE 7. LITIGATION |
On January 16, 2007 Tracy Broadcasting Corporation filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-07 37. Tracy Broadcasting Corporation is owned by Michael Tracy, a former CEO and Director of the Company. Mr. Tracy is also a major shareholder of the Company. The Complaint alleges that the Company owes Tracy Broadcasting Corporation $467,000 plus accrued interest at 10% per annum for outstanding loans under a promissory note issued in December 2004. The Company’s records indicate that the promissory notes were repaid in full and dispute the claim. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007 the motion was denied and the Company has appealed the decision with the Nebraska Supreme Court. In 2008, the case was remanded to the Nebraska Court of Appeals. The case will be argued September 11, 2008.
On April 12, 2006, Michael J. Tracy filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-06-291. Mr. Tracy is the former CEO and Director of the Company. The Complaint alleges that the Company owes Mr. Tracy $3,378,129 as of April 1, 2006, including principal and interest for loans Mr. Tracy made to the Company at various times in 2001 and 2002. In November 2006, the Company tendered 23,894,351 shares of common stock to Mr. Tracy in satisfaction of the May 26, 2003 Exchange and Conversion Agreement and 3,472,789 shares of common stock for deferred compensation. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007, the motion to compel arbitration was ordered and the claim was dismissed from District Court in Nebraska. This case docketed in the District Court for Scotts Bluff County, Nebraska, is now closed. As of the date of the financial statements, Mr. Tracy has not filed an arbitrat ion action in Denver, Colorado.
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Other
On October 19, 2006, the Company filed a Request for Arbitration with the World Intellectual Property Organization against UT Starcom, Inc., the successor in interest to Telos Technologies, Inc., the manufacturer of the Sonata SE switching system (GSM switch). The Request for Arbitration was accepted on October 24, 2006. The dispute relates to a Master Purchase and License Agreement dated October 22, 2003 for a Sonata SE Global System for Mobile Communications switching system. The Company requests arbitration of the following claims: (1) breach of contract; (2) breach of good faith and fair dealing; (3) fraudulent misrepresentations; (4) fraudulent inducement; (5) negligent misrepresentation; (6) intentional interference with existing contractual relations; (7) intentional interference with prospective economic relations; (8) negligent interference with existing economic relations; and (9) negligent interference with prospective economic relations. The Company claims that UT St arcom failed to perform from the time of installation and UT Starcom failed to deliver five significant features and functionality that UT Starcom represented would be available at the time the Company purchased the GSM switch. These features and functionality include among others, (a) E911-Phase II functionality in the GSM Switch so that Telemetrix could comply with the FCC’s mandated 911 services requirement by June 30, 2006; a GSM feature including intelligent network functions into a GSM network system; CALEA, which imposes upon Telemetrix a statutory obligation to ensure that its equipment, facilities or services that provide a customer or subscriber with the ability to originate, terminate or direct communications. Telemetrix requests entry of an award during the arbitration in its favor and against UT Starcom for general damages or alternatively, a rescission of the Agreement plus the cost of arbitration and for such other and further relief as the Arbitrator may deem just and fair. The arbitrati on hearing was held the week of July 28, 2008. The Arbitrator’s decision will be made within 60 days or on or about October 1, 2008.
NOTE 8. CONCENTRATIONS
During the six months ended June 30, 2008, three customers accounted for approximately 25%, 31% and 14%, a total of 70%, of total revenue and one customer accounted for 53% of accounts receivable at June 30, 2008.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company entered into a five year lease with an officer of the Company on January 1, 2008. The lease is for office space of 3,199 square feet for $5,065 per month. The five year lease includes an annual increase of 3% per annum.
