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UNITED STATES FORM 10-Q Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2008 Transition report under Section 13 or 15 9d) of the Exchange Act for the Transition Period from ____________ to _______________. DELAWARE 470830931 6650 Gunpark Drive, Suite 100, Boulder, C0 80301 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated filer ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨ APPLIABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS Check whether the registrant 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 ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: There were a total of 180,483,368 shares of the issuer's common stock outstanding as of April 30, 2008. Transitional Small Business Disclosure Format. Yes ¨ No x TELEMETRIX INC. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Telemetrix, Inc. See the accompanying notes to the consolidated financial statements. 3 See the accompanying notes to the consolidated financial statements. 4 Telemetrix, Inc. See the accompanying notes to the consolidated financial statements. 5
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X]
[ ]
TELEMETRIX INC.
(Exact name of small business issuer as specified in its charter)
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
6650 Gunpark Drive, Suite 100, Boulder, CO 80301
(Address of principal executive offices)
(303) 652-0103
(Issuers telephone number)
(Address of principal executive offices)
303-652-0103
(Issuers telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Non-accelerated filer ¨ Accelerated filer ¨
Smaller reporting company x
Table of Contents
INDEX
Table of Contents
Consolidated Balance Sheet
March 31,
2008
(Unaudited)
December 31,
2007
Assets
Current assets:
Cash
$
62,253
$
46,652
Accounts receivable, net
81,045
38,756
Deposits
6,317
2,918
Total current assets
149,615
88,326
Property and equipment, net
549,097
635,875
Total assets
$
698,712
$
724,201
Liabilities and stockholders' (deficit)
Current liabilities:
Accounts payable
$
872,528
$
873,795
Accrued expenses
383,012
378,013
Accrued interest-Convertible debentures
676,190
649,252
Convertible debentures
1,200,000
1,200,000
Notes payable - affiliates
5,559,109
5,084,109
Accrued Interest - affiliates
1,205,119
994,597
Current portion of long-term debt
221,899
164,859
Total current liabilities
10,117,857
9,344,625
Long-term debt
496,815
553,855
Stockholders' (deficit):
Preferred stock, $.001 par value, 25,000,000 shares authorized
none issued or outstanding
-
-
Preferred stock, series D, $.001 par value, convertible,
liquidation preferences $30 per share, 250,000 authorized
none issued or outstanding
-
-
Common stock, $.001 par value,
750,000,000 shares authorized,
180,483,368 shares issued and outstanding
180,485
180,485
Paid in capital
72,831,406
72,831,406
Accumulated (deficit)
(82,927,851
)
(82,186,170)
Total stockholders' (deficit)
(9,915,960
)
(9,174,279)
Total liabilities and stockholders' (deficit)
$
698,712
$
724,201
Table of Contents
Telemetrix, Inc.
Consolidated Statements of Operations
Three Months Ended March 31, 2008 and 2007
(Unaudited)
2008
2007
Revenue:
Cellular services
$
107,460
$
43,695
Cost of revenue
65,756
42,642
Gross margin
41,704
1,053
Operating expenses:
Selling, general and administrative expenses
533,327
523,370
(Loss) from operations
(491,623
)
(522,317
)
Other (income) expense:
Gain on the settlement of debt
-
(80,330
)
Interest expense
250,058
190,683
Total other (income) expense
250,058
110,353
Net (loss)
$
(741,681
)
$
(632,670
)
Per share information - basic and fully diluted:
Weighted average shares outstanding
180,483,368
180,483,368
Net (loss) per share
$
(0.00
)
$
(0.00
)
Table of Contents
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2008 and 2007
(Unaudited)
2008
2007
Cash flows from operating activities:
Net cash (used in) operating activities
$
(459,399
)
$
(336,672
)
Cash flows from investing activities:
Purchase of property and equipment
-
(39,550
)
Net cash (used in) investing activities
-
(39,550
)
Cash flows from financing activities:
Convertible notes payable-affiliates
475,000
330,350
Proceeds from notes payable
-
718,714
Payments on long term debt and notes payable-affiliates
-
(718,714
)
Net cash provided by financing activities
475,000
330,350
Net increase (decrease) in cash
15,601
(45,872
)
Beginning - cash balance
46,652
45,872
Ending - cash balance
62,253
-
Supplemental cash flow information:
Cash paid for income taxes
$
-
$
-
Cash paid for interest
$
12,598
$
-
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TELEMETRIX, INC.
