Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December
31, 2006
o TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the Transition Period from __________ to __________
Commission
File No. 0-21931
Wi-Tron,
Inc.
(Name
of Small Business Issuer in Its Charter)
|
Delaware
|
22-3440510
|
|
(State
or Other
Jurisdiction
of
Incorporation or
Organization)z
|
(I.R.S.
Employer
Identification
No.)
|
| |
|
|
59
LaGrange Street,
Raritan,
New Jersey
|
08869
|
|
(Address
of Principal Executive
Offices)
|
(Zip
Code)
|
Issuer’s
telephone number, including area code: (908) 253-6870
Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12 (g) of the Act: Common
Stock
(Title
of Class)
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
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
x
No
o
Check
if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B 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. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule12b-2
of the Exchange Act). o
Issuer’s
revenues for its most recent fiscal year were $154,309
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of computed by reference to the closing price of such stock
as of
March 31, 2007, was approximately $2,276,006.
The
number of shares outstanding of the issuer's common stock as of May 16, 2007
was
50,028,293
Documents
Incorporated by Reference: None
Transitional
Small Business Disclosure Format Yes
o No
x
FORWARD
LOOKING STATEMENTS
This
Annual Report and any documents incorporated herein by reference, if any,
contain forward-looking statements that have been made within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
refer to our business, financial condition and prospects that reflect our
management’s assumptions and beliefs based on information currently available.
We can give no assurance that the expectations indicated by such forward-looking
statements will be realized. If any of our assumptions should prove incorrect,
or if any of the risks and uncertainties underlying such expectations should
materialize, our actual results may differ materially from those indicated
by
the forward-looking statements.
There
may
be other risks and circumstances that management may be unable to predict.
When
used in this Report, words such as, “believes,”
“expects,” “intends,” “plans,” “anticipates,” “estimates” and
similar expressions are intended to identify and qualify forward-looking
statements, although there may be certain forward-looking statements not
accompanied by such expressions.
PART
I
Item
1. Description
of Business
GENERAL
INFORMATION ABOUT WI-TRON
Wi-Tron’s
Mission is to become a world leader in ultra-linear, high-value power amplifier
technology products for wireless telecommunication infrastructure providers
by
anticipating and exceeding their needs and expectations, while providing high
profit margins to the Company.
Background:
The Company was incorporated on December 14, 1995 as Amplidyne Inc. and renamed
Wi-Tron, Inc in August 2005. Since that time Wi-Tron has been reorganizing
its
operational structure and making management changes. The company is led by
its
CEO and Chairman John Lee. The company has retained Joe Nordgaard as a Business
Development Consultant.
Wi-Tron
has 15 proven product designs for Radio Frequency Amplifiers, Wi-Max Amplifiers,
Wi-Fi Solutions and Wireless Repeaters; patents in Analog Pre-Distortion
techniques and 15 years experience in custom RF amplifier design and
manufacturing.
HISTORY
OF THE RF AMPLIFIER INDUSTRY
Until
about 2003, large telecom equipment manufacturers such as Ericsson, Motorola,
Nortel and Lucent Technologies maintained comprehensive R&D departments to
design and manufactured their own RF amplifiers. This was effective, but
expensive and consequently they cut back much of their R&D capabilities to
streamline operations and reduce costs. As a result, the industry became more
standardized, but telecom service providers now have increased their reliance
on
outsourced design, manufacturing and solutions.
This
outsourcing shift, coupled with the rapid growth in the cellular industry,
caused rapid growth of the RF amplifier industry. The two largest US
manufacturers, Powerwave Inc. and Andrews Corp., dominate the RF amplifier
industry’s cutting-edge technologies development, which represents the highest
profit margins in the industry. The rest of the industry is serviced by dozens
of small companies around the world, who tend to focus on lower technology
solutions and lower profit margins. Companies of any size that show R&D
prowess are quickly acquired by the industry giants so they retain the most
advanced technologies available.
This
outsourcing and acquisition trend has led amplifier and component designs toward
increased complexity and technical sophistication in the form of complete RF
Subsystems. However, there are still major problems in the form of power and
signal inefficiencies that the major companies are not solving sufficiently.
Much of Wi-Tron’s future success is based on solving these problems.
PLANS
FOR
IMPROVING RESULTS OF OPERATIONS
At
Wi-Tron, Inc., we are taking advantage of many opportunities in the wireless
industry by developing state-of-the-art RF amplifier technology for the second,
third and fourth generation wireless telecommunications systems. We are
developing advanced RF amplifier designs that significantly increase power
and
frequency efficiency and resolve key issues relating to the ever increasing
need
for more complex broadband, multi-channel solutions. We continue to build our
R&D team to capitalize on these opportunities, where both the greatest
demand and the greatest opportunity to gain market-share with high margin
solutions exist.
Initially,
Wi Tron will work to increase sales of RF amplifiers while simultaneously
developing cutting edge technological designs for near and long term sales
growth. Wi-Tron intends to build partnership and marketing strengths from a
series of design platforms, some of which have already have been developed,
in
order to expand our market opportunities across technologies, frequency bands
and power ranges.
Our
strategy is to develop, manufacture and sell the most advanced amplifier
products in the world, which could give Wi-Tron a lead time to market advantage
against the largest names in the industry. Wi Tron’s new amplifiers are energy
efficient, have wide bandwidth and digital clarity, with embedded intellectual
property protection. These products are in great demand by wireless service
providers and equipment vendors around the world. Wi-Tron’s products will save
energy costs, while providing high speed data, video and streaming video
transmissions, with high voice quality to wireless customers around the world.
There are additional savings to service providers each Wi-Tron amplifier can
do
the workload of several older amplifiers.
We
have
developed new amplifier products for the wireless communications market. Our
sales and marketing efforts are focused on Latin America, Asia, Europe and
U.S.
markets. We plan to establish “Wi-Tron China” to accelerate our penetration of
the Chinese market and to manage our outsourced manufacturing operations in
China
We
intend
to refine our products as needed and in a timely fashion in order to obtain
market share.
High
Quality, Reliability and Customer Support.
We
believe that the power amplifier in cell sites historically has been the single
most common point of equipment failure in wireless telecommunications networks.
Increasingly reliable power amplifiers, therefore, will improve the level of
service offered by wireless service providers, while reducing their operating
costs. In addition, MCLPA eliminate the need for high-maintenance; tunable
cavity filters that should further reduce costs.
We
work
closely with our customers throughout the design process in refining and
developing their amplifier specifications. We use the latest equipment and
computer aided design and modeling, solid-state device physics, advanced digital
signal processing, and digital control systems, in developing our products.
The
integration of our design and production is a factor in our ability to provide
our customers with high reliability, low distortion and low maintenance
amplifiers.
Technology
Wireless
Transmit Technology.
A
typical wireless communications system comprises a geographic region containing
a number of cells, each with a base station, which are networked to form a
service provider's coverage area. Each base station or cell site houses the
equipment that transmits and receives telephone calls to and from the cellular
subscriber within the cell and the switching office of the local wire line
telephone system. Such equipment includes a series of transceivers, power
amplifiers, tunable cavity filters and an antenna. In a single channel system,
each channel requires a separate transceiver, power amplifier and tunable cavity
filter. The power amplifier within the base station receives a relatively weak
signal from the transceiver and significantly boosts the power of the outgoing
wireless signal so that it can be broadcast throughout the cell. The radio
power
levels necessary to transmit the signal over the required range must be achieved
without distorting the modulation characteristics of the signal. The signal
must
also be amplified with linearity in order to remain in the assigned channel
with
low distortion or interference with adjacent channels.
Because
cellular operators are allocated a small RF spectrum and certain channels,
it is
necessary to make efficient use of the spectrum to enable optimum system
capacity. By amplifying all channels with minimum distortion at the same time,
rather than inefficient use of single channel amplification, one obtains better
system capacity. A MCLPA combines the performance capabilities of many single
carrier amplifiers into one unit, eliminating the need for numerous single
carrier amplifiers and their corresponding tunable cavity filters. These MCLPA
require less space than multiple single channel amplifiers and their
corresponding tunable cavity filters, which reduce the size and cost of a base
station.
MCLPA
create distortion products, which can cause adjacent channel interference.
The
minimization of these distortion products requires sophisticated technology.
This is accomplished through interference cancellation techniques such as "pre
distortion" and "feed forward" accompanied by highly advanced control and
processing technology. We have developed certain proprietary technology and
methods to achieve minimal distortion in our amplifiers, technically called
pre
distortion and feed- forward correction. We use three distinct technologies
(1)
linear class A and AB amplifiers, (2) pre distorted class A and AB amplifiers
and (3) pre distortion feed-forward amplifiers. Our proprietary leading edge
products contain patented pre distortion and proprietary feed-forward technology
combined in a proprietary automatic correction technique.
All
amplifiers create distortion when they are run at a high power level. In an
ideal case the output of the amplifier would faithfully reproduce the input
signal without any distortion. In real life, however, distortion characteristics
are produced. These distortion products can cause interference with another
caller’s channel, which in turn produces poor call quality. By using a simple,
patented technology, we recreate the distortion for the amplifier in such a
manner to cancel the interference signals.
Feed-forward
cancellation involves taking the distortion created by the amplifier and
processing it in such a way that when it is added back into the amplifier having
been pre-distorted and combined with the feed forward technology, distortion
cancellation occurs. We believe that our patented technology has the most unique
and potent technology for distortion cancellation. Furthermore, we have selected
linear class AB technology for our base amplifier which we believe also has
superior distortion characteristics compared to other competitors because it
is
easier to pre-distort. Thus the three key ingredients (1) linear class A and
AB
amplifiers, (2) pre distortion technology and (c) feed-forward technology enable
us to produce MCLPA for our major OEM customers.
Markets
The
market for wireless communications services has grown substantially during
the
past decade as cellular wireless local loop, 3G and other new and emerging
applications (such as W-CDMA) have become increasingly accessible and affordable
to growing numbers of consumers.
Cellular
Market.
The
market for cellular communications still accounts for a fairly large portion
of
the wireless services. The general downturn in this segment decreased demand
for
amplifier products during 2004 and 2005.
Wireless
Local Loop /W-Max.
Wireless
local loop and Wi-Max systems are increasingly being adopted in developing
markets to more quickly implement telephone and Data communication services.
In
certain developing countries, wireless local loop and Wi-Max systems provide
an
attractive alternative to copper and fiber optic cable based systems, with
the
potential to be implemented more quickly and at lower cost than wire line
telephone systems. The Company designs, manufactures and markets MCLPA and
single channel amplifiers for infrastructure equipment systems in the wireless
local loop and Wi-Max market in the 2 and 3.5 GHz bands.
Custom
Communications and Other Markets.
The
custom communications market consists of small niche segments within the larger
communications market:long-haul radio communications, land mobile
communications, surveillance communications, ground-to-air communications,
microwave communications, broadband communications and telemetry tracking.
The
Company sells custom amplifiers and related products to these
segments.
Products
We
design
and sell multi-carrier transmit amplifiers and low noise receive amplifiers
for
the cellular communications market, as well as the PCS and wireless local loop
segments of the wireless communications industry. We also provide a large number
of catalog and custom amplifiers to OEMs and to other customers in the
communications market in general.
Multicarrier
Linear Power Amplifiers (MCLPA).
When a
cellular or PCS user places a call, the call is processed through a base
station, amplified, and then transmitted on to the person receiving the call.
Therefore, all base stations require amplifiers (MCLPA) whether they are being
used for cellular, PCS or 3G (third generation) local loop applications. We
design and manufacture these amplifiers. The objective is to provide a quality
product at a good price and to have exemplary reliability. Management believes
that our products with patented pre-distortion technology, core linear amplifier
technology, and proprietary feed-forward technology, achieve all of the
objectives mentioned above. Our MCLPA are a unique line of ultra linear devices,
which utilize a proprietary pre-distortion and phase locked feed forward
architecture.
High
Power Linear Amplifiers.
Our
product line of linear amplifiers have a high third-order intercept point,
which
translates to better call quality. These high power amplifiers are supplied
as
modules or plug in enclosures. The communication bands available are NMT-450,
AMPS, TACS, ETACS, 3G and PCS. The output power ranges from 1 to 200 Watts.
These amplifiers can be used in instances where service providers only need
a
single transmit channel.
W-CDMA
Amplifier Development. In
2005/6, we completed the development of a wide band 80W MCLPA with Digital
Signal Processing technology and Wi-Max Products.
Local
Loop and Wi-Max Amplifiers.
Local
loop and Wi-Max amplifiers are designed with a proprietary circuit to achieve
a
high linearity, which translates to better call quality through the mini cell.
These amplifiers can be ordered as modules or in a rack
configuration.
Low
Noise Amplifiers, Cellular, PCS, GSM, W-CDMA and WI-MAX
amplifiers are manufactured with a mix of silicon, LDMOS and GaAsFET devices.
These amplifiers offer the user the lowest noise and the highest intercept
point, while maintaining good efficiency. Received calls at a base station
are
low in level due to the fact that hand held cellular phones typically operate
at
half a watt power level. This weak signal has to be amplified clearly which
is
done by using our low noise amplifier. All amplifiers undergo a 72-hour burn-in
period to ensure reliable filed operation.
Communication
Amplifiers.
These
amplifiers are designed for cellular and PCN/PCS applications and use GaAs
or
Silicon Bipolar FET devices. The transmit amplifiers are optimized for low
distortion products. Custom configurations are available for all communication
amplifiers. This line of products is aimed at the single channel base station
users employing the digital cellular standards (CDMA, 3G and TDMA).
Our
wireless telecommunications amplifiers can be configured as modules separate
plug-in amplifier units or integrated subsystems. Our products are integrated
into systems by OEM customers, and therefore must be engineered to be compatible
with industry standards and with certain customer specifications, such as
frequency, power, linearity and built-in test (BIT) for automatic fault
diagnostics.
Product
Warranty
We
warranty new products against defects in materials and workmanship generally
for
a period of one (1) year from the date of shipment. To date, we have not
experienced a material amount of warranty claims.
Backlog/Future
Orders
We
regularly review our backlog (which includes projected future orders from
customers) that we expect to ship over the next 12 months. We have had to change
schedules and delay orders depending on customer needs. Customer schedules
or
requirements may frequently change and in some cases result in cancellation
of
orders, in response to which the Company has to change its production schedule.
Changes and cancellations exist since, among other matters, the wireless
communications industry is characterized by rapid technological change, new
product development, product obsolescence and evolving industry standards.
In
addition, restructuring of the company resulted in low activity during most
of
2005 and 2006. This uncertainty may lead to postponement or cancellation of
future or current orders. In addition, as technology changes, corporations
are
frequently requested to update and provide new prototypes in accordance with new
specifications if products become obsolete or inferior. Therefore, we have
been
focusing on strategic partnerships to provide better quality solutions to our
partners with higher margin sales opportunities.
The
Company has no significant backlog of orders. In the present state of the
telecommunications industry there is a reluctance of companies to commit to
large blanket orders. We expect to see this trend, of just in time orders,
to
continue during 2007. The Company would like to stress, although useful for
scheduling production, backlog as of any particular date may not be a reliable
indicator of sales for any future period.
Customers,
Sales & Marketing
Customers.
The
Company markets its products worldwide generally to wireless communications
manufacturers (OEMs) and communications system operators. The table below
indicates net revenues derived from customers in the Company’s markets in 2006
and 2005.
Net
Revenues By Market Categories
(In
thousands)
| |
|
Year
Ended
December 31,
|
|
|
Amplifier
Markets
|
|
2006
|
|
2005
|
|
|
Wireless
Telephony
|
|
$
|
154
|
|
$
|
471
|
|
|
Satellite
Communications, Custom and other Products
|
|
|
|
|
|
|
|
* Wireless
Telephony.
Sales to
the wireless telephone segments of the wireless communications industry
decreased from approximately $471,000 in 2005 to $154,000 in 2006.
* Wireless
Internet and Broadband solutions.
The
Company decided not to pursue this business in 2005
* International
Sales. Sales
of
wireless products outside the United States accounted for 88% of sales in 2006.
* Sales
and Marketing. The
Company’s officers and sales and marketing consultants maintain significant
contact with potential prospects and key customers, ensuring close technical
liaison with customer engineers and purchasing managers.
Competition
Amplifier
Products
Our
ability to compete successfully and operate profitably depends in part upon
the
rate of which OEM customers incorporate our products into their systems. We
believe that a substantial majority of the present worldwide production of
power
amplifiers is captive within the manufacturing operations of a small number
of
wireless telecommunications OEMs and offered for sale as part of their wireless
telecommunications systems. Our future success is dependent upon the extent
to
which these OEMs elect to purchase from outside sources rather than manufacture
their own amplification products. There can be no assurance that OEM customers
will incorporate our products into their systems or that in general OEM
customers will continue to rely, or expand their reliance, on external sources
of supply for their power amplification products. Since each OEM product
involves a separate proposal by the amplifier supplier, there can be no
assurance that our current OEM customers will not rely upon internal production
capabilities or a non-captive competitor for future amplifier product needs.
Our
OEM customers continuously evaluate whether to manufacture their own
amplification products or purchase them from outside sources. These OEM
customers are large manufacturers of wireless telecommunications equipment
who
could elect to enter the non-captive market and compete directly with us. Such
increased competition could materially adversely affect our business, financial
condition and results of operations.
Certain
of our competitors have substantially greater technical, financial, sales and
marketing, distribution and other resources, and have greater name recognition
and market acceptance of their products and technologies. In addition, certain
of these competitors are already established in the wireless amplification
market, but we believe we can compete with them effectively. No assurance can
be
given that our competitors will not develop new technologies or enhancements
to
existing products or introduce new products that will offer superior price
or
performance features. To the extent that OEMs increase their reliance on
external sources for their power amplification needs more competitors could
be
attracted to the market.