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The annual rentals are as follows: |
2008 | $ | 60,780 | |
2009 | 62,603 | ||
2010 | 64,482 | ||
2011 | 66,416 | ||
2012 | 68,408 | ||
$ | 322,689 |
In addition, the Company leases office space pursuant to a lease expiring in April 2009 at a monthly rental of $980. Future minimum payments are as follows:
2008 | $ | 5,880 | |
2009 | 3,920 | ||
$ | 9,800 |
NOTE 10. SUBSEQUENT EVENTS
A large customer notified the Company on July 25, 2008, subsequent to June 30, 2008, the date of this quarterly statement, that the customer lost its major source of funding and, effective immediately, its operations are under the control of its secured creditor. At the time of this notification, the customer owed the Company $9,532. The full amount of the receivable was recognized as a bad debt. The customer accounted for 42% and 24% of the Company’s revenues for the 3 months and 6 months ended June 30, 2008.
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operation
The following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Form 10-Q and our Annual Report on Form 10-KSB for our fiscal year ended December 31, 2007. The terms "the Company," "we," "our" or "us" refer to Telemetrix, Inc. This discussion contains forward-looking statements based on our current expectations, assumptions, and estimates. The words or phrases "believe," "expect," "may," "anticipates" or similar expressions are intended to identify "forward-looking statements."
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Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties pertaining to our business, including: (a) our history of losses makes it difficult to evaluate our current and future business and our future financial results; (b) our ability to proceed with our operating plan is dependent on our ability to obtain additional financing; (c) even if we obtain additional debt or equity financing, the value of our common stock may be diluted; (d) our ability to continue as a going concern is contingent upon our ability to expand our service operations and secure additional financing; (e) debt obligations of approximately $9 million may negatively affect our ability to expand our operations; (f) whether we will be able to keep pace with the rapid development of technology in the wireless communications services area; (g) whether our existing technology will become obsolete or too ex pensive to upgrade; (h) the possibility that our business will be subject to increasing government regulation and related increasing costs; and (i) our dependency upon third party providers, including roaming partners, wireless network companies, and our switch hosting provider, through which we obtain our interconnections throughout North America and international markets; should we lose the services of these third party providers, our operations may be negatively affected, including interruptions in our service.
Statements are made as of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
Overview
Telemetrix Inc. (through its wholly owned subsidiary, Convey Communications Inc.), is an FCC-licensed operator of wireless communications services, based in Boulder, Colorado. Telemetrix is a public company that trades on PinkSheets under the symbol TLXT. The Company was founded in 1999, acquired its FCC licenses in 2000, and initially focused on paging and wireless utility meter reading services. During 2006, the Company upgraded its network infrastructure to a Nokia R4 packet-based solution that has the capability to support up to 10 million users. In 2007, the Company began offering voice and data services. The Company has roaming agreements with AT&T, T-Mobile and other US carriers as well as Telcel and Telefonica in Mexico.
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Divisions
We currently operate one division, Cellular Services. In 2007, Telemetrix began offering wholesale and retail voice and data services to developers of wireless convergent services that combine PCS (commonly referred to as “cellular”), voice over internet protocol (VoIP), Wi-Fi, and soon, WiMAX network products as bundled offers.
Type of Customers
Our customers are developers who purchase our cellular services for branding and marketing customized wireless applications such as wireless or virtual PBX, seamless roaming between IP, WLAN and cell and machine to machine (M2M) application providers.
Revenues Our revenues consist of the following: |
Voice. Voice includes local and long-distance wireless service provided to resellers and wholesale customers. We offer a comprehensive range of high-quality nationwide wireless voice communications services in a variety of pricing plans on a postpaid basis. Our voice services are on a contract basis and include charges for usage as well as access to the network. We will begin offering voice services on prepaid plans in late 2008.
Data. The Company began offering data services in 2007. GPRS (General Packet Radio Services) is the standard for wireless data communications that operates at speeds up to 115 kilobits per second. It provides continuous connection to the Internet for mobile phone, PDA, smartphone and computer users. Our data services are on a contract basis and include charges for usage as well as access to the network. We will begin offering data services on prepaid plans in late 2008.
