10QSB/A 1 tlmx9300110qam2.htm TELEMETRIX INC.--9/30/01 10-QSB--AMENDMENT #2 Telemetrix Inc. September 30, 2001 Form 10-QSB--Amendment No. 2

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

FORM 10-QSB/A
Amendment No. 2

Quarterly Report pursuant to Section 13 of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2001




TELEMETRIX INC.
(Exact Name of Registrant as Specified in its Charter)

                                                     Delaware                                                0-14724                                                        59-345-3156
                                (Jurisdiction of incorporation)                     (Commission File Number)                (I.R.S. Employer 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, 2001, Registrant had 18,387,937 issued and outstanding common shares.

Transitional Small Business Disclosure Format:     Yes [   ]  No[X]




TELEMETRIX INC.
(Commission File No. 0-14724)

TABLE OF CONTENTS FOR FORM 10-QSB/A
PART I - FINANCIAL INFORMATION

                                                                                                  Page
                                                                                                  ----
Item 1.    Financial Statements......................................................................3
           Condensed Consolidated Balance Sheets.....................................................3

           Consolidated Statements of Operations and Deficiency......................................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.......10

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings........................................................................21
Item 2.    Changes in Securities and Use of Proceeds................................................21
Item 3.    Defaults Upon Senior Securities..........................................................21
Item 4.    Submission of Matters to a Vote of Security Holders......................................21
Item 5.    Other Information........................................................................21
Item 6.    Exhibits and Reports on Form 8-K.........................................................22
SIGNATURES .........................................................................................23

NOTE CONCERNING FORWARD-LOOKING INFORMATION. This Report contains statements that anticipate the future and therefore are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such ” forward-looking statements” include statements about the future of our industry, statements about our business plans and statements about our strategies; i.e., any statements other than statements of historical facts. Forward-looking words such as “may”, “will”, “expect”, “anticipate”, “believe”, “estimate”, and “continue” or similar words indicate such statements. Investors should read statements with these terms carefully because they:

•   discuss the Company’s future expectations;
•   contain projections of the Company’s future results of operations or of its financial condition; or
•   contain other “forward-looking” information.

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:

•   our limited operating history and commercial experience;
•   market acceptance of T3000;
•   availability of additional capital;
•   protection of our intellectual property rights;
•   evolving technologies and markets;
•   competitive developments;
•   telecommunications regulatory environment; and
•   our ability to manage growth.

These factors might cause actual results to differ materially from the forward-looking statements as well as materially and adversely affecting our business, operating results and financial condition.



2

TELEMETRIX INC.
(Commission File No. 0-14724)

CONDENSED CONSOLIDATED BALANCE SHEETS
(Information as of September 30, 2001 is unaudited)

                                                                   September 30     December 31
                                                                       2001             2000
                                                                   ------------     -----------
                                       ASSETS

Current assets:
   Cash ............................................................   $   --      $    145
   Accounts receivable, net of allowance for doubtful accounts .....         22          33
   Note receivable-- related party .................................        193         188
   Due from related companies ......................................         32          38
   Prepaid expenses ................................................        397           5
                                                                       --------    --------
      Total current assets .........................................        644         409

Property & equipment ...............................................      1,592       1,667
Intangibles ........................................................      5,455       6,778
                                                                       --------    --------

         Total assets ..............................................   $  7,691    $  8,854
                                                                       ========    ========

                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
   Line of credit ..................................................   $    200    $    200
   Accounts payable ................................................      2,212       2,087
   Accrued expenses ................................................        810         727
   Due to related companies ........................................        225         226
   Current portion-- long term debt-- related parties ..............      2,073       1,311
   Current portion of long term debt ...............................      1,200       1,200
                                                                       --------    --------

     Total current liabilities .....................................      6,720       5,751

Long term debt-- related party .....................................        228         253
Long term debt .....................................................        835         841
                                                                       --------    --------
     Total long-term liabilities ...................................      1,063       1,094
       Total liabilities ...........................................      7,783       6,845
                                                                       --------    --------

Shareholders' equity:
   Common stock, $0.001 par value; 25 million shares authorized;
   18,387,937 and 16,305,000 shares issued and outstanding
   at September 30, 2001 and December 31, 2000 respectively ........         18          16
Additional paid-in capital .........................................     46,696      44,961
Debt issuance costs ................................................       (578)     (1,067)
Stock warrants .....................................................         53        --
Foreign currency translation .......................................        109         108
Accumulated deficit ................................................    (46,390)    (42,009)
                                                                       --------    --------
       Total shareholders' equity ..................................        (92)      2,009
                                                                       --------    --------

            Total liabilities and shareholder's equity .............   $  7,691    $  8,854
                                                                       ========    ========

Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these consolidated financial statements



3

TELEMETRIX INC.
(Commission File No. 0-14724)

CONSOLIDATED STATEMENTS OF OPERATIONS
(Information relating to the three and nine month periods ended September 30, 2000 and 2001 is unaudited)

                                                 Three Months Ended             Nine Months Ended
                                                    September 30,                 September 30,
                                               2001             2000          2001            2000
                                               ----             ----          ----            ----
Revenue:
   Equipment sales & rental .............. $         56    $         71    $        169    $        213
   Service income ........................         --                81            --               300
                                           ------------    ------------    ------------    ------------
       Total revenue .....................           56             152             169             513
                                           ------------    ------------    ------------    ------------

Expenses:
   Cost of revenue .......................            9              22              30             143
   Research & development ................          (25)            735              77           3,427
   Selling, general & administrative .....        1,435           1,334           3,021           4,008
                                           ------------    ------------    ------------    ------------
       Total operating expenses ..........        1,419           2,091           3,128           7,578
                                           ------------    ------------    ------------    ------------