We
expect
our competitors to offer new and existing products at prices necessary to gain
or retain market share. We expect to experience significant price competition,
which could have a materially adverse effect on gross margins. Certain of our
competitors have substantial financial resources, which may enable them to
withstand sustained price competition or downturns in the power amplification
market. Currently, we compete primarily with non-captive suppliers of power
amplification products. We believe that our competition, and ultimately our
success, will be based primarily upon service, pricing, reputation and the
ability to meet the delivery schedules of our customers. During 2005, we
operated under severe cash flow circumstances, which restricted our sales and
marketing efforts.
Manufacturing
We
assemble, test, package, and ship products at our manufacturing facilities
located in Raritan, New Jersey. This facility includes a separate assembly
and
test facility for various custom products.
Our
manufacturing process consists of purchasing components, assembling and testing
components and subassemblies, integrating the subassemblies into a final product
and testing the product. Our amplifiers consist of a variety of subassemblies
and components which we designed or specified, including housings, harnesses,
cables, packaged RF power transistors, integrated circuits and printed circuit
boards. Most of these components are manufactured by others and are shipped
to
us for final assembly. Each of our products receives extensive in process and
final quality inspections and tests.
Our
devices, components and other electrical and mechanical subcomponents are
generally purchased from multiple suppliers. We do not have any written
agreement with any of our suppliers. We have followed a general policy of
multiple sourcing for most of our suppliers in order to assure a continuous
flow
of such supplies. However, we purchase certain transistors produced by a single
manufacturer because of the high quality of its components. We believe it is
unlikely that such transistors would become unavailable, however, if that were
to occur, there are multiple manufacturers of generally comparable transistors.
We believe that the distributors of such transistors maintain adequate inventory
levels, which would mitigate any adverse effect on our production in the event
unavailability or shortage of such transistors. If for any reason, we could
not
obtain comparable replacement transistors or could not return its products
to
operate with the replacement transistors, our business, financial condition
and
results of operations could be adversely affected.
We
currently utilize discrete circuit technology on printed circuit boards that
we
design and are provided by suppliers to our specifications. All transistors
and
other semiconductor devices are purchased in sealed packages ready for assembly
and testing. Others also manufacture other components such as resistors,
capacitors, connectors or mechanical supported subassemblies. Components are
ordered from suppliers under master purchase orders with deliveries timed to
meet our production schedules. As a result, we maintain a low inventory of
components, which could result in delay in production in the event of delays
in
such deliveries.
We
purchased automated surface mount machinery to enhance our manufacturing ability
for amplifiers as well as wireless internet products, which was installed during
the first quarter of 2000. The equipment has provided improved efficiency in
production and faster turn around for certain products.
Research,
Engineering and Development
We
research, engineering and development efforts are focused on the design of
amplifiers for new protocols, the improvement of existing product performance,
cost reductions and improvements in the manufacturability of existing products.
We
have
historically devoted a significant portion of its resources to research,
engineering and development programs. Our research, engineering and development
expenses in fiscal 2006 and 2005 were approximately $338,000 and $552,000,
respectively, and represented approximately 219% and 117% respectively, of
net
revenues. These efforts were primarily dedicated to the development of the
linear feed forward, high power, low distortion amplifiers, resulting in our
models for 3G W-CDMA and
Wi-Max.
During
most of 2006, we spent substantial sums to refine our 3G 80W W-CDMA amplifier
and develop Wi-Max RF amplifier products..
We
use
the latest equipment and computer aided design and modeling, solid-state device
physics, advanced digital signal processing and digital control systems, in
the
development of our products in the specialized engineering and research
departments.
We
use a
CAD environment employing networked workstations to model and test new circuits.
This design environment, together with our experience in interference
cancellation technology and modular product architecture, allows us to rapidly
define, develop and deliver new and enhanced products and subsystems sought
by
our customers.
The
markets in which the Company and OEM customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services.
Patents,
Proprietary Technology and Other Intellectual Property
Our
ability to compete successfully and achieve future revenue growth will depend,
in part, on our ability to protect proprietary technology and operate without
infringing the rights of others. We have a policy of seeking patents, when
appropriate, on inventions resulting from its ongoing research and development
and manufacturing activities.
Presently,
we have been granted a patent (No. 5,606,286) by the United States Patent and
Trademark Office with respect to its Pre-Distortion and Pre-Distortion
Linearization technology which, we believe, is more effective in reducing
distortion then other currently available technology. There can be no assurance
that our patent will not be challenged or circumvented by competitors.
Notwithstanding
our active pursuit of patent protection, we believe that the success of our
amplifier business depends more on its specifications, CAE/CAD design and
modeling tools, technical processes and employee expertise than on patent
protection. We generally enter into confidentiality and non-disclosure
agreements with its employees and limits access to and distribution of its
proprietary technology. We may in the future be notified that it is infringing
certain patent and/or other intellectual property rights of others. Although
there are no such pending lawsuits against us or unresolved notices that we
are
infringing intellectual property rights of others, there can be no assurance
that litigation or infringement claims will not occur in the future.
Governmental
Regulations
Our
customers must obtain regulatory approval to operate their base stations. The
United States Federal Communications Commission ("FCC") has regulations that
impose more stringent RF and microwave emissions standards on the
telecommunications industry. There can be no assurance that our customers will
comply with such regulations, which could materially adversely affect our
business, financial condition and results of operations. We manufacture our
products according to specifications provided by our customers, which
specifications are given to comply with applicable regulations. We do not
believe that costs involved with manufacturing to meet specifications will
have
a material impact on its operations. There can be no assurances that the
adoption of future regulations would not have a material adverse affect on
us.
Employees
As
of May
16, 2007, we had a total of 12 full-time employees: 2 in operations, 7 in
engineering and 3 in administration. We employ one consultant in sales and
marketing and one in engineering. We believe our future performance will depend
in large part on our ability to retain highly skilled employees. None of our
employees are represented by a labor union and we have not experienced any
work
stoppages. We consider our employee relations to be good.
Environmental
Regulations
We
are
subject to Federal, state and local governmental regulations relating to the
storage, discharge, handling, emissions, generation, manufacture and disposal
of
toxic or other hazardous substances used to manufacture our products. We believe
that we are currently in compliance in all material respects with such
regulations. Failure to comply with current or future regulations could result
in the imposition of substantial fines, suspension of production, alteration
of
its manufacturing process, cessation of operations or other actions which could
materially and adversely affect our business, financial condition and results
of
operations.
In
addition to other information in this Annual Report, the following important
factors should be carefully considered in evaluating us and our business,
because such factors currently have a significant impact on the Company’s
business, prospects, financial condition and results of
operations.
RISK
FACTORS
You
should carefully consider the risks described below before investing in our
company. The risks and uncertainties described below are not the only ones
facing our company. Other risks and uncertainties that we have not predicted
or
assessed may also adversely affect our company.
Some
of
the information in this Annual Report contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as “may,” “will,” “expect,” “anticipate,”
“believe,’ “intend,” “estimate,” and “continue” or other similar words. You
should read statements that contain these words carefully for the following
reasons:
| · |
the
statements may discuss our future
expectations;
|
| · |
the
statements may contain projections of our future earnings or of our
financial condition; and
|
| · |
the
statements may state other “forward-looking”
information.
|
We
believe it is important to communicate our expectations to our investors. There
may be events in the future, however, that we are not accurately able to predict
or over which we have no control. The risk factors listed below, as well as
any
cautionary language in or incorporated by reference into this Annual Report,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our company, you should be
aware that the occurrence of any of the events described in the risk factors
below, elsewhere in or incorporated by reference into this Annual Report and
other events that we have not predicted or assessed could have a material
adverse effect on our earnings, financial condition or business. In such case,
the trading price of our securities could decline and you may lose all or part
of your investment.
We
have a recent history of losses and expect losses to
continue.
We
have
incurred net losses of $1,891,235 and $1,318,735 for the years ended December
31, 2006 and 2005, respectively. These losses were due primarily to
substantially reduced sales, against which our cost-cutting efforts have yielded
minimal results. We are expecting increased sales for amplifier products to
compensate for the expenses, however we have reduced staff levels, therefore
there is no guarantee that this will happen. Reduced demand for our products
by
our key customer has reduced our sales significantly. With our reduced staff
levels, we may not be able to compete. Further, we have not generated sufficient
sales volume to cover our overhead costs and generate profits. We have minimized
losses by staff reduction; this could result in loss of market share from which
we may not be able to recover. We expect that our losses will increase and
will
continue until such time, if ever, as we are able to successfully manufacture
and market our products on a larger scale and therefore generate higher profit
margins. We will need to generate a substantial increase in revenues to become
profitable. Accordingly, we cannot assure you that we will ever become or remain
profitable. In addition, we had an accumulated deficit of $26,838,959
as of
December 31, 2006.
We
have limited cash available, and may not have sufficient cash to continue our
business operations without the additional financing.
To
date,
we have financed our operations principally through the private placement of
shares of common stock. Our current burn rate is approximately $150,000 per
month, and we will require substantial additional financing at various intervals
for manufacturing, marketing and sales capabilities, our research and
development programs, and for operating expenses including intellectual property
protection and enforcement. We may seek additional funding from public or
private financings, but there is no assurance that such additional funding
will
be available on terms acceptable to us, or at all. Accordingly, we may not
be
able to secure the significant funding which is required to maintain and
continue development programs at their current levels or at levels that may
be
required in the future. If we cannot secure adequate financing, we may be
required to delay, scale back or eliminate one or more of its development
programs or to enter into license or other arrangements with third parties
to
commercialize products or technologies. Our auditors have included an
“uncertainty paragraph” in their audit report on our financial statements
regarding our ability to continue as a going concern.
The
report from our independent auditors includes an explanatory paragraph regarding
the doubt that we can continue as a going concern.
The
auditors’ report on our financial statements for the year ended December 31,
2006 and 2005 both include an explanatory paragraph stating that our losses,
lack of cash and otherwise limited financial resources raise substantial doubt
about our ability to continue as a going concern. Our ability to continue as
a
going concern is subject to our ability to realize a profit and/or obtain
funding from outside sources. Our plan to address our ability to continue as
a
going concern, include: (1) obtaining additional funding from the sale of
securities; (2) increasing revenues from the sales of our products; and (3)
obtaining loans and grants from various financial and/or governmental
institutions, where possible. Although we believe that we will be able to obtain
the necessary funding to allow us to remain a going concern through the methods
discussed above, there can be no assurances that such methods will prove
successful.
We
will continue to incur losses and may never achieve
profitability.
We
will
continue to incur losses as we engage in the development of our products. There
can be no assurance that we will ever be able to achieve or sustain market
acceptance, profitability or positive cash flow. Our ultimate success will
depend on many factors, including whether our amplifier products will be
successfully marketed and accepted by the marketplace. Even with additional
capital, we may not be able to execute our current business plan and fund
business operations long enough to achieve positive cash flow. Furthermore,
we
may be forced to reduce our expenses and cash expenditures to a material extent,
which would impair our ability to execute our business plan.
Our
success relies upon the growth of wireless telecommunications services.
The
demand for our products will depend in large part upon continued and growing
demand within the wireless telecommunications industry for power amplifiers.
During 2006 restructuring of our business resulted in low activity and recovery
of our business has been slow, therefore the demand for our products will remain
subject to great uncertainty from quarter to quarter.
Our
lack of automated manufacturing processes and our dependence on third party
manufacturers could adversely affect our business.
We
have
consistently reviewed our automated manufacturing needs in order to control
our
production schedule. To date, we have not established a fully automated
manufacturing facility although we have purchased an automated surface mount
machine and reflow process oven. Our wireless internet products are manufactured
at offshore facilities, which are our sole suppliers. Until such time as we
are
able to establish such facilities, we expect to be dependent on third party
manufacturers. We cannot be sure that these third party manufacturers will
be
able to fulfill our production commitment. Furthermore, we do not have written
agreements with these manufacturers. Our inability to obtain timely deliveries
of acceptable assemblies could delay our ability to deliver products to our
customers, and would have a material adverse effect on our business, financial
condition and results of operations. In addition, if these manufacturers
increase their production costs, we may not be able to recover such cost
increases under the fixed price commitments with our customers.
Our
limited number of suppliers could adversely affect our
business.
Power
transistors and certain other key components used in our products for our
amplifiers are currently available from only a limited number of suppliers.
Certain of our suppliers have limited operating histories and limited financial
and other resources. Our suppliers may prove to be unreliable sources of certain
components. Furthermore, we have no written agreements with our suppliers.
In
the past, we have not purchased key components in large volumes but anticipate
that our need for component parts will increase. If we are unable to obtain
sufficient quantities of components, particularly power transistors, we could
experience delays or reductions in product shipments. Such delays or reductions
could have a material adverse effect on our business, financial condition and
results of operations. Additionally, such delays or reductions may have a
material adverse effect on our relationships with customers and result in the
termination of existing orders and/or a permanent loss in our future sales.
Our
wireless internet products are manufactured at offshore facilities. The lack
of
supply from this source due to any reason could adversely impact our business.
Our
success will rely on our ability to enter into strategic
partnerships.
We
are
currently developing and expect to continue to develop strategic partnerships
and other relationships in order to expand our business. The failure to
successfully develop such relationships could have a material adverse effect
on
our business, financial condition and result of operations.
Our
success relies on a small number of customers.
In
2006,
4 customers accounted for 96% of our sales and 3 customers accounted for 100%
of
our accounts receivable. We anticipate that sales of our products to relatively
few customers will account for a majority of our 2007 revenues. The reduction,
delay or cancellation of orders from one or more of our significant customers
would materially and adversely affect our financial condition and results of
operation. Moreover, we may experience significant fluctuations in net sales,
gross margins and operating results in the future as a result of the uncertainty
of such sales.
Our
limited marketing experience may adversely affect our
business.
We
are
not sure whether our marketing efforts will be successful or that we will be
able to maintain competitive sales and distribution capabilities.
Our
management owns a significant amount of our outstanding common
stock.
Our
officers, directors and persons who may be deemed our affiliates beneficially
own, in the aggregate, and have the right to vote approximately 58% of our
issued and outstanding common stock, not including common stock options they
may
own. In 2005, control shifted to John Chase Lee, our president and CEO, who
loaned us $650,000 in connection with a Note Purchase Agreement. In settlement
of these loans, Mr. Lee was issued 131,000 shares of our Series C Convertible
Preferred Stock, which is convertible at any time into 13,100,000 shares of
common stock. As of May 16, 2007, Mr. Lee had converted all of his preferred
shares into common stock. As a result, Mr. Lee holds approximately 28% of our
outstanding voting stock on a fully diluted basis. Accordingly, Mr. Lee and
other affiliates may be in a position to affect the election of all of our
directors and control the company.
Our
compliance with the Sarbanes-Oxley Act and SEC rules concerning internal
controls may be time consuming, difficult and costly.
It
may be
costly, difficult, and time consuming for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley Act.
We may need to hire additional financial reporting, internal controls and other
finance personnel in order to develop and implement appropriate internal
controls and reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain
the independent accountant certifications required by the Sarbanes-Oxley
Act.
Our
success depends on our ability to manage the size of our
operations.
We
downsized some of our operations in order to maintain competitiveness and reduce
our operating losses. We have also explored joint ventures and mergers in order
to achieve these results, but have not consummated any such transaction. If
we
do not increase our sales, decrease overhead expenditure or do not adequately
manage the size of our operations, our results of operations will be materially
adversely affected.
Declining
average sales prices could adversely affect our business.
If
wireless internet and telecommunications customers come under increasing price
pressure from service providers, we could expect to experience downward pricing
pressure on our products. In addition, competition among non-captive amplifier
suppliers could increase the downward pricing pressure on our amplifier
products. To date, we have not experienced such pressure. As our customers
frequently negotiate supply arrangements with us far in advance of product
delivery dates, we often must commit to price reductions before we can determine
whether cost reductions can be obtained. If we are unable to achieve cost
reductions, our gross margins will decline and our business, financial condition
and results of operations could be materially and adversely
affected.
Rapid
technological change and intense competition could adversely affect our
business.
The
wireless telecommunications equipment industry is extremely competitive and
is
characterized by rapid technological change, new product development, product
obsolescence and evolving industry standards. In addition, price competition
in
this market is intense and characterized by significant price erosion over
the
life of a product. Currently, we compete primarily with non-captive suppliers
of
power amplification products. We believe that our success will be based
primarily upon service, pricing, reputation, and our ability to meet product
delivery schedules. Our existing and potential customers continuously evaluate
whether to manufacture their own amplification products or to purchase such
products from outside sources. These customers and other large manufacturers
of
wireless telecommunications equipment could elect to enter the market and
compete directly with us. Many of our competitors have significantly greater
financial, technical, manufacturing, sales and marketing capabilities and
research and development personnel and other resources than us and have achieved
greater name recognition of their existing products and technologies. In order
for us to successfully compete, we must continue to develop new products, keep
pace with advancing technologies and competitive innovations and successfully
market our products. Our inability to successfully compete against our larger
competitors will have a materially adverse affect on our business, financial
condition and operations.
In
addition, we are not sure whether new products or alternative technology will
render our current or planned products obsolete or inferior. Rapid technological
development by others may result in our products becoming obsolete before we
recover a significant portion of the research, development and commercialization
expenses we incurred with respect to those products.
Our
business will be adversely affected if we do not keep up with the rapid
technological change, evolving industry standards and changing user
requirements.
