10KSB/A 1 tlmx200410kam1.htm AMENDMENT NO. 1-DECEMBER 31, 2004 FORM 10-KSB Telemetrix, Inc., Amendment No. 1 December 31, 2004 Form 10-KSB

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB/A
AMENDMENT NO. 1

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2004
OR
[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ____ TO ____

COMMISSION FILE NUMBER 000-14724

TELEMETRIX INC.
(Name of small business issuer in its charter)

DELAWARE 470830931
(State or other jurisdiction   (I.R.S. Employer  
of incorporation or organization)  Identification No.) 

1225 SAGE STREET, GERING, NEBRASKA 69341
(Address of principal executive offices) (Zip Code)

(303) 652-3279
(Registrant’s telephone number, including area code)

_________________
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, Par Value $0.001

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  [   ]   No  [X]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]

State issuer’s revenues for its most recent fiscal year $654,688.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) $499,993.64 as determined by the closing price of $0.02 on December 15, 2005.

Note: If determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

Yes  [   ]   No  [   ]

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date. 24,999,682 shares of common stock outstanding as of December 1, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).

Transitional Small Business Disclosure Format (Check one):Yes  [   ]   No  [X]

TELEMETRIX INC.

INDEX

Part I.

Item 1   Description of Business   3  
Item 2  Description of Property  11  
Item 3  Legal Proceedings  12  
Item 4  Submission of Matters to a Vote of Security Holders  15  

Part II.		    

Item 5		  Market for Common Equity and Related Stockholder Matters  15  
Item 6  Management’s Discussion and Analysis or Plan of Operation  17  
Item 7  Financial Statements  22  
Item 8  Changes in and Disagreements with Accountants and Financial Disclosure  23  
Item 8A  Controls and Procedures  23  

Part III.		    

Item 9		  Directors, Executive Officers, Promoters and Control Persons; 
          Compliance with Section 16(a) of the Exchange Act  24  
Item 10  Executive Compensation  26  
Item 11  Security Ownership of Certain Beneficial Owners and 
          Management and Related Stockholder Matters  28  
Item 12  Certain Relationships and Related Transactions  28  
Item 13  Exhibits and Reports on Form 8-K  29  
Item 14  Principal Accountant Fees and Services  29  






2

PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Organizational History

Telemetrix Inc. was formed through a series of corporate combinations, as follows:

o  

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, in accordance with a share exchange and plan of reorganization;

o  

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, which is referred to hereafter as “the combination”;

o  

On April 5, 1999, the first phase of the combination occurred, whereby Arnox acquired 100% of the issued and outstanding common shares of TRG Inc. in exchange for 6,127,200 shares of Arnox’s common stock;

o  

Thereafter, Arnox’s historical financial statements become those of TRG Ltd., as TRG Ltd.‘s operations were the ongoing operations of the combined companies;

o  

On September 22, 1999, the final phase of the combination closed, whereby, we acquired 100% of the issued and outstanding common shares of WTC in exchange for 5,372,800 shares of Arnox’s common stock;

o  

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;

o  

After the combination, the companies changed their names to reflect their complementary businesses, as follows: (a) Arnox became Telemetrix Inc.; (b) TRG Ltd. became Telemetrix Solutions, Inc.; and (c) WTC became known as Telemetrix Technologies; and

o  

Tracy Corporation II, a Nebraska corporation, became our wholly owned subsidiary.


As of December 31, 2004, we have 24,999,682 shares of our common stock outstanding. As of December 1, 2005, we have 24,999,682 shares of our common stock outstanding.

BUSINESS

Overview

We offer the following services:

o  

Wireless paging services

o  

Wireless Personal Communications Services

o  

Wireless network access and specific rate plans for customers that use only the personal communications system short message service (SMS). This provides nationwide network short message service. This service is generally used by our customers for telemetry systems, which involve the use of remote devices for data collection and analysis’

o  

Hardware, software and network operator services solutions


Wireless Paging Service

We own and operate a wireless paging service. Wireless paging is a service that has been in use for over 20 years and is the service originally used by doctors and emergency personnel who were on call, before the common availability of wireless mobile phones. It consists of a small device that is usually attached to one’s belt or carried in a person’s pocket, and which makes a beeping notification sound and either displays a call back number or provides a voice message that has been left by the person accessing the paging device from a telephone. The general use of wireless paging service is declining but paging hardware and service continue to be used in more specialized situations and are a lower priced alternative to a wireless mobile phone. Paging service revenue is decreasing on paging systems nationwide, as it is with the paging network that we operate. Our paging network provides coverage of portions of western Nebraska and southeastern Wyoming.

3

Wireless Mobile Telephone Service

We also own and operate a wireless mobile telephone service. There are two major types of mobile telephone technology in use in the United States, Global System for Mobility (GSM) and Code Division Multiple Address (CDMA). Examples of wireless companies that use GSM are Cingular, Dobson Communications and T-Mobile. Examples of wireless companies that use CDMA are Sprint and Verizon. We currently use GSM technology.

Our wireless mobile telephone service provides local network coverage in western Nebraska and eastern Wyoming only. We have future plans of expanding the network service area to include a portion of Interstate Highway 80 which is in the southern part of our licensed area. We provide network roaming service for customers of T-Mobile, Cingular and Dobson Communications, when in our network coverage area. The income from providing this service is known as “roaming revenue”.

Nationwide network data access

There are a number of companies designing and manufacturing devices to collect data and report events, which has become known in the industry as Machine to Machine (M2M) communications. We were in the business of designing and marketing such devices. During the third quarter of 2002, we determined there would be an increasing amount of market competition by hardware companies with significant expertise and we determined that those companies were better positioned to capitalize on such business opportunities. We also determined that these companies would share the problem of obtaining an affordable data plan to support their hardware and software. Because we did not have existing distribution channels we determined our market opportunity for providing affordable nationwide data only wireless service was greater than our market for application specific telemetry related hardware and software. We created service plans for customers that needed service for their hardware and reporting devices. This presented the opportunity to enter endless vertical markets without specific research and development to produce specific hardware and software for those markets and removed the necessity to launch an extensive customer focused marketing program..

We currently provide nationwide GSM network access on a wholesale basis for hardware that communicates using the short message service (SMS). We activate Subscriber Identity Module (SIM) cards for telemetry and telematic applications, and have rate plans that do not include monthly voice service fees. We deliver nationwide GSM service through agreements with network roaming partners, primarily Cingular and T-Mobile. We issue SIM cards and provide service to send and receive messages to our SIM cards virtually anywhere in the United States. This service is necessary to make the M2M hardware operate.

SMS is simply a service which allows customers to send and receive text messages on their digital phones. Each message may be up to a maximum of 160 characters long. Telemetry and telematic customers use this message protocol to wirelessly communicate with their hardware devices.

Our immediate objective is to increase the amount of message traffic for delivery on the networks operated by our roaming partners and also increase the roaming traffic on our network from our roaming partners. The next objective is to integrate General Packet Radio Service (GPRS), into our data offering. GPRS is a GSM data transmission technique that transmits and receives data in packets at high speeds and is particularly suited for Internet access.

Hardware, software and network operator service solutions

Our company also provides mobile switching services and other essential wireless services to Wilkes Telephone and Electric Company, (Wilkes) is a small PCS wireless operator located in Washington, GA. The expertise and talent necessary to operate a small network is difficult to acquire. Through Telemetrix Wilkes is able to get the services necessary to operate their local transmitters and handle voice and data without the need for installation of expensive and complicated equipment. Telemetrix has connected the central office equipment located in Gering, Nebraska with the equipment operated by Wilkes and the local network operates as if the equipment were owned and operated by Wilkes This saves Wilkes a tremendous amount of time and expense in making their wireless network operational and also made their network profitable more quickly. Wilkes uses the Telemetrix Mobile Switching Center and also uses Telemetrix sources for financial settlement and billing, and has not had to spend time finding qualified and competent personnel to work on their technical network operational issues.

4

OUR BILLING PRACTICES

We charge our customers based on the following 3 billing levels:

o  

Monthly pager service fees

o  

Per month for wireless network access and per message for SMS

o  

Professional services, which include billing and network services


DIVISIONS

We operate the following divisions:

o  

Telemetry and Pager Services – Our Telemetry and Pager Services Division provides SMS and pager services

o  

Reseller Division – We have agreements with agents and resellers that purchase our services at wholesale and then resell them at their retail rates

o  

Network Services-We provide switching and other network services to customers


During the first-nine months of 2004, we had a division which was called our Centregate Division. This operation was based in Atlanta, GA and was to market and support our carrier services market, including billing and network services. For a number of reasons, we determined it was not feasible to operate a remote office and staff and the agreements with those staff members were terminated in September, 2004.

GEOGRAPHIC MARKETS

Our primary geographic markets are the United States, Canada, and Mexico.

DISTRIBUTION AND MARKETING METHODS

o  

Resellers/Agents – We have agreements with resellers and agents that purchase our services from our net price sheets and then resell the services at their retail prices to their customers; and

o  

Internet Web Site- We get inquiries from our website and then work directly with prospective customers, vendors and application service providers and place qualified prospective customers on a trial service through our network.


FUTURE BUSINESS PLANS

Our future business plans during 2005, will include the following:

o  

Expanding Reseller Program – We will attempt to expand our telemetry services related business by adding resellers that market such services.

o  

Additional network services, including GPRS which will enhance the services available for sale to the existing customer base and which will also increase the amount of roaming revenue on the local network from our network roaming partners such as Cingular and T-Mobile.

o  

Gaining full functionality of the billing system thereby increasing the number of services which will be available to Wilkes.


5

COST OF COMPLIANCE WITH ENVIRONMENTAL LAWS

We have no costs associated with environmental regulations related compliance and we do not anticipate any future costs associated with such compliance.

INTELLECTUAL PROPERTY RIGHTS

On January 11, 2000, the U.S. Patent and Trademark Office (“PTO”) issued the Company Patent No. 6,014,089 (the “089 Patent”), which is directed to an apparatus and method for transmitting data to and from a data collection device using the short message service functionality of the control channel of a personal communications system. We have been notified by the PTO that the 089 Patent has been withdrawn because we failed to make an annual maintenance payment due in January 2004. The Company has filed a petition with the PTO for reinstatement of this patent.

On November 21, 2000, the PTO issued the Company Patent No. 6,150,955 (the “955 Patent”) which is directed to the use of a telemetry data system for monitoring certain digital packets associated with a digital communications control channel, the identification of certain packets, and the replacement of certain non-information bearing packets with packets that contain useful data and information. This patent will expire in the year 2017.

On April 9, 2002, the PTO issued the Company Patent No. 6,369,719 (the “719 Patent”), which is directed to an apparatus and method for collecting and transmitting utility meter data and other information by means of a wireless network. The patent will expire in 2019.

TOWERS

As more fully detailed under Item 2, Description of Properties, we own, rent to others or rent from others certain tower sites in Wyoming and Nebraska. Twelve of these towers are used to support simple antennas which are used in our paging business.

Six of these tower sites are used in our PCS Network operation.

LICENSES

Our wholly owned subsidiary, Tracy Broadcasting II, holds the following Federal Communications Commission radio frequency licenses:

o  

Personal Communications System (PCS) license, referred to by the Federal Communications Commission as a Basic Trading Area 411 license, for Scottsbluff, Nebraska. This license entitles us to operate a PCS wireless network in this area. The network is used to provide mobile telephone service to the local population and also persons from other PCS mobile telephone companies that are “roaming” in that area. Our business agreements with other PCS networks allow our customers to “roam” on those networks for voice service out of our coverage area.

o  

18 Paging and Mobile Telephone licenses serving 18 locations in Western Nebraska, Eastern Wyoming, and Northeastern, Colorado which give us the exclusive right to use a one-way radio frequency to communicate with the paging devices of our customers for paging service. The licenses are not shared which gives our paging customers a higher level of interference free voice and digital paging service.


6

EMPLOYEES

We have 4 full time direct or contract employees in our Gearing, Nebraska office, as follows:

o  

Company Operations Management

o  

Infrastructure Hardware Technician

o  

Central Office Switch Technician

o  

1 Billing and Accounting Person that is contracted from Tracy Broadcasting;


Through September, 2004 we had 5 full time direct or contract employees in our Atlanta, Georgia office, as follows:

o  

Chief Executive Officer

o  

Chief Operating Officer

o  

Vice President of Sales

o  

Management Accountant

o  

Engineering Services that are obtained from one engineer on a contract basis


The Atlanta office and operations were discontinued in September 2004 and these employees and contractors were dismissed.

We have no employees that are members of labor unions. We also use the services of independent contractors and consultants.

COMPETITION

Competitive Business Conditions and Our Place in the Market

The markets for all of our services are increasingly competitive. Our competitors have substantially longer operating histories, greater name recognition, larger customer bases and greater financial and technical resources than us. Because we are financially and operationally smaller than our competitors, we will encounter difficulties in capturing market share. Our competitors are able to conduct extensive marketing campaigns and create more attractive pricing for their target markets than we are. In addition, we do not have an established brand name or reputation while our competitors have significantly greater brand recognition, customer bases, operating histories, and financial and other resources.