 Net loss from operations ................       (1,363)         (1,939)         (2,959)         (7,065)
                                           ------------    ------------    ------------    ------------

Other Expense:
   Interest expense (income) .............          642              55           1,519             380
   Other expense (income) ................          (84)              5             (96)            (10)
                                           ------------    ------------    ------------    ------------
       Total other expense (income) ......          558              60           1,423             370
                                           ------------    ------------    ------------    ------------

Net (loss) ............................... $     (1,921)   $     (1,999)   $     (4,382)   $     (7,435)
                                           ============    ============    ============    ============


Weighted average shares outstanding
 during period ...........................   17,797,500      14,826,258      16,834,539      13,966,434

Loss per share ........................... $      (0.11)   $      (0.13)   $      (0.26)   $      (0.53)
                                           ============    ============    ============    ============

Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these consolidated financial statements



4

TELEMETRIX INC.
(Commission File No. 0-14724)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Information relating to the nine month periods ended September 30, 2000 and 2001 is unaudited)

                                                                       Nine Months
                                                                    Ended September 30,
                                                                    -------------------
                                                                     2001        2000
                                                                     ----        ----
Cash flow from operating activities
   Net loss for the period .....................................   $(4,382)   $(7,435)

Adjustments to reconcile net loss to cash used in operations
     Amortization & depreciation ...............................     1,378      1,565
     Accretion of interest on debt issue costs .................     1,240          0
     Changes in assets and liabilities
       In accounts receivable ..................................        11        124
       In other assets .........................................         5        (19)
       In accounts payable .....................................       125      1,324
       In accrued liabilities ..................................        83        119
                                                                   -------    -------
         Total adjustments .....................................     2,842      3,113
              Net cash used in operating activities ............    (1,540)    (4,322)
                                                                   -------    -------

Cash flow from investing activities
   Increase in capital assets ..................................        17       (282)
                                                                   -------    -------
            Net cash used in investing activities ..............        17       (282)
                                                                   -------    -------

Cash flow from financing activities
   Payments on line-of-credit ..................................         0          5
   Proceeds (payments) from long-term debt .....................        (6)     1,107
   Proceeds (payments) from long-term debt - related party .....       736         49
   Advances on notes receivable- related party .................         0        (15)
   Proceeds from issuance of share capital .....................         0      3,689
   Advances to related parties .................................         0       (169)
   Advances from related companies .............................       (25)       126
   Issuance of share capital for payments ......................       673          0
                                                                   -------    -------
            Net cash from financing activities .................     1,378      4,792
                                                                   -------    -------

Effect of foreign currency translation on cash .................         0        (44)
                                                                   -------    -------

Net increase (decrease) in cash & cash equivalents .............      (145)       144
                                                                   -------    -------
Cash, beginning of period ......................................       145         16
                                                                   -------    -------
Cash, end of period ............................................   $     0    $   160
                                                                   =======    =======

Financial data was rounded to the nearest thousand dollars.
The accompanying notes are an integral part of these consolidated financial statements



5

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, 2000 and 2001, is unaudited)

1. Description of Business

     Telemetrix Inc. (the “Company”) was formed through a series of corporate combinations. On January 2, 1999, Telemetrix Resource Group Inc., a Colorado Corporation (“TRG, Inc.”), acquired Telemetrix Resource Group Limited (TRG Ltd.), a Nova Scotia corporation from Hartford Holdings Ltd., TRG Ltd.‘s sole shareholder, pursuant to a share exchange and plan of reorganization. On March 22, 1999, Arnox Corporation (an inactive public corporation), TRG Inc. and Tracy Corporation II d/b/a Western Total Communication (“WTC”) executed a Plan of Reorganization, which contemplated a share exchange and reorganization transaction (the “Combination”). On April 5, 1999, the first phase of the combination occurred, whereby Arnox acquired 100% of the issued and outstanding common shares of TRG Inc. in exchange for 6,127,200 shares of Arnox’s common stock. Arnox’s historical financial statements become those of TRG Ltd., as TRG Ltd.‘s operations were the ongoing operations of the combined companies. All of the transactions comprising the Combination, with the exception of WTC, have been accounted for as reverse acquisitions and no goodwill has been recorded. On September 22, 1999, the final phase of the combination closed, whereby, the Company acquired 100% of the issued and outstanding common shares of WTC in exchange for 5,372,800 shares of Arnox’s common stock. Through these combinations, the stockholders of WTC and TRG, Inc. acquired 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.

— TRG Ltd. became Telemetrix Solutions Inc. (TSI)

— WTC became Telemetrix Technologies

     The Company offers telemetry systems using existing PCS infrastructure. Additionally it offers wireless paging services to western Nebraska, eastern Wyoming and northeastern Colorado.

     Telemetry involves the use of remote devices for data collection and analysis. For example, a telemetry device in a vending machine can transmit the amount of cash receipts and a nightly inventory to the owner’s monitoring computer. The owner can then decide whether to refill the machine, order more products and add that vending machine to the delivery truck’s itinerary. Telemetry thus requires measurement and transceiver devices, transmission services, central control devices and management software. An example of businesses requiring telemetry applications includes electric utilities, alarm companies and vending machine operations.

The following chart summarizes the different markets that can be served by the T3000 e-Telemetry Data SystemTM . There is a strong market for the delivery and use of telemetry data in a number of different industries. The Targeted Telemetry Market Segments chart shows some of the different industries and businesses that either currently use telemetry data and will benefit from the availability of wireless telemetry data or currently do not have access to wireless telemetry data from any source and will benefit from this availability. The chart shows the major industries that will either benefit or be major users of wireless telemetry data , the uses that will be made of the data, the benefit that will be realize by that industry as a result of the availability of reasonable access to a universal telemetry data service and finally, the chart has an example of the application and the use of wireless telemetry data in serving that application or business segment.