To
be
successful, we must adapt to our rapidly changing market by continually
enhancing the technologies used for communications. If we are unable, for
technical, legal, financial or other reasons, to adapt in a timely manner in
response to changing market conditions or user requirements, our business could
be materially adversely affected. Significant issues concerning the commercial
use of communication technologies, including security, reliability, cost, ease
of use and quality of service, remain unresolved and may inhibit the growth
of
businesses relying on the Internet. Our future success will depend, in part,
on
our ability to meet these challenges. Among the most important challenges facing
us is the need to:
· effectively
use established technologies;
· continue
to develop our technical expertise; and
· respond
to emerging industry standards and other technical changes.
All
of
these changes must be met in a timely and cost-effective manner. We cannot
assure you that we will succeed in effectively meeting these challenges and
our
failure to do so could materially and adversely affect our
business.
Risks
associated with sales outside of the United States may adversely affect our
business.
International
sales represented approximately 88% and 100% of our net revenues for the years
ended December 31, 2006 and 2005, respectively. We expect that international
sales will continue to account for a significant portion of our net revenues
in
the future. To the extent that we do not achieve and maintain substantial
international sales, our business, results of operations and financial condition
could be materially and adversely affected.
Sales
of
our products outside of the United States are denominated in U.S. dollars.
An
increase in the value of the U.S. dollar relative to foreign currencies would
make our products more expensive and, therefore, potentially less competitive
outside the United States. Additional risks inherent in our sales abroad
include:
·
the
impact of recessionary environments in economies outside the United
States;
· generally
longer receivables collection periods;
· unexpected
changes in regulatory requirements;
· tariffs
and other trade barriers;
· potentially
adverse tax consequences;
· reduced
protection for intellectual property rights in some countries;
· the
burdens of complying with a wide variety of foreign laws.
These
factors may have an adverse effect on our future international sales and,
consequently, on our business, financial condition and results of
operations.
Our
operating results may vary from quarter to quarter in future periods, and as
a
result, our stock price may fluctuate or decline.
Our
quarterly operating results may fluctuate significantly in the future due to
a
variety of factors that could affect our revenues or our expenses in any
particular quarter. Factors that may affect our quarterly results
include:
· our
ability to attract and retain customers;
· development
of competitive products;
· the
short
term nature of manufacturing and engineering orders to date;
· unforeseen
changes in operating expenses;
· the
loss
of key employees; and
· unexpected
revenue shortfalls.
A
substantial portion of our operating expenses is related to personnel costs
and
overhead, which we cannot adjust quickly and are therefore relatively fixed
in
the short term. Our operating expense levels are based, in significant part,
on
our expectations of future revenues on a quarterly basis. If actual revenues
are
below our expectations, our results of operations and financial condition would
be materially and adversely affected because a relatively small amount of our
costs and expenses are proportionate with revenues in the short
term.
Due
to
all of the foregoing factors and the other risks discussed in this Annual
Report, it is possible that in some future periods our results of operations
may
be below the expectations of investors and public market analysts which may
cause our stock price to fluctuate or decline.
We
are dependent upon management and technical personnel.
Due
to
the specialized nature of our business, we are highly dependent on the continued
service of, and on our ability to attract and retain, qualified technical and
marketing personnel, particularly those involved in the development of new
products and processes and the manufacture and enhancement of our existing
products. In addition, as part of our team-based sales approach, we dedicate
specific design engineers to service the requirements of individual customers.
The loss of any such engineer could adversely affect our ability to obtain
future purchase orders from the customers to which such engineer was dedicated.
We have employment or non-competition agreements with most of our current design
engineers and test technicians. The competition for such personnel is intense,
and the loss of any such persons, as well as the failure to recruit additional
key technical personnel in a timely manner, could have a material adverse effect
on our business, financial condition and results of operations.
We
rely on the ability to protect proprietary technology; risk of third party
claims of infringement may affect our business.
Our
ability to compete successfully and achieve future revenue growth will depend,
in part, on our ability to protect proprietary technology and operate without
infringing upon the rights of others. Although there are no pending lawsuits
regarding our technology or notices that we are infringing upon intellectual
property rights of others, litigation or infringement claims may occur in the
future. Such litigation or claims could result in substantial costs, and
diversion of resources and could have a material adverse effect on our business,
financial condition, and results of operations. We generally enter into
confidentiality and non-disclosure agreements with our employees and limit
access to and distribution of proprietary information. However, we cannot be
sure whether such measures will provide adequate protection for our trade
secrets or other proprietary information, or whether our trade secrets or
proprietary technology will otherwise become known or independently developed
by
our competitors. Our failure to protect proprietary technology could have a
material adverse effect on our business, financial condition and results of
operations.
We
do not plan to pay dividends on our common stock.
We
have
never paid any dividends on our common stock and do not intend to pay dividends
on our common stock in the foreseeable future. Any earnings that we may realize
in the foreseeable future will be retained to finance our growth.
Governmental
regulations and environmental regulations can have a large impact on our
business.
Our
customers must obtain regulatory approval to operate their base stations. The
United States Federal Communications Commission has regulations that impose
stringent radio frequency and microwave emissions standards on the
telecommunications industry. Our customers are required to comply with such
regulations. The failure of our customers to comply with these regulations
could
materially adversely affect our business, financial condition and results of
operations. We manufacture products according to specifications provided by
our
customers, which specifications are required to comply with applicable
regulations. We do not believe that costs involved with manufacturing to meet
specifications will have a material impact on our operations. We cannot be
sure
whether the adoption of future regulations would have a material adverse affect
on our business.
We
are
subject to Federal, state and local governmental regulations relating to the
storage, discharge, handling, emissions, generation, manufacture and disposal
of
toxic or other hazardous substances used to manufacture our products. We believe
that we are currently in compliance in all material respects with such
regulations. Failure to comply with current or future regulations could result
in the imposition of substantial fines on our company, suspension of our
production, alteration of our manufacturing process, cessation of our operations
or other actions, which could materially and adversely affect our business,
financial condition and results of operations.
Our
common stock may be considered "a penny stock."
The
SEC
has adopted regulations that generally define "penny stock" to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. This designation requires any broker or dealer selling
these securities to disclose certain information concerning the transaction,
obtain a written agreement from the purchaser and determine that the purchaser
is reasonably suitable to purchase the securities. These rules may restrict
the
ability of brokers or dealers to sell our common stock and may affect the
ability of investors hereunder to sell their shares. In addition, since our
common stock is traded on the OTC Bulletin Board, investors may find it
difficult to obtain accurate quotations of the stock and may experience a lack
of buyers to purchase such stock or a lack of market makers to support the
stock
price.
There
are risks associated with our stock trading on the OTC Bulletin Board rather
than a national exchange.
There
are
significant consequences associated with our stock trading on the OTC Bulletin
Board rather than a national exchange. The effects of not being able to list
our
securities on a national exchange include:
| · |
Limited
release of the market prices of our
securities;
|
| · |
Limited
news coverage of us;
|
| · |
Limited
interest by investors in our
securities;
|
| · |
Volatility
of our stock price due to low trading
volume;
|
| · |
Increased
difficulty in selling our securities in certain states due to “blue sky”
restrictions;
|
| · |
Limited
ability to issue additional securities or to secure
financing.
|
Anti-takeover
provisions may adversely affect the value of our outstanding
securities.
In
2005,
we designated 500,000 shares of Series C Convertible Preferred Stock and issued
140,000 shares of such stock in settlement of loans. Pursuant to our Certificate
of Incorporation, our Board of Directors may designate up to 4,500,000
additional shares of preferred stock in the future with such preferences,
limitations and relative rights as they may determine without stockholder
approval. The rights of the holders of our common stock will be subject to,
and
may be adversely affected by, the rights of the holders of any preferred stock
outstanding or that may we may issue in the future. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions
and
other corporate purposes, could have the effect of delaying or preventing a
change in control of our company without further action by the stockholders.
In
addition, we are subject to the anti-takeover provisions of Section 203 of
the
Delaware General Corporation Law. Section 203 prohibits us from engaging in
a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the persons became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 also could have the effect
of
delaying or preventing a change of control of our company.
Additional
authorized shares of common stock and preferred stock available for issuance,
and shares of common stock issuable upon exercise or conversion of outstanding
options and warrants may adversely affect the market.
We
are
authorized to issue 100,000,000 shares of our common stock. As of December
31,
2006, there were 36,928,293 shares of our common stock issued and outstanding,
which amount does not include:
(1)
20,000
exercisable at $.20 through March 2010
(2)
600,000
exercisable at $.20 through August 2009
(3)
750,000
exercisable at $.20 through August 2009
(4)
75,000
exercisable at $.96 through March 2007
As
of
December 31, 2006 we had at least 41,926,707 shares of authorized but unissued
common stock available for issuance without further shareholder approval after
taking into consideration the following: exercise of the above options and
warrants totaling 1,445,000 shares, exercise of options granted to our
securities lawyer of 1,000,000 shares, and conversion of 130,000 preferred
shares into 13,000,000 common shares. Any issuance of additional shares of
our
common stock may cause our current shareholders to suffer significant dilution,
which may adversely affect the market for our securities.
In
addition, we have 5,000,000 shares of authorized preferred stock. While we
have
no present plans to issue any additional shares of preferred stock, our Board
of
Directors has the authority, without shareholder approval, to create and issue
one or more series of such preferred stock and to determine the voting, dividend
and other rights of holders of such preferred stock. At December 31, 2006,
we
had 130,000 shares of Series C Convertible preferred shares outstanding, which
were issued in 2005 to John C. Lee and a business associate of Lee in full
payment of convertible promissory notes of $650,000. Additional issuances of
any
of our preferred stock could have an adverse effect on the holders of our common
stock.
Limitation
on director liability may adversely affect the value of our common
stock.
As
permitted by Delaware law, our Certificate of Incorporation limits the liability
of our directors for monetary damages for breach of their fiduciary duty except
for liability in certain instances. As a result of our charter provision and
Delaware law, you may have limited rights to recover against our directors
for
breach of their fiduciary duty.
We
may lose our eligibility for quotation on the OTC Bulletin Board (“OTCBB”) and
our securities may be removed from the OTCBB.
On
April
18, 2007, the National Association of Securities dealers (“NASD”) notified us
that because we were delinquent in our filing of this Form 10-KSB for the year
ended December 31, 2007; our securities would be removed from quotation on
the
OTCBB effective May 22, 2007 unless this form is filed by 5:30 p.m. E.S.T.
on
May 18, 2007. We also expect that our Form 10-QSB for the quarter ended March
31, 2007 will be filed late. If our 10-QSB is filed late as expected we would
have two delinquencies this year and within the past 24 month period. OTCBB
rules provide that an OTCBB issuer that is delinquent three times in a 24 month
period will be ineligible for OTCBB quotation for a period of one year.
Accordingly, if we are delinquent again after this past quarter, we may become
ineligible for OTCBB quotation for a period of one year which will severely
limit the marketability of our common stock.
Item
2. Description
of Property.
The
Company leases from a Tek, Ltd., company wholly owned by John C. Lee,
approximately 11,000 square feet, at 59 LaGrange Street, Raritan, NJ 08869,
which serves as the Company's executive offices and manufacturing facility.
On
April
22, 2005, concurrent with the closing of the purchase of the building by Tek,
the Company entered into a non-cancelable operating lease with Tek which
commenced on June 1, 2005 and expires on May 31, 2008. Tek is holding a security
deposit of $5,500 in connection with this lease. The Company is obligated for
minimum annual rental payments as follows:
|
Year
ending December 31
|
|
|
|
|
|
2007
|
|
$
|
72,000
|
|
|
2008
|
|
|
30,000
|
|
| |
|
$
|
102,000
|
|
Item
3. Legal
Proceedings.
From
time
to time, the Company is party to what it believes are routine litigation and
proceedings that may be considered as part of the ordinary course of its
business. Except for the proceedings noted below, the Company is not aware
of
any pending litigation or proceedings that could have a material effect on
the
Company's results of operations or financial condition.
1.
A
customer filed a complaint in the Circuit Court of the Eighteenth Judicial
District of the State of Florida on January 23, 1997 alleging breach of
contract. During 2000, the Company settled with that customer at a cost of
$175,000; $25,000 is to be paid quarterly over two years. $95,000 remained
unpaid at December 31, 2006.
2.
In
April
2004, a law firm filed a judgment against the Company in the amount of
approximately $40,000 in connection with non-payment of legal fees owed to
it.
Inasmuch as this is a perfection of an already recorded liability, management
does not believe that the judgment will have a material impact on the financial
position of the Company. In March 2005, a settlement was reached whereby the
Company made a down payment of $2,500 and agreed to pay the balance in 24 equal
monthly installments of approximately $1,600. The last payment made was in
November 2006 and the Company is in default of the settlement agreement. There
is a remaing balance of $7,917 as of December 31, 2006.
3.
In
June
2004, the Company entered into a Settlement Agreement with Wayne Fogel, et
al,
before the United states District court in Tampa, Florida. The settlement
provided for, among other obligations, issuance of 250,000 shares of restricted
common stock by July 14, 2004. On November 8, 2005, 250,000 shares were issued
in connection with this settlement.
Item
4. Submission
of Matters To a Vote of Security Holders
None
PART
II
Item
5. Market
For Common Equity, Related Stockholder Matters and Small Business
Issuer
Purchases
of Equity Securities.
The
Company's common stock commenced trading on the NASDAQ Small Cap Market on
January 22, 1997. The common stock was regularly quoted and traded on the NASDAQ
Small Cap Market under the symbol AMPD, through January 13, 2003. The common
stock currently trades on the OTC Bulletin Board under the symbol
WTRO.OB.
The
following table sets forth the range of high and low closing prices for the
Company's common stock for fiscal years 2005 and 2004 and for the period of
January 1, 2006 up to March 31, 2006 as reported by the OTCBB. The trading
volume of the Company’s securities fluctuates and may be limited during certain
periods. As a result, the liquidity of an investment in the common stock may
be
adversely affected.
|
Common
Stock
|
|
|
|
|
|
| |
|
High
|
|
Low
|
|
|
January
1 - March 31, 2007
|
|
|
.24
|
|
|
..03
|
|
| |
|
|
|
|
|
|
|
|
2006
Calendar Year
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
January
1 - March 31
|
|
|
.18
|
|
|
.10
|
|
|
April
1-June 30
|
|
|
.44
|
|
|
.12
|
|
|
July1-September
30
|
|
|
.38
|
|
|
.21
|
|
|
October
1-December 31
|
|
|
.44
|
|
|
.26
|
|
| |
|
|
|
|
|
|
|
|
2005
Calendar Year
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
January
1 - March 31
|
|
|
.04
|
|
|
.02
|
|
|
April
1-June 30
|
|
|
.27
|
|
|
.02
|
|
|
July1-September
30
|
|
|
.30
|
|
|
.18
|
|
|
October
1-December 31
|
|
|
.20
|
|
|
.09
|
|
On
April
19, 2007, the closing price of the common stock as reported on OTCBB was $.05.
On May 16, 2007, there were 50,028,293
shares
of common stock outstanding, held of record by approximately 1,400 record
holders (not including 5,816,043 shares held in street name).
Dividends
We
have
not declared or paid a cash dividend to stockholders since our incorporation,
and have no intention to do so in the future.
Recent
Sales of Unregistered Securities
Sales
in
2007 and 2006 not previously reported on a Current Report on Form 8-K, or on
a
Quarterly Report on Form 10-QSB.
In
November 2006, Craig Bird, a holder of 5% of the outstanding common stock,
and a
former officer, purchased 200,000 shares of restricted common stock for an
aggregate purchase price of $40,000.
In
November 2006, pursuant to a subscription agreement dated September 26, 2006,
the Company issued 200,000 shares of restricted common stock to Joseph Nordgaard
(former CEO) for $.20 per share for aggregate gross proceeds of
$40,000.
Item
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results
of Operations - Fiscal Year ended December 31, 2006 compared to Fiscal Year
ended December 31, 2005.
Revenues
for the fiscal year ended December 31, 2006 decreased by $317,177 from $471,487
to $154,310, or 67% compared to the fiscal year ended December 31, 2005. This
was due to build up of inventory during the previous year at our previously
largest customer. The decline is largely represented by the decrease in sales
to
our previously largest European customer, which went down to approximately
$41,000 in 2006 from approximately $354,000 in 2005, a decrease of approximately
$313,000 or 88%.
The
majority of the amplifier sales for the year ended December 31, 2006 were
obtained from the Wireless Local Loop amplifier products to its European
customer.
The
Company has continued to develop and refine its amplifier products for the
wireless communications market. Sales and marketing efforts have been focused
on
Asian markets.
Cost
of
sales was
$398,364 or 258% of sales (including an inventory write-down of $26,237) during
the year ended December 31, 2006, compared to 133% during the same period for
2005. Our fixed overhead costs are relatively high for our current sales volume.
The decline in gross margin was principally due to the lowered production while
staff levels were maintained in preparation for new product production. The
Company is continuing to assess cost reduction of its products and sales volume
increases to improve gross margins in 2006.
Selling,
general and administrative expenses increased in 2006 by $681,173 to $1,284,384
from $603,211 in 2005. Expressed as a percentage of sales, the selling, general
and administrative expenses (excluding
stock based compensation) were 832% in 2006 and 128% in 2005. The principal
factors contributing to the increase in selling, general and administrative
expenses were related to settlements with an officer and a former officer,
resulting in additional officer compensation of approximately $385,000.
Additionally, we issued restricted common stock to our former secretary and
public relations consultant as payment for approximately $266,000 consulting
fees in 2006.