March 31, 2008
(Unaudited)
NOTE 1. BASIS OF PRESENTATION |
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and Rule 8.03 of Regulation SX. They do not include all of the information and footnotes for complete financial statements as required by GAAP. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the Company's financial statements as of December 31, 2007, and for the two years then ended, including notes thereto included in the Company's Form 10-KSB.
NOTE 2. EARNINGS PER SHARE |
The Company calculates net income (loss) per share as required by SFAS 128, "Earnings per Share." Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods when they are anti-dilutive, common stock equivalents, if any, are not considered in the computation.
NOTE 3. NOTES PAYABLE RELATED PARTIES
The Company has outstanding notes payable to four affiliates of the Company in the principal amount of $5,559,109 at March 31, 2008. The Company has accrued interest of $1,205,119 as of March 31, 2008.
Interest | Conversion | Maturity | Amount | ||||||
Type of Debt | Rate | Price | Date | of Principal | |||||
Convertible notes | 15 | % | $ | .010 per share | 12/31/08 | $ | 1,648,259 | ||
Convertible notes | 15 | % | $ | .010 per share | 12/31/08 | $ | 1,875,043 | ||
Convertible notes | 15 | % | $ | .010 per share | 12/31/08 | $ | 1,568,807 | ||
Convertible notes | 10 | % | $ | .020 per share | 12/31/06 | $ | 467,000 | ||
Debt discount, less amortization of $467,000 | - | ||||||||
Total | $ | 5,559,109 |
The Company has issued convertible promissory notes to Nyssen LP (Nyssen) totaling $1,648,259 for advances from November 30, 2004 through March 31, 2008. The notes pay interest at 15% per annum and mature on December 31, 2008. During the three months ended March 31, 2008, Nyssen, advanced $275,000 and the Company recorded interest expense of $67,613.
6
The Company has issued convertible promissory notes to Becker Capital Management LLC (Becker) totaling $1,875,043 for advances from May 17, 2005 through March 31, 2008. The notes pay interest at 15% per annum and mature on December 31, 2008. During the three months ended March 31, 2008, Becker advanced $0 and the Company recorded interest expense of $71,196.
The Company has issued convertible promissory notes to LB Becker Consulting (LB Becker) totaling $1,568,807 for advances from April 7, 2006 through March 31, 2008. The notes pay interest at 15% per annum and mature on December 31, 2008. During the three months ended March 31, 2008, LB Becker advanced $200,000 and the Company recorded interest expense of $56,174.
On December 31, 2004, the Company recorded a $467,000 promissory note to Tracy Broadcasting Corporation for advances recorded by the Company in 2002 and 2003. The notes bear interest at 10% per annum and have a conversion feature of $.020 per share. The Company used the intrinsic value method to determine proceeds that should be allocated to the embedded beneficial conversion feature for the $467,000 convertible note. The Company recorded $15,539 of interest expense on this note during the three months ended March 31, 2008 (See Note 6).
NOTE 4. NOTES PAYABLE |
The Company entered into a Business Loan Agreement on March 30, 2007, and borrowed $718,714 on a variable rate loan due on March 30, 2011. The Company will pay this loan in accordance with the following payment schedule: 12 monthly consecutive interest payments, beginning April 30, 2007, with interest calculated on the unpaid principal balances at an interest rate based on the Wall Street Journal Prime Rate (currently at 5.25%); 35 monthly consecutive principal and interest payments in the initial amount of $22,647 each, beginning April 30, 2008 with the interest calculated on the unpaid principal balances at the interest rate based on the Wall Street Journal Prime Rate. The current portion of this balance of this loan is $221,899 with $496,815 classified as long-term debt. The Company entered into a Security Agreement granting to Lender a security interest in certain equipment. The Company had previously granted a security interest in the equipment to Becker Capital Management and LB Becker Consulting, who assigned the security interest to this Lender.
Future minimum principal payments pursuant to long-term debt agreements are as follows:
2008 | $ | 164,859 | |
2009 | 234,697 | ||
2010 | 252,918 | ||
2011 | 66,240 | ||
$ | 718,714 |
7
$1,200,000 Convertible debentures interest at 6.25% per annum, conversion feature allows the holder to use the debenture as payment for a like value of securities should the Company complete a stock offering of $6,000,000 at January 1, 2001. Such an offering was not completed. The debentures are currently in default. The Company recorded $26,938 of interest expense on these debentures during the period ended March 31, 2008. Total interest payable on these debentures is $676,190 at March 31, 2008.