6

Targeted Telemetry Market Segments

   Segmentation                      Telemetry Application          Benefits              Example
________________________________________________________________________________________________________________
   ALARM AND SECURITY           o  Commercial/            o  Alarm and status       o  A burglar breaks
                                   Residential Secruity      messages sent to          into a house and cuts
                                   Alarms                    alarm monitoring          the phone and power
                                o  Smoke Detectors           center                    wires
                                o  Fire Alarms            o  Security against       o  Alarm company is
                                                             compromise of             still notified of the
                                                             wireline connections      break in and
                                                                                       dispatches for police
________________________________________________________________________________________________________________
 Agricultural Irrigation, and   o  Pipeline Corrosion     o  Monitor                o  A city registers
    Environmental                  Systems                   environmental             unusually high air
                                o  Water Pump Failures,      condition                 pollutions readings
                                   Levels And             o  Alarm systems for      o  A public service
                                   Contamination Air         hazardous                 announcement is sent
                                   Quality Systems           environmental             out warning those
                                                             conditions                with medical
                                                                                       conditions to stays
                                                                                       in doors
________________________________________________________________________________________________________________
Asset Management, and           o  Office Equipment       o  Monitor meter          o  A delivery truck
     Tracking                   o  Industrial Machinery      Information               follows a specific
                                   and Manufacturing      o  Service diagnosis         route to fill Coke
                                   Processes                 and maintenance           vending machine
                                o  Vending Machines          Inventory management   o  Truck can be
                                                          o  Fleet / route             re-routed if the
                                                             management                vending machine is
                                                                                       still full from last
                                                                                       delivery
________________________________________________________________________________________________________________
   ATMOSPHERE                   o  Heating, Ventilation   o  Air quality            o  A commercial
    CONTROLS                       and Air Conditioning      standards                 refrigerator door in
                                o  Refrigeration,         o  Temperature               a restaurant is left
                                   Temperature and           controls for food and     open after a food
                                   Humidity Controls         other perishable items    delivery
                                                          o  Climate control        o  An alarm is
                                                             for greenhouses and       triggered, alerting
                                                             agricultural products     people to close the
                                                                                       door to save the food
                                                                                       from spoiling
________________________________________________________________________________________________________________
        HEALTHCARE              o  Health Status          o  Patient health         o  A patient takes a
                                   Monitoring Devices        status alarms             blood test everyday
                                                          o  Mobile patient         o  Test data is sent
                                                             monitoring                to hospital where
                                                          o  Centralized storage       doctor can monitor
                                                             of patient                patient daily
                                                             information
________________________________________________________________________________________________________________
Public and Municipal            o  Parking Meters         o  Parking meter          o  A city is losing
     Services                   o  Highway Tolls             servicing                 money everyday
                                o  Streetlights           o  Service route             because parking
                                o  Railroad Crossing         management                meters are full or
                                   Switches               o  Preventive                robbed
                                                             security for           o  Meter attendants
                                                             hazardous public          are rerouted to full
                                                             situations                meters, and police
                                                                                       are dispatched to
                                                                                       tampered meters
________________________________________________________________________________________________________________
 Transportation Systems         o  Vehicle Location       o  Inventory              o  A truck is making
     and Facilities             o  Vehicle Engine            management                an urgent delivery
                                   Computers              o  Emergency                 but there is a major
                                o  Container asset           communications            accident that will
                                   tracking               o  Remote                    delay the arrival
                                                                                    o  Information can
                                                                                       be sent to driver to
                                                                                       take an alternative
                                                                                       route to deliver
                                                                                       shipment on time
________________________________________________________________________________________________________________
         Utilities              o  Utility Meter          o  Reduced cost of        o  A Customer is
                                   Reading                   servicing meters          moving out of town
                                o  Oil and Gas            o  Customer account       o  Utility company
                                   Pipeline Facilities       management                can provide
                                                          o  Remote meter              up-to-the-minute
                                                             control                   billing to settle the
                                                                                       account
________________________________________________________________________________________________________________


7

2. Basis of Presentation of Interim Information

        The consolidated unaudited financial statements for September 30, 2001, and 2000 and audited financial statements for December 31, 2000 include the accounts of Telemetrix Inc. (the parent company) and its wholly owned subsidiaries, Telemetrix Solutions and Telemetrix Technologies.

        The results for nine months ended September 30, 2001, do not necessarily indicate the results of operations for the full year. These financial statements and related footnotes should be read in conjunction with the financial statements and footnotes thereto included in the Company’s 2000 Annual Report on SEC Form 10-KSB filed with the U.S. Securities & Exchange Commission.

        In Management’s opinion, the accompanying unaudited interim financial statements include all normal adjustments necessary to present fairly the Company’s financial position at September 30, 2001, and the results from operations for the three months and nine months ended September 30, 2001, and the cash flows for the nine months ended September 30, 2001.

3. Related Party Transactions

        The Company in previous periods has been involved in transactions with related parties. During 2000, the Software Factory ceased operations. Also during 2000, WEB CCB, Mondetta, and the Becker Group of Companies stopped operations. Allowances have been made for the amounts due from these companies in excess of amounts due to the respective companies.

        The following is a detail of the amounts due from and to related parties.