SMS. The Company has been offering Short Message Service (SMS) for a number of years. SMS (commonly referred to as “text messaging”) is a globally accepted wireless service that enables the transmission of alphanumeric messages between mobile subscribers and external systems, and is also used in machine-to-machine (M2M) applications.Our customers use our services primarily for machine-to-machine datacollection and monitoring. As with GPRS, our customers are developersof convergent services as well as application providers in security andutilities. The Company has three U.S. patents related to telemetry anddata transmission. Our data services are on a contract basis and includecharges for usage as well as access to the network. We will begin offeringSMS services on prepaid plans in late 2008.
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Other. We also receive cellular revenue from the rental of our towers and cellular roaming revenue
Our revenues are dependent upon the following factors:
Our ability to secure additional agreements for wholesale and reseller customers using our nationwide network access as well as our ability to generate an increase in usage by our existing customers;
Our ability to hire and maintain qualified engineering and customer service staff that will be able to assist in customer set-up and testing;
Demand for our services;
Individual economic conditions in our markets; and
Our general ability to market our services.
Capital Expenditures and Requirements
During the first thee months of 2008, we made capital expenditures of $0. During the three months ended June 30, 2008, the Company made a refundable deposit of $99,150 on a billing system. The deposit is refundable if the billing system is not fully developed and installed by September 30, 2008. Also during the three months ended June 30, 2008, the Company contracted to purchase 25,000 SIM cards that are compatible with a pre-pay billing system. The Company deposited $22,150 towards the purchase of these cards.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an on-going basis and are based on historical experience and various other factors that are believed to be reasonable. Estimates and assumptions include, but are not limited to, fixed asset lives, intangible assets, income taxes, and contingencies, which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Our principal critical accounting policies consist of revenue recognition and stock compensation. Our critical accounting policies are outlined in our audited financial statements contained in our Form 10-KSB for the year ended December 31, 2007.
Results of Operations
Comparison of Three Months Ended June 30, 2008 and 2007
Revenues.Revenues for the three months ended June 30, 2008 increased by $15,071 or 29.2% to $66,674 from $51,603 for the three months ended June 30, 2008. The increase in revenue is primarily attributable to increased service offerings of voice and data services that were not available in early 2007.
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Cost of Revenues. Cost of revenues currently consists primarily of roaming charges and signaling charges from our switch operator. Cost of revenues increased by 31.2% or $12,407 to $52,145 for the three months ended June 30, 2008 from $39,738 for the comparable 2007 period, representing 78.2% and 77.0% of the total revenues for the three months ended June 30, 2008 and 2007, respectively. The increase in the cost of revenues is attributable to increased revenues. The decrease in cost of revenues is due to increased margins from voice and data services.
Operating Income/(Losses). Operating income for the three months ended June 30, 2008 reflected a loss of ($561,585) compared to an operating loss of ($365,501) during the comparable 2007 period. On a year over year basis for the second quarter, our operating losses increased by 53.6% or $196,084. The increase in operating loss was primarily due to increased equipment, maintenance and billing system contract costs.
Selling, General and Administrative Expense. General and administrative expense increased by $198,748 or 52.7% to $576,114 for the three month period ended June 30, 2008, from $377,366 for the three-month period ended June 30, 2007. The increase in our general and administrative expenses is primarily attributable an increase in the number of our employees and the related compensation and benefits expense.
Interest Expense. Interest expense for the three-month period ended June 30, 2008 increased by $109,778 or 56.4% to $304,374 as compared to $194,596 for the three-month period ended June 30, 2007. The increase in interest expense is due to increased loan balances from lenders and compounding interest quarterly.
Net Loss. Net loss for the three-month period ended June 30, 2008 increased by 57.4% or $321,457 to ($881,554) from ($560,097) for the three months ended June 30, 2007. The increase in net loss is primarily due to increased operating costs, compensation and interest expense.