NOTE 5. GOING CONCERN |
The Companys financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has experienced significant losses from operations. For the three months ended March 31, 2008, the Company incurred a net loss of $741,681. In addition, the Company has an accumulated deficit of $82,927,851 and working capital and stockholders deficits of $9,968,242 and $9,915,960 at March 31, 2008.
The Companys ability to continue as a going concern is contingent upon its ability to expand its service operations and secure additional financing. The Company is pursuing financing for its operations and seeking to expand its operations. Failure to secure such financing or expand its operations may result in the Company not being able to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
NOTE 6. LITIGATION |
Litigation |
On January 16, 2007 Tracy Broadcasting Corporation filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-07 37. Tracy Broadcasting Corporation is owned by Michael Tracy, a former CEO and Director of the Company. Mr. Tracy is also a major shareholder of the Company. The Complaint alleges that the Company owes Tracy Broadcasting Corporation $467,000 plus accrued interest at 10% per annum for outstanding loans under a promissory note issued in December 2004. The Companys records indicate that the promissory notes were repaid in full and dispute the claim. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007 the motion was denied and the Company has appealed the decision with the Nebraska Supreme Court.
8
On April 12, 2006, Michael J. Tracy filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-06-291. Mr. Tracy is the former CEO and Director of the Company. The Complaint alleges that the Company owes Mr. Tracy $3,378,129 as of April 1, 2006, including principal and interest for loans Mr. Tracy made to the Company at various times in 2001 and 2002. In November 2006, the Company tendered 23,894,351 shares of common stock to Mr. Tracy in satisfaction of the May 26, 2003 Exchange and Conversion Agreement and 3,472,789 shares of common stock for deferred compensation. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007, the motion to compel arbitration was ordered and the claim was dismissed from District Court in Nebraska. This case docketed in the District Court for Scotts Bluff County, Nebraska, is now closed. As of the date of the financial statements , Mr. Tracy has not filed an arbitration action in Denver, Colorado.
Other |
On October 19, 2006, the Company filed a Request for Arbitration with the World Intellectual Property Organization against UT Starcom, Inc., the successor in interest to Telos Technologies, Inc., the manufacturer of the Sonata SE switching system (GSM switch). The Request for Arbitration was accepted on October 24, 2006. The dispute relates to a Master Purchase and License Agreement dated October 22, 2003 for a Sonata SE Global System for Mobile Communications switching system. The Company requests arbitration of the following claims: (1) breach of contract; (2) breach of good faith and fair dealing; (3) fraudulent misrepresentations; (4) fraudulent inducement; (5) negligent misrepresentation; (6) intentional interference with existing contractual relations; (7) intentional interference with prospective economic relations; (8) negligent interference with existing economic relations; and (9) negligent interference with prospective economic rel ations. The Company claims that UT Starcom failed to perform from the time of installation and UT Starcom failed to deliver five significant features and functionality that UT Starcom represented would be available at the time the Company purchased the GSM switch. These features and functionality include among others, (a) E911-Phase II functionality in the GSM Switch so that Telemetrix could comply with the FCCs mandated 911 services requirement by June 30, 2006; a GSM feature including intelligent network functions into a GSM network system; CALEA, which imposes upon Telemetrix a statutory obligation to ensure that its equipment, facilities or services that provide a customer or subscriber with the ability to originate, terminate or direct communications. Telemetrix requests entry of an award during the arbitration in its favor and against UT Starcom for general damages or alternatively, a rescission of the Agreement plus the cost of arbitration and for such other and further relief as the Arbitrator may deem just and fair.
NOTE 7. CONCENTRATIONS
During the three months ended March 31, 2008, three customers accounted for approximately 47%, 16% and 13%, a total of 76%, of total revenue and one customer accounted for 62% of accounts receivable at March 31, 2008.
9
NOTE 8. COMMITMENTS AND CONTINGENCIES
Operating Leases |
The Company entered into a five year lease with an officer of the Company on January 1, 2008. The lease is for office space of 3,199 square feet for $5,065 per month. The five year lease includes an annual increase of 3% per annum.