Due from related parties

Tracy Broadcasting Company                            $       3,000
Mondetta Telecommunications Inc. (Mondetta)                  18,000
Web CCB Systems Inc. (WEB CCB)                               26,000
Software Factory Inc.                                       195,000
                                                       ------------
Total due from related parties                              242,000
Less allowance                                             (210,000)
                                                       ------------

                                                       $     32,000
                                                       ============

Due to related parties

Becker Group of Companies (BGC)                        $     41,000
Software Factory Inc.                                       185,000
                                                       ------------

                                                       $    226,000
                                                       ============


8

     Hartford Holdings Ltd., a significant shareholder of Telemetrix Inc., was the parent of WEB, BGC, and Software Factory Inc. At the time the transactions occurred, a person related to the stockholder of Hartford Holdings Ltd controlled Mondetta.

        The Company has a note receivable from the Software Factory, which matured May 1999. The outstanding balance at September 30, 2001 was $188,000 net of a $175,000 allowance. The note accrued 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.

        Current portion-long term debt-related parties increased due to additional notes payable from a major shareholder, interest rates ranging from 8.5% to 23.4%. Principal and interest are due on demand. The proceeds were used to fund operations.

4. Commitments & Contingencies

        Software Agreements. The Company entered into an agreement with a vendor for the research and development of software to be used in conjunction with the Company’s telemetry technology. The total contract amount was $500,000 USD and is payable as the project is completed. During 1999 to 2000, the Company has paid $443,000 to the vendor. The Company is also committed to an automatically renewing service agreement requiring monthly payments of $12,000. The agreement automatically renews as long as the software is used. At September 30, 2001, the Company has included in trade payables $283,000 due to this vendor for unpaid contract completion costs and for monthly service charges.

        Operating Leases - Related Parties. The facility occupied by the Company in Gering, Nebraska is being leased at $2,500 per month from an officer of the Company. The lease requires WTC to pay for utilities and taxes and contains no provisions for renewal.

        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 five employment contracts, which require total annual salary payments of approximately $647,000. These contracts expire at various dates through 2004 with options to extend.

5. Bridge Loan

        The Company obtained a bridge loan for up to $350,000 in the current period and drew down $349,000 on the loan. The loan offered $1.00 worth of stock for each dollar loaned resulting in the issuance of 396,000 shares. The Company recorded debt issue costs as a contra-equity for the value of the stock issued. The loan was recorded as a related party note in the current portion of the long-term debts on the balance sheet.



9

Item 2. Management’s Discussion & Analysis of Financial Condition and Results of Operations

        Telemetrix offers wireless e-Telemetry DataTM Solutions for businesses and telecommunications carriers, particularly wireless Personal Communications Services (“PCS”). The Company’s T3000 wireless telemetry system uses a patented method for automatically collecting and transmitting telemetry data over the Short Message Service control channel of digital communications networks (PCS systems). Telemetrix was granted patents covering this proprietary technology in January and November 2000.

        The Company has experienced substantial change over the past two reporting years. During April 1999, the Company was formed through a corporate combination between Arnox Corporation and Telemetrix Resource Group, Inc. Arnox was an inactive corporate shell prior to the combination. In September 1999, Tracy Corporation II d/b/a/ Western Total Communication was acquired for stock. Telemetrix Resource Group, Inc. was comprised of Telemetrix Resource Group, LTD, a Canadian corporation, which was later renamed Telemetrix Solutions. Telemetrix Solutions offered billing services and consulting to telephony companies. Western Total Communications, later renamed Telemetrix Technologies, was formed in 1982 to provide wide area paging in western Nebraska, eastern Wyoming and northeastern Colorado. It acquired two PCS licenses (30 MHZ and 10MHZ) for Business Trading Area 411, as defined by the Federal Communications Commission, and has constructed the 30 MHZ licensed network. It is also certified as a competitive local exchange carrier (“CLEC”) in the State of Nebraska. Telemetrix Technologies developed the T3000 wireless telemetry system.

        In addition to the corporate formation during 1999, the Company focused on the research and development of the T3000 system. The Company developed its own proprietary GSM module for use in the T3000 system as well as a Subscriber Line Interface Card module. Three major investors provided the funding for the operations in 1999.

        During 2000, the Company undertook two rounds of financing to support our activities for the year. The first was a private placement of 1,311,250 shares of common stock, which raised $2.4 million in March 2000. The second round of financing, a convertible debenture, raised $1.2 million occurred in September 2000. Additionally, we have engaged H.C. Wainwright & Co., Inc. as investment bank and financial advisor. H.C. Wainwright & Co., Inc. is a leading, well-respected East Coast investment banking firm, which specializes in high tech companies. Their role will be to support our Company’s aggressive growth strategies, including raising additional capital as needed.

        The T3000 e-Telemetry Data SystemTM will be available for commercial distribution in the second quarter of 2001. The software development required for the T3000 will be completed in the first quarter of 2001. During 2001, we will increase our marketing efforts to create the demand for our systems. Telemetrix Inc. expects regular sales to meet historical and future projections.



10

        The next evolution of the T3000 system will be the enhancement with European GSM and TDMA licensed frequencies. This will allow for a broader geographical distribution of our system. These enhancements should be operational by year-end 2001.

        Currently, the Company is seeking additional financing. It is estimated that no more than an additional $10 million will be required for manufacturing inventory, working capital and to re-pay current liabilities. Purchasing the shell corporation precluded Telemetrix Inc. from conducting an initial public offering. Audit reports therefore express a going concern opinion, which represents their uncertainty that the company will be able to continue into the future. A study of small deal IPO companies show that approximately 7% went public despite their auditor having rendered a going-concern modified opinion on their financial statements. Telemetrix Inc. believes that this opinion will be modified when long-term financing is secured.