Comparison of Six Months Ended June 30, 2008 and 2007
Revenues. Revenues for the six months ended June 30, 2008 increased by $78,839 or 82.73% to $174,134 from $95,295 for the six months ended June 30, 2007. The increase in revenue is primarily attributable to increased cellular offerings including voice and GPRS (General Packet Radio Services) that were not available in early 2007.
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Cost of Revenues. Cost of revenues consists primarily of roaming charges and billing service charges. Cost of revenues increased by 43.12% or $35,521 to $117,901 for the six months ended June 30, 2008 from $82,380 for the comparable 2007 period, representing 67.71% and 86.45% of the total revenues for the six months ended June 30, 2008 and 2007, respectively. The increase in the cost of revenues is attributable to increased roaming charges and increased billing services charges.
Operating Income/(Losses). Operating income for the six months ended June 30, 2008 reflected a loss of ($1,068,803) compared to an operating loss of ($887,821) during the comparable 2007 period. On a year over year basis for the first six months, our operating losses increased by 20.39% or $180,982. The increase in operating loss was primarily due to increased expenses such as increased equipment maintenance and billing system contract costs and mitigated by the increase in revenues.
Selling, General and Administrative Expense. General and administrative expense increased by $224,300 or 24.9% to $1,125,036 for the six month period ended June 30, 2008 from $900,736 for the six-month period ended June 30, 2007. The increase in our general and administrative expenses is primarily attributable to an increase in the number of our employees and the related compensation and benefits expenses.
Gain on Settlement of Debt. The Company recorded a gain on the settlement of debt of $-0- for the period ended June 30, 2008 compared to a gain of $80,330 in the second quarter of 2007. The June 2007 gain was the result of vendor debts going beyond the statute of limitations for collection.
Interest Expense. Interest expense for the six-month period ended June 30, 2008 increased by $169,152 or 43.9% to $554,431 compared to $385,279 for the six-month period ended June 30, 2007. The increase in interest expense is due to increased loan balances from lenders and compounding interest quarterly.
Net Loss. Net loss for the six-month period ended June 30, 2008 increased by 36.09% or $430,464 to ($1,623,234) from ($1,192,770) for the six months ended June 30, 2007. The increase in net loss is due to an increase in general and administrative expenses, interest expense, and cost of sales and mitigated by the increase in revenues. Net loss per share remained unchanged at ($0.01) for both six month periods ended June 30, 2008 and 2007.
Balance Sheet
Current Assets.Current Assets amounted to $532,666 as of June 30, 2008 representing an increase of $444,340 or 503% from Current Assets of $88,326 as of December 31, 2007. The increase is primarily due to the cash balance at June 30, 2008 which reflects the proceeds of advances from affiliates and promissory notes payable.
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Current Liabilities.As of June 30, 2008, Current Liabilities are $11,284,942 representing an increase of $1,940,317 or 20.7% from Current Liabilities of $9,344,625 as of December 31, 2007. The increase is due to increased accounts payable and notes payable balances and increased accrued interest payable on the notes.
Liquidity and Capital Resources
Net cash used in operating activities for the period ending June 30, 2008 was ($968,068) compared with ($711,903) for the same period in 2007.
Cash used in investing activities for the periods ended June 30, 2008 was $0 compared to $39,550 for the same period in 2007. The cash used in investing activities in the second three months of 2007 is due to the purchase of telecommunication billing equipment.
Cash provided by financing activities for the period ended June 30, 2008 was $1,295,000 as compared to $785,350 for the period ended March 31, 2007. The cash provided in 2007 is from the proceeds of convertible notes payable from affiliates; the cash provided in the period ended June 30, 2008, is from $545,000 in notes payable from affiliates and $750,000 of notes payable from other sources.
Cash at June 30, 2008 increased to $373,584 from $46,652 at December 31, 2007. Cash at July 31, 2008 amounted to $220,214.