Research,
engineering and development expenses were $337,799 representing 219% of net
sales in 2006 compared to $552,076 representing 117% of net sales in 2005 Total
research expendintures decreased $(214,277) or (39)%. In 2006 and 2005, the
principal activity of the business related to the design and production of
product for OEM manufacturers, particularly for the W-CDMA amplifier. The
research, engineering and development expenses consist principally of salary
cost for engineers and the expenses of equipment purchases specifically for
the
design and testing of the prototype products. The Company's research and
development efforts are influenced by available funds and the level of effort
required by the engineering staff on customer specific projects. The Company
used much of the proceeds from private placements to increase its research
spending to develop and refine its products.
The
Company had other income in $3,292 in 2006. Other income in 2005 was of $NIL.
The
Company also sold New Jersey Net operating loss carryforwards pursuant to the
New Jersey Technology Certificate Transfer Program, receiving $NIL in 2006
and
$73,126 in 2005.
Interest
expense was $18,001 in 2006 and $8,092 in 2005, principally related to $300,000
of convertible notes issued in private placements in 2005.
As
a
result of the foregoing, the Company incurred net losses of $1,891,235 or $0.06
per share for the year ended December 31, 2006 compared with net
losses of
$1,318,735 or $0.09 per share for the same period in 2005.
Liquidity
and Capital Resources
Liquidity
refers to our ability to generate adequate amounts of cash to meet our needs.
We
have been generating the cash necessary to fund our operations from continual
loans from the John Lee. We have incurred a loss in each year since inception.
It is possible that we will incur further losses, that the losses may fluctuate,
and that such fluctuations may be substantial. As of December 31, 2006, we
had
an accumulated deficit of
$26,838,959. Potential immediate sources of liquidity are private placements
of
common stock.
As
of
December 31, 2006, our current liabilities exceeded
our cash and receivables by $949,776. Our current ratio was 0.12 to 1.00, but
our ratio of accounts receivable to current liabilities was only 0.03 to 1.00.
This indicates that we will have difficulty meeting our obligations as they
come
due. We are carrying $94,587 in inventory, of which $26,722 represents component
parts. Based on last years usage, we are carrying 25 days worth of parts
inventory.
Because
of the lead times in our manufacturing process, we replenish many items before
we use everything we now have in stock. Accordingly, we will need more cash
to
replenish our component parts inventory before we are able realize cash from
all
of our existing inventories.
As
of
December 31, 2006, we had an overdraft of $(36,140) compared to cash in banks
of
$34,998 at December 31, 2005. Overall our cash position declined by $71,138
during 2006. We have no cash and we are dependent on private placement funds
to
cover our working capital needs. Our cash used for operating
activities was
$1,477,593. This year we repaid loans of to officers of
$76,246.
Because
of our small number of customers and low sales volume, accounts receivable
balances and allowances for doubtful accounts do not reflect a consistent
relationship to sales. We determine our allowance for doubtful accounts based
on
a specific customer-by-customer review of collectiblity. We had no allowance
for
doubtful accounts in 2006 of 2005.
Our
inventories decreased by $14,004 to $94,587 in 2006 compared to $108,591 in
2005, a decrease of 13% We believe that the reasons for the decreased
inventories was largely due to the $26,237 of write-downs of obsolete parts
and
the fact that vendor relations have not allowed us to stock up on parts in
advance because we are on C.O.D. terms with most vendors.
The
Company has a lease obligation for its premises requiring minimum monthly
payments of approximately $5,750 to $6,000 through 2008.
The
Company continues to explore strategic relationships with customers and others,
which could involve jointly developed products, revenue-sharing models,
investments in or by the Company, or other arrangements. There can be no
assurance that a strategic relationship can be consummated.
In
the
past, the officers of the Company have deferred a portion of their salaries
or
provided loans to the Company
to meet short-term liquidity requirements. Where possible, the Company has
issued stock or granted warrants to certain vendors in lieu of cash payments,
and may do so in the future. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all.
If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate its research, engineering and development or manufacturing
programs or obtain funds through arrangements with partners or others that
may
require the Company to relinquish rights to certain of its technologies or
potential products or other assets. Accordingly, the inability to obtain such
financing could have a material adverse effect on the Company's business,
financial condition and results of operations.
With
insufficient cash reserves and reduced revenues, we believe that we will have
great difficulty meeting our working capital needs over the next 12 months.
The
Company is presently dependent on cash flows generated from sales and financing
from private placements. Our failure to enter into additional private placements
of securities, consummate a merger with an appropriate partner or to
substantially improve our revenues will have serious adverse consequences and,
accordingly, there is substantial doubt in our ability to remain in business
over the next 12 months. There can be no assurance that any financing will
be
available to the Company on acceptable terms, or at all. If adequate funds
are
not available, the Company may be required to delay, scale back or eliminate
its
research, engineering and development or manufacturing programs or obtain funds
through arrangements with partners or others that may require the Company to
relinquish rights to certain of its technologies or potential products or other
assets. Accordingly, the inability to obtain such financing could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Controls
and Procedures
Under
the
supervision and with the participation of our management, including the former
Chief Executive and Principal Accounting officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls pursuant
to
Exchange Act Rule 13a-14(c) as of the end of the period covered by this report.
Based upon that evaluation, the Chief Executive and Principal Accounting Officer
concluded that the Company's disclosure controls and procedures are not
effective in timely alerting him to material information required to be included
in the Company's periodic SEC filings relating to the Company. There were no
significant changes in the Company's internal controls or in other factors
that
could significantly affect these internal controls subsequent to the date of
my
most recent evaluation, although management is working on
improvements.
Our
management does not expect that our disclosure controls and internal controls
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their cost. Because
of
the inherent limitations in all control systems, no evaluation of controls
can
provide absolute assurance that all control issues and instances of fraud within
the Company, if any, will be detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that a breakdown
can occur because of a simple error. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people,
or
by management override of the control.
Critical
Accounting Policies
1.
REVENUE RECOGNITION
Revenue
is recognized upon shipment of products to customers because our shipping terms
are F.O.B. shipping point. And there are generally no rights of return, customer
acceptance protocols, installation or any other post-shipment obligations.
All
of our products are custom built to customer specifications. We provide an
industry standard one-year limited warranty under which the customer may return
the defective product for repair or replacement.
Returns
received under warranty are not material relative to sales, nor are the costs
to
repair. All sales are final, except for warranty repair/replacement and there
is
no price protection. In addition, the only company post-shipment obligation
is
for warranty repair and replacement. Finally, we do not install product or
provide services for a fee.
2.
INVENTORIES
Inventories
are stated at the lower of cost or market; cost is determined using the
first?in, first?out method. As virtually all of our products are made to
customer specifications, we do not keep finished goods in stock except for
completed customer orders that have not been shipped. Our work-in-progress
generally consists of customer orders that are in the process of manufacture
but
are not yet complete at the period end date. We review all of our components
for
obsolescence and excess quantities on a periodic basis and make the necessary
adjustments to net realizable value as deemed necessary.
3.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Because
of our small customer base, we determine our allowance for doubtful accounts
based on a specific customer-by-customer review of collectiblity. Therefore,
our
allowance for doubtful accounts and our provision for doubtful accounts may
not
bear a consistent relationship to sales but we believe that this is the most
accurate and conservative approach under our circumstances.
4.
USE OF
ESTIMATES
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates. The principal areas
that we use estimates in are: allowance for doubtful accounts; work-in-process
percentage of completion; accounting for stock based employee compensation;
and
inventory net realizable values.
5.
STOCK-BASED EMPLOYEE COMPENSATION
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of
SFAS 123(R), using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in 2006 and beyond includes:
(a)
compensation cost for all share-based payments granted prior to, but not
yet
vested as of January 1, 2006, based on the grant date fair value estimated
in
accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for all stock-based payments granted subsequent to January 1, 2006,
based
on the grant-date fair value estimated in accordance with the provisions
of SFAS
123(R). Results for prior periods have not been restated and there is no
cumulative effect upon adoption of SFAS 123(R).
Prior
to
adoption of SFAS 123(R) the Company used intrinsic-value method of accounting
for stock based-awards granted to employees. No stock-based compensation cost
is
included in the net loss for the year ended December 31, 2005 as no options
were
granted to employees during that period. All stock-based compensation during
the
year ended December 31, 2006 was paid in the form of restricted common
stock.
6.
LOSS
PER SHARE
Statement
of Financial Accounting Standards No.128 (SFAS No. 128), Earnings per Share,
specifies the computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock or potential common
stock.
Net
loss
per common share - basic and diluted is determined by dividing the net loss
by
the weighted average number of shares of common stock outstanding. Net loss
per
common share - diluted does not include potential common shares derived from
stock options and warrants because they are antidilutive.
7.
SEGMENT INFORMATION
The
Company commenced its wireless Internet connectivity business in the summer
of
2000. The Company does not measure its operating results, assets or liabilities
by segment. We presented certain segment information representing sales and
inventories for our amplifier and internet segments. However, this information
is becoming less relevant as we begin to move away from the internet business
and concentrate on our core competence, which is in the amplifier
business.
Item
7. Financial
Statements.
See
financial statements following Item 13 of this Annual Report on Form
10-KSB.
Item
8. Changes
in and Disagreement With Accountants On Accounting And Financial
Disclosure.
On
January 17, 2007, the Registrant's independent auditor KBL, LLP (the "Former
Accountant") advised the Registrant that it declined to stand for re-election.
On the same date, the Registrant appointed Moore & Associates, Chartered, as
its principal accountants.
The
decision to change accountants was approved by the Company's board of directors.
The Company did not consult with Moore & Associates Chartered on any matters
prior to retaining such firm as its principal accountants.
The
Former Accountant's audit reports on the financial statements of the Company
for
the fiscal years ended December 31, 2005 and December 31, 2004 contained
no
adverse opinion or disclaimer of opinion, nor were they qualified or modified
as
to uncertainty, audit scope or accounting principles.
During
the years ended December 31, 2005 and 2004, and through the interim period
ended
January 17, 2007, there were no disagreements with the Former Accountant
on any
matter of accounting principles or practices, financial statement disclosure,
or
auditing scope or procedures, which disagreements if not resolved to the
satisfaction of the Former Accountant would have caused them to make reference
thereto in their reports on the financial statements for such periods.
During
the years ended December 31, 2005 and 2004, and through the interim period
ended
January 17, 2007, the Former Accountant did not advise the Company with respect
to any of the matters described in paragraphs (a)(1)(iv)(A) and (B) of Item
304
of Regulation S-B, except to advise the Registrant that its internal controls
necessary to develop reliable financial statements were deficient. The subject
matter of these reports from the Former Accountant was discussed in detail
by
the Board of Directors with the Former Accountant prior to the release of
the
financial statements for both of the aforementioned periods. The Registrant
authorized the Former Accountant to respond fully to the inquiries of the
successor accountant concerning the subject matter of the Former Accountants'
comments on internal control deficiencies.
Item
8a: Controls
and Procedures.
(a) Evaluation
of Disclosure Controls and Procedures:
Management
is responsible for establishing and maintaining adequate disclosure controls
and
procedures.
WI-TRON,
INC. carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's Chief Executive Officer
and
the Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15 and 15d-15. Based
upon that evaluation, the chief Executive and Principal Accounting Officer
concluded that the Company's disclosure controls and procedures were not
effective both as of September 30, 2006 and the date of this filing, in timely
alerting them to material information required to be included in the Company's
periodic SEC filings relating to the Company. Our conclusions regarding the
deficiencies appear in the next item.
Our
controls relating to disclosure and related assertions in the financial
statements, particularly in the area of non-routine and non-systematic
transactions were not adequate.
| * |
We
had particular difficulty in recording transactions related to
stockholders’ equity and tracking and recording related charges to
operations.
|
| * |
We
found that our ability to track our inventory quantities and to correctly
apply complex pricing calculations to finished goods and work-in-progress
is inadequate and resulted in substantial additional adjustments.
Furthermore, we discovered that lower of cost or market tests were
not
adequately applied.
|
| * |
Although
we produced our financial statements and Form 10-QSB without outside
assistance for the current quarter, we believe that we may need to
engage
the assistance of a third party financial accounting consulting firm
as
our transactions, particularly in the area of stockholders' equity,
become
more complex.
|
(b) Changes
in Internal Controls Over Financial Reporting:
We
have
made no changes that have materially affected or are likely to materially affect
our internal controls over financial reporting.
PART
III
Item
9. Directors,
Executive Officers, Promoters And Control Persons; Compliance with Section
16(a)
of the Exchange Act.
The
names
and ages of the directors and executive officers of the Company as of the date
of this filing are set forth below:
|
Name
|
|
Age
|
|
Position(s)
with the Company
|
| |
|
|
|
|
|
John
Chase Lee*
|
|
77
|
|
Chief
Executive Officer, President, and Director.
|
| |
|
|
|
|
|
Tarlochan
Bains*
|
|
57
|
|
Vice
President - Amp Division, and Director
|
| |
|
|
|
|
|
Devendar
S. Bains
|
|
56
|
|
Chief
Technology Officer
|
| |
|
|
|
|
|
Mikio
Tajima
|
|
73
|
|
Director
|
*
Member
of the Compensation Committee and Audit Committee.
John
Chase Lee is not related to Jessica Hye Lee or Joong Bin Lee. Jessica Hye Lee
and Joong Bin Lee are husband and wife. Tarlochan Bains and Devendar S. Bains
are brothers.
Background
of Executive Officers and Directors
John
Chase Lee has
served as Chief Executive Officer, President, and a Director since June 2005.
From September 2004 to June 2005, he served solely as a director. He has served
as President of Tek, Ltd., a distribution company doing most of its business
in
South Korea. Mr. Lee has had many and diverse executive positions and business
ownership experiences. Mr. Lee has three Masters (M. Div from Princeton
Seminary, M.A. from U of Oregon, and MCRP from Rutgers University).
Tarlochan
Bains
has
served as Vice President - Amp Division since June 2005. He has served as a
Director since 1995. From September 2004 to June 2005, Mr. Bains served as
Chief
Executive Officer and Treasurer. From March 2000 to September 2004, he served
as
Vice President of Operations_. From 1991 through March 2000, he was the
Company's Vice President of Sales and Marketing. Previously, Mr. Bains was
Technical Manager at Land Rover in Solihull, England. He has a Higher National
Diploma in Mechanical Engineering from Hatfield Polytechnic, England and a
Masters Degree in Automotive Engineering from Cranfield Institute of Technology,
England. Mr. Bains is the brother of Devendar S. Bains and the brother-in-law
of
Nirmal Bains.
Devendar
S. Bains
has
served as Chief Technology Officer since June 2005. Since the Company’s
inception in 1988, Mr. Bains served as Chairman of the Board, Chief Executive
Officer, Treasurer and a Director. He was also President of the Company from
inception through September 2001. From 1983 to 1988 Mr. Bains was Group Project
Leader of Amplifier division of Microwave Semiconductor Corporation. Previously,
Mr. Bains was employed at G.E.C. in Coventry, England. Mr. Bains received a
Bachelors Degree in Electronic Engineering from Sheffield University, England,
and a Masters Degree in Microwave Communications from the University of Leeds
and Sheffield, England. Mr. Bains is the brother of Tarlochan Bains and the
husband of Nirmal Bains.
Mikio
Tajima
has
served as a Director since September 2005. Mr. Tajima held several positions
with the United Nations, including his last position as Director of Economic
Policy and Social Development. He received a degree in Economics and
International Relations both in Japan and UC in Berkeley, CA, and a M.A. from
Columbia University in International Administration and Organization.
Audit
Committee
Mr.
Lee
and Tarlochan Bains serve on our audit committee. The committee reviews, among
other matters, the professional services provided by the Company's independent
auditors, the independence of such auditors from management of the Company,
the
annual financial statements of the Company and the Company's system of internal
accounting controls. The audit committee also reviews such other matters with
respect to the accounting, auditing and financial reporting practices and
procedures of the Company as it may find appropriate or as may be brought to
its
attention. The audit committee adopted an audit committee charter in 2002 and
intends to adopt a new charter, which conforms to the requirements of the
Sarbanes-Oxley Act of 2002.
Since
the
resignation of our former Chief Financial Officer, Jessica Hye Lee, a certified
public accountant with over 20 years of experience, we no longer have a
financial expert on the audit committee. The Company is seeking a financial
expert to replace Ms. Lee, but has not been successful thus far.
The
audit
committee has reviewed and discussed the audited financial statements included
in the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2006.
For
the
year ended December 31, 2006, the Company incurred professional fees to its
auditors in the amount of $51,152, all of which related to auditing and
quarterly review services. No non-audit services have been provided to the
Company by its current auditor.
Each
non-employee director of the Company is entitled to receive reasonable
out-of-pocket expenses incurred in attending meetings of the Board of Directors
of the Company. Directors who are employees of the Company are not paid any
fees
or other remuneration for service on the Board or any of the committees. Each
non-employee director may receive options to purchase Common Stock or other
remuneration. The members of the Board of Directors intend to meet at least
quarterly during the Company's fiscal year, and at such other times duly called.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires
the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to
file
with the Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of the Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To
the
Company's knowledge, John Chase Lee and Jessica Hye Lee did not timely file
reports under Section 16(a). All required reports have since been
filed.
Communications
by Shareholders to Directors
The
Company does not have a formal process to handle communications from
shareholders to directors.