DESCRIPTION OF FINANCIAL COMPONENTS

        The following summarizes the components of revenue and the associated cost of sales (excluding depreciation) from our proposed operations:

Activity                       Revenue Source           Costs of Sales (excluding depreciation)


Wireless telecommunications    PCS Services             Billing;  Customer  Care;  Network  Operation and
                                                        Maintenance; Carrier settlements

Wireless Telemetry             Licensing T3000          Customer  Care and  Support;  Development  costs;
                                                        licensing fees
                               T3000 equipment sales    Manufacturing  costs;  Customer Care and Support,
                                                        licensing fees
                               T3000 software sales     Customer Care and Support; License fees
                               Data transmission        Carrier settlements; roaming fees

Wireless Services

        Our wireless communications services currently consist of paging operations in Nebraska, Wyoming and Colorado over the WTC Network. These operations (paging services plus equipment sales, rentals and repairs) now generate approximately $23,000 in monthly revenue. Prior to 1998, monthly revenue was higher, but WTC concentrated on developing the T3000, which sharply curtailed marketing of the paging operations, which in turn resulted in lower revenues. We will not expand the paging operations but instead will integrate them into the PCS operations. We acquired the PCS licenses in 1996, began network deployment in late 1997 and finished network deployment in April 1999. The network has primarily been used for the research and development of the T3000 and has not been commercially available. We will commence commercial PCS operations late 2001.




11

Industry And Technology Overview

        Wireless Telemetry. Telemetry involves the use of remote devices for data collection and analysis, and encompasses the following activities:

•   installing a measurement device at a remote location;
•   controlling the device from a central station;
•   obtaining data with the device;
•   transmitting the data to the central station;
•   collecting and analyzing the data; and
•   responding to the results of the analysis.

        Telemetry requires measurement and transceiver devices, transmission services, central control devices and management software. Since it offers widespread coverage and permits mobility, wireless telecommunications can provide the transmission component for telemetry.

Potential Customers and Markets

        Telemetrix Technologies currently has approximately 1,400 paging customers located in Western Nebraska and Eastern Wyoming. Telemetrix does not have any contracted customers for the e-Telemetry Data system, hardware or software. Currently, there isn’t any single customer that represents over 10% of the business of the company.

        The Wireless Services Market. The wireless communications market, which includes cellular telephone service, PCS, Specialized Mobile Radio (“SMR”), paging, and other applications, has grown dramatically in recent years. U.S. wireless telephone service revenues grew from $5.7 billion in 1991 to $50.2 billion in 1999, and the number of subscribers increased from $7.6 million in 1991 to $86 million in 1999. The growth in wireless communications results from lower prices for consumer equipment, more comprehensive service coverage, lower rates and technological advances that have improved transmission quality and reliability.

        Wireless Telemetry. Developments in computing, Internet and wireless technologies have created an opportunity for a new business, wireless telemetry. The need for accurate and timely data is rapidly increasing, especially with the advent of techniques such as “just-in-time” inventory management. As measurement and transceiving devices become smaller and more robust, companies will install telemetry devices into more products. Just as the use of microprocessors expanded well beyond computing applications, telemetry devices could become ubiquitous. Telemetry creates demand for measurement and transceiver devices, transmission services, control devices and management software. The Yankee Group forecasts revenue for wireless telemetry devices to grow from $1.2 billion in 1999 to $5 billion in 2004, while revenue for wireless telemetry airtime will grow to $1.7 billion.

        Wireless telemetry and the e-Telemetry Data system must achieve hardware deployment in the field in order to be successful. The hardware developed by Telemetrix must be relatively inexpensive, easy to install and maintain. The coverage areas of digital PCS providers continues to expand however the relatively limited coverage area could be problematic in meeting the telemetry data needs of some potential customers. The seriousness of this problem will decrease over time as the existing networks expand in the United States. Outside the United States coverage is better and network interoperability is not a serious issue.



12

        Telecommunications providers are beginning to reduce their capital outlays to compensate for the higher level of spending that have taken place over recent years, and to give the networks time to develop revenues. This does not have a significant effect on the e-Telemetry Data system because the system operates on digital communication system that is currently deployed. The effect of the reduction in spending by network operators will have some effect on slowing the overall growth of coverage in the United States.

Revenue Forecast

     Telemetry is the science and technology devoted to measuring values and variables (such as pressure, temperature, humidity, blood flow, radiation levels, or sound levels), transmitting the results of the measurements to a distant station, and interpreting, indicating, displaying, recording or using the information that is obtained. The wireless telemetry market is relatively undefined and is now emerging.



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Competition

        Competitors are extremely diverse. There is no single company that dominates the wireless telemetry market or that dominates any individual segment of the telemetry market. Each competitor has created a niche for their business and seems to stay within that niche. There is no competitor that can offer the universal capabilities of the T3000 end-to-end solution, from ease of installation and use to the complete “turn-key” telemetry data implementation solution. All of the known competitors are shown in the following table and are categorized by wireless data transmission standard or technique. The precise market share of each competitor cannot be shown because the telemetry data market is spread over a number of applications. Some of the competitors are particularly strong in utility telemetry data solutions, others serve other and more diverse niche’ markets. The Telemetrix e-Telemetry Data System is designed to effectively compete in almost all markets with the competitors and technologies listed herein.

        In general terms, there are a limited number of ways to gather telemetry data in actual operation. There are only two general categories i.e., wireline (telephone connection) and wireless. The wireline applications are rapidly being replaced with wireless applications because wireless applications are (a) less expensive and (b) easier to install and maintain. The wireless methods of delivering telemetry data are divided into three general categories; (a) proprietary networks, (b) existing commercial networks and (c) satellite.