The annual rentals are as follows: |
2008 | $ | 60,780 | ||
2009 | 62,603 | |||
2010 | 64,482 | |||
2011 | 66,416 | |||
2012 | 68,408 | |||
$ | 322,689 |
In addition, the Company leases office space pursuant to a lease expiring in April 2009 at a monthly rental of $980. Future minimum payments are as follows:
2008 | $ | 11,760 | ||
2009 | $ | 3,920 |
Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operation
The following discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this Form 10-Q and our Annual Report on Form 10-KSB for our fiscal year ended December 31, 2007. The terms "the Company," "we," "our" or "us" refer to Telemetrix, Inc. This discussion contains forward-looking statements based on our current expectations, assumptions, and estimates. The words or phrases "believe," "expect," "may," "anticipates" or similar expressions are intended to identify "forward-looking statements."
Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties pertaining to our business, including: (a) our history of losses makes it difficult to evaluate our current and future business and our future financial results; (b) our ability to proceed with our operating plan is dependent on our ability to obtain additional financing; (c) even if we obtain additional debt or equity financing, the value of our common stock may be diluted; (d) our ability to continue as a going concern is contingent upon our ability to expand our service operations and secure additional financing; (e) debt obligations of approximately $8 million may negatively affect our ability to expand our operations; (f) whether we will be able to keep pace with the rapid development of technology in the wireless communications services area; (g) whether our existing technology will becom e obsolete or too expensive to upgrade; (h) the possibility that our business will be subject to increasing government regulation and related increasing costs; and (i) our dependency upon third party providers, including roaming partners, wireless network companies, and our switch hosting provider, through which we obtain our interconnections throughout North America and international markets; should we lose the services of these third party providers, our operations may be negatively affected, including interruptions in our service.
10
Statements are made as of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
Overview |
Telemetrix Inc. (through its wholly owned subsidiary, Convey Communications Inc.), is an FCC-licensed operator of wireless communications services, based in Boulder, Colorado. Telemetrix is a public company that trades on PinkSheets under the symbol TLXT. The Company was founded in 1999, acquired its FCC licenses in 2000, and initially focused on paging and wireless utility meter reading services. During 2006, the Company upgraded its network infrastructure to a Nokia R4 packet-based solution that has the capability to support up to 10 million users. In 2007, the Company began offering voice and data services. The Company has roaming agreements with AT&T, T-Mobile and other US carriers as well as Telcel and Telefonica in Mexico.
Divisions |
We currently operate one division, Cellular Services. In 2007, Telemetrix began offering wholesale and retail voice and data services to developers of wireless convergent services that combine PCS (commonly referred to as cellular), voice over internet protocol (VoIP), Wi-Fi, and soon, WiMAX network products as bundled offers.
Type of Customers |
Our customers are developers who purchase our cellular services for branding and marketing customized wireless applications such as wireless or virtual PBX, seamless roaming between IP, WLAN and cell and machine to machine (M2M) application providers.
11
Revenues Our revenues consist of the following: |
Our revenues are dependent upon the following factors:
12
Capital Expenditures and Requirements
During the first thee months of 2008, we made capital expenditures of $0. The Company intends to spend approximately $50,000 on capital expenditures related to billing systems.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts. These estimates and assumptions are evaluated on an on-going basis and are based on historical experience and various other factors that are believed to be reasonable. Estimates and assumptions include, but are not limited to, fixed asset lives, intangible assets, income taxes, and contingencies, which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies affect our more significant judgments and estimates used in the preparation of the financial statements. Our principal critical accounting policies consist of revenue recognition and stock compensation. Our critical accounting policies are outlined in our audited f inancial statements contained in our Form 10-KSB for the year ended December 31, 2007.
Results of Operations |
Comparison of Three Months Ended March 31, 2008 and 2007
Revenues. Revenues for the three months ended March 31, 2008 increased by $63,765 or 145.9% to $107,460 from $43,695 for the three months ended March 31, 2007. The increase in revenue is primarily attributable to increased service offerings of voice and data services that were not available in early 2007.
Cost of Revenues. Cost of revenues currently consists primarily of roaming charges and signaling charges from our switch operator. Cost of revenues increased by 54.2% or $23,114 to $65,756 for the three months ended March 31, 2008 from $42,642 for the comparable 2007 period, representing 38.8% and 97.6% of the total revenues for the three months ended March 31, 2008 and 2007, respectively. The increase in the cost of revenues is attributable to increased revenues. The decrease in cost of revenues in relation to revenues is due to increased margins from voice and data services.