At June 30, 2008, we have made a commitment to purchase a billing system with prepay capability and to purchase 25,000 SIM cards. The cash required for these commitments, $99,150 and $22,150 respectively, has been deposited with the vendors at June 30, 2008, and is reflected in Other Current Assets at the June 30, 2008. As well, the Company has entered into an agreement to sell the F Block portion of its spectrum. This portion of the Company’s spectrum is not used or projected to be used in Company operations. The sale is dependent on FCC approval and final negotiations with the purchaser.
We shall continue to finance our operations mainly from loans and fundraising activities. We do not believe that our future cash flow from operations together with our current cash will be sufficient to finance our activities through the year 2008; therefore, we plan to raise money from affiliates to fund the implementation of a new billing system and to fund continuing operations.
As of June 30, 2008, we have an accumulated deficit of $83,809,404 and working capital and stockholders' deficits of $10,752,276 and $10,787,513.
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Our ability to continue as a going concern is contingent upon our ability to attain profitable operations and secure adequate financing.
We cannot continue to satisfy our current cash requirements for a period of twelve (12) months through our existing capital. We anticipate total estimated operating expenditures of approximately $1,296,000 over the next twelve (12) months, in the following areas:
Salaries and labor = $600,000
G&A (exclusive of salaries) = $696,000
Our current cash of $373,584 as of June 30, 2008 will satisfy our cash requirements through the end of August 2008.
Accordingly, we will be unable to fund our expenses through our existing assets or cash. In order to acquire funding, we may be required to issue shares of our common stock, which will dilute the interest of current shareholders. Moreover, we may still need additional financing through traditional bank financing or a debt or equity offering; however, because we have limited revenues, and a poor financial condition, we may be unsuccessful in obtaining such financing or the amount of the financing may be minimal and therefore inadequate to implement our business plans. In the event that we do not receive financing or our financing is inadequate, we may have to liquidate our business and undertake any or all of the following actions:
Significantly reduce, eliminate or curtail our business, operating and research and development activities so as to reduce operating costs;
Sell, assign or otherwise dispose of our assets, if any, to raise cash or to settle claims by creditors;
Pay our liabilities in order of priority, if we have available cash to pay such liabilities;
If any cash remains after we satisfy amounts due to our creditors, distribute any remaining cash to our shareholders in an amount equal to the net market value of our net assets;
File a Certificate of Dissolution with the State of Delaware to dissolve our corporation and close our business;
Make the appropriate filings with the Securities and Exchange Commission so that we will no longer be required to file periodic and other required reports with the Securities and Exchange Commission, if, in fact, we are a reporting company at that time; and
Make the appropriate filings with the National Association of Security Dealers to affect a delisting of our stock.
Based upon our current assets, however, we would not have the ability to distribute any cash to our shareholders.
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If we have any liabilities that we are unable to satisfy and we qualify for protection under the U.S. Bankruptcy Code, we may voluntarily file for reorganization under Chapter 11 or liquidation under Chapter 7. Our creditors may also file a Chapter 7 or Chapter 11 bankruptcy action against us. If our creditors or we file for Chapter 7 or Chapter 11 bankruptcy, our creditors will take priority over our shareholders. If we fail to file for bankruptcy under Chapter 7 or Chapter 11 and we have creditors; such creditors may institute proceedings against us seeking forfeiture of our assets, if any. We do not know and cannot determine which, if any, of these actions we may be forced to take. If any of these foregoing events occur, shareholders could lose their entire investment in our shares.
To date, we have funded our activities principally from loans from related parties and loans from third party lenders.
Contractual Obligations and Commercial Commitments
The Company entered into a five year lease with an officer of the Company on January 1, 2008. The lease is for office space of 3,199 square feet for $5,065 per month. The five year lease includes an annual increase of 3% per annum.