        Proprietary networks are those wireless installations that are built and owned by a single company and that are used for specific applications or uses. In the following chart, those networks are shown as (a) Proprietary Wireless Networks and (b) Dedicated Packet Data Networks. In certain applications and under specific circumstances (high concentration of data points that require a high level of monitoring) those networks can be advantageous. The cost of using these networks is scalable, and the more use that is made of the network, the lower the cost per transaction.

        Existing commercial networks are those wireless applications that operate over the existing commercial wireless networks. In the following chart, those networks are shown as (a) Cellular Digital Packet Data, (b) Cellular Control Channel Technologies, (c) Narrowband PCS. The usefulness of these technologies depends on the cost of using the network and the availability of equipment to be placed on the network. The size of the data packets that are transmitted over these networks is relatively small, and there is some difficulty in moving data through the networks in certain circumstances. These systems rely on the analog wireless telephone systems, which are becoming obsolete and are being replaced with digital wireless systems.

Satellite service requires the use of a low earth orbiting satellite network to receive the telemetry data and retransmit that data to another location for transport to the customer. The coverage is very good, the equipment is expensive and the data costs per packet are expensive.

        Many of the Company’s competitors have multiple divisions and do not break out the telemetry data and equipment sales individually on their publicly available financial statements. However, information on various companies with much of their revenues derived from telemetry data and equipment sales are listed below.

        The following chart contains industry specific terms and is provided for the use of those readers that have knowledge specific to the industry. It is anticipated that this information will be valuable to that reader.



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Telemetry Technology Landscape

Service Technologies         Description                Advantages                  Weaknesses
________________________________________________________________________________________________________________
Digital Cellular/PCS     Currently SMS                 IP Capable, Cost of             Small but growing
(GSM, TDMA,              technology; packet data       network is shared,              footprint/Service
CDMA)                    technology will be            Migrateable GSM/                still in deployment/
(TELEMETRIX              overlaid on digital           TDMA transceiver                Focus on wireless
TECHNOLOGIES)            cellular/PCS networks         technology                      voice
                         in long term
________________________________________________________________________________________________________________
Proprietary Wireless     Networks originally           Understanding of                Proprietary
Networks                 built for utility meter       telemetry business,             networks and
                         reading                       AMR expertise                   systems, Limited
                                                       Partnerships with               coverage, Limited
(CELLNET,                                              major utilities                 message size
ITRON)                                                 companies, Alliances
                                                       with system
                                                       integrators
________________________________________________________________________________________________________________
Dedicated Packet Data    Digital packet data           Coverage, Good in-              Strong urban, weak
Networks (DPD)           radio services designed       building penetration,           rural coverage,
                         for mobile data and           Alliances with system           Limited
                         interactive paging            integrators, low                deployment of
(ARDIS, BSWD)            functions                     latency                         technologies by
                                                                                       service providers
________________________________________________________________________________________________________________
Cellular Digital Packet  Digital packet                Well-suited for short           Coverage
Data (CDPD)              technology is an              burst transmissions, IP         dependent on
                         overlay on analog             capable                         cellular carriers
(AT&T Wireless,          cellular technology                                           agreements, Strong
GTE Wireless, Bell                                                                     urban weak rural
Atlantic Mobil,                                                                        coverage
Ameritech)
________________________________________________________________________________________________________________
Mobile Satellite         Services using Ku band        Excellent coverage              Poor in-building
Services (MSS)           and low earth orbit                                           penetration,
                         satellite systems to                                          expensive, low data
(QUALCOMM,               provide wide area                                             rate, limited
Orbcomm and other        blanket coverage                                              message size,
LEO Systems)                                                                           networks still in
                                                                                       deployment
__________________________________________________________________________________________________________________
Cellular Control         Uses overhead control         Low latency, low cost,          Coverage
Channel Technologies     channels of analog            IP capable, cost of             dependent on
(CCT)                    cellular network, and         network is shared               cellular carriers
(Cellemetry, Aeris       the SS7 network via IS-                                       agreements, limited
Microburst)              41                                                            message size
__________________________________________________________________________________________________________________
Narrowband PCS           Two-way messaging             Medium message size,            Networks still in
(NPCS)                   networks based on             Spectral efficient low          deployment, high
                         ReFLEX technology             cost, excellent in-             comparative latency
(Skytel, Pagenet,                                      building penetration,           (low data rate)
Pagemart>)                                             coverage
__________________________________________________________________________________________________________________


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REGULATION

        Wireless telecommunications services are subject to significant regulation and we could become subject to additional regulatory requirements as our services grow. Pursuant to the Communications Act of 1934, as amended (the “Communications Act”) including amendments by the Telecommunications Act of 1996, the FEDERAL COMMUNICATIONS COMMISSION regulates the facilities and services we use to provide, originate, or terminate interstate or international communications. Provision of PCS and other wireless services requires radio frequency licenses from the FEDERAL COMMUNICATIONS COMMISSION or a contractual arrangement with a licensee. Telemetrix has a PCS license, which was obtained in the C Block License Auctions. Telemetrix also has numerous paging facility licenses, which are used in the operation of the existing paging system. Telemetrix maintains FCC licenses on all of the communication facilities. The PCS licenses were issued on a 10-year basis with an expectation of renewal at the end of that term. The paging licenses are granted on a 10-year basis also with a reasonable expectation of renewal.

EMPLOYEES

        The Company had 10 full-time employees on September 30, 2001. No Company employees are members of labor unions. The Company also utilizes independent contractors and consultants.