13
Operating Income/(Losses). Operating income for the three months ended March 31, 2008 reflected a loss of ($491,623) compared to an operating loss of ($522,317) during the comparable 2007 period. On a year over year basis for the third quarter, our operating losses decreased by 5.9% or $30,694. The decrease in operating loss was primarily due to increased revenues and increased profit margins.
Selling, General and Administrative Expense. General and administrative expense increased by $9,957 or 1.9% to $533,327 for the three month period ended March 31, 2008, from $523,370 for the three-month period ended March 31, 2007. The increase in our general and administrative expenses is primarily attributable an increase in the number of our employees.
Gain of Settlement of Debt. In the first three months of 2007, the Company recorded a gain on the extinguishment of debt of $80,330 as a result of debts going beyond the statute of limitation for collection.
Interest Expense. Interest expense for the three-month period ended March 31, 2008 increased by $59,375 or 31.1% to $250,058 as compared to $190,683 for the three-month period ended March 31, 2007. The increase in interest expense is due to increased loan balances from lenders.
Net Loss. Net loss for the three-month period ended March 31, 2008 increased by 17.2% or $109,011 to ($741,681) from ($632,670) for the three months ended March 31, 2007. The increase in net loss is primarily due to the $80,330 gain on settlement of debt recorded in the first quarter of 2007.
Balance Sheet
Current Assets. Current Assets amounted to $149,615 as of March 31, 2008 representing an increase of $61,379 or 69.4% from Current Assets of $88,236 as of December 31, 2007. The increase is due to the cash and accounts receivable balance at March 31, 2008.
Current Liabilities. As of March 31, 2008, Current Liabilities are $10,117,857 representing an increase of $773,232 or 8.3% from Current Liabilities of $9,344,625 as of December 31, 2007. The increase is due to increased notes payable balances and increased accrued interest payable on the notes.
Liquidity and Capital Resources
Net cash used in operating activities for the period ending March 31, 2008 was ($459,399) compared with ($336,672) for the same period in 2007.
Cash used in investing activities for the periods ended March 31, 2008 was $0 compared to $39,550 for the same period in 2007. The cash used in investing activities in the first three months of 2007 is due to the purchase of telecommunication billing equipment.
14
Cash provided by financing activities for the period ended March 31, 2008 was $475,000 as compared to $330,350 for the period ended March 31, 2007. The cash provided in both periods is from the proceeds of convertible notes payable from affiliates.
Cash at March 31, 2008 increased to $62,254 from $46,652 at December 31, 2007. Cash at April 15, 2008 amounted to $50,000.
At March 31, 2008, we have no material commitments for capital expenditures. We shall continue to finance our operations mainly from loans and fundraising activities. We do not believe that our future cash flow from operations together with our current cash will be sufficient to finance our activities through the year 2008; therefore, we plan to raise money through a private placement to fund the implementation of an expanding operational plan.
As of March 31, 2008, we have an accumulated deficit of $82,927,851 and working capital and stockholders' deficits of $9,968,242 and $9,915,960.
Our ability to continue as a going concern is contingent upon our ability to attain profitable operations and secure adequate financing.
We cannot continue to satisfy our current cash requirements for a period of twelve (12) months through our existing capital. We anticipate total estimated operating expenditures of approximately $1,100,000 over the next twelve (12) months, in the following areas:
Our current cash of $62,254 as of March 31, 2008 will satisfy our cash requirements until the end of April 2008. Our cash of $50,000 as of April 15, 2008 will satisfy our cash requirements until the end of April 2008.
Accordingly, we will be unable to fund our expenses through our existing assets or cash. In order to acquire funding, we may be required to issue shares of our common stock, which will dilute the interest of current shareholders. Moreover, we may still need additional financing through traditional bank financing or a debt or equity offering; however, because we have limited revenues, and a poor financial condition, we may be unsuccessful in obtaining such financing or the amount of the financing may be minimal and therefore inadequate to implement our business plans. In the event that we do not receive financing or our financing is inadequate, we may have to liquidate our business and undertake any or all of the following actions:
15
Based upon our current assets, however, we would not have the ability to distribute any cash to our shareholders.