Some of our biggest competitors in the telemetry services market are:

o  

Kore Wireless

o  

Aeris

o  

Cingular

o  

T-Mobile


Some of our biggest competitors in the pager market are:

o  

Wireless Telephone companies such as Alltel

o  

Action Communications


Some of our biggest competitors in our billing systems market are:

o  

RedKnee

o  

Amdocs; and

o  

Verisign


7

Our Plan to Compete

We plan to compete in the following ways:

o  

Attempt to provide a superior level of customer care and service to developers of new and innovative technologies utilizing digital wireless communications systems


o  

Utilize attractive pricing plans that are not easily duplicated by larger wireless carriers


o  

Attempt to secure marketing agreements with primary vendors and service providers that bring new, innovative and advanced services to market.


GOVERNMENTAL REGULATION

Wireless telecommunications services are subject to significant regulation. We could become subject to additional regulatory requirements as our services grow. We are subject to regulations under the Communications Act of 1934, which includes the Telecommunications Act of 1996. The Federal Communications Commission (FCC) regulates the facilities and services we use to provide, originate, or terminate interstate or international communications. Our PCS and other wireless services require radio frequency licenses from the FCC or a contractual arrangement with a licensee. We have a PCS license, which was obtained in the C Block License Auctions. We also have paging facility licenses, which are used in the operation of the existing paging system. We maintain FCC licenses on all of the communication facilities. The PCS license is granted 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.

MATERIAL AGREEMENTS

Network Service Agreement with Wilkes Telephone and Electrical Company, Washington, GA.

We have an agreement dated January 16, 2004, with Wilkes, which is headquartered in Washington, GA. Under the agreement, we provide switching, SMS, roaming support, interconnection and carrier billing and certain settlement services to support Wilkes’ provision of wireless services to its customers, including customers which use our network through roaming agreements which Wilkes has with other major wireless carriers. Under the agreement, Wilkes purchases certain of our infrastructure equipment and provides installation of the equipment, and testing and integration of the equipment with Wilkes’ wireless cellular telephone system.

Reseller Agreement with Topp, Inc.

We have a March 31, 2003 reseller agreement with Topp, Inc. in which Topp, Inc. acts as our reseller and makes purchases from us allowing Topp, Inc. to market and sell access to and use of our PCS service.

Customer Master Agreement with Cerillion Technologies Limited

We have an April 13, 2003 agreement with Cerillion Technologies in which Cerillion agrees to supply us Cerillion’s software, third party products and software support services for resale by us and for the exclusive purpose of supply billing services to certain organizations. We are not permitted under the agreement to assign or subcontract any rights or obligations under the agreement or appoint any agent to perform such obligations, except as otherwise permitted under the agreement. The agreement may be terminated by written notice if either party fails to observe or perform any material term or condition of the agreement and such breach continued for 30 days. Additionally, we are not permitted to use, reproduce, sublicense or otherwise deal in the software or the source code of the software or reverse engineer decompile or disassemble the software. We are required to use Cerillion’s trademarks and trade names.

8

Master Purchase & License Agreement with Telos Technology

On October 22, 2003, we entered into a Master Purchase and License Agreement with Telos Technology (“Telos”) under which we purchased system infrastructure for a GSM network solution, including a wireless communications switch. Telos delivered the system in the first quarter of 2004, and we installed the system in the first quarter 2004. We also installed equipment necessary to provide network services to Wilkes under our agreement with Wilkes during the first quarter of 2004. During 2004, UT Starcom purchased Telos and merged Telos into its operations.

Stock Purchase Agreement with Tracy Broadcasting Corporation

We have a May 26, 2003 Stock Purchase Agreement with Tracy Broadcasting Corporation, which is solely owned by our former Chief Executive Officer, Michael Tracy. In this agreement, Tracy Broadcasting, which is identified as the “purchaser” agreed to purchase 10,042,500 shares of our restricted common stock for a total purchase price of $401,700. A total of 6,523,496 of these shares were issued to Tracy Broadcasting Corporation in October, 2004.

Agreements and Loan Conversions

During October 2003, we entered into a loan agreement with Nyssen LP (“Nyssen”) through TowerGate Finance Ltd. (“TowerGate”) under which we would be able to borrow up to $2 million in the form of convertible notes. As of December 31, 2003, we had borrowed an aggregate of $350,000 under this loan agreement pursuant to convertible demand notes. The notes do not bear interest unless they are in default, in which case interest accrues at the rate of 12% per annum. The notes have a conversion feature which allows for conversion into the Company’s common shares at $.04 per share. The Company challenged the loan agreement with Nyssen in the dispute described in Item 3 – Legal Proceedings. During the dispute, the Company suspended the conversion feature in the notes.

As of November 30, 2004, the Company entered into a settlement agreement with Nyssen, and reinstated the conversion rate. (See Item 3, Legal Proceedings.) The difference between the conversion price and the fair market value of the shares was charged to interest expense. As of November 30, 2004, we had borrowed an aggregate of $1,600,025 from Nyssen pursuant to the October 30, 2003, loan agreement and represented by the convertible demand notes. Pursuant to the settlement agreement, Nyssen agreed to convert the $1,600,025 in demand notes into our common shares at $.04 per share. Upon conversion, Nyssen will receive 40 million shares of our common stock. Under the settlement agreement, we agreed to issue TowerGate 20 million shares of common stock for non-cash compensation for financial services provided to the Company.

As provided for in the November 30, 2004, settlement agreement, Tower Gate and Nyssen, its management and associates will invest an additional $300,000 in the Company, as follows:

1.  

$100,000 at $.02 per share


2.  

$200,000 at $.10 per share.


As provided for in the November 30, 2004, Settlement Agreement, Becker Capital Management LLC, a related party, its management and associates will invest an additional $300,000 in the Company, as follows:

1.  

$200,000 at $.02 per share


2.  

$100,000 at $.10 per share.


9

On February 3, 2003, the Company issued a note in the principal amount of $30,000 and bearing interest at 10% per annum, payable to Becker Capital Management, LLC, a related party. The note required three installment payments of $10,000 each on March 3, 2003, April 3, 2003, and May 3, 2003. The note provided for a penalty that in the event a payment was not received within five (5) days of each due date, the Company would be declared in default, and the holder would be entitled to receive shares of stock in the Company at $.11 per share, priced for the outstanding principal balance including interest owed at the time of default. Additionally, for each thirty (30) days beyond the due date the Company is in default on the note, the holder would be entitled to additional shares computed at the rate of ½ of the initial conversion rate. In the November 30, 2004, settlement agreement, the Company agreed to convert this note, plus accrued interest of $4,757, into 36,175,000 shares of the Company’s common stock, at the par value of the common stock, or $.001 per share.

The Company acknowledges that all of the transactions contemplated in the November 30, 2004 settlement agreement, including the loan conversions of Nyssen, the shares issued to TowerGate, and the loan conversion of Becker Capital Management are subject to shareholder approval. The Company has not yet taken the appropriate action to seek shareholder approval but will do so at the earliest time practical. In April 2005, the Company made application with the FCC for approval of the share issuance to Nyssen and TowerGate and Becker Capital Management LLC described above. The application is currently pending with the FCC.

The Company has outstanding notes payable to affiliates in the principal amount of $492,000 at December 31, 2004. During the years ended December 31, 2004 and 2003, the affiliates advanced additional funds of $25,000 and $568,640 and the Company made repayments of the advances of $0 and $100,000. The debt is convertible into common shares of the Company at $.02 per share.

During May 2003, the Company, through corporate resolution, agreed to convert existing corporate indebtedness of major shareholders and investors in the company into equity through an approved corporate exchange of non-issued common shares for notes and accrued interest aggregating $4,107,297. The conversion of debt to equity by those participating note holders would include the issuance of preferred and common shares of the Company. The Corporation’s Amended Articles of Incorporation (“Articles”) authorizes the Corporation to issue up to 5,000,000 Preferred Shares, with a par value of $.001 (“Preferred Shares”) in one or more series at such price and in such number as authorized by the Board of Directors. The Articles also authorize the Board to prescribe the number, voting powers, designations, preferences, limitations, restrictions and relative rights of each series of Preferred Shares. Accordingly, the Board of Directors designated 250,000 Preferred Shares as Series D Preferred Shares. In September 2004 a major shareholder received 6,523,496 shares of common stock for $260,940 of this debt conversion and the other persons and entities who had initially agreed to accept preferred shares agreed to accept common shares in lieu of the preferred shares.

During May 2003 in conjunction with the conversion of the notes and accrued interest the note holders forgave the issuance of an aggregate of 10,594,539 shares of common stock with an aggregate value of $3,233,978.

The Company has obligations to issue common shares at December 31, 2004, pursuant to the conversions of various loans and accrued interest as follows:

Shares Amount
Loan incentive shares   6,055,762   $     719,947  
Conversion of debt  40,000,000   6,000,000  
Conversion of related 
  party debt  64,948,445   9,272,607  
   110,004,207   $15,992,554  

10

Exchange Agreements

In 2003 we entered into exchange and conversion agreements with Hartford Holdings, Ionian Investments, Ltd., Ardara Investments, Ltd., WYSE Investments, Ltd., Michael L. Glaser, Becker Capital Management and Michael Tracy, all of which provide for the following:

o  

The surrender of all certificates held by each of the entities representing 80% of the total amount of shares of common stock held;

o  

In exchange for the surrender of the certificates, we shall exchange without further cost shares of our preferred stock at a ratio of 200 shares of common for each share of preferred;

o  

Preferred shares will not be issued in fractional increments, therefore any fractional numbers of shares will be added to the number of common shares which will be issued as replacement shares for the shares surrendered.


Each entity has the option, on written notice to us, to have us register a number of shares set out in each of the separate agreements. Effective December 31, 2004, the Company and the major shareholders cancelled the exchange agreements.

Office Lease Agreements

Our office lease agreements are summarized below under Item 2, Description of Properties.

ITEM 2. DESCRIPTION OF PROPERTIES

Nebraska Office Space:

Our wholly owned subsidiary, Tracy Corporation II, leases 5,168 square feet of office space at our executive offices, 1225 Sage Street in Gering, Nebraska from our former Chief Executive Officer, Michael Tracy, for a monthly lease payment of $2,500. This space is adequate for our needs. This lease expires on October 31, 2007.

Atlanta Office Space:

We had an Office Services Agreement with the Centre for Premier Suites and Business Services, Inc. for 800 square feet of office space at our Atlanta, Georgia office located at 300 Village Green Circle, Suite 201, Smyrna, GA 3008. This agreement was effective as of November 10, 2003 and terminated on May 31, 2004. The monthly payment was $1,895. This space is adequate for our needs. We did not renew the lease and operated from May 31, 2004 through October, 2004 on a month to month basis.

Towers:

We own tower sites in the following locations:

o  

Guernsey, Wyoming

o  

Wheatland, Wyoming

o  

Torrington, Wyoming

o  

Henry, Nebraska

o  

Gering, Nebraska

o  

Bushnell, Nebraska

o  

Kimball, Nebraska

o  

Sidney, Nebraska

o  

Oshkosh, Nebraska

o  

Minatare, Nebraska

o  

Ogallala, Nebraska

o  

Alliance, Nebraska


11

We rent tower sites in the following locations:

o  

Douglas, Wyoming

o  

Mitchell, Nebraska

o  

Scottsbluff, Nebraska

o  

Chadron, Nebraska

o  

Dix, Nebraska

o  

Sterling, Colorado


The leases and rental agreements pertaining to these tower sites are generally a five year term. Rental charges are based on a monthly rate calculated by the number of feet of tower space between the antenna location on the tower and the ground multiplied by a per foot rate, plus a monthly charge for equipment space within the building at the base of the tower site used to house equipment.

ITEM 3. LEGAL PROCEEDINGS

On September 10, 2004, we filed a Complaint in the United States District Court in the Southern District of New York against Michael J. Tracy (“Tracy”), Michael L. Glaser (“Glaser”), and William W. Becker (“Becker”), in case number 04CV7255. The Complaint sought an award for compensatory damages and an injunction against Tracy, Glaser and Becker for breach of fiduciary duty, costs and expenses for litigation, including reasonable attorneys’ fees, expert fees, and other disbursements, and against Tracy for conversion, and awarding us, as plaintiff, such other and further relief as may be deemed just and proper.

On September 16, 2004, we filed a complaint in the United States District Court for the District of Nebraska, in case number 7:04CV5020, against TowerGate and Nyssen. The Complaint alleged fraudulent misrepresentation against TowerGate, fraudulent concealment against Nyssen, breach of fiduciary duty against TowerGate, civil conspiracy against TowerGate and Nyssen, breach of contract against TowerGate, and breach of the covenant of good faith and fair dealing against TowerGate. The Complaint sought preliminary and permanent injunction, declaratory judgment and an accounting. The Complaint also requested a jury trial.

On December 10, 2004, we, Tracy, Glaser and Becker and our other majority shareholders, and TowerGate and Nyssen entered into a binding agreement dated as of November 30, 2004, in which the parties agreed to dismiss the above-described lawsuits, and settle the dispute between the Company and TowerGate and Nyssen, and the Company and Becker, Glaser and Tracy.