Item
10. Executive
Compensation
Compensation
of Directors and Executive Officers
Summary
Compensation Table
The
following table sets forth the aggregate compensation paid by the Company for
the years ended December 31, 2006, 2005and 2004 for its Chief Executive Officer
and Vice President, respectively. Each non-employee director of the Company
is
entitled to receive reasonable out-of-pocket expenses incurred in attending
meetings of the Board of Directors of the Company.
| |
|
|
|
|
|
Long-Term
Compensation
Awards
|
|
|
|
| |
|
|
|
Annual
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other
Annual Compensation
|
|
Restricted
Stock Awards
|
|
Securities
Underlying Options/ SARS (#)
|
|
LTIP
Payout
|
|
All
Other Comp
|
|
|
John
C. Lee
|
|
|
2006
|
|
$
|
24,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer
|
|
|
2005
|
|
$
|
24,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
And
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Devendar
S. Bains,
|
|
|
2006
|
|
$
|
80,000
|
|
|
-
|
|
$
|
15,000
|
|
(1)
|
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
Chief
Technology officer
|
|
|
2005
|
|
$
|
121,000
|
|
|
-
|
|
$
|
20,000
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
2004
|
|
$
|
140,250
|
|
|
-
|
|
$
|
20,000
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tarlochan
Bains,
|
|
|
2006
|
|
$
|
80,000
|
|
|
|
|
$
|
15,000
|
|
|
|
500,00
|
|
|
500,000
|
|
|
|
|
|
|
|
|
Vice
President
|
|
|
2005
|
|
$
|
90,000
|
|
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Director
|
|
|
2004
|
|
$
|
100,000
|
|
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Joseph
Nordgard
|
|
|
2006
|
|
$
|
70,000
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Represents
payment for health insurance and automobile insurance/lease payments
on
behalf of such individual but does not include deferred compensation.
|
Employment
Agreements
On
June
27, 2005, the Board of Directors resolved to enter into new employment
agreements with Devendar S. Bains and Tarlochan S. Bains to settle the liability
for unpaid salaries. In September 2006, that resolution was memorialized in
employment agreements as follows:
(i) Devendar
S. Bains - (employment agreement dated September 1, 2006) in settlement of
the
liability for accrued and unpaid salaries, the Company agreed to:
| |
a.
|
issue
a three year warrant for the purchase of 1,000,000 shares common
stock
exercisable at $.20 per share (the "Warrant"), with 750,000 remaining
outstanding at December 31, 2006;
|
| |
b.
|
pay
the amount of $200,000 in full settlement of the debt due him from
the
Company, payable in quarterly installments of $50,000 starting September
30, 2006 through June 30, 2007, with $150,000 remaining outstanding
at
December 31, 2006;
|
| |
c.
|
cancel
250,000 warrants for each $50,000 quarterly installment paid (250,000
were
canceled concurrent with the September 2006
payment);
|
| |
d.
|
provide
the right to exercise the warrants periodically in lieu of receiving
the
quarterly cash payments;
|
| |
e.
|
offer
continued employment with the Company for a term of three (3) years
at a
salary of $80,000 per year; and
|
| |
f.
|
revert
to a consulting agreement at a monthly amount of $5,000 for 12 months
upon
the payment in full of the $200,000 debt settlement (following the
last
$50,000 quarterly payment). As a consultant, the customary benefits
allowed under his regular employment will be
retained.
|
As
a
result of the employment agreement with Devendar S. Bains, the face amount
of
the loan balance of $345,843 immediately prior to the settlement exceeded the
minimum cash settlement amount of $200,000 by $145,843. The excess was credited
to additional paid-in capital. The current value of the warrants (based on
the
current trading prices of the underlying common stock) that secure this
liability is less than the minimum cash settlement amount of $200,000.
Accordingly, the contribution to additional paid-in capital was measured by
the
minimum cash settlement amount of $200,000.
Devendar
S. Bains beneficially owns 1,050,000 stock options (50,000 of which are owned
by
his wife) that have been extended until May 2008, and are otherwise not affected
by this settlement.
(ii) Tarlochan
S. Bains - (employment agreement dated July 1, 2005) in settlement of the
liability for accrued and unpaid salaries, the Company agreed to (a) issue
500,000 shares of restricted common stock valued at $185,000, (b) enter into
an
employment agreement at $80,000 per year, (c) issue 300,000 incentive stock
options exercisable at $.20 per share pursuant to the 2005 Plan valued at
$61,695, and (d) issue 200,000 non-qualified stock options which vest
immediately and are exercisable at $.20 per share valued at $48,760, with an
unspecified number of additional options to be issued over the next two years
at
exercise prices to be determined by the Board of Directors in accordance with
the 2005 Plan at the time of issuance. Accordingly, the Company has reflected
aggregate officer compensation charged to operations of $223,879 (the value
of
the shares and options of $274,890 less the face amount of the loan balance
of
$51,110).
Stock
Option Plans and Agreements
Option
Plan -
In May
1996, the Directors of the Company adopted and the stockholders of the Company
approved the adoption of the Company's 1996 Stock Option Plan (the "1996 Option
Plan"). The 1996 Option Plan provided for the issuance of 2,225,000 options.
The
purpose of the 1996 Option Plan was to enable the Company to encourage key
employees and Directors to contribute to the success of the Company by granting
such employees and Directors incentive stock options ("ISOs") or non-qualified
stock options ("NQOs").
On
October 19, 2005, the Company’s stockholders and Directors amended and renewed
the 1996 Option Plan, designated the 2005 Stock Option Plan (the “2005 Option
Plan”), which provided for the issuance of up to 5,000,000 options. The 2005
Option Plan will be administered by the Board of Directors or a committee
appointed by the Board of Directors (the "Committee") which will determine,
in
its discretion, among other things, the recipients of grants, whether a grant
will consist of ISOs, NQOs or a combination thereof, and the number of shares
to
be subject to such options.
The
2005
Option Plan provides for the granting of ISOs or NQOs to purchase Common Stock
at an exercise price to be determined by the Board of Directors or the Committee
not less than the fair market value of the Common Stock on the date the option
is granted.
The
total
number of shares with respect to which options may be granted under the Option
Plan is currently 5,000,000. Options may not be granted to an individual to
the
extent that in the calendar year in which such options first become exercisable
the shares subject to such options have a fair market value on the date of
grant
in excess of $100,000. No option may be granted under the Option Plan after
October 2015 and no option may be outstanding for more than ten years after
its
grant. Additionally, no option can be granted for more than five (5) years
to a
stockholder owning 10% or more of the Company's outstanding Common Stock and
such options must have an exercise price of not less than 110% of the fair
market value on the date of grant.
Upon
the
exercise of an option, the holder must make payment of the full exercise price.
Such payment may be made in cash or in shares of Common Stock, or in a
combination of both. The Company may lend to the holder of an option funds
sufficient to pay the exercise price, subject to certain
limitations.
The
Option Plan may be terminated or amended at any time by the Board of Directors,
except that, without stockholder approval, the Option Plan may not be amended
to
increase the number of shares subject to the Option Plan, change the class
of
persons eligible to receive options under the Option Plan or materially increase
the benefits of participants.
As
of
December 31, 2006, 2,850,000 options to purchase Common Stock under the Option
Plans. The options are exercisable at between $.15 and $0.37 and expire on
at
various dates through 2015. No determinations have been made regarding the
persons to whom options will be granted in the future, the number of shares
which will be subject to such options or the exercise prices to be fixed with
respect to any option.
Other
Options
On
January 13, 2006, the Company issued an option to purchase 1,000,000 shares
of
common stock at an exercise price of $.20 per share for legal services
rendered.
Item
11. Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder
Matters.
The
following table sets forth, as of March 31, 2007, the beneficial ownership
of
our common stock (i) by the only persons who are known by us to own beneficially
more than 5% of our common stock; (ii) by each director and executive officer;
and (iii) by all directors and officers as a group. Percentage ownership assumes
all vested warrants and options are fully exercised, and all preferred stock
is
converted, and is based on 50,028,293 shares of common stock issued and
outstanding as of March 31, 2007.
|
Name
and Address of
|
|
Shares
of Common
|
|
Percentage
|
|
|
Beneficial
Owner*
|
|
Stock
Owned (1)
|
|
Ownership
|
|
| |
|
|
|
|
|
|
John
Chase Lee
|
|
|
14,380,632
|
(2)
|
|
28.7
|
%
|
| |
|
|
|
|
|
|
|
|
Tarlochan
Bains
|
|
|
576,726
|
|
|
1.2
|
%
|
| |
|
|
|
|
|
|
|
|
Devendar
S. Bains
|
|
|
3,212,985
|
(3)
|
|
4.3
|
%
|
| |
|
|
|
|
|
|
|
|
Mikio
Tajima
|
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
Harris
Freedman
|
|
|
2,509,525
|
(4)
|
|
5.0
|
%
|
|
1241
Gulf of Mexico Dr.
|
|
|
|
|
|
|
|
|
Longboat
Key, FL 34228
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Craig
H. Bird
|
|
|
7,199,650
|
|
|
14.4
|
%
|
|
261
Old York Rd. #518
|
|
|
|
|
|
|
|
|
Jenkintown,
PA 19046
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
All
Officers and Directors
|
|
|
17,970,343
|
|
|
41.7
|
%
|
|
as
a Group (6 persons)
|
|
|
|
|
|
|
|
*
Unless
otherwise indicated, the address of all persons listed in this section is
c/o
Wi-Tron, Inc., 59 LaGrange Street, Raritan, NJ 08869
(1) Beneficial
ownership is determined in accordance with Rule 13d-3 of the Securities and
Exchange Commission. Percentages are based on the total number of shares
outstanding at March 31, 2006, plus the total number of shares underlying
outstanding options, warrants and preferred stock held by each person that
are
exercisable or convertible within 60 days of such date. Shares issuable upon
exercise of outstanding options and warrants, however, are not deemed
outstanding for purposes of computing the percentage ownership of any other
person.
(2) Represents
(a) 200,000 shares of common stock held directly by Mr. Lee, (b) 109,400 shares
of common stock held jointly with Mr. Lee’s spouse, (c) 625,000 shares of common
stock held by Mr. Lee’s spouse, of which Mr. Lee disclaims beneficial ownership,
(d) 646,232 shares of common stock held by Axxon Corporation, a company wholly
owned by Mr. Lee, and (e) 128,000 shares of Series C Convertible Preferred
Stock, which is convertible into 12,800,000 shares of common stock at any time.
John Chase Lee is not related to either Jessica Hye Lee or Joong Bin Lee.
(3) Includes
(a) options to purchase 1,000,000 shares of common stock held by Mr. Bains,
and
(b) options to purchase 50,000 shares of common stock within 60 days, and 28,173
shares of common stock held by Mr. Bains=
spouse.
(4) Represents
(a) 1,373,901 shares held by Bridge Ventures, Inc., of which Mr. Freedman is
an
officer, (b) 927,124 shares held by Annelies Freedman IRA, Mr. Freedman’s
spouse, and of which Mr. Freedman disclaims beneficial ownership, (c) 86,600
shares held by Harris Freedman, IRA, (c) 69.900 shares held by SMACS Holding
Corp., of which Mr. Freedman is an officer, and (d) 52,000 shares held by Mr.
Freedman individually.
Item
12. Certain
Relationships and Related Transactions and Director
Independence.
The
Board’s Audit Committee is responsible for review, approval, or ratification of
“related-person transactions” between the Company or its subsidiaries and
related persons. Under SEC rules, a related person is a director, officer,
nominee for director, or 5% stockholder of the Company since the beginning
of
the last fiscal year and their immediate family members. The Audit Committee
determines whether the related person has a material interest in a transaction
and may approve, ratify, rescind, or take other action with respect to the
transaction in its discretion.
In
the
year ended December 31, 2006, the following related party transactions
occurred:
In
November 2006, Craig Bird, a holder of 5% of the outstanding common stock,
and a
former officer, purchased 200,000 shares of restricted common stock for an
aggregate purchase price of $40,000.
In
November 2006, pursuant to a subscription agreement dated September 26, 2006,
the Company issued 200,000 shares of restricted common stock to Joseph Nordgaard
(former CEO) for $.20 per share for aggregate gross proceeds of
$40,000.
In
March
2006, Craig Bird purchased 1,500,000 shares of common stock at $.15 per share
for gross proceeds of $225,000
In
March
2006, Susan Lee, the wife of our CEO John Lee, purchased 625,000 shares at
$.08
per share for gross proceeds of $50,000.
In
May
2006, Craig Bird purchased 500,000 shares of common stock at $.22 per share
for
gross proceeds of $110,000.
Director
Independence.
Only
Mikio Tajima, a non-employee director, qualifies as “independent” in accordance
with the published listing requirements of NASDAQ: Mr. Lee, Tarlochan Bains,
and
Devendar Bains do not qualify as independent because they are Wi-Tron employees.
The NASDAQ rules have both objective tests and a subjective test for determining
who is an “independent director.” The objective tests state, for example, that a
director is not considered independent if he is an employee of the Company
or is
a partner in or executive officer of an entity to which the Company made, or
from which the Company received, payments in the current or any of the past
three fiscal years that exceed 5% of the recipient’s consolidated gross revenue
for that year. The subjective test states that an independent director must
be a
person who lacks a relationship that, in the opinion of the Board, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
Mr.
Tajima is considered “independent” under the objective tests. In assessing
independence under the subjective test, the Board took into account the
standards in the objective tests, and reviewed and discussed additional
information provided by the directors and the Company with regard to each
director’s business and personal activities as they may relate to the Company
and its management. Based on all of the foregoing, as required by NASDAQ rules,
the Board made a subjective determination as to Mr. Tajima that no relationships
exists which, in the opinion of the Board, would interfere with the exercise
of
independent judgment in carrying out the responsibilities of a director. The
Board has not established categorical standards or guidelines to make these
subjective determinations, but considers all relevant facts and
circumstances.
In
addition to the board-level standards for director independence, the directors
who serve on the Audit Committee each satisfy standards established by the
SEC
providing that to qualify as “independent” for the purposes of membership on
that Committee, members of audit committees may not accept directly or
indirectly any consulting, advisory, or other compensatory fee from the Company
other than their director compensation.
Transactions
Considered in Independence Determinations.
In
making
its independence determinations, the Board considered transactions occurring
since the beginning of 2004 between the Company, its predecessors, and entities
associated with the independent directors or members of their immediate family.
All identified transactions that appear to relate to the Company and a person
or
entity with a known connection to a director are presented to the Board for
consideration. In making its subjective determination that each non-employee
director is independent, the Board considered the transactions in the context
of
the NASDAQ objective standards, the special standards established by the SEC
for
members of audit committees, and the SEC and Internal Revenue Service (IRS)
standards for compensation committee members. In each case, the Board determined
that, because of the nature of the director’s relationship with the entity
and/or the amount involved, the relationship did not impair the director’s
independence.
Indemnification.
The
Company intends to indemnify its officers and directors to the full extent
permitted by Delaware law. Under Delaware law, a corporation may indemnify
its
agents for expenses and amounts paid in third party actions and, upon court
approval in derivative actions, if the agents acted in good faith and with
reasonable care. A majority vote of the Board of Directors, approval of the
stockholder or court approval is required to effectuate
indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended, may be permitted to officers, directors or persons controlling the
Company, the Company has been advised that, in the opinion of the Securities
and
Exchange Commission, such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by an officer, director or controlling person
of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such officer, director or controlling person in connection with
the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it
is
against public policy as expressed in such Act and will be governed by the
final
adjudication of such issue.
Transactions
between the Company and its officers, directors, employees and affiliates will
be on terms no less favorable to the Company than can be obtained from
unaffiliated parties. Any such transactions will be subject to the approval
of a
majority of the disinterested members of the Board of Directors.
Item
13. Exhibits.
(a)
(1) Financial Statements.
The
following financial statements are included in Part II, Item
7:
| |
Page
|
| |
|
|
Report
of Independent Certified Public Accountants
|
F-2
to F-3
|
| |
|
|
Financial
Statements
|
|
| |
|
|
Balance
Sheets
|
F-4
to F-5
|
| |
|
|
Statements
of Operations
|
F-6
|
| |
|
|
Statement
of Stockholders' Deficiency
|
F-7
|
| |
|
|
Statements
of Cash Flows
|
F-8
to F-9
|
| |
|
|
Notes
to Financial Statements
|
F-10
to F-28
|
(a)
(2) Exhibits
|
1.1(1)
|
Form
of Underwriting Agreement
|
| |
|
|
1.2(1)
|
Form
of Selected Dealer Agreement
|
| |
|
|
1.3(1)
|
Form
of Agreement Among Underwriters
|
| |
|
|
3.1(1)
|
Certificate
of Incorporation of the Company
|
| |
|
|
3.2(1)
|
Certificate
of Merger (Delaware)
|
| |
|
|
3.3(1)
|
Certificate
of Merger (New Jersey)
|
| |
|
|
3.4(1)
|
Agreement
and Plan of Merger
|
| |
|
|
3.5(1)
|
By-Laws
of the Company
|
| |
|
|
3.6(2)
|
Certificate
of Designation of Series A Preferred Stock
|
| |
|
|
3.7(3)
|
Certificate
of Amendment to the Certificate of Incorporation
|
| |
|
|
4.1(1)
|
Specimen
Certificate for shares of Common Stock
|
| |
|
|
4.2(1)
|
Specimen
Certificate for Warrants
|
| |
|
|
4.3(1)
|
Form
of Underwriter’s Purchase Option
|
| |
|
|
4.4(1)
|
Form
of Warrant Agreement
|
| |
|
|
10.1(1)
|
1996
Incentive Stock Option Plan
|
| |
|
|
10.2(1)
|
Employment
Agreement between the Company and Devendar S. Bains
|
| |
|
|
10.3(1)
|
Employment
Agreement between the Company and Tarlochan Bains
|
| |
|
|
10.4(1)
|
Employment
Agreement between the Company and Nirmal Bains
|
| |
|
|
10.5
|
Intentionally
Omitted
|
| |
|
|
10.6
|
Intentionally
Omitted
|
| |
|
|
10.7(1)
|
Agreement
between the Company and Electronic Marketing Associates,
Inc.
|
| |
|
|
10.8(1)
|
Agreement
between the Company and Link Microtek Limited.
|
| |
|
|
10.9(1)
|
Agreement
between the Company and ENS Engineering.
|
| |
|
|
10.10(4)
|
Settlement
Agreement between John Chase Lee and the Company
|
| |
|
|
10.11
|
2005
Stock Option Plan
|
|
14
|
Code
of Ethics
|
| |
|
|
31.1
|
Certification
of Chairman and Chief Executive Officer Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Sec. 1350).
|
| |
|
|
31.2
|
Certification
of Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Sec. 1350).
|
| |
|
|
32.1
|
Written
Statement of Chairman and Chief Executive Officer Pursuant to Section
906
of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350).
|
| |
|
|
32.2
|
Written
Statement of Chief Accounting Officer Pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350).
|
| (1) |
Incorporated
by Reference to the Company’s Registration Statement on Form SB-2, No.