CORPORATE HISTORY

        Telemetrix was formed through a corporate combination (“Combination”) between Arnox Corporation, Telemetrix Resource Group Inc. (“TRG--US”) and Tracy Corporation II d/b/a Western Total Communications (“WTC”). Arnox was originally formed in 1983 to develop, manufacture, market and license fire retardant products and technology, and Arnox’s stock was listed for trading on the NASDAQ system. However, a 1989 bankruptcy left Arnox as an inactive shell without material assets, liabilities or operations. WTC was formed in 1982 as a paging company operating in western Nebraska. TRG--US was formed in 1998 after its founders acquired the rights to an initial version of the TRACCS Software; TRG--US’s principal activity was licensing the TRACCS Software to Telemetrix Resource Group Ltd.(“TRG--Canada”), which offered some Customer Care Services in Canada; TRG--US then acquired TRG--Canada in early 1999. In a “reverse takeover” during the second and third quarters of 1999, the stockholders of WTC and TRG--US (“Principal Stockholders”) acquired 11,500,000 Shares (approximately 90%) from Arnox in exchange for all WTC and TRG--US stock; as a result, the Principal Stockholders acquired control of Arnox. After the Combination, the companies changed their names to reflect their complementary businesses:



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— Arnox became Telemetrix Inc. (“Telemetrix”);

— TRG-US became Telemetrix Solutions Ltd. (“Telemetrix Solutions”; for the collective activities of both TRG-US and TRG—Canada, we use “TRG” and “Telemetrix Solutions” 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).

Operating Expenses

        As we develop our products and services and ready them for market, the operating expenses principally consist of research and development, pre-production expenses, and general and administrative costs. Upon launch of our products and services, sales and marketing and manufacturing expenses will substantially increase, while research and development, and pre-production costs decrease. After sales of products and services reach “regular” levels, the principal operating expenses will be sales and marketing, manufacturing, and general and administrative. Costs for research and development will still be required for new “cutting edge” wireless technology. Since we are still in the initial stages of our business plan, operating expenses will continue to increase during the next year as we complete commercialization and begin manufacturing our product and expand our operations to meet the customer service and marketing demands.

Development and Commercialization

        Our development and commercialization activities will principally focus on completing T3000 for release in late fourth quarter 2001. We expect development and commercialization will always constitute a significant operating expense because we must continually enhance and upgrade our products and services. For example, we must enhance T3000 to integrate other wireless technologies such as TDMA and CDMA.

Capital Expenditures

        The most significant capital expenditure will be deploying and equipping the T3000 Network Operation Center (“T-NOC”). The T-NOC is the central repository of telemetry information and acts as the gateway between the PCS service providers and the Telemetry Users of T3000 (e.g., utilities and alarm companies).

Licensing

        Some of our products and services utilize intellectual property of other parties, which generally requires us to pay license fees. Such license fees can take the form of initial payments, continuing royalties or both types of payments. Our current license fees include a lump sum payment to Plextek Inc. for the right to use their GSM-PCS 1900 radio design and a recurring license to The Technology Partnership (“TTP”) to use their GSM protocol software in that embedded radio. We also must reserve funds to pay licenses on “essential patents” on the GSM radio and protocols, which is a standard practice in the industry.



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Pre-Production

        Pre-production costs include certification by the FCC, Underwriters Laboratory, Canadian Standards Association (“CSA”) and GSM standards organizations, to prove that our T3000 device complies with electronic emissions, safety and system interoperability standards. A principal pre-production expense are the costs incurred to develop manufacturing processes and custom test equipment, as well as the cost of customized manufacturing test equipment for radio components. Pre-production costs will end when the system is commercially available in late 2001.

Sales & Marketing

        Sales and marketing expenses include salaries and commissions for sales staff, trade show expenses, consulting fees and advertising. Since our Company’s, products and services are innovative and relatively unknown, we must conduct considerable “missionary” marketing to create awareness of our products and services.

Manufacturing

        The largest manufacturing expense will be costs associated with component purchase guarantees to manufacturers and holding inventory on the T3000 units. Since T3000 includes some customized components and custom circuit boards, we must commit to large volume purchases to ensure timely delivery and to lower costs. Large production runs avoid multiple set-up charges and therefore are more economical, especially since third parties will manufacture the T3000 units for us. We anticipate initially building to inventory rather than building to actual orders, which should satisfy our shipping commitments while stabilizing the demand on our manufacturer. As our sales volume grows, we will shift to building to orders and will maintain minimal inventory levels.

General and Administrative

        General and administrative expenses primarily consist of salaries and related expenses of management, support personnel, occupancy fees, professional fees, general corporate and administrative expenses. As the size and scope of our business grow, we may expand our corporate and administrative staff, especially accounting and contract management.

RESULTS OF OPERATIONS
Quarter and nine months ended September 30, 2001 compared to quarter and nine months ended September 30, 2000

        The following discussion contains comparisons between the quarter (“Recent Quarter”)and nine months ended September 30, 2001 (“Recent Period”) and the quarter (Prior Quarter”) and nine months (“Prior Period”) ended September 30, 2000. The financial statements for both periods include TRG, TSI and Telemetrix Technologies for the full period. TSI in the Prior Period included the operations of the Billing Service Bureau, which was sold in the third quarter 2000. The decrease in revenues and operating expenses from Recent Period and Prior Period can be attributed to the sale of this operation.



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        During the recent period, our prime focus has been the finalization of the software development for the T3000 system, as well, making significant progress in marketing the T3000 to the marketplace.

        Revenue totaled $56,000 for the Recent Quarter and $169,000 during the Recent Period, compared to $152,000 during the Prior Quarter and $513,000 for the Prior Period. During the Recent Quarter, we received $56,000 from equipment sales and rentals. The decrease in revenues from the Prior Period is due to the sale of the billing service bureau operations and its related revenues during 2000. We expect revenue to increase substantially over the next 12 to 18 months as we launch the T3000 system.