The settlement agreement provides that the parties agree to put in place an interim board of directors consisting of William Becker as Chairman and interim Chief Executive Officer, Larry L. Becker, son of William Becker, and one of our substantial shareholders through Becker Capital Management, LLC, Piers Linney, CEO of TowerGate, and Matthew Hudson, who controls Nyssen, or his designee. In addition, the settlement agreement states that William Becker and Larry Becker and the entities which are affiliated (“the “Becker Entities”) with them and TowerGate/Nyssen have the right to appoint two directors, so long as either group individually, respectively, holds in excess of 25% of our common stock. Moreover, the agreement states that the Becker Entities and TowerGate/Nyssen shall be entitled, respectively, to appoint one director for as long as they hold in excess of 50% of our common stock and up to 25% of our common stock. Mr. William W. Becker is a Canadian citizen. Mr. Larry L. Becker is also a Canadian citizen. Messrs. Linney and Hudson are British subjects. TowerGate and Nyssen are formed under the laws of the United Kingdom.

12

The settlement agreement also provides that our majority shareholders and Glaser, together with the Becker Entities and TowerGate/Nyssen would vote all shares held by them to ensure that the Becker directors are always appointed in accordance with the agreement. Additionally, the agreement states that other directors will be appointed to the Board in due course and good faith on the basis that their appointment is in our best interest and in the best interest of our shareholders.

The agreement further provides that we will increase our authorized number of common voting shares of the company to 500,000,000, and that our majority shareholders agree to take all actions necessary and in accordance with applicable laws, statutes, rules and regulations to facilitate the increase in the issuance of our share capital.

Under the agreement we agreed to issue a new promissory note to Mr. Tracy or his affiliate for a loan he made to us of $467,000. The note will be due and payable in 24 months from December 31, 2004, and will bear simple interest at 10% per annum from December 31, 2004, until maturity. At maturity, Mr. Tracy or his affiliate may convert this note at his option into our common voting stock at $.02 per share.

The agreement also provides that since the Company requires immediate access to new financing to continue operations, Mr. William W. Becker and his affiliates (the “Becker Entities”) will invest $200,000 into the Company at $.02 per share, for 10,000,000 newly-issued common shares, and $100,000 into the Company for 1,000,000 newly-issued common shares, and Nyssen will invest $100,000 into the Company stock at $0.02 per share for 200,000,000 newly-issued common shares and $100,000 into the Company stock at $.10 per share for 1,000,000 newly-issued common shares. The parties agreed that future financing provided by the Becker Entities and Nyssen would be accomplished at $.10 per share of our common stock. Becker Capital Management, LLC has loaned the Company $300,000, pursuant to convertible promissory notes, in order to provide the Company with interim financing until we implement the settlement agreement. Mr. William Becker does not own any interest in Becker Capital Management, LLC. Nyssen has also loaned the Company $300,000, pursuant to convertible promissory notes in order to provide the Company with interim financing until we implement the settlement agreement.

The agreement further provides that we will establish a stock option plan with ten percent (10%) of our fully diluted share capital to incentivize the performance of our existing and new management.

The settlement agreement provides that Delaware law shall apply. Delaware law requires approval of our shareholders to increase our authorized capital. Moreover, Delaware law will require shareholder approval of a stock option plan to incentivize the performance of our existing and new management. The Company is attempting to comply with all of the requirements of Delaware law and the SEC requirements, but there can be no assurance that it will be able to do so. In addition, FCC approval is required for certain of the share issuances and if this approval is not obtained by the Company there may be material negative impact on the Company’s financial position and results of operation.

Although the parties agreed to implement the agreement as soon as practical, the parties have only taken three actions to do so as of the date of this report. First, the Company dismissed its Complaint against Messrs Tracy, Becker and Glaser on December 15, 2004, dismissed its Complaint against TowerGate/Nyssen on December 20, 2004. Second, we filed an application with the FCC for approval of the stock conversion by Nyssen and TowerGate, and by Larry L. Becker. The application included a copy of the November 30, 2004, settlement agreement. Finally, we issued Tracy Broadcasting Corporation a promissory note for $467,000 for the $467,000 loan made to us. As provided in eh settlement agreement, the note is due and payable on December 31, 2006, at maturity. Tracy Broadcasting Corporation may convert this loan at its option into our common stock at $.02 per share. The Company filed a Form 8-K on December 21, 2004, related to this litigation, in which the Company described the terms of the settlement agreement.

13

All parties to the settlement agreement are either beneficial owners of the Company’s common stock, current or proposed members of the Company’s management, and/or parties or affiliates of parties involved in litigation that gave rise to the settlement agreement.

In the settlement agreement, the parties agreed to undertake the following actions:

 

Elect a new Board of Directors;


 

Increase in the Company's authorized share capital;


 

Effect a material share issuance to the Becker Entities, Larry L. Becker and Nyssen;


 

Effect material share issuances to Nyssen and TowerGate; and


 

Establish a stock option plan to incentivize the performance of the Company’s existing and new management.


If the Company and the parties implement the settlement agreement without complying with Delaware law, including obtaining shareholder approval and without FCC approval, the Company will be subject to the following unasserted claims, all of which would expose the Company to potential shareholder lawsuits and/or federal and state regulatory action:

Violation of Delaware law and our corporate bylaws. 8 Delaware Corp. Code 144 states:

 

“Interested Director, Quorum”


     A.    no contract or transaction between a corporation and one or more of its directors or officers, or between a corporation and any other corporation, partnership, association, or other organizations in which one or more of its directors or officers, or directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee which authorizes the contract or transaction, or solely because any such director’s or officer’s votes are counted for such purpose, if:

          1.    The material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee, in good faith, authorizes the contract or transaction by the affirmed votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or

          2.    The material facts as to the director’s or officer’s relationship or interest, and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by a vote of the shareholders; or

          3.    The contract or transaction is fair to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee, or the shareholders.

     B.    Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes a contract or transaction.

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If the Company fails to comply with the requirements of 8 Delaware Corp. Code §144 in effecting the material transactions contemplated by the settlement agreement, the Company will be subject to potential shareholder action. Additionally, under this section of the Delaware code, the settlement agreement could potentially be voided if the settlement agreement is not fair to the Company. The shareholders may consider an increase in the Company’s authorized common stock to allow the Company may implement the provisions of the settlement agreement, including issuance of shares to the Becker Entities, Larry L. Becker, Nyssen and TowerGate, which includes members of management, beneficial owners or affiliates, and also the adoption of a stock option plan for the benefit of management unfair to the Company and its shareholders who are not parties to the settlement agreement.

Moreover, the issuance of the shares to the Company’s management and beneficial owners described above, and as provided for in the settlement agreement, may be set aside under Delaware law if the Company fails to comply with the foregoing section of the Delaware corporate code.

Furthermore, the Company has a class of its securities registered pursuant to the Securities and Exchange Act of 1934 (the “1934 Act”). Accordingly, the Company must comply with Section 14 of the 1934 Act and its disclosure requirements in connection with the implementation of the settlement agreement. Therefore, the Company is required to file with the SEC either a proxy on Schedule 14-A, or an information statement to Schedule 14-C, before it can implement the settlement agreement. The Company intends to file a proxy statement with the SEC in compliance with the 1934 Act and, upon approval, issue a proxy to its shareholders requesting a vote on the material transactions contemplated by the settlement agreement. The Company will exclude from such voting those shareholders who are determined under Delaware law not to be qualified to vote because they will derive a direct benefit from the transactions contemplated in the settlement agreement.

The Company has been delinquent in filing its reports on Form 10-QSB and Form 10-KSB for the calendar year ending December 31, 2004, and is delinquent in filing reports on Form 10-QSB for the first, second and third quarters during the calendar year 2005.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the year ended December 31, 2004.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Below is the market information pertaining to the range of the high and low bid information of our common stock for each quarter since our common stock has been quoted on the OTC Bulletin Board or the National Quotation Bureau’s Pink Sheets. From April 2003 to present, our common stock has been quoted under the symbol TLXT on the National Quotation Bureau’s Pink Sheets. From April 1999 to April 2003, our common stock was quoted on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

   2004
 Low    
 High
Fourth Quarter   .06 .38
Third Quarter  .10 .15
Second Quarter  .10 .44
First Quarter  .30 .50

   2003
 Low    
 High
Fourth Quarter  .06 .50
Third Quarter  .06 .14
Second Quarter  .08 .16
First Quarter  .06 .14

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The source of the above information is msn.com.

There is a limited trading market for our common stock. There is no assurance that a regular trading market for our common stock will develop, or if developed will be sustained. A shareholder in all likelihood, therefore, will not be able to resell their securities should he or she desire to do so when eligible for public resale. Furthermore, it is unlikely that a lending institution will accept our securities as pledged collateral for loans unless a regular trading market develops

Reports and Other Information to Shareholders

We are subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and other reports and information with the Securities and Exchange Commission. You may read and copy these reports and other information we file at the Securities and Exchange Commission’s public reference rooms in Washington, D.C. Our filings are also available to the public from commercial document retrieval services and the Internet world wide website maintained by the Securities and Exchange Commission at www.sec.gov.

Holders

As of September 30, 2005, we had 248 holders of record of our common stock. We have one class of stock outstanding. We have no shares of our preferred stock outstanding. As of September 30, 2005, there were 6,905,198 shares of our stock held by non-affiliates and 19,094,484 shares of our stock held by affiliates.

Options.

We have 450,000 options outstanding to purchase 450,000 shares of our common stock.

Warrants

We do not have any outstanding warrants of our common stock.

Penny Stock Considerations.

Our shares are “penny stocks” as generally defined in the Securities Exchange Act of 1934 as equity securities with a price of less than $5.00. Our shares may be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or “accredited investor” must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:

o  

Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

o  

Disclose commissions payable to the broker-dealer and its registered representatives and current bid and offer quotations for the securities;

o  

Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks; and

o  

Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.


Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our stock, which may affect the ability of shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities if our securities become publicly traded. In addition, the liquidity for our securities may be adversely affected, with a corresponding decrease in the price of our securities. Our shares may someday be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.

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Dividends.

We have not declared any cash dividends on our stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payment of dividends will depend on our earnings and financial position and such other factors as the Board of Directors deems relevant.

Securities Authorized for Issuance under Equity Compensation Plans.

Not applicable.

Recent Sales of Unregistered Securities.

The Company issued 6,523,496 shares of our common stock to Tracy Broadcasting Corporation pursuant to the Stock Purchase Agreement between the Company and Tracy Broadcasting Corporation dated May 26, 2003.

Use of Proceeds from Registered Securities.

Not applicable

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Form 10-KSB and our Annual Report on Form 10-KSB for our fiscal year ended December 31, 2004. 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.” 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 limited operating history and our history of losses make it difficult for you to evaluate our current and future business and our future financial results; (b) if we are unable to obtain additional financing, we will be unable to proceed with our operating plan; (c) even if we obtain additional debt or equity financing, the value of our common stock will be diluted; (d) we have negative cash flow from operations and an accumulated deficit that raises substantial doubt about our ability to continue as a going concern; (d) we are subject to substantial debt obligations of approximately $5 million, which may negatively affect our ability to grow; (e) whether we will keep pace with the rapid development of technology in the wireless communications services area; (f) whether our existing technology will become obsolete or too expensive to upgrade; (g) the wireless communications services area generally experiences a high rate of “churn” representing the rate of lost customers, and there is no assurance that we will not experience churn due to competitive forces and price competition; (h) should our business be subject to increasing government regulation, we will be subject to increasing costs; and (i) we are dependent upon third party providers, including roaming partners and wireless network companies through which we obtain our interconnections throughout North America and also international markets; should we lose the services of these third party providers, our operations may negatively affected, including interruptions in our service.

Statements are made as of the filing of this Form 10-KSB 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

Up until August 2002, our revenues were primarily generated from one way wireless communication (paging services) related income. Beginning in September 2002, we ceased research and development on telemetry related hardware products; instead, we began focusing on providing Global Systems for Mobile communications (GSM) network access for telemetry devices from third party providers actually providing access to the nationwide GSM network for short message service customers that use data and SMS to communicate with and control their telemetry and telematic hardware devices. At that time, we began conducting business in telemetry services, which consisted of SMS, including actual text messages transmitted to and from wireless modems, the sale of and service for subscriber identity module (SIM) cards, a cost per short message (SMS), and an activation fee for subscriber/customers.

17

Capital Expenditures and Requirements

During 2004, we made two significant capital expenditures of approximately $860,000 for a Mobile Switching Center (MSC) and GPRS Equipment. If we obtain adequate funding, we expect to make the following significant capital expenditures during 2005: (a) $300,000 for additional switching equipment; (b) $150,000 for a short message service center; and (c) $75,000 for infrastructure hardware and software to support our billing system.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts. The estimates and assumptions are evaluated on an on-going basis and are based on historical experience and on 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. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of 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. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Our accounting for revenue recognition and stock compensation, which requires us to estimate the value of the shares issued, and the value of intangible assets requires us to continually assess whether such assets are impaired. Our critical accounting policies are outlined in our audited financial statements contained in our Form 10-KSB for the year ended December 31, 2004.