333-11015.
|
| (2) |
Incorporated
by Reference to the Company’s Current Report on Form 8-K filed on August
3, 1999.
|
| (3) |
Incorporated
by Reference to the Company’s Current Report on Form 8-K filed on November
9, 2005.
|
| (4) |
Incorporated
by Reference to the Company’s Current Report on Form 8-K filed on July 21,
2005.
|
WI-TRON,
INC.
INDEX
TO FINANCIAL STATEMENTS
| |
|
Page
|
|
| |
|
|
|
|
Report
of Independent Certified Public Accountants
|
|
|
F-2
to F-3
|
|
| |
|
|
|
|
|
Financial
Statements
|
|
|
|
|
| |
|
|
|
|
|
Balance
Sheets
|
|
|
F-4
to F-5
|
|
| |
|
|
|
|
|
Statements
of Operations
|
|
|
F-6
|
|
| |
|
|
|
|
|
Statement
of Stockholders' Deficiency
|
|
|
F-7
|
|
| |
|
|
|
|
|
Statements
of Cash Flows
|
|
|
F-8
to F-9
|
|
| |
|
|
|
|
|
Notes
to Financial Statements
|
|
|
F-10
to F-28
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
WI-TRON,
INC.
We
have
audited the accompanying balance sheet of Wi-Tron, Inc. as of December 31,
2006
and the related statements of operations, stockholders' deficiency, and cash
flows for the year then ended. 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 audit.
We
conducted our audit in accordance with 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 made 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 Wi-Tron, Inc., as of December
31,
2006 and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note A to the financial
statements, the Company suffered losses from operations, has no cash and
otherwise limited financial resources, raising substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amounts and classifications of liabilities that might
result should the Company be unable to continue as a going concern.
| |
|
|
|
|
|
|
|
|
| May 17, 2007 |
|
|
MOORE & ASSOCIATES,
CHARTERED |
|
Las
Vegas, NV
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
WI-TRON,
INC. (F/K/A AMPLIDYNE, INC.)
We
have
audited the accompanying balance sheet of Wi-Tron, Inc. as of December 31,
2005
and the related statements of operations, stockholders' deficiency, and cash
flows for the year then ended. 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 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 made 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 Wi-Tron, Inc., as of December
31,
2006 and 2005, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted
in
the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note A to the financial
statements, the Company suffered losses from operations, has no cash and
otherwise limited financial resources, raising substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amounts and classifications of liabilities that might
result should the Company be unable to continue as a going concern.
| |
|
|
|
| |
|
|
|
| March
28,
2006 |
|
|
KBL,
LLP
|
|
Forest
Hills, New York
|
|
|
|
WI-TRON,
INC.
BALANCE
SHEETS
December
31, 2005
|
|
|
2006
|
|
2005
|
|
|
ASSETS
- PLEDGED
|
|
|
|
|
|
| |
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
| |
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
-
|
|
$
|
34,998
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $1,000
and $NIL in 2006 and 2005, respectively
|
|
|
25,077
|
|
|
21,926
|
|
|
Inventories
|
|
|
94,587
|
|
|
108,591
|
|
|
Prepaid
expenses and other
|
|
|
-
|
|
|
1,208
|
|
| |
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
119,664
|
|
|
166,723
|
|
| |
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT - AT COST
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
|
587,276
|
|
|
587,276
|
|
|
Furniture
and fixtures
|
|
|
43,750
|
|
|
43,750
|
|
|
Leasehold
improvements
|
|
|
8,141
|
|
|
8,141
|
|
| |
|
|
639,167
|
|
|
639,167
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(625,635
|
)
|
|
(621,306
|
)
|
| |
|
|
13,532
|
|
|
17,861
|
|
| |
|
|
|
|
|
|
|
|
SECURITY
DEPOSIT
|
|
|
5,500
|
|
|
5,500
|
|
|
TOTAL
ASSETS
|
|
$
|
138,696
|
|
$
|
190,084
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
WI-TRON,
INC.
BALANCE
SHEETS
December
31, 2005
|
|
|
2006
|
|
2005
|
|
|
LIABILITIES
AND STOCKHOLDERS' (DEFICIENCY)
|
|
|
|
|
|
| |
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
| |
|
|
|
|
|
|
Overdraft
|
|
$
|
36,140
|
|
$
|
-
|
|
|
Secured
note payable -- Phoenix -- payment default
|
|
$
|
10,000
|
|
$
|
20,000
|
|
|
Accounts
payable
|
|
|
211,700
|
|
|
280,293
|
|
|
Other
convertible notes payable
|
|
|
-
|
|
|
-
|
|
|
Notes
payable issued in connection with private placement of common stock,
including
accrued interest of $25,016 (2006) and $7,015 (2005) - payment
default
|
|
|
325,016
|
|
|
307,015
|
|
|
Accrued
expenses and other current liabilities (including delinquent federal
payroll taxes,
penalties and interest aggregating $1,822 (2006) and $90,752
(2005)
|
|
|
102,397
|
|
|
214,998
|
|
|
Accrued
settlement of litigation
|
|
|
95,000
|
|
|
95,000
|
|
|
Loan
payable to TEK, Ltd.
|
|
|
44,500
|
|
|
-
|
|
|
Loans
payable - officers
|
|
|
150,100
|
|
|
423,200
|
|
|
TOTAL
CURRENT LIABILITIES REPRESENTING TOTAL LIABILITIES
|
|
|
974,853
|
|
|
1,340,506
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
STOCKHOLDERS'
(DEFICIENCY)
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Convertible
Preferred Stock, Series
C - authorized
5,000,000 shares of $.0001 par value with a liquidation preference
of $2
per share;
130,000
shares issued and outstanding at December 31, 2006 - liquidation
preference $260,000
140,000
shares issued and outstanding at December 31, 2005 - liquidation
preference $280,000
|
|
|
13
|
|
|
14
|
|
| |
|
|
|
|
|
|
|
|
Common
stock - authorized, 100,000,000 shares of $.0001 par value;
shares 36,928,293 and 23,338,267 shares issued/issuable and
outstanding at December 31, 2006 and 2005, respectively
|
|
|
3,694
|
|
|
2,334
|
|
| |
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
25,999,095
|
|
|
23,794,954
|
|
| |
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
|
(26,838,959
|
)
|
|
(24,947,724
|
)
|
| |
|
|
(836,157
|
)
|
|
(1,150,422
|
)
|
| |
|
$
|
138,696
|
|
$
|
190,084
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
WI-TRON,
INC.
STATEMENTS
OF OPERATIONS
Year
ended December 31, 2005
| |
|
2006
|
|
2005
|
|
| |
|
|
|
|
|
|
Net
sales
|
|
$
|
154,309
|
|
$
|
471,487
|
|
| |
|
|
|
|
|
|
|
|
Cost
of goods sold (including write-down of raw materials inventory
of
$26,237 in 2006 and $129,906 in 2005)
|
|
|
398,364
|
|
|
626,003
|
|
| |
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(244,055
|
)
|
|
(154,516
|
)
|
| |
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Selling,
general and administrative
|
|
|
1,284,384
|
|
|
603,211
|
|
|
Research,
engineering and development
|
|
|
337,799
|
|
|
552,076
|
|
| |
|
|
1,622,183
|
|
|
1,155,287
|
|
|
Operating
loss
|
|
|
(1,866,238
|
)
|
|
(1,309,803
|
)
|
| |
|
|
|
|
|
|
|
|
Nonoperating
income (expenses)
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Interest
income and other income
|
|
|
3,292
|
|
|
-
|
|
|
Interest
expense
|
|
|
(18,001
|
)
|
|
(8,092
|
)
|
|
Federal
tax penalties and interest
|
|
|
(26,558
|
)
|
|
(51,738
|
)
|
|
Settlements
of accounts payable
|
|
|
17,629
|
|
|
-
|
|
|
Loan
conversion costs
|
|
|
-
|
|
|
(21,627
|
)
|
|
Sale
of New Jersey tax benefits
|
|
|
-
|
|
|
73,126
|
|
| |
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(1,889,876
|
)
|
|
(1,318,134
|
)
|
|
Provision
for income taxes
|
|
|
1,359
|
|
|
601
|
|
|
NET
LOSS
|
|
$
|
(1,891,235
|
)
|
$
|
(1,318,735
|
)
|
| |
|
|
|
|
|
|
|
|
Net
loss per share - basic and diluted
|
|
$
|
(0.06
|
)
|
$
|
(0.09
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
32,078,424
|
|
|
15,195,746
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Wi-Tron,
Inc.
STATEMENT
OF STOCKHOLDERS' DEFICIENCY
Years
Ended December 31, 2006 and 2005
| |
|
Series
C Convertible Preferred Stock
|
|
Common
Stock
|
|
Additional
|
|
|
|
|
|
| |
|
Shares
|
|
Par
Value
|
|
Shares
|
|
Par
Value
|
|
|
|
|
|
Total
|
|
|
BALANCE
AT DECEMBER 31, 2006 (restated)
|
|
|
-
|
|
$
|
-
|
|
|
10,668,267
|
|
$
|
1,067
|
|
$
|
22,502,985
|
|
$
|
(23,628,989
|
)
|
$
|
(1,124,937
|
)
|
|
Net
loss for the year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,318,735
|
)
|
|
(1,318,735
|
)
|
|
Issuance
of convertible preferred stock in satisfaction of certain loans
from John C. Lee and Jessica Lee
|
|
|
140,000
|
|
|
14
|
|
|
|
|
|
|
|
|
699,986
|
|
|
|
|
|
700,000
|
|
|
Notes
payable converted into common stock
|
|
|
|
|
|
|
|
|
370,000
|
|
|
37
|
|
|
44,363
|
|
|
|
|
|
44,400
|
|
|
Private
placement of common stock, net of costs of $56,000
|
|
|
|
|
|
|
|
|
12,050,000
|
|
|
1,205
|
|
|
515,795
|
|
|
|
|
|
517,000
|
|
|
Private
placements costs to be paid with issuable common stock
|
|
|
|
|
|
|
|
|
200,000
|
|
|
20
|
|
|
25,980
|
|
|
|
|
|
26,000
|
|
|
Issuance
of common stock for services rendered by third party
|
|
|
|
|
|
|
|
|
50,000
|
|
|
5
|
|
|
5,845
|
|
|
|
|
|
5,850
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT DECEMBER 31, 2005
|
|
|
140,000
|
|
|
14
|
|
|
23,338,267
|
|
|
2,334
|
|
|
23,794,954
|
|
|
(24,947,724
|
)
|
|
(1,150,422
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,891,235
|
)
|
|
(1,891,235
|
)
|
|
Private
placements of common stock
|
|
|
|
|
|
|
|
|
11,075,000
|
|
|
1,108
|
|
|
1,365,084
|
|
|
|
|
|
1,366,192
|
|
|
Shares
sold to officer at prices below market
|
|
|
|
|
|
|
|
|
40,000
|
|
|
4
|
|
|
13,196
|
|
|
|
|
|
13,200
|
|
|
Conversion
of preferred stock into common stock
|
|
|
(9,000
|
)
|
|
(1
|
)
|
|
900,000
|
|
|
90
|
|
|
(89
|
)
|
|
|
|
|
-
|
|
|
Offering
costs paid through the issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,809
|
|
|
|
|
|
62,809
|
|
|
Shares
issued to employee in satisfaction of vacation pay
|
|
|
|
|
|
|
|
|
40,000
|
|
|
4
|
|
|
9,914
|
|
|
|
|
|
9,918
|
|
|
Amortization
of share based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,467
|
|
|
|
|
|
7,467
|
|
|
Public/investor
relations fees paid by issuance of common stock
|
|
|
|
|
|
|
|
|
237,780
|
|
|
24
|
|
|
59,421
|
|
|
|
|
|
59,445
|
|
|
Public/investor
relations consulting agreement
|
|
|
|
|
|
|
|
|
625,000
|
|
|
63
|
|
|
206,187
|
|
|
|
|
|
206,250
|
|
|
Shares
issued to officer to reimburse for legal fees paid by him in 2003
with Company shares owned by him
|
|
|
|
|
|
|
|
|
132,246
|
|
|
13
|
|
|
46,273
|
|
|
|
|
|
46,286
|
|
|
Settlement
of officer loans through issuance of common stock
|
|
|
|
|
|
|
|
|
500,000
|
|
|
50
|
|
|
274,840
|
|
|
|
|
|
274,890
|
|
|
Contribution
of capital by officer - settlement of officer loans at less
than face amounts
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
145,843
|
|
|
|
|
|
145,843
|
|
|
Employee
options exercises
|
|
|
|
|
|
|
|
|
40,000
|
|
|
4
|
|
|
13,196
|
|
|
|
|
|
13,200
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
AT DECEMBER 31, 2006
|
|
|
131,000
|
|
$
|
13
|
|
|
36,928,293
|
|
$
|
3,694
|
|
$
|
25,999,095
|
|
$
|
(26,838,959
|
)
|
$
|
(836,157
|
)
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Wi-Tron,
Inc.
STATEMENTS
OF CASH FLOWS
Year
ended December 31, 2005
| |
|
2006
|
|
2005
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(1,891,235
|
)
|
$
|
(1,318,735
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Gain
on sale of property & equipment
|
|
|
-
|
|
|
-
|
|
|
Amortization
of share based compensation
|
|
|
7,467
|
|
|
-
|
|
|
Salary
deferrals added to officer loans
|
|
|
-
|
|
|
62,635
|
|
|
Restricted
common stock issued on employee options exercise
|
|
|
7,200
|
|
|
-
|
|
|
Provision
for inventory write-down
|
|
|
26,237
|
|
|
129,906
|
|
|
Depreciation
and amortization
|
|
|
4,329
|
|
|
5,537
|
|
|
Share-based
compensation of officer in connection with settlement
of officer loans
|
|
|
223,879
|
|
|
-
|
|
|
Shares
issued to employee in satisfaction of vacation pay
|
|
|
9,918
|
|
|
-
|
|
|
Interest
accrued added to private placement and convertible promissory
notes
|
|
|
18,001
|
|
|
7,015
|
|
|
Loan
conversion costs
|
|
|
-
|
|
|
21,627
|
|
|
Payment
of security deposits
|
|
|
-
|
|
|
(5,500
|
)
|
|
Shares
issued to officer to reimburse for legal fees paid by him in 2003
with
Company
shares owned by him
|
|
|
46,286
|
|
|
-
|
|
|
Consultants
paid through the issuance of common stock
|
|
|
265,695
|
|
|
5,850
|
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(3,151
|
)
|
|
(6,329
|
)
|
|
Inventories
|
|
|
(12,233
|
)
|
|
71,136
|
|
|
Prepaid
expenses and other assets
|
|
|
1,208
|
|
|
(1,212
|
)
|
|
Accounts
payable and accrued expense
|
|
|
(181,194
|
)
|
|
(54,370
|
)
|
|
Advances
from customer
|
|
|
-
|
|
|
(22,008
|
)
|
|
Total
adjustments
|
|
|
413,642
|
|
|
214,287
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,477,593
|
)
|
|
(1,104,448
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
-
|
|
|
(21,647
|
)
|
| |
|
|
|
|
|
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
-
|
|
|
(21,647
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
(Decrease)
Increase in overdraft
|
|
|
36,140
|
|
|
-
|
|
|
Payment
of secured promissory note to Phoenix
|
|
|
(10,000
|
)
|
|
(20,000
|
)
|
|
Proceeds
from convertible notes pursuant to Lee financing
|
|
|
-
|
|
|
194,000
|
|
|
Proceeds
from notes payable in connection with private placement of common
stock
|
|
|
-
|
|
|
300,000
|
|
|
Proceeds
from the sale of common stock via private placements
|
|
|
1,429,001
|
|
|
573,000
|
|
|
Shares
sold to officer at prices below market
|
|
|
13,200
|
|
|
-
|
|
|
Employee
options exercises
|
|
|
6,000
|
|
|
-
|
|
|
Proceeds
from loans from TEK, Ltd.
|
|
|
44,500
|
|
|
-
|
|
|
Repayment
of loans from officers
|
|
|
(76,246
|
)
|
|
(8,141
|
)
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
1,442,595
|
|
|
1,038,859
|
|
| |
|
|
|
|
|
|
|
|
Continued
on next page
|
|
|
|
|
|
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
Wi-Tron,
Inc.