        Operating expenses were $1.42 million during the Recent Quarter and $3.13 million for the Recent Period. These expenses are primarily due to the amortization of goodwill resulting from the acquisition of WTC, and the software development costs for the T3000 technology and other operating costs. Operating expenses for the Prior Quarter were $2.09 million and $7.58 million for the Prior Period. The decreases in operating expenses from the Prior Period were due to a reduction in research and development of the T3000 technology and the sale of the billing service operation and its related expenses.

        Costs of Revenue was approximately $9,000 for the Recent Quarter and $30,000 for the Recent Period. These expenses primarily consist of the costs of the equipment sold, commissions of sales employees, agent fees and repair parts for the WTC paging operations.

        Research & Development expenses were a credit of approximately $25,000 for the Recent Quarter and expenses of $77,000 for the Recent Period. The credit was a result of the purchase of electronic parts for the T300 being purchased in an earlier quarter, and charged to research and development expense. During this quarter, the T3000 was re-engineered such that the parts were no longer required and subsequently sent back to the supplier for credit. The primary component of the year to date expense is the software development costs for the T3000 system as well as some costs for pre-manufacturing development.

        Selling, General and Administrative expenses were $1.44 million for the Recent Quarter and $3.02 million for the Recent Period. The primary component of the SG&A expense is depreciation and amortization; $1.4 million for the Recent Period. 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.

        Interest expense was $642,000 for the Recent Quarter and $1.52 million for the Recent Period. This expense represents primarily the interest charges on the convertible debentures that occurred in 2000 as well as interest charged on loans from related parties. The proceeds from the convertible debentures and related party loans were used to fund the research and development of the T3000 as well as operations. Interest expense for the Prior Period was $380,000, also interest on loans from related parties.



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        Net loss. We reported a net loss of $1.92 million for the Recent Quarter and $4.38 million for the Recent Period. The principal components of this net loss for the Recent Period were amortization and depreciation of $1.38 million, interest expense of $1.52 million, research and development of $77,000 and normal operating expenses. 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.

        Accumulated Deficit. Accumulated deficit for the Recent Quarter was $46.39 million. The primary component of the accumulated deficit is the amortization and the subsequent write-off of the TRACCS software. The TRACCS software was used for the billing service bureau operation. The software value was written-off in late 1999. The total amount of amortization and write-off was $25 million.

        LIQUIDITY AND CAPITAL RESOURCES. During the Recent Period, we used $1.54 million in cash for operations, primarily for salaries, marketing expenses and other operating expenses. During the Recent Period we generated cash flow from financing activities of $1.38 million that primarily came in the form of notes payable with related parties and stock issued for operating expenses.

        FUNDING REQUIREMENTS. In order to pay operating expenses and achieve self-sustaining operations, we expect to require substantial funding during the next twelve months. We will need funds for:

Development and Commercialization

        Development and commercialization prior to commercial distribution will require approximately $100,000. This includes documentation for training, customer user and installation manuals, licensing fees, compliance testing (i.e., FCC, ANSI, UL, and CE Mark), software interface development, and completion of manufacturing design. After commercial distribution begins, $800,000 will be required for the integration of TDMA, CDMA, the European GSM module and new technologies.

Working Capital

        Working capital will be required to fund the operations until it reaches positive cash flow. Working capital will be used for salaries and wages for our customer service, network management, marketing, and administrative employees. It will also be used for marketing expense including advertising and trade show, and other operating expenses such as rent, office supplies, postage and professional fees. Working capital also includes a reserve for unanticipated expenses.

Manufacturing Expense

        The anticipated demand for the T3000 will require the manufacturing of product for inventory prior to sale. We estimate that an initial 5,000 units will be required at a cost of approximately $2,000,000.

Repay Current Liabilities

        During our start up phase, we incurred several lines of credit and slightly above normal levels of accounts payable. Approximately $1,000,000 will be used to partially pay down the accounts payable to a normal level.



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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

     There are no material pending legal proceedings against Registrant.

Item 2. Changes in Securities and Use of Proceeds.

     (a)    Not Applicable.

     (b)    Not Applicable.

     (c)    Issuance of Unregistered Securities - The following tables summarize all securities that we issued during the quarter ended September 30, 2001, in unregistered offerings: 

                                                                                  Deemed Per
  Date     Title of Security    Amount   Class of Purchaser       Exemption   Share Price  Proceeds
  ----     -----------------    ------   ------------------       ---------   -----------  --------

  7/31/01   Common Stock(1)     116,667  Accredited Investors     Rule 506       $0.76(2)      (3)
  8/01/01   Common Stock(4)     397,288  Accredited Investors     Rule 506       $0.97(2)      (3)
  8/21/01   Common Stock(5)     150,000  Accredited Investors     Rule 506       $0.70(6)      (5)

  --------------------
  (1) Issued as part consideration for a bridge loan of $89,000.
  (2) The average of the closing price of the stock on the loan draw down dates.
  (3) Issued as part consideration for a bridge loan, so no cash consideration was received
      specifically for this stock.
  (4) Issued as part consideration for a bridge loan of $383,413.
  (5) Issued as part consideration for investment banking services.
  (6) Closing price of the stock on date of issuance.
  (7) Issued as part consideration for investment banking services, so no cash consideration
      was received specifically for this stock.

        (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

        None.



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Item 6. Exhibits and Reports on Form 8-K.

        (a) Exhibits. None

        (b) Reports on Form 8-K. None



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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



June 21, 2002                                                                                                  By: /s/   PAUL ZOLMAN        
                                                                                                                                        Paul Zolman
                                                                                                                                       Signing for Registrant



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INDEX TO EXHIBITS FILED WITH THIS QUARTERLY REPORT

Exhibit                                                                                                                                                                                                         Exhibit Page

None





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