During our Fiscal Year 2004 period, our revenues were derived from the following:

o  

$347,969 from our telemetry related services

o  

$70,170 from our pager related services

o  

$221,140 from our network services

o  

$15,409 from tower rental


Our revenues are dependent upon the following factors:

o  

Our ability to secure additional agreements for customers using our network for nationwide network access for SMS and data

o  

Our ability to secure additional agreements for network roaming services

o  

Ourability to hire and maintain contract engineers that will be able to install and maintain and support the equipment and software necessary for both our division services

o  

Demand for our services

o  

Individual economic conditions in our markets

o  

Our ability to market our services


Years Ended December 31, 2004 and 2003

Consolidated Statement of Operations

Revenues. Revenues for the year ended December 31, 2004 increased 71% to $654,688 from $381,967 for the same period in 2003. The increase in our Revenues is primarily attributable to having Network Services of $221,140 for the year ended December 31, 2004 compared to $0 for the comparable 2003 period, representing an increase of 100%. The increase in our telemetry related message revenue to $347,969 for the year ended December 31, 2004 compared to $251,149 for the year ended December 31, 2003, representing an increase of $96,820 or 39%. Tower Rent Income of $15,409 in 2004 increased $3,757 from $11,652 in 2003. In contrast, our pager related revenues decreased by $48,996 or 41% to $70,170 during the year ended December 31, 2004 compared to $119,166 for the comparable 2003 period. We believe that during the year 2005 pager related revenues will continue to decline since the North American pager market has declined due to the increasing usage of other wireless technology. We will attempt to expand our revenues by marketing our network data access and generating associated revenues and through our wireless network services.  

18

Cost of Revenues. Cost of revenues currently consists primarily of pager equipment, equipment repairs, software, additional phone circuits, and processing charges, long distance charges, network technicians and base equipment. Cost of revenues increased from $179,524 to $328,947 for the year ended December 31, 2004, representing a 83% increase which represents 50% and 47% of the total revenues for the year ended December 31, 2004 and December 31, 2003, respectively. The increase in the cost of revenue is attributable to high cost services related to our other revenue category which consists of service agreements with other cellular carriers. There were no such costs associated with the comparable 2003 period.

Non-Cash Stock Compensation Expense. Non-Cash Stock Compensation had a $1,288,325 or 75% increase from $1,711,675 during fiscal year 2003 to $3,000,000 during fiscal year 2004. This increase is attributable to the funding agreement described in Funding Agreements and Loan Conversions.

Selling, General and Administrative Expenses. Selling, General and Administrative expenses increased $481,920 to $1,103,945 for the year ended December 31, 2004 from $622,025 for the year ended December 31, 2003. The increase in our Selling, General and Administrative Expenses is mainly attributable to increased staffing in the Atlanta office until September 2004.

Interest Expense. Interest expense decreased by $129,803 or 37% to $216,373 for the year ended December 31, 2004 from $346,176 for the year ended December 31, 2003. This decrease is primarily due to the conversion of affiliate notes to stock in 2003. Non cash interest expense increased from $646,174 in 2003 to $9,912,419 in 2004 as a result of the conversion of debt into common shares at prices less that the fair market value.

Impairment of Assets. Impairment of Assets decreased to $0 from $103,000 for the year ended December 31, 2004 and December 31, 2003. The 2003 impairment losses related to the obsolescence of equipment in 2003.

Net Loss. Net Loss for the year ended December 31, 2004 increased by $10,764,091 to ($13,716,022) as compared to ($2,951,931) for the year ended December 31, 2003.

Net Loss Per Share. The net loss per share of common stock for the year ended December 31, 2004 was ($0.70) and ($0.16) for the year ended December 31, 2003.

Liquidity and Capital Resources December 31 2004.

Cash as of December 31, 2004 amounted to $11,646 as compared with $34,811 for the year ended December 31, 2003, a decrease of $23,165 or 67%.

Net cash used in investing activities increased $652,650 from ($106,250) in 2003 to ($758,900) in 2004 primarily from the purchase of property and equipment

Net cash provided by financing activities increased $366,499 from $719,038 in 2003 to $1,085,537 in 2004 primarily from the proceeds from convertible debt.

We plan to change the method of financing our operations from incurring debt to be used against future conversion to equity to funding the current commitments for capital expenditures mainly from equity sources and operations. We do not have material commitments for capital expenditures for the current year. We will continue to finance our operations mainly from loans from major shareholders 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 2005; therefore, we plan to raise money through a private placement to fund the implementation of an expanding operational plan.

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 $960,000 (or $80,000 per month) over the next twelve (12) months, in the following areas:

19

o  

Salaries and labor = $285,000

o  

Network operating costs = $300,000

o  

Network infrastructure = $85,000

o  

General and Administrative (exclusive of salaries) = $290,000


Our current cash of $5,000 as of November 1, 2005 will satisfy our cash requirements for only approximately two days.

Accordingly, we will be unable to fund our expenses through our existing assets or cash unless we obtain adequate 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:

o  

Significantly reduce, eliminate or curtail our business to reduce operating costs;

o  

Sell, assign or otherwise dispose of our assets, if any, to raise cash or to settle claims by creditors;

o  

Pay our liabilities in order of priority, if we have available cash to pay such liabilities;

o  

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;

o  

File a Certificate of Dissolution with the State of Delaware to dissolve our corporation and close our business;

o  

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.


Based upon our current assets, however, we will not have the ability to distribute any cash to our shareholders.

If we are unable to satisfy our obligations 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 will be forced to take. If any of these foregoing events occur, our shareholders could lose their entire investment in our shares.

To date, we have funded our activities principally from loans from related parties and third parties.

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 a significant loss from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the year ended December 31, 2004, the Company incurred a net loss of $13,716,022 and has a working capital deficit of $4,070,114 and a stockholders’ deficit of $23,426,934 at December 31, 2004.

The Company’s ability to continue as a going concern is contingent upon its ability to attain profitable operations and secure financing. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates.

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The Company is pursuing equity and debt financing for its operations and is seeking to expand its operations. Failure to secure such financing may result in the Company depleting its available funds and not being able pay its obligations.

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.

Contractual Obligations And Commercial Commitments

We have no contractual obligations, including lease obligations, apart from agreements in the normal course of our business.

Recent Pronouncements

In December 2003, the Financial Accounting Standards Board issued FASB Interpretation Number 46-R “Consolidation of Variable Interest Entities.” FIN 46-R, which modifies certain provisions and effective dates of FIN 46, sets for the criteria to be used in determining whether an investment is a variable interest entity should be consolidated. These provisions are based on the general premise that if a company controls another entity through interests other than voting interests, that company should consolidate the controlled entity. The Company currently has no entities which require the application of FIN 46-R.

In November 2004, the FASB issued SFAS 151, “Inventory Costs.” SFAS 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB 43, Chapter 4, “Inventory Pricing.” Paragraph 5 of ARB 43, Chapter 4, previously stated that “…under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges….” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect adoption of SFAS 151 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets,” an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions.” Statement 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS 153 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” SFAS 123(R) amends SFAS 123, “Accounting for Stock-Based Compensation,” and APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first fiscal year or interim period beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after December 15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the Company’s financial statements.

21

ITEM 7. FINANCIAL STATEMENTS.

TELEMETRIX, INC.

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004

C O N T E N T S

Reports of Independent Auditors   F-1  

Financial Statements:		 

     Balance Sheet		  F-2 

     Statements of Operations		  F-3 

     Statement of Stockholders’ (Deficit)		  F-4 

     Statements of Cash Flows		  F-5 

     Notes to Financial Statements		  F-6 





22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
Telemetrix, Inc.

We have audited the accompanying consolidated balance sheet of Telemetrix, Inc. as of December 31, 2004, and the related consolidated statements of operations, stockholders’ (deficit) and cash flows for the years ended December 31, 2004 and 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Telemetrix, Inc. as of December 31, 2004, and results of its operations and its cash flows for the years ended December 31, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered a loss from operations and has working capital and stockholders’ deficits. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Stark Winter Schenkein & Co., LLP


Denver, Colorado
October 21, 2005, except for Note 11,
  as to which the date is December 21, 2005

F-1

Telemetrix, Inc.
Consolidated Balance Sheet
December 31, 2004

Assets    

Current assets:		 
  Cash  $        11,646  
   Accounts receivable  35,961  
   Other current assets  933  
      Total current assets  48,540  
Property and equipment, net  789,530  
Other assets: 
   Licenses  166,137  
   Receivable from affiliates  12,751  
   178,888  
   $   1,016,958  
Liabilities and stockholders’ (deficit) 

Current liabilities:		 
   Accounts payable  $   1,988,626  
   Accrued expenses  746,349  
   Accounts payable and accrued expenses - affiliates  55,515  
   Convertible debentures  1,200,000  
   Notes payable - affiliates  25,000  
   Current portion of long-term debt  103,164  
     Total current liabilities  4,118,654  
Long-term debt  437,684  
Unissuable common stock - 138,083,686 shares  19,887,554  
Stockholders’ (deficit): 
   Preferred stock, $.001 par value, 5,000,000 shares authorized 
     no shares 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, 
      25,000,000 shares authorized, 
      24,999,682 shares issued and outstanding  25,000  
   Paid in capital  52,165,737  
   Accumulated (deficit)  (75,617,671 )
   (23,426,934 )
   $   1,016,958  

See the accompanying notes to the consolidated financial statements.

F-2

Telemetrix, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2004 and 2003

2004
 2003
Revenue:      
  Pager  $        70,170   $      119,166  
  Network services  221,140   --  
  Other  363,378   262,801  
   654,688   381,967  
Cost of revenue  328,947   179,524  
Gross margin  325,741   202,443  
Operating expenses: 
   General and administrative - non-cash stock compensation  3,000,000   1,711,675  
   Selling, general and administrative expenses  1,103,945   622,025  
   4,103,945   2,333,700  
(Loss) from operations  (3,778,204 ) (2,131,257 )
Other (income) expense: 
  Other (income) expense  780   (5,456 )
  (Loss) on abandonment of assets  --   103,000  
  Gain on the settlement of debt  --   (269,220 )
  Gain on the abandonment of foreign operation  (191,754 ) --  
  Interest expense - non-cash  9,912,419   646,174  
  Interest expense  216,373   346,176  
   9,937,818   820,674  
Net (loss)  $(13,716,022 ) $(2,951,931 )
Per share information - basic and fully diluted: 
  Weighted average shares outstanding  19,556,414   18,476,176  
  Net (loss) per share  $         (0.70 ) $         (0.16 )

See the accompanying notes to the consolidated financial statements.

F-3

Telemetrix, Inc.
Consolidated Statement of Stockholders’ (Deficit)
Years Ended December 31, 2004 and 2003

    Common Stock Additional
Paid in		 Unissuable
Common 		     Deferred         Currency
     Translation		 Accumulated
Shares
 Amount
 Capital
 Stock
 Compensation
  Adjustment
 (Deficit)
 Total
Balance at December 31, 2002   18,476,186   $18,477   $46,808,483   $   3,783,425   $(283,625 ) $ 191,754   $(58,949,718 ) $(8,431,204 )

Deferred compensation expensed		  --   --   --   --   283,625   --   --   283,625  
Subscribed common shares 
 forgiven  --   --   3,233,978   (3,233,978 ) --   --   --   --  
Subscribed common shares 
 for loan incentives  --   --   --   458,500   (95,951 ) --   --   362,549  
Discount on common shares  --   --   1,104,675   --   --   --   --   1,104,675  
Common shares subscribed 
 for services  --   --   --   607,000   --   --   --   607,000  
Subscribed common shares 
 for loan conversions  --   --   --   4,107,297   --   --   --   4,107,297  
Net (loss) for the year  --   --   --   --   --   --   (2,951,931 ) (2,951,931 )
Balance at December 31, 2003  18,476,186   18,477   51,147,136   5,722,244   (95,951 ) 191,754   (61,901,649 ) (4,917,989 )
Common shares issued 
 for loan conversions  6,523,496   6,523   254,417   (260,940 ) --   --   --   --  
Contribution of related party loan  --   --   272,184   --   --   --   --   272,184  
Beneficial conversion feature 
 of related party loans  --   --   492,000   --   --   --   --   492,000  
Common shares subscribed  --  
 for services  --   --   --   3,000,000   --   --   --   3,000,000  
Common shares subscribed for 
 for loan conversions and interest  --   --   --   11,426,250   --   --   --   11,426,250  
Deferred compensation charged 
 to interest expense  --   --   --   --   95,951   --   --   95,951  
Write off of currency translation 
 adjustment related to an 
 abandoned subsidiary  --   --   --   --   --   (191,754 ) --   (191,754 )
Net (loss) for the year  --   --   --   --   --   --   (13,716,022 ) (13,716,022 )
Balance at December 31, 2004  24,999,682   $25,000   $52,165,737   $ 19,887,554   $          --   $          --   $(75,617,671 ) $(3,539,380 )



See the accompanying notes to the consolidated financial statements.