STATEMENTS
OF CASH FLOWS
Year
ended December 31, 2005
|
Continued
from previous page
|
|
|
|
|
|
| |
|
|
|
|
|
|
NET
(DECREASE) IN CASH
|
|
$
|
(34,998
|
)
|
$
|
(87,236
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning year
|
|
|
34,998
|
|
|
122,234
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end year
|
|
$
|
-
|
|
$
|
34,998
|
|
| |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Cash
paid for:
Interest
|
|
$
|
406
|
|
$
|
-
|
|
|
Income
taxes
|
|
$
|
1,359
|
|
$
|
601
|
|
| |
|
|
|
|
|
|
|
|
Noncash
financing activities:
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Restricted
common stock issued to settle officer loans
|
|
$
|
51,011
|
|
$
|
-
|
|
|
Contribution
of capital by officer - settlement of officer loans at less than
face
amounts
|
|
|
145,843
|
|
|
-
|
|
THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
NOTE
A - NATURE OF OPERATIONS AND LIQUIDITY
Wi-Tron,
Inc. (the Company) has historically operated in one segment, which is the
design, manufacture and selling of ultra linear single and multi channel power
amplifiers, cellular base station components, and broadband wireless products
to
the worldwide wireless telecommunications market.
The
Company's financial statements have been presented on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The liquidity of the Company has been
adversely affected in recent years by significant losses from operations. The
Company has incurred losses of $1,891,235 and $1,318,735 in 2006 and 2005,
respectively.
With
no
remaining cash and reduced revenues, management believes that the Company will
continue to have some difficulty meeting its working capital obligations over
the next 12 months. The Company is presently dependent on cash flows generated
from sales and private placements of debt or equity. If we don't substantially
improve our deteriorated revenues or if we are unable to raise additional
capital through private placements, there will be serious adverse consequences
and, accordingly, there is substantial doubt in our ability to remain in
business over the next 12 months. There can be no assurance that sufficient
financing will be available to the Company on acceptable terms, or at all.
If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate its research, engineering and development or manufacturing
programs or obtain funds through arrangements with partners or others that
may
require the Company to relinquish rights to certain of its technologies or
potential products or other assets. Accordingly, the inability to obtain such
financing could have a material adverse effect on the Company's business,
financial condition and results of operations.
In
the
past, the Company funded certain operating expenses through borrowings (in
the
form of deferring salaries and cash advances) from officers and principal
shareholders. The Company also issued its stock in lieu of cash payments for
compensation, sales commissions and consulting fees, wherever possible.
Management's
plans for dealing with the foregoing matters include:
·
Increasing
sales of its high speed
internet connectivity products through both individual customers, strategic
alliances and mergers.
·
Decreasing
the dependency on certain
major customers by aggressively seeking other customers in the amplifier
markets;
·
Partnering
with significant companies
to jointly develop innovative products, which has yielded orders with
multinational companies to date, and which are expected to further expand such
relationships;
·
Maintaining
a reduced cost structure
through a more streamlined operation by using automated machinery to produce
components for our products;
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
·
Deferral
of payments of officers'
salaries, as needed;
·
Reducing
overhead costs and general
expenditures.
·
Merging
with another company to
provide adequate working capital and jointly develop innovative products.
NOTE
B - SUMMARY OF ACCOUNTING POLICIES
A
summary
of the significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows.
1.
REVENUE RECOGNITION
Revenue
is recognized upon shipment of products to customers because our shipping terms
are F.O.B. shipping point. There are generally no rights of return, customer
acceptance protocols, installation or any other post-shipment obligations.
All
of our products are custom built to customer specifications. We provide an
industry standard one-year limited warranty under which the customer may return
the defective product for repair or replacement. There is no maintenance or
support revenue.
Returns
received under warranty are not material relative to sales, nor are the costs
to
repair. All sales are final, except for warranty repair/replacement and there
is
no price protection. In addition, the only company post-shipment obligation
is
for warranty repair and replacement. Finally, we do not install product or
provide services for a fee.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
2.
INVENTORIES
Inventories
are stated at the lower of cost or market; cost is determined using the
first-in, first-out method. As virtually all of our products are made to
customer specifications, we do not keep finished goods in stock except for
completed customer orders that have not been shipped. Our work-in-progress
generally consists of customer orders that are in the process of manufacture
but
are not yet complete at the period end date. We review all of our components
for
obsolescence and excess quantities on a periodic basis and make the necessary
adjustments to net realizable value as deemed necessary. At December 31, 2006
and 2005, inventories consisted of the following:
| |
|
2006
|
|
2005
|
|
|
Component
parts
|
|
$
|
26,722
|
|
$
|
58,177
|
|
|
Work-in-progress
|
|
|
46,040
|
|
|
36,431
|
|
|
Finished
Goods
|
|
|
21,825
|
|
|
13,983
|
|
| |
|
$
|
94,587
|
|
$
|
108,591
|
|
3.
PROPERTY, PLANT AND EQUIPMENT
Depreciation
and amortization are provided for in amounts sufficient to relate the cost
of
depreciable assets to operations over their estimated service lives, which
range
from three to seven years. Leasehold improvements are amortized over the lives
of the respective leases, or the service lives of the improvements, whichever
is
shorter. The straight-line method of depreciation is followed for substantially
all assets for financial reporting purposes, but accelerated methods are used
for tax purposes.
4.
VALUATION OF LONG-LIVED ASSETS
The
Company reviews long-lived assets held and used for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset
may not be recoverable. The Company has not recorded any provision for the
impairment of long-lived assets at December 31, 2006.
5.
INCOME
TAXES
The
Company accounts for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. This statement
requires, among other things, an asset and liability approach for financial
accounting and reporting of deferred income taxes. In addition, the deferred
tax
liabilities and assets are required to be adjusted for the effect of any future
changes in the tax law or rates. Deferred income taxes arise from temporary
differences resulting in the basis of assets and liabilities for financial
reporting and income tax purposes. A valuation allowance is provided if the
Company is uncertain as to the realization of deferred tax assets.
6.
RISKS,
UNCERTAINTIES AND CERTAIN CONCENTRATIONS OF CREDIT RISK AND ECONOMIC DEPENDENCY
The
Company's future results of operations involve a number of significant risks
and
uncertainties. Factors that could affect the Company's future operating results
and cause actual results to vary materially from expectations include, but
are
not limited to, dependence on key personnel, dependence on a limited number
of
customers, ability to design new products and product obsolescence, ability
to
generate consistent sales, ability to finance research and development,
government regulation, technological innovations and acceptance, competition,
reliance on certain vendors, credit and other risks.
Additionally,
the Company assumes certain insurance risks by self-insuring and its statutorily
required workers compensation coverage lapsed due to non-payment of the
premiums. The Company has no reserves to cover self insurance
losses.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and accounts receivable.
The
Company maintains cash and cash equivalents in bank deposit and money market
accounts in one bank, which, at times, may exceed federally insured limits
or
not be insured. The Company has not experienced any losses in such accounts
and
does not believe it is exposed to any significant credit risk on cash and cash
equivalents.
During
2006, 4 customers accounted for approximately 96% of net sales 3 customers
accounted for and 100% of net accounts receivable at December 31, 2006. Export
sales in 2006 accounted for approximately 88% all net sales including 60% to
Europe.
During
2005, one customer accounted for approximately 88% of net sales and 99% of
net
accounts receivable at December 31, 2005. Export sales in 2005 accounted for
substantially all net sales and were primarily to Europe.
In
addition, the Company is dependent on a limited number of suppliers for key
components used in the Company's products (primarily power transistors) and
subcontracted manufacturing processes. Management believes that other suppliers
could provide similar components and processes on comparable terms. A change
in
suppliers, however, could disrupt manufacturing.
The
carrying values of financial instruments potentially subject to valuation risk,
consisting of cash and cash equivalents, accounts receivable, and officer's
loan
receivable, approximate fair value, principally because of the short maturity
of
these items.
7.
USE OF
ESTIMATES
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
8.
STOCK-BASED EMPLOYEE COMPENSATION
On
January 1, 2006 the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”). SFAS
123(R) requires the Company to recognize expense related to the fair value
of
employee stock option awards and to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant
date
fair value of the award. This eliminated the exception to account for such
awards using the intrinsic method previously allowable under Accounting
Principles Board Opinion No. 25, “Accounting for Stock issued to Employees”
(“APB 25”). Prior to January 1, 2006, we accounted for the stock based
compensation plans under the recognition and measurement provisions of APB
25,
as permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation.”
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of
SFAS 123(R), using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in 2006 and beyond includes:
(a)
compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated
in
accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for all stock-based payments granted subsequent to January 1, 2006, based
on the grant-date fair value estimated in accordance with the provisions of
SFAS
123(R). Results for prior periods have not been restated and there is no
cumulative effect upon adoption of SFAS 123(R).
Prior
to
adoption of SFAS 123(R) the Company used intrinsic-value method of accounting
for stock based-awards granted to employees. No stock-based compensation cost
is
included in the net loss for the year ended December 31, 2005 as no options
were
granted to employees during that period. All stock-based compensation during
the
year ended December 31, 2006 was paid in the form of restricted common
stock.
9.
CASH
AND CASH EQUIVALENTS
The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
10.
ADVERTISING EXPENSES
The
Company expenses advertising costs as incurred. Advertising expenses were $5,951
and $500 for the years ended December 31, 2006 and 2005, respectively.
11.
LOSS
PER SHARE
The
Company complies with the requirements of the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, "Earnings
per
Share" ("SFAS No. 128"). SFAS No. 128 specifies the compilation, presentation
and disclosure requirements for earnings per share for entities with publicly
held common stock or potential common stock. Net loss per common share - basic
and diluted is determined by dividing the net loss by the weighted average
number of common stock outstanding. Net loss per common share - diluted does
not
include potential common shares derived from stock options and warrants (see
Note C) because they are antidilutive.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
12.
SEGMENT INFORMATION
The
Company has not pursued its wireless Internet connectivity business since 2003
and is currently operating in one segment.
13.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Cash
and
cash equivalents, accounts receivable, accounts payable, and accrued expenses
reported in the consolidated balance sheets equal or approximate fair value
due
to their short maturities.
14.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In
February, 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities including an amendment of FAS 115, or FAS
159.
This statement provides companies with an option to report selected financial
assets and liabilities at fair value. This statement is effective for fiscal
years beginning after November 15, 2007 with early adoption permitted. We are
assessing FAS No. 159 and have not yet determined the impact that the adoption
of FAS No. 159 will have on our results of operations or financial position,
if
any.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements , or SAB 108,
that requires public companies to utilize a “dual approach” to assessing the
quantitative effects of financial misstatements. This dual approach includes
both an income statement focused assessment and a balance sheet focused
assessment. SAB 108 is effective for annual financial statements covering the
first fiscal year ending after November 15, 2006. We are currently assessing
the
impact of SAB 108 but do not expect that it will have a material effect on
our
results of operations or financial condition.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157 Fair Value Measurements. This statement defines fair value,
establishes a fair value hierarchy to be used in generally accepted accounting
principles and expands disclosures about fair value measurements. Although
this
statement does not require any new fair value measurements, the application
could change current practice. The statement is effective for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the
impact of this statement to its financial position and results of
operations.
In
September 2006, the FASB issued SFAS No. 158 Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans - an Amendment of FASB Statements
No. 87, 88, 106, and 132(R). This statement requires a company to recognize
the
funded status of a benefit plan as an asset or a liability in its statement
of
financial position. In addition, a company is required to measure plan assets
and benefit obligations as of the date of its fiscal year-end statement of
financial position. The recognition provision of this statement, along with
additional disclosure requirements, is effective for fiscal years ending after
December 15, 2006, while the measurement date provision is effective for fiscal
years ending after December 15, 2008. Management does not believe that adoption
of this statement will have a material
impact on the financial position of the Company.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
In
July
2006, the FASB interpretation (“FIN”) No. 48, Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No. 109, was issued regarding
accounting for, and disclosure of, uncertain tax positions. This Interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes,” and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. The interpretation
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. This interpretation
is effective for fiscal years beginning after December 15, 2006. Management
does
not believe that adoption of this statement will have a material impact on
the
financial position of the Company.
In
March
2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
Assets, an Amendment of SFAS No. 140. SFAS No. 156 requires separate recognition
of a servicing asset and a servicing liability each time an entity undertakes
and obligation to service a financial asset by entering into a servicing
contract. This statement also requires that servicing assets and liabilities
be
initially recorded at fair value and subsequently adjusted to the fair value
at
the end of each reporting period. This statement is effective in fiscal years
beginning after September 15, 2006. The Company feels implementation of this
pronouncement will have no material effect on its financial
statements.
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS NO.
155, Accounting for Certain Hybrid Financial Instruments- An Amendment of FASB
No. 133 and 140. The purpose of SFAS statement No. 155 is to simplify the
accounting for certain hybrid financial instruments by permitting fair value
re-measurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation. SFAS No. 155 also
eliminates the restriction on passive derivative instruments that a qualifying
special-purpose entity may hold. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of any entity's first fiscal
year beginning after September 15, 2006.
In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment,” or SFAS No. 123R. SFAS No. 123R, which replaces SFAS No. 123 and
supersedes APB Opinion No. 25, requires that compensation cost relating to
share-based payment transactions be recognized in the financial statements,
based on the fair value of the equity or liability instruments issued. On April
14, 2005, the SEC staff postponed implementation of SFAS No. 123 (R) and it
is
effective for the Company as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005 and applies to all awards
granted, modified, repurchased or cancelled after the effective date. The
Company adopted this statement as of January 1, 2006.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
NOTE
C - STOCKHOLDERS' EQUITY
1. Warrants
and Options
At
December 31, 2006, the following 1,445,000 warrants, remained
outstanding:
(1)
20,000
exercisable at $.20 through March 2010
(2)
600,000
exercisable at $.20 through August 2009
(3)
750,000
exercisable at $.20 through August 2009
(4)
75,000
exercisable at $.96 through March 2007
At
December 31, 2006, the Company had employee stock options outstanding to acquire
2,900,000 shares of common stock at exercise prices of $.15 to $0.20 per
share.
2. Stock
Purchase and Financing Agreements
On
January 28, 2004, the Company entered into a Subscription Agreement (the
"Agreement") with Phoenix Opportunity Fund II, L.P. ("Phoenix"), a limited
partnership organized under the laws of the State of Delaware, pursuant to
which
Phoenix agreed to make investments in the Company in exchange for notes and
preferred shares.
The
preferred shares were never issued to Phoenix. Due to a dispute among the
Parties with respect to the terms of the loan transaction. The Company and
Phoenix agreed to rescind their agreement, and the Company agreed to pay
Phoenix: (i) $20,000 in cash for the funds Phoenix invested, (ii) $80,000 in
cash for the funds which Phoenix lent to the Company, and (iii) $40,000 for
expenses incurred by Phoenix on behalf of the Company. The $40,000 was paid
by
delivery of a secured promissory note due March 31, 2005, and bearing interest
at the rate of eight percent per annum secured by substantially all the assets
of the Company.
The
Company did not make the required $40,000 payment due on March 31, 2005 under
the Phoenix rescission agreement, and the Company remains currently delinquent
and owes a balance of $10,000 as of December 31, 2006. The Company made the
following payments since March 31, 2005: $10,000 during the quarter ended June
30, 2005; $5,000 during the quarter ended September 30, 2005; $5,000 during
the
quarter ended December 31, 2005 and $10,000 during the quarter ended June 30,
2006. As yet, no action has been taken by Phoenix concerning this
default.
In
a
separate transaction, John Chase Lee of Piscataway, NJ ("Lee") entered into
a
Note Purchase Agreement with the Company by which Lee agreed to lend the Company
an initial $200,000 and up to an additional $200,000 in one or more installments
on or before October 30, 2004. The Company agreed to deliver to Lee convertible
promissory notes which are convertible into Series C shares representing
approximately 80% of the Company's outstanding stock on a fully diluted basis.
Such conversion will take place at such time as the Company is able to do so.
Messrs. Devendar Bains and Tarlochan Bains are required to devote their full
business time and attention to the business of the Company for eight (8) years
from May 25, 2004. In the event that either Devendar Bains or Tarlochan Bains
must leave the employ of the Company for any reason, each agrees that, if
requested by the Board of Directors of the Company, he will
use
his best efforts to find a qualified replacement for himself acceptable to
the
Board of Directors, and that he will not engage in a business competitive with
the Company for a period of eight (8) years. On May 25, 2004, Lee loaned the
Company $250,000, and was issued three convertible promissory notes which will
be convertible in the aggregate into Series C shares representing approximately
40% of the Company's outstanding stock on a fully diluted basis, if and when
converted. If not converted, the notes were payable on demand, provided that
demand could not have been made before December 31, 2004, unless the Company
was
in default of the Note Purchase Agreement.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
Of
the
$250,000 loaned to the Company, $100,000 was used to pay Phoenix in connection
with the rescission described above, $45,000 was used to make a final payment
in
resolution of litigation with High Gain Antenna Co. Ltd. of Korea, and to pay
associated bank fees, $12,000 was used to pay legal fees and $43,000 was used
for working capital purposes. In August 2004, an additional $50,000 was received
from each of Hye Joung Lee (A/K/A Jessica Lee) and Joong Bin Lee (an aggregate
of $100,000) in connection with the same agreement. These parties are business
associates of John Lee, but otherwise unrelated. In October 2004, an additional
$156,000 was received from John Lee, of which $6,000 represented a temporary
additional advance outside of the Series C Convertible financing.
At
various times from February through May 2005, an aggregate of $194,000 was
received from John Lee in connection with the Series C Convertible
financing.
On
June
27, 2005, the Company entered into an agreement with Lee whereby 130,000 Series
C Preferred shares (convertible into 13,000,000 common shares) would be issued
in full satisfaction of $650,000 of loans made by him to the Company. The
conversion of the loans into convertible preferred stock took place on August
11, 2005.