The annual rentals are as follows:
2008 | $ | 60,780 | |
2009 | 62,603 | ||
2010 | 64,482 | ||
2011 | 66,416 | ||
2012 | 68,408 | ||
$ | 322,689 |
In addition, the Company leases office space pursuant to a lease expiring in April 2009 at a monthly rental of $980. Future minimum payments are as follows:
2008 | $ | 5,880 | |
2009 | 3,920 | ||
$ | 9,800 |
The Company signed a Promissory Note on May 13, 2008, borrowing $750,000 at 15% per annum. The Company paid a 2% loan origination fee, $15,000, to the lender. At the Lender’s option, all, or a portion of, the principal and accrued interest may be converted into common stock of the Company at a conversion price of $.03 per share. No monthly payments are required under the Promissory Note; the note and accrued interest are payable May 12, 2009. Principal plus accrued interest payable at maturity is $862,500. Interest accrued through June 30, 2008 is $14,835. The Company provided the lender with guarantees of payment from three principals of Telemetrix, Inc.
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The Company entered into a Business Loan Agreement on March 30, 2007, and borrowed $718,714 on a variable rate loan due on March 31, 2011. The business loan agreement was modified March 30, 2008. Under the modified terms, the Company will pay this loan in accordance with the following payment schedule: 5 monthly consecutive interest payments, beginning April 30, 2008, with interest calculated on the unpaid principal balances at an interest rate based on the Wall Street Journal Prime Rate (currently at 5.0%); 30 monthly consecutive principal and interest payments in the initial amount of $24,864 each, beginning September 30, 2008 with the interest calculated on the unpaid principal balances at the interest rate based on the Wall Street Journal Prime Rate. The current portion of this balance of this loan is $221,155 with $497,559 classified as long-term debt. The Company entered into a Security Agreement granting to Lender a security interest in certain equi pment. The Company had previously granted a security interest in the equipment to Becker Capital Management and LB Becker Consulting, who assigned the security interest to this Lender.
Future minimum principal payments pursuant to long-term debt agreements are as follows:
2008 | $ | 87,247 | |
2009 | 271,335 | ||
2010 | 286,135 | ||
2011 | 73,997 | ||
$ | 718,714 |
$1,200,000 Convertible debentures – interest at 6.25% per annum, conversion feature allows the holder to use the debenture as payment for a like value of securities should the Company complete a stock offering of $6,000,000 at January 1, 2001. Such an offering was not completed. The debentures are currently in default. The Company recorded $53,875 of interest expense on these debentures for the first three months of 2008. Total interest payable on these debentures is $703,127 at June 30, 2008.
In September 2006, the Company entered into an agreement with Verisign for output billing services. This contract enables the Company to provide billing services to our roaming partners. The contract is for 36 months and the charges for this service are transaction based with certain minimums.
In September 2006, the Company entered into an agreement with ARS Informatica for voice and data billing services. This contract enables the Company to provide billing services to our voice and data customers. The contract is for three years and the charges for this service are transaction based with certain minimums.
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On April 3, 2006, the Company entered into a Hosting Agreement and an Equipment Services Agreement with a Nokia value added reseller located in Texas. This six year agreement requires a monthly payment of $8,500 per month for services to operate and maintain our radio access network in Nebraska. Additionally, the company signed a six year agreement on office space in Scottsbluff, Nebraska to host our media gateway equipment. This lease requires a monthly payment of $980.
On May 14, 2008 the company entered into a Billing Software Agreement with Talk24 for billing software development. The contract is for 36 months beginning on the date the billing system is completed and installed. The company paid $99,150 as a refundable deposit on the system. If the system is not ready for implementation by September 30, 2008, the deposit is refundable. If the software development is successful, the charges for licensing the software are transaction based with certain minimums.
Item 3. Controls and Procedures
We maintain a system of disclosure controls and procedures, as such term is defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, or the persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures.