F-4

Telemetrix, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2004 and 2003

2004
 2003
Cash flows from operating activities:      
Net (loss)  $(13,716,022 ) $(2,951,931 )
 Adjustments to reconcile net (loss) to net cash (used in) 
 operating activities: 
 Depreciation and amortization  167,031   174,753  
 Impairment of goodwill and other assets  --   103,000  
 Gain on the settlement of debt  --   (269,220 )
 Common stock subscriptions for services and other non-cash items 
  net of amount of deferred compensation  3,000,000   1,711,675  
 Common stock subscriptions for interest  9,912,419   646,174  
 Gain on the abandonment of foreign subsidiary  (191,754 ) --  
 (Increase) decrease in accounts receivable  22,271   (7,378 )
 (Decrease) in other current assets  (933 ) (75 )
 Increase (decrease) in accounts payable  412,494   (280,107 )
 Increase in accrued expenses  231,242   51,244  
 Increase (decrease) in customer deposits  (100,000 ) 100,000  
 Increase (decrease) in accounts payable and accrued expenses - affiliates  (86,550 ) 143,888  
   Total of adjustments  13,366,220   2,373,954  
Net cash (used in) operating activities  (349,802 ) (577,977 )
Cash flows from investing activities: 
  Deposits on equipment  --   (101,000 )
  Purchase of property and equipment  (758,900 ) (5,250 )
Net cash (used in) investing activities  (758,900 ) (106,250 )
Cash flows from financing activities: 
  Advances from affiliates  25,000   568,640  
  Repayment of affiliate advances  --   (100,000 )
  Proceeds from convertible debt  1,250,000   350,000  
  Payments on long-term debt and notes  (189,463 ) (99,602 )
Net cash provided by financing activities  1,085,537   719,038  
Net increase (decrease) in cash  (23,165 ) 34,811  

Beginning - cash balance		  34,811   --  
Ending - cash balance  $        11,646   $      34,811  
Supplemental cash flow information: 
  Cash paid for income taxes  $                --   $              --  
  Cash paid for interest  $                --   $      37,834  
Non cash investing and financing activities: 
   Conversion of related party notes and interest to stock subscriptions  $        34,757   $ 4,107,297  
   Conversion of related party notes to common stock  $      260,940   $              --  
   Forgiveness of related party stock subscriptions  $                --   $ 3,233,978  
   Equipment deposits transferred to Property and equipment  $      101,000   $              --  
   Conversion of notes payable to common stock  $   1,600,025   $              --  

See the accompanying notes to the consolidated financial statements.

F-5

Telemetrix, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2004 and 2003

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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.
WTC became Telemetrix Technologies, Inc.

The Company offers wireless paging service, personal communications services (“PCS”) service, PCS nationwide network access and services and technology to telecommunications carriers and other businesses.

Network access involves providing a source and means for telemetry and telematic companies and customers to use the nation wide PCS networks of major carriers for the transmission of data and messages which are necessary in the conduct of their business. Telemetrix provides the service as a “data only” offering through the roaming agreements which it has with other PCS carriers and operators in North America, including Mexico and Canada.

PCS carriers use the Company’s technology to provide network services for their wireless customers. Telemetrix has the ability to use its infrastructure equipment located in Gering, Nebraska to provide switching and billing services for smaller carriers that would otherwise be unable to have access to these services.

Consolidation

The financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

F-6

Reclassifications

Certain items presented in the previous year’s financial statements have been reclassified to conform to current year presentation.

Revenue Recognition

The Company recognizes paging and telemetry revenue, which consists of fees charged to subscribers, when services are provided. Revenue from the sale of paging equipment is recognized upon delivery to the customer.

Cash and Cash Equivalents>

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectibility, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances.

Property and Equipment

Property and equipment is recorded at cost. Depreciation of assets is computed using the straight-line method over the following estimated useful lives.

Buildings and improvements   5 - 31.5 years  
Office equipment  7 years 
Computer equipment and software  5 - 7 years 
Communication equipment  5 - 7 years 
Vehicles  5 years 
T-3000 equipment  5 years 

Licenses

Licenses are capitalized and amortized over their estimated useful lives of 10 years and are stated net of amortization. Amortization charged to operations was $92,285 during 2004 and 2003.

Licenses consist of the following at December 31, 2004:

                  Licenses   $922,856  
                  Less: accumulated amortization  756,719  
   $166,137  

Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2004. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, accounts payable, notes payable and convertible debentures. Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values. The carrying value of the Company’s long-term debt approximated its fair value based on the current market conditions for similar debt instruments.

F-7

Long Lived Assets

The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts and circumstances that suggest impairment. The Company will measures the amount of any impairment based on the amount that the carrying value of the impaired assets exceed the undiscounted cash flows expected to result from the use and eventual disposal of the impaired assets. During 2003 the Company recorded impairment losses as discussed in Note 4.

Net Income (Loss) Per Common Share

The Company calculates net income (loss) per share as required by Statement of Financial Accounting Standards (“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 in which the Company incurs losses common stock equivalents, if any, are not considered, as their effect would be anti-dilutive.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Research and Development

Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are charged to expense as incurred. Advertising costs are included in selling, general and administrative expenses were $8,930 and $1,441 during 2004 and 2003.

Software Development Costs

Direct costs incurred in the development of software are capitalized once the preliminary project stage is complete, management has committed to funding the project and completion, and use of the software for its intended purpose are probable. The Company ceases capitalization of development costs once the software has been substantially completed and is ready for its intended use. Software development costs are amortized over their estimated useful lives of 3 years. Costs associated with upgrades and enhancements that result in additional functionality are capitalized.

Segment Information

The Company follows SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”. Certain information is disclosed, per SFAS 131, based on the way management organizes financial information for making operating decisions and assessing performance. The Company currently operates in a single segment and will evaluate additional segment disclosure requirements as it expands its operations.

Income Taxes

The Company follows SFAS 109 “Accounting for Income Taxes” for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

F-8

Debt with Detachable Warrants and/or Beneficial Conversion Feature

The Company accounts for the issuance of detachable stock purchase warrants in accordance with Accounting Principles Board Opinion 14 (“APB 14”), whereby it separately measures the fair value of the debt and the detachable warrants and allocates the proceeds from the debt on a pro-rata basis to each. The resulting discount from the fair value of the debt allocated to the warrants, which is accounted for as paid-in capital, is amortized over the estimated life of the debt.

In accordance with the provisions of Emerging Issues Task Force Issues 98-5 and 00-27, the Company allocates a portion of the proceeds received to any embedded beneficial conversion feature, based on the difference between the effective conversion price of the proceeds allocated to the convertible debt and the fair value of the underlying common stock on the date the debt is issued. In addition, for the detachable stock purchase warrants, the Company first allocates proceeds to the stock purchase warrants and the debt and then allocates the resulting debt proceeds between the beneficial conversion feature, which is accounted for as paid-in capital, and the initial carrying amount of the debt. The discount resulting from the beneficial conversion feature is amortized over the estimated life of the debt.

Stock-Based Compensation

The Company accounts for equity instruments issued to employees for services based on the fair value of the equity instruments issued and accounts for equity instruments issued to other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.

The Company accounts for stock based compensation in accordance with SFAS 123, “Accounting for Stock-Based Compensation.” The provisions of SFAS 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in APB Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”) but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The Company has elected to continue to apply APB 25 in accounting for its stock option incentive plans.

Foreign Currency Translation

The functional currency of one of the Company’s subsidiaries is the applicable local currency. The translation from the applicable foreign currency to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains and losses, net of applicable deferred income taxes, resulting from translation are included in stockholders’ (deficit).

The Company’s subsidiary located in Toronto, Canada ceased operations and activities as of March 31, 2002, and the balance of the currency translation adjustment of $191,754 was recorded in operations 2004.

Recent Pronouncements

In December 2003, the Financial Accounting Standards Board issued FASB Interpretation Number 46-R “Consolidation of Variable Interest Entities.” FIN 46-R, which modifies certain provisions and effective dates of FIN 46, sets for the criteria to be used in determining whether an investment is a variable interest entity should be consolidated. These provisions are based on the general premise that if a company controls another entity through interests other than voting interests, that company should consolidate the controlled entity. The Company currently has no entities which require the application of FIN 46-R.

F-9

In November 2004, the FASB issued SFAS 151, “Inventory Costs.” SFAS 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB 43, Chapter 4, “Inventory Pricing.” Paragraph 5 of ARB 43, Chapter 4, previously stated that “…under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges….” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect adoption of SFAS 151 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets,” an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions.” Statement 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS 153 to have a material impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” SFAS 123(R) amends SFAS 123, “Accounting for Stock-Based Compensation,” and APB Opinion 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requires that the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements. SFAS 123(R) applies to all share-based payment transactions in which an entity acquires goods or services by issuing (or offering to issue) its shares, share options, or other equity instruments (except for those held by an ESOP) or by incurring liabilities (1) in amounts based (even in part) on the price of the entity’s shares or other equity instruments, or (2) that require (or may require) settlement by the issuance of an entity’s shares or other equity instruments. This statement is effective (1) for public companies qualifying as SEC small business issuers, as of the first fiscal year beginning after December 15, 2005, or (2) for all other public companies, as of the first fiscal year or interim period beginning after June 15, 2005, or (3) for all nonpublic entities, as of the first fiscal year beginning after December 15, 2005. Management is currently assessing the effect of SFAS No. 123(R) on the Company’s financial statements.

NOTE 2. BASIS OF REPORTING

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 a significant loss from operations as a result of its investment necessary to achieve its operating plan, which is long-range in nature. For the year ended December 31, 2004, the Company incurred a net loss of $13,716,022 and has a working capital deficit of $4,070,114 and a stockholders’ deficit of $23,426,934 at December 31, 2004.

The Company’s ability to continue as a going concern is contingent upon its ability to attain profitable operations and secure financing. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which the Company operates.

The Company is pursuing equity and debt financing for its operations and is seeking to expand its operations. Failure to secure such financing may result in the Company depleting its available funds and not being able pay its obligations.

F-10

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 3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2003 consisted of the following:

Land   $      13,301  
Buildings  16,803  
Vehicles  32,147  
Furniture and office equipment  53,734  
Computer equipment and software  354,382  
Equipment  1,358,544  
   1,828,911  
Accumulated depreciation and amortization  (1,039,381 )
   $    789,530  

Depreciation and amortization expense for the years ended December 31, 2004 and 2003 was $75,475 and $82,468.

NOTE 4. IMPAIRMENT LOSSES

During the year ended December 31, 2003, the Company determined that certain long-lived assets, consisting of equipment, were impaired. The Company charged the amount by which fair value, determined by comparing the estimated future cash flows of the assets of $0 to the carrying value of $103,000 to operations.

NOTE 5. NOTES PAYABLE - RELATED PARTIES

The Company has outstanding notes payable to affiliates in the principal amount of $492,000 at December 31, 2004. During the years ended December 31, 2004 and 2003, the affiliates advanced additional funds of $25,000 and $568,640 and the Company made repayments of the advances of $0 and $100,000. The debt is convertible into common shares of the Company at $.02 per share.

The Company used the intrinsic value method to determine that all of proceeds should be allocated to the embedded beneficial conversion feature. As such, $492,000 was credited to additional paid in capital. The allocation of $467,000 will be amortized over 24 months commencing January 1, 2005, and the allocation of $25,000 was charged to interest expense during the year ended December 31, 2004.

Convertible debt - interest at 10% per annum, due on December 31, 2006   $ 467,000  
Convertible debt - interest at 10% per annum, due on demand  25,000  
   492,000  
Debt discount, less amortization of $25,000  (467,000 )
   $   25,000  

During May 2003, the Company, through corporate resolution, agreed to convert existing corporate indebtedness of major shareholders and investors in the company into equity through an approved corporate exchange of non-issued common shares for notes and accrued interest aggregating $4,107,297. The conversion of debt to equity by those participating note holders would include the issuance of preferred and common shares of the Company. The Corporation’s Amended Articles of Incorporation (“Articles”) authorizes the Corporation to issue up to 5,000,000 Preferred Shares, with a par value of $.001 (“Preferred Shares”) in one or more series at such price and in such number as authorized by the Board of Directors. The Articles also authorize the Board to prescribe the number, voting powers, designations, preferences, limitations, restrictions and relative rights of each series of Preferred Shares. Accordingly, the Board of Directors designated 250,000 Preferred Shares as Series D Preferred Shares (see Note 9). In September 2004 a major shareholder received 6,523,496 shares of common stock for $260,940 of this debt conversion and the other persons and entities who had initially agreed to accept preferred shares agreed to accept common shares in lieu of the preferred shares.

F-11

The Company has recorded interest expense of $29,170 and $236,342 during the years ended December 31, 2004 and 2003. In addition to the stated interest rates the Company has agreed to issue an aggregate of 16,650,301 shares of common stock as additional consideration for the loans. These shares have been valued at $3,951,927, which represents the fair market value of the shares on the dates of the loans. During 2004 and 2003, $95,951 and $646,174 has been charged to operations related to these issuances. To date, with the exception of the 6,523,496 shares of common stock described above none of the shares have been issued (see Note 9).

During May 2003 in conjunction with the conversion of the notes and accrued interest the note holders forgave the issuance of an aggregate of 10,594,539 shares of common stock with an aggregate value of $3,233,978.