If we have any liabilities that we are unable to satisfy and we qualify for protection under the U.S. Bankruptcy Code, we may voluntarily file for reorganization under Chapter 11 or liquidation under Chapter 7. Our creditors may also file a Chapter 7 or Chapter 11 bankruptcy action against us. If our creditors or we file for Chapter 7 or Chapter 11 bankruptcy, our creditors will take priority over our shareholders. If we fail to file for bankruptcy under Chapter 7 or Chapter 11 and we have creditors; such creditors may institute proceedings against us seeking forfeiture of our assets, if any. We do not know and cannot determine which, if any, of these actions we may be forced to take. If any of these foregoing events occur, shareholders could lose their entire investment in our shares.
To date, we have funded our activities principally from loans from related parties and loans from third party lenders.
Contractual Obligations and Commercial Commitments
The Company entered into a five year lease with an officer of the Company on January 1, 2008. The lease is for office space of 3,199 square feet for $5,065 per month. The five year lease includes an annual increase of 3% per annum.
The annual rentals are as follows: |
2008 | $ | 60,780 | ||
2009 | 62,603 | |||
2010 | 64,482 | |||
2011 | 66,416 | |||
2012 | 68,408 | |||
$ | 322,689 |
16
In addition, the Company leases office space pursuant to a lease expiring in April 2009 at a monthly rental of $980. Future minimum payments are as follows:
2008 | $ | 11,760 | ||
2009 | $ | 3,920 |
The Company entered into a Business Loan Agreement on March 30, 2007 and borrowed $718,714 on a variable rate loan due on March 30, 2011. The Company will pay this loan in accordance with the following payment schedule: 12 monthly consecutive interest payments, beginning April 30, 2007, with interest calculated on the unpaid principal balances at an interest rate based on the Wall Street Journal Prime Rate (currently at 5.25%); 35 monthly consecutive principal and interest payments in the initial amount of $22,647 each, beginning April 30, 2008 with the interest calculated on the unpaid principal balances at the interest rate based on the Wall Street Journal Prime Rate. The Company entered into a Security Agreement granting to Lender a security interest in the Nokia Equipment. The Company had previously granted a security interest in the equipment to Becker Capital Management and LB Becker Consulting, who assigned the security interest to this Lender.
In September 2006, the Company entered into an agreement with Verisign for output billing services. This contract enables the Company to provide billing services to our roaming partners. The contract is for 36 months and the charges for this service are transaction based with certain minimums.
In September 2006, the Company entered into an agreement with ARS Informatica for voice and data billing services. This contract enables the Company to provide billing services to our voice and data customers. The contract is for three years and the charges for this service are transaction based with certain minimums.
On April 3, 2006, the Company entered into a Hosting Agreement and an Equipment Services Agreement with a Nokia value added reseller located in Texas. This six year agreement requires a monthly payment of $8,500 per month for services to operate and maintain our radio access network in Nebraska. Additionally, the company signed a six year agreement on office space in Scottsbluff, Nebraska to host our media gateway equipment. This lease requires a monthly payment of $980.
Item 3. Controls and Procedures |
As of March 31, 2008, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including our Chief Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2008.
17
There has not been any change in our internal control over financial reporting during the three months ended March 31, 2008 that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION Item 1. Legal Proceedings |
On January 16, 2007 Tracy Broadcasting Corporation filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-07 37. Tracy Broadcasting Corporation is owned by Michael Tracy, a former CEO and Director of the Company. Mr. Tracy is also a major shareholder of the Company. The Complaint alleges that the Company owes Tracy Broadcasting Corporation $467,000 plus accrued interest at 10% per annum for outstanding loans under a promissory note issued in December 2004. The Companys records indicate that the promissory notes were repaid in full and dispute the claim. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007 the motion was denied and the Company has appealed the decision with the Nebraska Supreme Court.
On April 12, 2006, Michael J. Tracy filed a complaint in the District Court for Scottsbluff County, Nebraska, against the Company, in Case No. CI-06-291. Mr. Tracy is the former CEO and Director of the Company. The Complaint alleges that the Company owes Mr. Tracy $3,378,129 as of April 1, 2006, including principal and interest for loans Mr. Tracy made to the Company at various times in 2001 and 2002. In November 2006, the Company tendered 23,894,351 shares of common stock to Mr. Tracy in satisfaction of the May 26, 2003 Exchange and Conversion Agreement and 3,472,789 shares of common for deferred compensation. The Company filed a motion to compel arbitration in Denver, Colorado. On November 27, 2007, the motion to compel arbitration was ordered and the claim was dismissed from District Court in Nebraska. This case docketed in the District Court for Scotts Bluff County, Nebraska, is now closed. As of the date of the financial statements Mr. T racy has not filed an arbitration action in Denver, Colorado.