We have carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, or the persons performing similar functions, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, the Chief Executive Officer and Chief Financial Officer, or the persons performing similar functions, concluded that such controls and procedures were effective as of June 30, 2008, the end of the period covered by this report, in all material respects, to ensure that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2008, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II. OTHER INFORMATION Item 1. Legal Proceedings |
On January 16, 2007 Tracy Broadcasting Corporation filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-07 37. Tracy Broadcasting Corporation is owned by Michael Tracy, a former CEO and Director of the Company. Mr. Tracy is also a major shareholder of the Company. The Complaint alleges that the Company owes Tracy Broadcasting Corporation $467,000 plus accrued interest at 10% per annum for outstanding loans under a promissory note issued in December 2004. The Company’s records indicate that the promissory notes were repaid in full and dispute the claim. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007 the motion was denied and the Company has appealed the decision with the Nebraska Supreme Court.
On April 12, 2006, Michael J. Tracy filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-06-291. Mr. Tracy is the former CEO and Director of the Company. The Complaint alleges that the Company owes Mr. Tracy $3,378,129 as of April 1, 2006, including principal and interest for loans Mr. Tracy made to the Company at various times in 2001 and 2002. In November 2006, the Company tendered 23,894,351 shares of common stock to Mr. Tracy in satisfaction of the May 26, 2003 Exchange and Conversion Agreement and 3,472,789 shares of common for deferred compensation. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007, the motion to compel arbitration was ordered and the claim was dismissed from District Court in Nebraska. This case docketed in the District Court for Scotts Bluff County, Nebraska, is now closed. As of the date of the financial statements Mr. Tracy has not filed an arbitration act ion in Denver, Colorado.
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Other
On October 19, 2006, the Company filed a Request for Arbitration with the World Intellectual Property Organization against UT Starcom, Inc., the successor in interest to Telos Technologies, Inc., the manufacturer of the Sonata SE switching system (GSM switch). The Request for Arbitration was accepted on October 24, 2006. The dispute relates to a Master Purchase and License Agreement dated October 22, 2003 for a Sonata SE Global System for Mobile Communications switching system. The Company requests arbitration of the following claims: (1) breach of contract; (2) breach of good faith and fair dealing; (3) fraudulent misrepresentations; (4) fraudulent inducement; (5) negligent misrepresentation; (6) intentional interference with existing contractual relations; (7) intentional interference with prospective economic relations; (8) negligent interference with existing economic relations; and (9) negligent interference with prospective economic relations. The Company claims that UT St arcom failed to perform from the time of installation and UT Starcom failed to deliver five significant features and functionality that UT Starcom represented would be available at the time the Company purchased the GSM switch. These features and functionality include among others, (a) E911-Phase II functionality in the GSM Switch so that Telemetrix could comply with the FCC’s mandated 911 services requirement by June 30, 2006; (b) a GSM feature including intelligent network functions into a GSM network system; and (c) CALEA, which imposes upon Telemetrix a statutory obligation to ensure that its equipment, facilities or services that provide a customer or subscriber with the ability to originate, terminate or direct communications. Telemetrix requests entry of an award during the arbitration in its favor and against UT Starcom as follows:
A. | for general damages in an amount to be established at trial; |
B. | alternatively, a rescission of the Agreement; |
C. | for cost of the arbitration, including attorneys’ fees; and |
D. | for such other and further relief as the Arbitrator may deem just and fair. |
We are subject to disputes and litigation in the ordinary course of our business. None of these matters, in the opinion of our management, is material or likely to result in a material effect on us based upon information available at this time.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
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Item 5. Other Information |
None |
Item 6. Exhibits and Reports on Form 8-K |
Exhibits |
33 | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
34 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
July 31, 2008
Telemetrix Inc.
By:/s/ William Becker | July 31, 2008 | |
William Becker, Chairman | ||
By:/s/ Gary Brown | July 31, 2008 | |
Gary Brown, Director | ||
By:/s/ Larry Becker | July 31, 2008 | |
Larry Becker, Director | ||
By: /s/ Patrick Kealy | July 31, 2008 | |
Patrick Kealy, Director |
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