On February 3, 2003 the Company issued a $30,000 term note with interest at 10% per annum payable to a related party which required three installment payments of $10,000 each on March 3, 2003, April 3, 2003 and May 3, 2003. The note provided a penalty that in the event a payment was not received, within 5 days of each due date, the Company would be declared in default. The holder of the note would then be entitled to receive shares of stock of the Company at $0.11 per share, for outstanding principal balance including interest. Additionally, for each 30 days beyond the due date, additional shares would be computed at the rate of ½ of the initial conversion rate. On November 30, 2004, the related party agreed to convert the note plus $4,757 in accrued interest into shares of stock of the Company, at par, with the holder to receive 36,175,000 shares of common stock. The difference in the share price of $.001 and the fair market value of the shares at the time of conversion was $5,391,493 which was charged to non-cash stock interest.

NOTE 6. NOTES PAYABLE

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  $ 1,200,000 

Note payable - Federal Communications Commission (C Block) interest		   
  at 7% per annum. Interest payments only of $13,543 due on a quarterly   
  basis through September 2002. Quarterly interest and principal   
  payments of $55,875 beginning December 2002 until maturity at   
  September 2006, secured by FCC license  508,525 

Note payable - Federal Communications Commission (F Block)		   
  interest at 7% per annum. Interest payments only of $1,163 due on   
  a quarterly basis through April 1999. Quarterly interest and   
  principal payments of $2,975 beginning July 2001 until maturity   
  at April 2007, secured by FCC license  32,323 
   $ 1,740,848 
Less: current portion  $ 1,303,164 
   $    437,684 

F-12

Maturity of long term debt is as follows:

2005   $1,303,164  
2006  431,871  
2007  5,813  
   $1,740,848  

NOTE 7. CONVERTIBLE DEBENTURES

During October 2003 the Company entered into a funding agreement with a third party whereby the Company would be able to borrow up to $2,000,000 in the form of convertible notes. As of December 31, 2003, the Company was advanced an aggregate of $350,000 pursuant to these demand notes. The notes do not bear interest unless in default in which case interest accrued at the rate of 12% per annum. The notes had a conversion feature which allowed for conversion into the Company’s common shares at $.04 per share, which the Company suspended because of the dispute described in Note 10 with TowerGate and Nyssen. This conversion right was reinstated on November 30, 2004, upon the Company reaching a settlement agreement with TowerGate and Nyssen and the difference between the conversion price and the fair market value of the shares was charged to interest expense (see below).

As of November 30, 2004, the Company was advanced an aggregate of $1,600,025 pursuant to this funding agreement. Pursuant to the agreement dated November 30, 2004, the note holder agreed to convert the $1,600,025 demand note into common shares at $.04 per share receiving 40,000,000 shares of common stock. The difference between $.04 per share price and the fair market value of the shares at the time of conversion was $4,399,975 and this amount was charged to non-cash interest. In the same agreement, a entity related to this third party investor received 20,000,000 shares of common stock for non-cash stock compensation for services. The Company recorded a $3,000,000 charge to non-cash compensation.

Provided in the November 30, 2004 agreement, the note holder, its management and associates will invest an additional $300,000 as follows:

 

$100,000 at $0.02 per share
$200,000 at $0.10 per share


Provided in the November 30, 2004 agreement, a related party, its management and associates will invest an additional $300,000 as follows:

 

$200,000 at $0.02 per share
$100,000 at $0.10 per share


See Note 11.

NOTE 8. INCOME TAXES

The Company accounts for income taxes under SFAS 109, which requires use of the liability method. SFAS 109 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before provision for income taxes. The sources and tax effects of the differences are as follows:

Income tax provision at    
 the federal statutory rate  34 %
Effect of operating losses  (34 )%
   --  

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As of December 31, 2004, the Company has a net operating loss carryforward of approximately $47,000,000. This loss will be available to offset future taxable income. If not used, this carryforward will expire through 2024 subject to certain limitations resulting from a change in control. The deferred tax asset of approximately $16,000,000 relating to the operating loss carryforward has been fully reserved at December 31, 2004.

NOTE 9. STOCKHOLDERS’ (DEFICIT)

Preferred Stock

     1. Rank. Series D Preferred Shares (“Series D Shares”) are senior to the Company’s common shares (“Common Shares”), in priority for receiving distributions and for payment upon liquidation of the Company.

     2. Preference. Each Series D Share has a liquidation preference of $30.00 plus all accrued but unpaid distributions (the “Preference”).

     3. Conversion Rate. Upon a Conversion Event (see §8) the affected Series D Shares shall convert into Common Shares at the Conversion Rate. The ‘Conversion Rate’ shall initially be two hundred (200) Common Share into one Series D Share but will automatically adjust:

3.1.  

in the same manner as the Common Shares were adjusted in stock splits, share consolidations, stock dividends, recapitalizations, and similar changes to the Company’s capitalization (“Recapitalization”). For example, if each Common Share was split into two recapitalized Common Shares then the Conversion Rate would become one Series D Share into four hundred recapitalized Common Shares);


3.2.  

so that the percentage of the total Common Shares and securities convertible into Common Shares (collectively, “Share Equivalents”) represented by the Series D Shares owned by each Series D Holder (the “Series D Percentage”) does not change despite any issuance of Share Equivalents (excluding securities issued pursuant to an employee stock option plan) at a per-Share Equivalent price below the Preference.


Upon the occurrence of each adjustment of the Conversion Rate, the Company, at its expense, shall promptly compute such Conversion Rate adjustment and furnish each Series D Holder with a certificate stating the new Conversion Rate and explaining the facts underlying the Conversion Rate adjustment. The term ‘Common Equivalent Basis’ means equally with the Common Shares as though the Series D Shares were converted into Common Shares at the then-applicable Conversion Rate.

     4. Distributions. Each Series D Preferred Shareholder (a “Series D Holder”) shall participate in distributions on a Common Equivalent Basis.

     5. Liquidation Preference. If the Company is liquidated, Series D Holders shall receive their entire Preference (i.e., $30.00 per Series D Share plus all accrued but unpaid distributions) before any distribution or payment is made on any junior capital stock (including the Common Shares). After receiving this Preference, Series D Holders will then participate in distribution of the Company’s assets on a Common Equivalent Basis.

     6. Voting Rights. Series D Shares shall vote as a separate voting group on the following matters:

6.1.  

issuance of any Company capital stock senior to the Series D Shares in priority for receiving distributions, for payment of any liquidation preference and in redemption rights;

6.2.  

alteration of the Preferences of the Series D Shares, including amendments to the Articles or Bylaws;

6.3.  

liquidation, Recapitalization or similar corporate reorganization;

6.4.  

loans, borrowings, debt, guarantees or similar obligations (“Debt”) by Company except when Company’s aggregate Debt is below $3,000,000;

6.5.  

transaction or associated transactions:


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6.5.1. involving a merger, consolidation or similar transaction;

 

6.5.2. issuing or transferring more than 50% of the Company's voting stock;

 

6.5.3. selling all or substantially all Company assets;

 

when the resulting deemed value of the Common Shares would be less than $15.00 per Common Share;


6.6.  

conversion of all Series D Shares into Common Shares pursuant to Section 8.4;


6.7.  

transactions identified in Sections 7.4.2 & 7.4.6 after the aggregate Share Equivalents issued in such transactions exceeds $1 million; and


6.8.  

when the Act requires voting as a separate voting group.


Each Series D Holder has the right to notice of all meetings of the Company’s shareholders, to attend such meetings and to vote on a Common Equivalent Basis on all matters presented for vote by the Common Shares except for those specified in this Section.

     7. Preemptive Rights. If the Company sells any Share Equivalents then each Series D Holder may prevent a reduction in its Series D Percentage after such sale (“Preemptive Right”) by purchasing a sufficient portion of such Share Equivalents.

7.1.  

Company will notify each Series D Holder about the proposed sale of Share Equivalents, the terms, the proposed sale date and the amount the Series D Holder must pay to prevent reduction in its Series D Percentage (“Preemption Price”).


7.2.  

To exercise its Preemptive Right, a Series D Holder must provide the Preemption Price to Company within 30 days after the notice of the proposed sale; otherwise a Series D Holder waives its Preemptive Right for that particular sale.


7.3.  

Company will permit those Series D Holders exercising their Preemptive Right to exercise the Preemptive Right of those Series D Holders that do not exercise their Preemptive Right; such exercise shall be pro rata to the relative Series D Percentages of the exercising Series D Holders and payment must occur at least 10 days before the proposed date for the sale of the Share Equivalents.


7.4.  

This Section does not apply to issuances or sales of Share Equivalents:


 

7.4.1. pursuant to employee stock or option grants;

 

7.4.2. to strategic corporate partners;

 

7.4.3. for equipment financing;

 

7.4.4. to acquire another business;

 

7.4.5. in an underwritten public offering; or

 

7.4.6. in a transaction when the Company does not receive cash proceeds from such issuance or sale;


 

but Series D Holder approval is required pursuant to Section 6.8 after the aggregate Share Equivalents issued in transactions identified in Sections 7.4.2 & 7.4.6 exceeds $1 million.


7.5.  

Company must notify the Series D Holders of any transaction listed in Section 6.4 or 6.5 (a “Combination”) and permit the Series D Holders collectively to purchase the Company (either by acquiring all Company capital stock or purchasing all or substantially all Company assets) at the deemed per-Common Share value proposed in the Combination. If any Series D Holder does not desire to purchase it’s pro rata portion of Company capital stock or assets, then remaining Series D Holders may purchase that portion).


The Preemptive Rights shall apply again to a proposed sale of Share Equivalents if Company does not complete that proposed sale or Combination within 150 days after the initial notice given by Company.

     8. Conversion Events. Upon any of the following events (“Conversion Events”):

8.1.  

A Series D Holder requests conversion of any Series D Shares;


8.2.  

Company completes an underwritten public offering of the Common Shares for gross proceeds of at least $5 million and the total Share Equivalents would have a deemed value of at least $10 million using the public offering price per Common Share; or


F-15

8.3.  

a majority of the Series D Holders vote (pursuant to Section 6.7) to convert all Series D Shares; then the affected Series D Shares will convert into Common Shares pursuant to Section 3.


     9. Redemption. The Company may redeem the Series D Shares, in whole or in part, at the same time (a “Redemption Event”).

9.1.  

Company elects to redeem only a portion of the Series D Preferred Shares.

9.2.  

Company will notify each Series D Holder about the Redemption Event, the redemption terms and the Redemption Date (at least 30 days after the Redemption Event).

9.3.  

Prior to the Redemption Date, a Series D Holder may convert any Series D Shares into Common Shares pursuant to Section 8.

9.4.  

If Company redeems less than all Series D Shares outstanding on the Redemption Date then Company shall redeem such Series D Shares on a pro rata basis.


On the Redemption Date, the Company will pay the Preference for each redeemed Series D Share in immediately available funds to the associated Series D Holder.

     10. Limited Issuance. After conversion or redemption of any Series D Share, such Series D Share shall not be available for re-issuance.

Common Stock

During the year ended December 31, 2003, the Company recorded stock subscriptions for an aggregate of $458,500 for 5,585,635 shares of common stock related to incentive compensation due to related parties and $300,000 for 2,729,942 shares of common shares related to unpaid officer’s salary.

During May 2003 the Company agreed to issue 10,042,500 shares of common stock to an officer for the conversion of notes aggregating $401,700. The difference between the fair market value of the shares and the conversion price aggregating $1,104,675 has been charged to operations during the year. During the year ended December 31, 2004, the Company issued 6,523,496 of these common shares and reduced the stock subscription by $260,940.

During the year ended December 31, 2003 the Company agreed to issue an aggregate of 600,000 shares of common stock for services valued at their fair market value of $36,000, and 2,161,704 shares of common stock for prior years salary due to an officer valued at their fair market value of $271,000. These amounts have been charged to operations during the year.

During the year ended December 31, 2004, the Company recorded stock subscriptions for an aggregate of $14,426,250 for 96,175,000 shares of common stock. Of the $14,426,250, $3,000,000 for 20,000,000 shares of common stock is related to compensation and $6,000,000 for 40,000,000 shares of common stock is related to the conversion of debt and non-cash stock interest, described in Note 7. The remaining $5,426,250 for 36,175,000 shares of common stock relate to the conversion of the $30,000 note described in Note 5.

The Company has obligations to issue common shares at December 31, 2004, pursuant to the conversions of various loans and accrued interest, incentive shares, and services as follows:

Shares
 Amount
Officers salary   6,479,479   $     859,000  
Loan incentive shares  6,055,762   719,947  
Conversion of debt  40,000,000   6,000,000  
Services  20,600,000   3,036,000  
Conversion of related 
  party debt  64,948,445   9,272,607  
   138,083,686   $19,887,554  

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Stock-based Compensation

The Company has a stock option plan, which covers certain key management personnel. Options to purchase common shares may be granted at a price not less than fair market value on the date of the grant. Options may not be exercised prior to one year or after five years from the date of the grant. No options were granted during 2004 or 2003.