Other |
On October 19, 2006, the Company filed a Request for Arbitration with the World Intellectual Property Organization against UT Starcom, Inc., the successor in interest to Telos Technologies, Inc., the manufacturer of the Sonata SE switching system (GSM switch). The Request for Arbitration was accepted on October 24, 2006. The dispute relates to a Master Purchase and License Agreement dated October 22, 2003 for a Sonata SE Global System for Mobile Communications switching system. The Company requests arbitration of the following claims: (1) breach of contract; (2) breach of good >faith and fair dealing; (3) fraudulent misrepresentations; (4) fraudulent inducement; (5) negligent misrepresentation; (6) intentional interference with existing contractual relations; (7) intentional interference with prospective economic relations; (8) negligent interference with existing economic relations; and (9) negligent interference with prospective economic relations. The Company claims that UT Starcom failed to perform from the time of installation and UT Starcom failed to deliver five significant features and functionality that UT Starcom represented would be available at the time the Company purchased the GSM switch. These features and functionality include among others, (a) E911-Phase II functionality in the GSM Switch so that Telemetrix could comply with the FCCs mandated 911 services requirement by June 30, 2006; (b) a GSM feature including intelligent network functions into a GSM network system; and (c) CALEA, which imposes upon Telemetrix a statutory obligation to ensure that its equipment, facilities or services that provide a customer or subscriber with the ability to originate, terminate or direct communications. Telemetrix requests entry of an award during the arbitration in its favor and against UT Starcom as follows:
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A. | for general damages in an amount to be established at trial; |
B. | alternatively, a rescission of the Agreement; |
C. | for cost of the arbitration, including attorneys fees; and |
D. | for such other and further relief as the Arbitrator may deem just and fair. |
We are subject to disputes and litigation in the ordinary course of our business. None of these matters, in the opinion of our management, is material or likely to result in a material effect on us based upon information available at this time.
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None |
Item 4. Submission of Matters to a Vote of Securities Holders None
Item 5. Other Information None |
Item 6. Exhibits and Reports on Form 8-K
Exhibits
31 | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
Reports in Form 8-K January 31, 2008 report filed on February 5, 2008 |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
April 25, 2008
Telemetrix Inc.
By: /s/ William Becker | April 25, 2008 | |
William Becker, Chairman | ||
By: /s/ Gary Brown | April 25, 2008 | |
Gary Brown, Director | ||
By: /s/ Larry Becker | April 25, 2008 | |
Larry Becker, Director | ||
By: /s/ Patrick Kealy | April 25, 2008 | |
Patrick Kealy, Director |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CERTIFICATION |
I, William Becker, Chief Executive Officer (Principal Executive and Accounting Officer) certify that:
1. | I have reviewed this quarterly report on Form 10-Q for the first fiscal quarter March 31, 2008, of Telemetrix Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial position, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The small business issuers other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in exchange Act Rules 13a- 15(f) and 15d-15(f)) for the small business issuer and have: | |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared: | |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure control and procedures, as of the end of the period covered by this report based on such evaluation; and | |
d. | Disclosed in this report any change in the small business issuers internal control over financial reporting that occurred during the small business issuers most recent fiscal quarter (the small business issuers fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers internal control over financial reporting; and | |
5. | The small business issuers other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuers auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): | |
a. | All significant deficiencies and material weaknesses in the design or operating of internal control over financial reporting which are reasonably likely to adversely affect the small business issuers ability to record, process, summarize and report financial information; and | |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuers internal control over financial reporting. |
Date: April 25, 2008 |
/s/ William Becker
William Becker
Chief Executive Officer and Chief Financial Officer
(Principal Executive and Accounting Officer)
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report on Form 10-Q (the Report) of Telemetrix Inc. (the Company) for the quarter ended March 31, 2008, I, William Becker, Chief Executive Officer (Principal Executive and Financial Officer) of the Company, hereby certify pursuant to 18 U.S.C. section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
April 25, 2008 |
/s/ William Becker
Name: William Becker
Title: Chief Executive Officer
(Principal Executive and Financial Officer)