A summary of stock option and warrant activity is as follows:

Number
of
shares
 Weighted
average
exercise
price
Balance at        
 December 31, 2002  1,081,250   $3.79 
Granted  --    
Exercised/Forfeited  --    
   --    
Balance at 
  December 31, 2003  1,081,250   $3.79 
Granted  --    
Exercised/Forfeited  (631,250 )  
Balance at 
  December 31, 2004  450,000   $2.04 

Exercisable at December 31, 2004:  450,000

Weighted average remaining contractual life - 6 years
Weighted average fair value - $.40

NOTE 10. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its office from an officer of the Company at a rate of $2,500 per month pursuant to a lease expiring in October 2007. Future minimum lease payments are as follows:

2005: $30,000 2006: $30,000 2007: $25,000

Rent expense for the years ended December 31, 2004 and 2003 including the above lease was $53,482 and $52,462.

Employment and Consulting Contracts

The Company has entered into an employment contract expiring on December 31, 2003 with its president. The agreement call for annual salary payments of $300,000 plus bonuses based on certain performance objectives. During 2003 this officer received no cash payments and the balance was paid with a common stock subscription for 2,729,242 shares valued at their fair market value of $300,000.

Effective on December 1, 2004, the Company entered into a consulting agreement with a former officer for a monthly fee of $10,000. The agreement may be cancelled upon 30 days notice by either party.

F-17

Litigation

The Company was involved in litigation with Plexus Corp., a vendor, related to good and services provided by Plexus. At December 31, 2002, the Company had recorded a liability of $557,413 to Plexus, which was included in accounts payable. The Company disputed the amount and the fact that Plexus provided the goods and services required by the Company. During February 2003 the Company settled litigation with Plexus whereby the Company and Plexus mutually released each other from any and all claims against the other party. Pursuant to the terms of the settlement agreement the Company is not required to make any payment to Plexus. The amount of the recorded liability of $557,413 less the carrying value of the equipment was recognized as a gain from the settlement of a liability during 2003 aggregating $269,220.

On September 10, 2004, the Company filed a Complaint in the United States District Court in the Southern District of New York against Michael Tracy ("Tracy"), Michael L. Glaser ("Glaser"), and William W. Becker ("Becker"), in case number 04CV7255. The Complaint sought an award for compensatory damages, an injunction against Tracy, Glaser and Becker for breach of fiduciary duty, costs and expenses for litigation (except fees and other disbursements) including reasonable attorney's fees, and against Tracy for conversion, and such other and further relief as may be deemed just and proper.

On September 16, 2004, the Company filed a complaint in the United States District Court for the District of Nebraska, in case number 7:04CV5020, against TowerGate Finance, Ltd., ("TowerGate") and Nyssen, LP ("Nyssen"). The Complaint alleges fraudulent misrepresentations against TowerGate, fraudulent concealment against Nyssen, breach of fiduciary duty against TowerGate, civil conspiracy against TowerGate and Nyssen, breach of contract against TowerGate, and breach of the covenant of good faith and fair dealings against TowerGate. The Complaint seeks preliminary and permanent injunction, declaratory judgment and an accounting. The Complaint also requests a jury trial.

On December 10, 2004, the Company, Tracy, Glaser and Becker and our other majority shareholders and TowerGate and Nyssen entered into a binding agreement ("Agreement") dated as of November 30, 2004, in which the parties agreed to dismiss the above described lawsuits, and settle the dispute between them and between the Company and TowerGate and Nyssen. The agreement calls for the appointment of an interim board of directors and stipulated that so long as Becker and affiliated entities and TowerGate/Nyssen hold in excess of 25% of the outstanding voting common shares that they will be entitled to appoint two directors.

All parties to the Settlement Agreement are either beneficial owners of the Company's common stock, current or proposed members of the Company's management, and/or are parties or affiliates of parties involved in the Litigation that gave rise to the Settlement Agreement. Despite the filing of a December 21, 2004, Form 8-K related to this litigation, the Company has never disclosed the specific terms of the Settlement Agreement, including the relationships among the parties to the Settlement Agreement, whether and how the terms of the Settlement Agreement will be fulfilled and the existence and substance of potential violations of Delaware law and the Company's bylaws as a result of the terms contained in the Settlement Agreement.

In the Settlement Agreement, the parties agree that the parties will undertake the following actions:

 

Increase the Company’s authorized share capital;
Effect material share issuances to Becker Capital Management;
Effect material share issuances to Nyssen LP and Tower Gate Finance Limited; and
Adopt a stock option plan for the Company's existing and new management.


The Settlement Agreement gives rise to the following unasserted claims, all of which expose the Company to potential shareholder lawsuits or SEC regulatory actions. The Company is attempting to comply with all of the requirements of Delaware law and the SEC requirements, but there can be no assurance that it will be able to do so. In addition, FCC approval is required for certain of the share issuances and if this approval is not obtained by the Company there may be material negative impact on the Company's financial position and results of operations.

Violation of Delaware Law and Corporate Bylaws.

Section 144 of the Delaware Corporation Code states:

 

“Interested directors; Quorum” provides that any contract or transaction between the Company and one or more of its directors or officers, or between a corporation and any other corporation, partnership, association or other organization in which 1 or more of its directors or officers, are directors or officers, or have a financial interest requires the approval of the contract and related transactions by: (a) a majority of the Company's disinterested directors; and (b) the Company’s shareholders.


F-18

If the Company fails to comply with either requirement (a and b above), it is subject to shareholder action. Additionally, Section 144 provides that the Settlement Agreement could potentially be voided unless it is fair to the Company. The action of increasing the Company's authorized common stock so that it can issue large numbers of shares to the parties to the agreement, who are management, beneficial owners or affiliates, and also adopting a stock option plan for the benefit of management, may be considered unfair to the Company’s shareholders who are not party to the agreement.

The issuances of significant shares (described above) to the Company's management and beneficial owners as provided for in the Settlement Agreement may be set aside under Delaware Corporation Law. Section 161 imposes limitations on directors' power to issue authorized shares. Any new stock issuance, such as those provided for in the Settlement Agreement, is subject to the statutory requirements regarding quality and quantity of consideration to be received for the shares. The foregoing actions may require the vote of disinterested shareholders pursuant to Delaware Corporate Code Section 144 because all of the parties to the Settlement Agreement are either the Company's directors and/or beneficial owners, and/or all are interested directors and/or interested shareholders.

The Company’s bylaws and Delaware corporation law require that directors be elected at any annual meeting of Shareholders.

Because the Company has a class of securities registered pursuant to the Securities Exchange Act of 1934 ("Exchange Act"), the Company must comply with Exchange Act Section 14 disclosure requirements. The Company is required to file a Proxy Statement on Form 14A or an Information Statement on Schedule 14C and will be prohibited from taking the actions set forth in the Settlement Agreement until twenty days after the filing of the Proxy or of its Definitive Information Statement.

The Company is delinquent in filing several reports on Form 10-KSB and Form 10-QSB and failed to timely correct any insufficient and incomplete disclosure in its SEC filings,

The Company is also involved in various legal actions arising in the normal course of business management believes that such matters will not have a material effect upon the financial position of the Company.

Equipment Purchase Agreement

During November 2003 the Company entered into an agreement to purchase network switching equipment for an aggregate of $676,800. Subsequently the vendor and the Company agreed to adjust the purchase price to $552,943. The Company made a down payment on the equipment in the amount of $101,000, which is included in other assets at December 31, 2003. The equipment was delivered in 2004 and the Company paid an aggregate of $477,943 including the $101,000 deposit and a balance of $75,000 is due to the vendor.

Other

The Company has agreed to issue certain common shares to various related parties. As of December 31, 2004, the Company does not have sufficient authorized shares to affect these issuances.

On or about September 10, 2001, the company filed a Form S-8 Registration Statement under the Securities Act of 1933 registering 375,000 shares of common stock to be issued in accordance with a consulting agreement. On September 21, 2001, the Company issued the 375,000 shares of common stock. The Company received and acted in reasonable reliance upon legal advice and guidance from legal counsel at the time regarding the issuance, however, it has been recently advised that certain investor relations related services that were to be provided are prohibited under Regulation S-8. As such, the issuance of the 375,000 shares of common stock may have violated the registration provisions of the federal securities laws, specifically Section 5 of the Securities Act of 1933.

NOTE 11. SUBSEQUENT EVENTS

Through December 21, 2005 the Company borrowed an additional $690,000 pursuant to the third party convertible notes described in the Funding Agreement dated November 30, 2004. The lender agreed to convert $300,000 of these advances into 7,000,000 shares of the Company’s common stock at June 30, 2005. The advances bear interest at 15% per annum and are due on demand.

Through December 21, 2005 the Company borrowed an additional $729,000 pursuant to the related party convertible note described in the Funding Agreement dated November 30, 2004. The lender agreed to convert $275,000 of these advances into 9,750,000 shares of the Company’s common stock at June 30, 2005. The balances of the advances bear interest at 15% per annum and are due on demand.

Subsequent to December 31, 2004, the Company made application with the FCC for approval of the shares to be issued to Becker, Nyssen, TowerGate and Becker Capital Management LLC per the settlement agreement described in the Litigation section of Note 10. The application is currently pending.

F-19

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.

Not applicable

ITEM 8A. CONTROLS AND PROCEDURES.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Acts reports is recorded, processed and summarized and is reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure control procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of the date of this report, the Company's management, including the President (principal executive officer)and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the evaluation, the Company’s President (principal executive officer) and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC filings. There have been no significant changes in the Company’s internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company’s management carried out its evaluation.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.







23

Part III.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.

Directors and Executive Officers: Our Directors may appoint new directors and elect officers at regular meetings with proper notification. Our shareholders elect our directors at each annual general meeting. Directors hold office until their successors have been elected and qualified or until death, resignation or removal. Our Officers are appointed by our Board of Directors. Our directors and executive officers are as follows:

Name
 Age
 Position
 Term of Office
William Becker   74   Chairman of the Board   Until resignation  
       Or removal 

Gary Brown		  54  Secretary and Treasurer  Until resignation 
     And Director  Or removal 

Patrick J. Kealy		  63  Former Chairman  Resigned 
     of the Board 

Michael Tracy		  59  Former President  Resigned 
     Former Chief Executive 
     Officer, Former Acting 
     Chief Financial Officer, 
    Former Director 

John T. Connor, Jr		  64  Former Secretary  Resigned 

Michael L. Glaser		  65  Former Secretary and  Resigned 
    Director 

Richard Dineley		  54  Former President and  Resigned 
      Chief Executive Officer 

Richard West		  49  Former Secretary  Resigned 

William Becker has been our Chairman of the Board from March 30, 1999 to April 15, 2004 and since September 3, 2004. Mr. Becker was also a Director of the Company from April 15, 2004 to September 3, 2004. From March 1996 to June 1999 and then from September 1999 to present, Mr. Becker was the Chairman of the Board of: (a) the Becker Group of Companies, a investment and venture capital firm, based in Grand Cayman, Bahamas; and (b) TeleHub Communications, a research and development located in Gurnee, Illinois.

Gary Brown has been Secretary and Treasurer since September 16, 2004 and has been a Director since October 9, 2004. Mr. Brown is Executive Vice President of Global Sales for Taqua, Inc., a manufacturer of telecommunications switching systems. From December 2001 to October 2003, Mr. Brown served as chief operating officer of Metro-Optics, also a manufacturer of telecommunications switching systems. Mr. Brown has more than 29 years experience in the telecommunications industry.

Patrick J. Kealy was our Chairman of the Board from April 15, 2004 through September 3, 2004. From July 2002 to present, Mr. Kealy has been the Chairman of Swissfone International, Ltd., an international long distance service provider located in Washington, DC. Mr. Kealy held various management positions in investment firms from 1965 to 2002. Mr. Kealy graduated from Notre Dame University in 1965 with a BBA Degree in Finance.

24

Michael Tracy was a Director from April 1999 until November 30, 2004. He held the positions of President and CEO from December 1999 to April 14, 2004 and from September 16, 2004 to November 30, 2004. He also held the position of Acting Chief Financial Officer from September 16, 2004 to November 30, 2004. From 1982 through date, Mr. Tracy has been President of Tracy Corporation II, dba Western Total Communications, a wholly-owned subsidiary of Telemetrix, and also dba Telemetrix Technologies, and the entity that holds a license issued by the Federal Communications Commission authorizing it to provide wireless personal communication services and paging services in Gering, Nebraska.

John T. Connor, Jr. was our Secretary since April 15, 2004 until June 17, 2004. Since October 1998, Mr. Connor has been the founder and portfolio manager of Third Millennium Russia Fund, a Securities and Exchange Commission mutual fund. Mr. Connor graduated from Williams College in 1964 with a Bachelor or Arts Degree and from Harvard Law School in 1967 with a Juris Doctor Degree.

Michael L. Glaser was our Secretary and Director from April 1999 until April 15, 2004. Mr. Glaser has been an attorney with the law firm of Shughart Thomson & Kilroy, P.C. since January 2003. From January 1996 through December 2002, Mr. Glaser was a director and shareholder of the law firm of Lottner Rubin Fishman & Saul, P.C. located in Denver, Colorado. Mr. Glaser received a BA from George Washington University in 1961 and a Juris Doctor Degree from George Washington University School of Law in 1965.

Richard Dineley was our President and Chief Operating Officer From June 17, 2004 to September 16, 2004. From June 1993 to present, Mr. Dineley has been the President of deltaVectors LLC, a strategic consulting and investment services firm located in Atlanta, Georgia. Mr. Dineley obtained a Master of Business Administration degree in Finance and International business in December 1977. In October 1987 Mr. Dineley was licensed as a Certified Public Accountant by the State of Virginia.

Richard West joined the firm as an Independent Contractor was our Secretary/ General Counsel from June 17, 2004 to September 16, 2004. Mr. West has been a principal of West Law firm LLC in Yew York, New York. Mr. West is a member of the New York State and Louisiana State Bars.

SIGNIFICANT EMPLOYEES

None

FAMILY RELATIONSHIPS

There are no other family relationships among our officers, directors, promoters, or persons nominated for such positions.

LEGAL PROCEEDINGS

William Becker, a Director and our former Chairman of the Board, was the Chairman of TeleHub Communications Corporation from March 1996 through June 1999 and then from September 1999 to the present. On October 27, 1999, a TeleHub subsidiary petitioned for reorganization under the U.S. Bankruptcy Code. At that time, that subsidiary owed its parent corporation, TeleHub Communications Corporation approximately $606,000 for billing and consulting services. Given the status of this bankruptcy case, TeleHub Communications Corporation has reserved for the entire amount owed and does not expect to receive any payment.

Apart from the above matter, no officer, director, or persons nominated for such positions, promoter or significant employee has been involved in legal proceedings that would be material to an evaluation of our management.

Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:

25

     1.    any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

     2.    any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

     3.    being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

     4.    being found by a court of competent jurisdiction (in a civil action),the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

COMMITTEE OF THE BOARD OF DIRECTORS

We presently do not have an audit committee, compensation committee, nominating committee, an executive committee of our board of directors, stock plan committee or any other committees. However, our Board of Directors is considering establishing various such committees during the current fiscal year. Currently, our Board of Directors makes decisions regarding compensation, our audit, the appointment of auditors, and the inclusion of financial statements in our periodic reports.

AUDIT COMMITTEE FINANCIAL EXPERT

We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive.

CODE OF ETHICS

We have not yet adopted a corporate code of ethics. Our board of directors is considering establishing, over the next year, a code of ethics to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth summary information concerning the compensation received for services rendered to it during the current year and the years ended December 31, 2004 and 2003, and 2002 respectively.

SUMMARY COMPENSATION CHART

Annual Compensation
 Long Term Compensation
Name &
Position
 Year
 Salary $
 Bonus $
 Other $
 Restricted
Stock
Awards
 Options $
 Payouts $
 All Other
Compensation
Michael J. Tracy*   2004   70,000   0   0   0   0   0   0  
Chief Executive Officer  2003  300,000   0   0   0   0   0   0  
  2002  300,000   0   0   0   0   0   0  

Geoffrey Girdler**		  2004  150,000   0   0   0   0   0   0  
Chief Executive Officer 

Richard Dineley***		  2004  200,000   0   0   0   0   0   0  
President 

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* During 2003, or Chief executive Officer, agreed to accept a total of 2,729,942 shares of our common stock in lieu of his $300,000 salary. These shares were valued at prices ranging from $0.06 to $0.036. To date, none of these shares have been issued.
** Mr. Girdler’s position with the Company was through September 16, 2004.
*** Mr. Dineley’s position with the Company was from June 17, 2004 through September 16, 2004.

OPTION/SAR GRANTS 2004

Name and Principle Position
 Number of
Securities
Underlying
Options
 % of Total
Options
Granted to
Employees in
2004(1)
 Exercise Price
 Expiration Date
Michael Tracy, Former (President,   0   0   Not Applicable   Not Applicable  
Chief Executive Officer, Acting 
Chief Financial Officer,  
Chief Accounting Officer, Director) 

William W. Becker, Director, Former		  0   0   Not Applicable  Not Applicable 
Chairman of the Board 

Michael L. Glaser, Former Secretary and		  0   0   Not Applicable  Not Applicable 
Former Director 
TOTAL  100.00%

(1)   There were no Options/SAR Grants in 2004, the last completed fiscal year.

AGGREGATE OPTIONS/SAR EXERCISES IN 2004 AND FISCAL YEAR END OPTIONS/SAR VALUES

Name
 Shares
Acquired on
Exercise (#)
 Value Realized
($)
 Number of
Securities
Underlying
Unexercised
Options/SARs at
FY-End (#)
Exercisable/
Unexercisable
 Value of
Unexercised
In-the-Money
Options/SARs at
FY-End ($)
Exercisable/
Unexercisable
Michael Tracy,   Not Applicable   Not Applicable   150,000 / 0   Not Applicable  
 Former (President, Chief   
Executive Officer, Acting Chief 
Financial Officer, Chief 
Accounting Officer, Director) 

William W. Becker Director,		  Not Applicable  Not Applicable  150,000 / 0  Not Applicable 
Former Chairman of the Board   

Michael L. Glaser Former		  Not Applicable  Not Applicable  150,000 / 0  Not Applicable 
Secretary and Former Director   

There were no in-the-money exercisable options or SARs at the end of the fiscal year.

Board Compensation

Mr. Patrick Kealy received $12,310 in compensation in 2004 for his service as Chairman of the Board from April 15, 2004 through September 3, 2004. No other Directors receive any compensation for their services as directors, although some Directors are reimbursed for reasonable expenses incurred in attending board or committee meetings.

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following tables set forth the ownership as of December 31, 2004: (a) by each person known by us to be the beneficial owner of more than five percent (5%) of our outstanding common stock; and (b) by each of our directors, by all executive officers and our directors as a group.

To the best of our knowledge, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted. Other than the November 30, 2004 Agreement discussed in Note 7 of the Audited Financial Statements, there are not any pending or anticipated arrangements that may cause a change in our control.

     Security Ownership of Beneficial Owners:

Title of Class
 Name & Address
 Amount
 Nature
 Percentage
Common   William W. Becker   6,273,763*   Direct   25.10%
  Chairman of the Board and Acting CEO    And In-direct 
  Lane West Bay Road     
  Georgetown, Grand Cayman     
  British West Indies     
Common 
Michael J. Tracy		  11,409,000**  Direct  45.64%
  Former Chief Executive Officer    And In-direct 
  and Director     
  721 East 38th Street     
  Scottsbluff, Nebraska 69361     
Common 
Michael L. Glaser***		  1,432,554  Direct  5.73%
  Former Secretary and Director     
  2324 S. Jackson     
  Denver, Colorado 80210     
Common 
Vintage Investments Ltd.		  1,725,000  Direct  6.90%
  One Capital Place     
  Shedden Road, Georgetown     
  Grand Cayman, BWI****     
Total    20,840,317    83.37%

*William W. Becker’s beneficial ownership 6,273,763 shares of our common stock is composed of: (a) 4,115,430 shares held in the name of Hartford Holding Ltd., a wholly owned company of William Becker; (b) 87,500 shares that he individually owns; (c) 50,000 shares that are owned by his wife, Christine Becker; (d) 2,000,000 shares held in the name of the following entities located at c/o The Harbour Trust Co. Ltd, One Capital Place, P.O. Box 1787, Cayman Islands, British West Indies, in which William W. Becker has voting over such shares: (i) 750,000 shares owned by Ardara Investment, Ltd. A trust that is maintained for the benefit of one of William Becker’s (son/grandson);(ii)500,000 shares owned by Wyse Investments, Ltd./ a Trust that is maintained for the benefit of one of William Becker’s (son/grandson); and (iii) 750,000 shares owned by Ionian Investments, Ltd., a trust that is maintained for the benefit of one of William Becker’s (son/grandson); and 20,833 shares held in the name of BGC Investments LLC, a Colorado limited liability company.

** Michael J. Tracy’s beneficial ownership of 11,409,000 shares of our common stock is composed of 4,885,504 shares held in the name of Michael Tracy and 6,523,496 shares held in the name of Tracy Broadcasting Corporation, a wholly owned corporation of Michael Tracy.

*** Michael L. Glaser’s ownership of 1,432,554 shares of our common stock is composed of: (a) 816,533 shares owned by Michael L. Glaser individually; (b) 12,500 shares owned jointly by Michael L. Glaser and his wife, Catherine M. Glaser; and (c) 603,521 shares in the name of Michael L. Glaser IRA Rollover.

**** Vintage Investments Ltd. holds the shares of our common stock directly. Vintage Investments shares are owned by a trust in which the beneficiary of the trust is the former wife of William Becker, Marguerite Laura Becker.

     SECURITY OWNERSHIP OF MANAGEMENT:

Title of Class
 Name & Address
 Amount
 Nature
 Percentage
Common   William W. Becker   6,273,763*   Direct   25.10%
  Chairman of the Board and Acting CEO    And Indirect 
  Lane West Bay Road     
  Georgetown, Grand Cayman     
  British West Indies     

Common		 
Gary Brown		  2,000**  Direct  0.00%
  Director     
  211 Long Canyon Court     
  Richardson, Texas 75080     

Common		 
Michael J. Tracy		  11,409,000***  Direct  45.64%
  Former Chief Executive Officer    And Indirect 
  and Director     
  731 East 38th Street     
  Scottsbluff, Nebraska 69361     

Common		 
Michael L. Glaser		  1,432,544****  Direct  5.73%
  Former Secretary and Director     
  2324 S. Jackson     
  Denver, Colorado 80210     

Common		  Patrick J. Kealy  0   Not Applicable  Not Applicable
  Former Chairman of the Board 
  53 E. 74th Street, Apartment 4R 
  New York, New York 10021 

Common		  John T. Connor, Jr.  0   Not Applicable  Not Applicable
  Former Secretary and Treasurer 
  2300 Old Scenic Highway, 
  Lake Wales, Florida 33859 

Common		  Richard Dineley  0   Not Applicable  Not Applicable
  Former President and Chief 
  Executive Officer 
Total    19,117,307    76.47%

*William W. Becker’s beneficial ownership of 6,273,763 shares of our common stock is composed of: (a) 4,115,430 shares held in the name of Hartford Holding Ltd., a wholly owned company of William Becker; (b) 87,500 shares that he individually owns; (c) 50,000 shares that are owned by his wife, Christine Becker; (d) 2,000,000 shares held in the name of the following entities located at c/o The Harbour Trust Co. Ltd, One Capital Place, P.O. Box 1787, Cayman Islands, British West Indies, in which William W. Becker has voting over such shares: (i) 750,000 shares owned by Adara Investment, Ltd. A trust that is maintained for the benefit of one of William Becker’s (son/grandson);(ii)500,000 shares owned by Wyse Investments, Ltd./ a Trust that is maintained for the benefit of one of William Becker’s (son/grandson); (iii) 750,000 shares owned by Ionian Investments, Ltd., a trust that is maintained for the benefit of one of William Becker’s (son/grandson); and 20,833 shares held in the name of BGC Investments LLC, a Colorado limited liability company.

**Gary R. Brown owns 2,000 shares of our common stock individually.

***Michael Tracy’s beneficial ownership of 11,409,000 shares of our common stock is composed of 4,885,504 shares held in the name of Michael Trcy and 6,523,496 shares held in the name of Tracy Broadcasting Corporation, a wholly owned corporation of Michael Tracy.

**** Michael L. Glaser’s ownership of 1,432,554 shares of our common stock is composed of: (a) 816,533 shares owned by Michael L. Glaser individually; (b) 12,500 shares owned jointly by Michael L. Glaser and his wife, Catherine M. Glaser; and (c) 603,521 shares in the name of Michael L. Glaser IRA Rollover.

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ITEM 13. EXHIBITS AND REPORTS ON FORMS 8-K.

(a)    Exhibits

Exhibit
Number           Description

13.1  

Settlement Agreement between the major shareholders of the Company and Nyssen LP, incorporated by reference to the Company’s Form 10-KSB for the year ended December 31, 2004 filed January 12, 2006.

31.1  

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.2  

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


We hereby incorporate the following additional documents by reference: (a) our annual report on Form 10-KSB for the year ended December 31, 2003 which was filed on June 9, 2004; and (b) our quarterly reports on Form 10-QSB for the quarters ended: March 31, 2004 which was filed on August 4, 2004, June 30, 2004 and September 30, 2004 were filed on December 16, 2005.

(b)    Reports on Form 8-K

 

June 14, 2004 filed on July 2, 2004

 

September 10, 2004 filed on September 14, 2004

 

September 16, 2004 filed on September 23, 2004

 

December 21, 2004 filed on December 21, 2004


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

The aggregate fees billed and estimated unbilled for the fiscal year ended December 31, 2004 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements Included in our Form 10-KSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were $35,000.

The aggregate fees billed for the fiscal year ended December 31, 2003 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Form 10-KSB or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were $30,000.

Other fees:

Audit-Related Fees
None.

Tax Fees $4,500.00

All Other Fees
None.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Telemetrix Inc.      

By /s/ William Becker		  February 23, 2006 
      William Becker, Chief Executive Officer 
      (Principal Executive Officer) 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By /s/ William Becker   February 23, 2006    
       William Becker, Chairman 


By /s/ Gary Brown		 
       Gary Brown, Director  February 23, 2006 




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