3. Private
Placements of Common Stock and Debt
In
June
2005 the Board of Directors consented to the following:
·
Authorized
and created 500,000
Series C Convertible Preferred Stock with a par value of $.0001 with each share
convertible into 100 shares of common stock;
·
Amend
the Certificate of
Incorporation to increase the authorized shares of common stock to 100,000,000
shares, $.0001 par value and preferred stock to 5,000,000 shares, $.0001 par
value;
·
Authorize
the conversion of
$650,000 of the Lee notes into 130,000 shares of Series C Convertible Preferred
Stock (converted on August 11, 2005);
·
Renew
and amend the Stock
Option Plan extending the plan for an additional ten (10) years and increasing
the number of shares from 2,250,000 to 5,000,000;
·
Issue
to Jessica Lee 10,000
shares of Series C Convertible Preferred Stock convertible into 1,000,000 shares
of common stock in satisfaction of $50,000 due to her (converted on August
11,
2005);
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
·
Issue
185,000 shares to each of
the holders of the convertible promissory notes (an aggregate of 370,000 shares)
with a balance of $22,773 at June 30, 2005 at a price of $.06 per share reduced
from the $.10 per share as set forth in the promissory notes (these shares
were
issued on July 26, 2005);
·
Issue
200,000 shares of common
stock and 200,000 cashless warrants exercisable at $.30 per share to its lawyer
for services rendered;
·
Issue
an aggregate of 7,000,000
shares of common stock to certain selected individuals and entities via Private
Placements (issued July 21, 2005) with piggy-back registration rights
and;
·
Settlement
of the liability for
unpaid officer compensation through the issuance of common stock warrants and
the establishment of new employment agreements (See Note F).
In
June
2005, the Company completed two private placements of common stock aggregating
7,000,000 shares and $270,000 in cash proceeds.
In
August
2005, the Company completed a private placement of common stock and notes
payable aggregating 600,000 shares with $336,000 in cash proceeds as of December
31, 2005. The offering was represented by 6 units at $56,000 each. Each unit
consists of 100,000 shares of common stock and a $50,000 note payable with
interest at 6%. A total of 600,000 shares were issued in this offering for
a
total of $36,000. The notes, aggregating $300,000, are due upon the earlier
of
the Company completing any financing with gross proceeds in excess of
$1,000,000; or March 1, 2006. Since the Company was unable to repay the notes
on
March 1, 2006. The Company requested and all of the investors agreed to a 90
day
extension on the notes until June 1, 2006 and again through November 2006.
The
Company issued warrants to purchase an aggregate of 600,000 shares of common
staock exercisable at $.20 per share. These notes remain unpaid at December
31,
2006, and the Company may continue to seek further similar extensions on an
ongoing basis. No actions have been taken by the note holders to collect the
balance up to and since December 31, 2006 through the date of this
filing.
In
November 2005, the Company commenced a private placement of 10,000,000 shares
of
common stock to accredited investors at $.06 per share pursuant to Regulation
D
of the Securities Act of 1933, as amended, and Rule 506 promulgated there under.
The Company received gross proceeds of $267,000 in November and December 2005
for 4,450,000 issuable shares. The Company's officers and directors directed
the
sale and received no commissions or other remuneration. The shares in connection
with this offering were issued in January 2006.
On
March
10, 2006, the Company issued 5,550,000 shares of common stock through a private
offering to accredited investors at $.06 per share (gross proceeds of $333,000)
pursuant to Regulation D of the Securities Act of 1933, as amended, and Rule
506
promulgated thereunder. The Company's officers and directors directed the sale
and received no commissions or other remuneration.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
In
March
2006, the Company received gross proceeds of $50,000 ($.08 per share) from
the
wife of John C. Lee (Chairman of the Board of Directors) for 625,000 shares
of
restricted common stock.
4.
Series
C Convertible Preferred Stock
As
of
December 31, 2006, there were 131,000 shares of Series C Convertible Preferred
Stock outstanding, 125,000 of which are owned by John Lee, the Chairman of
the
Board of Directors and 6,000 of which are owned by Jessica Lee, the former
Chief
Financial Officer. Each share of the preferred stock is convertible into 100
shares of common stock. Accordingly, the outstanding preferred shares, in the
aggregate, are convertible into 13,100,000 shares of common stock.
5. Other
Issuances of Common Stock and Related Matters
In
January 2006, the Company issued to the securities lawyer non-qualified 10
year
options to purchase 1,000,000 shares at $.20 per share for services rendered
in
connection with successful private placements. The options were valued at
$62,809 and were charged against the proceeds of private placements during
the
quarter ended March 31, 2006. In November 2006, this lawyer voluntarily returned
250,000 of these options.
In
January 2006, John Lee and Jessica Lee each converted 2,000 shares of their
preferred stock into 200,000 shares of restricted common stock (aggregate of
400,000 shares). In September 2006, John Lee converted 3,000 shares of his
preferred stock into 300,000 shares of restricted common stock. Also in
September 2006, Jessica Lee converted 2,000 shares of her preferred stock into
200,000 shares of restricted common stock.
On
February 8, 2006, the Company issued 50,000 shares of restricted common stock
to
Eric Popkoff for consulting services pursuant to an agreement with Undiscovered
Equities Research Corporation ("UERC") dated September 23, 2005 ($5,850 was
charged to operations in 2005).
In
March
2006, the Company's lawyer was issued 200,000 shares of restricted common stock
which were granted in 2005 in connection with the private placements of
securities and accounted for in the Statement of Stockholders' Equity as of
December 31, 2005 ($26,000 was recorded as offering costs reducing stockholders'
equity in 2005).
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
Pursuant
to a series of subscription agreements, the Company received $925,000 in
proceeds from several issuances of restricted common stock it made to the former
secretary/director (who was also the Company's public/investor relations
consultant) as follows:
|
Date
Issued
|
|
|
|
Shares
Issued
|
|
Gross
Proceeds
|
|
|
03/30/06
|
|
|
|
|
|
1,500,000
|
|
$
|
225,000
|
|
|
05/04/06
|
|
|
|
|
|
500,000
|
|
|
110,000
|
|
|
05/17/06
|
|
|
(A)
|
|
|
400,000
|
|
|
100,000
|
|
|
07/18/06
|
|
|
(A)
|
|
|
800,000
|
|
|
200,000
|
|
|
09/08/06
|
|
|
|
|
|
1,000,000
|
|
|
250,000
|
|
|
11/11/06
|
|
|
(B)
|
|
|
200,000
|
|
|
40,000
|
|
|
|
|
|
|
|
|
4,400,000
|
|
$
|
925,000
|
|
(A)
Governed by a subscription agreement dated July 18, 2006 for 1,200,000 shares
at
$.25 per share.
(B)
Governed by a subscription agreement dated November 11, 2006 for 200,000 shares
at $.20 per share.
During
the year ended December 31, 2006 the Company issued 237,780 shares of restricted
common stock to the former secretary/director as compensation for consulting
services rendered valued at $59,445. Pursuant to the April 2006 consulting
agreement, the Company issued 625,000 shares of restricted common stock to
this
individual resulting in charges to operations of $206,250.
On
May
16, 2006, the Company issued 300,000 shares of restricted common stock to an
accredited investor for gross proceeds of $81,000.
On
May
17, 2006, the Company issued 40,000 shares of restricted common
stock to
an
employee in payment of a previously accrued vacation liability of $9,918 charged
as compensation.
On
September 20, 2006, the Chief Executive Officer purchased 40,000 shares (valued
at $13,200) of restricted common stock for gross proceeds of $10,000, resulting
in a charge to operations for officer compensation of $3,200..
In
September 2006, employees exercised stock options for an aggregate of 40,000
shares valued at $13,200, resulting in a charge to operations for compensation
of $7,200.
In
September 2006, the Company issued 132,246 shares of restricted common stock
to
Devendar S. Bains as reimbursement for legal fees of the Company personally
paid
by him with common shares in 2003, resulting in a charge to operations of
$46,286.
In
November 2006, pursuant to a subscription agreement dated September 26, 2006,
the Company issued 200,000 shares of restricted common stock to Joseph Nordgaard
(the now former CEO) for $.20 per share for aggregate gross proceeds of
$40,000.
Net
cash
proceeds received by the Company from private placements of restricted common
stock were $1,429,001 for the year ended December 31, 2006, compared to
$1,067,000 during the year ended December 31, 2005. As of December 31, 2006
the
Company had 36,928,293 shares of common stock issued and outstanding, compared
to 23,338,267 shares outstanding as of December 31, 2005.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
5. Amendment
to Certificate of Designation of Preferred Shares
In
May
2006, the Company's certificate of designation for the preferred shares was
amended whereby the liquidation preference was corrected to be $2 per preferred
share rather than the incorrect $750,000 per share in the original
certificate.
6. Preferred
and Common Stock Restricted under Rule 144
All
preferred shares and all shares referred to as restricted common stock are
governed by SEC Rule 144 and cannot be sold unless they are registered pursuant
to the Securities Act of 1933, as amended, or if such sale is pursuant to a
valid exemption from registration.
NOTE
D - STOCK OPTION PLANS
An
option
and stock appreciation rights (SARs) plan was authorized prior to the public
offering whereby options could be granted to purchase no more than 1,500,000
shares of common stock at exercise prices no less than fair market value as
of
date of grant. At the 2001 Annual Shareholders' Meeting, the maximum number
of
shares set aside for this plan was increased to 2,225,000. By majority consent
of the shareholders in August 2005, the maximum number of shares set aside
for
this plan was increased to 5,000,000 and the plan was extended for an additional
10 year period. Under the plan, employees and directors may be granted options
to purchase shares of common stock at the fair market value at the time of
grant. Options generally vest in three years and expire in four years from
the
date of grant. 2,850,000 options remained outstanding at December 31,
2006.
The
Company has elected to follow Accounting Principles Board Opinion (APB) No.
25,
Accounting for Stock Issued to Employees, and related Interpretations in
accounting for its stock options. Under APB No. 25, if the exercise price of
the
Company's employee stock options equals the market price of the underlying
stock
on the date of grant, no compensation expense is recognized. SFAS No. 123,
Accounting for Stock-Based Compensation, requires presentation of pro forma
net
loss and loss per share as if the Company had accounted for its employee stock
options granted under the fair value method of that statement. For purposes
of
pro forma disclosure, the estimated fair value of the options is amortized
to
expense over the vesting period.
Prior
to
adoption of SFAS 123(R) the Company used intrinsic-value method of accounting
for stock based-awards granted to employees. No stock-based compensation cost
is
included in the net loss for the year ended December 31, 2005 as no options
were
granted to employees during that period. All stock-based compensation during
the
year ended December 31, 2006 was paid in the form of restricted common
stock.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
Stock
option activity during 2006 and 2005, is summarized below:
| |
|
Shares
of common stock attributable to options
|
|
Weighted
average exercise price of options
|
|
|
Unexercised
at December 31, 2004
|
|
|
1,720,000
|
|
$
|
0.398
|
|
|
Expired
at December 31, 2005 (as restated)
|
|
|
(320,000
|
)
|
|
1.474
|
|
|
Unexercised
at December 31, 2005 (as restated)
|
|
|
1,400,000
|
|
|
0.152
|
|
|
Issued
during 2006
|
|
|
1,450,000
|
|
|
0.228
|
|
|
Unexercised
at December 31, 2006
|
|
|
2,850,000
|
|
|
0.185
|
|
The
following table summarizes information concerning outstanding and exercisable
options, including warrants issued to officers, at December 31,
2006:
| |
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
Exercise
Prices
|
|
Number
outstanding at period end
|
|
Weighted
average remaining contractual life
|
|
Weighted
average exercise price
|
|
Number
exercisable at period end
|
|
Weighted
average exercise price
|
|
|
$0.150
|
|
|
1,300,000
|
|
|
2.4
years
|
(1)
|
$
|
0.150
|
|
|
1,350,000
|
|
$
|
0.150
|
|
|
0.200
|
|
|
200,000
|
|
|
3.0
years
|
|
|
0.200
|
|
|
200,000
|
|
|
0.150
|
|
|
0.370
|
|
|
300,000
|
|
|
3.0
years
|
|
|
0.370
|
|
|
300,000
|
|
|
0.370
|
|
|
0.200
|
|
|
1,000,000
|
|
|
9.5
years
|
|
|
0.200
|
|
|
1,000,000
|
|
|
0.200
|
|
|
0.200
|
|
|
50,000
|
|
|
0.25
years
|
|
|
0.200
|
|
|
50,000
|
|
|
0.200
|
|
| |
|
|
2,850,000
|
|
|
|
|
|
|
|
|
2,900,000
|
|
|
|
|
(1) Expiration
date extended from May 1, 2000 to May 31, 2004 and was re-priced on April 9,
2003 from $4.00 to $.15 per share and was extended again to May 31, 2009 at
$.15
per share.
NOTE
E - INCOME TAXES
Temporary
differences and carryforwards give rise to deferred tax assets and liabilities.
The principal components of the deferred tax assets relate to net operating
loss
carryforwards. At December 31, 2006, the Federal net operating loss
carryforwards are approximately $18,000,000. The net operating loss
carryforwards expire at various dates through 2025, and because of the
uncertainty in the Company's ability to utilize the net operating loss
carryforwards, a full valuation allowance of approximately $6,200,000 and
$5,600,000 has been provided on the deferred tax asset at December 31, 2006
and
2005, respectively.
The
Company participated in the New Jersey Technology Tax Certificate Transfer
Program, whereby
net operating loss carryforwards generated in New Jersey can be sold to other
qualified companies. During 2006 and 2005, the Company received $NIL and
$73,126, respectively, from the sale of such net operating losses. As a result
of these transactions, the New Jersey net operating loss carryforwards are
limited to the current year loss of approximately $1,300,000 at December 31,
2006.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
Internal
Revenue Code Section 382 places a limitation on the utilization of Federal
net
operating loss and other credit carryforwards when an ownership change, as
defined by the tax law, occurs. Generally, this occurs when a greater than
50
percentage point change in ownership occurs. Accordingly, the actual utilization
of the net operating loss carryforwards and other deferred tax assets for tax
purposes may be limited annually under Code Section 382 to a percentage (about
5%) of the fair market value of the Company at the time of any such ownership
change.
The
Company's tax provision for 2006 and 2005 is principally due to the impact
of
state income and minimum taxes.
NOTE
F - COMMITMENTS AND OTHER COMMENTS
1.
OPERATING LEASES
During
July 2000, the Company entered into a lease agreement for approximately 11,000
square feet of office and manufacturing space, for a five-year period ending
July 13, 2004. The annual rental was $71,000 plus the Company's share of real
estate taxes, utilities and other occupancy costs. The landlord held a security
deposit of $35,625 representing approximately 6 months rent.
In
July
2004, Tek, Ltd. ("Tek") a company wholly owned by John Lee, entered into a
contract with the existing landlord of the operating premises to purchase the
building. In connection therewith, Tek negotiated a return of the security
deposit and accumulated interest thereon to the Company in the aggregate amount
of $40,160. The Company was leasing the premises on a month to month basis
and
paying rent on a semi-monthly basis. On April 22, 2005, concurrent with the
closing of the purchase of the building by Tek, the Company entered into a
non-cancelable operating lease with Tek which commenced on June 1, 2005 and
expires on May 31, 2008. Tek is holding a security deposit of $5,500 in
connection with this lease. The Company is obligated for minimum annual rental
payments as follows:
|
Year
ending December 31
|
|
|
|
|
|
2007
|
|
$
|
72,000
|
|
|
2008
|
|
|
30,000
|
|
| |
|
|
102,000
|
|
Rent
expense, including the Company's share of real estate taxes, utilities and
other
occupancy costs, was $74,750 and $73,417 (of which $38,500 was in connection
with the lease with Tek) for the years ended December 31, 2006 and 2005,
respectively.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
2.
401(K)
PLAN
During
1996, the Company established a defined contribution plan, the Wi-Tron, Inc.
401(k) Plan. The Company makes no contributions. All employees with greater
than
six months' service with the Company were eligible to participate in the plan.
The plan is administered by a third party.
3.
DELAWARE CORPORATE STANDING
The
Company is delinquent in the filing of Delaware franchise tax reports and,
accordingly, the corporation is not in good legal standing in the State of
Delaware.
4.
FEDERAL TAX LIENS
On
January 18, 2005, the Internal Revenue Service filed a federal tax lien with
the
County Clerk of Somerset County, New Jersey, in the amount of $35,663. Since
that date, the Company continued to be delinquent on additional tax periods
and
paid off some back periods. Consequently, more liens were filed by the
government while several were released. These liens attach to all property
currently owned by the Company as well as all property it may acquire in the
future, until the liens are satisfied. The Company paid all related liabilities
connected with these liens during the year ended December 31, 2006.
5.
NOTES
PAYABLE CONVERTIBLE INTO COMMON STOCK AT HOLDERS' OPTION
In
March
2003, two investors, each of which already own approximately 4% of the Company's
outstanding common stock, loaned the Company $20,000. The terms of each loan
provide for 6% interest and were due in March 2005 with accrued interest. By
their terms, the loans provide for accelerated payment under certain conditions,
and conversion prior to maturity into the Company's common stock at the holders
option at the rate of $.10 per share. At December 31, 2005, all loans were
converted.
The
Company did not make the required payments due March 31, 2005 under the notes,
for principal and interest. On June 27, 2005, the Board of Directors resolved
to
issue 185,000 of restricted common stock to each note holder (370,000 shares
in
total) at a revised conversion price of $.06 per share. The 370,000 restricted
shares were issued on July 26, 2005 in full settlement of the notes payable
of
$22,773. Accordingly, the Company recorded a non-cash debt conversion charge
of
$21,627, based on the difference of the value of the restricted shares issued
at
the discounted price of $.12 per share at June 27, 2005 ($.20 per share
discounted by 40% for lack of marketability of restricted shares) in excess
of
the face amount of the debt obligation.
NOTE
G - OFFICER LOANS
1. Officer
Loans and Employment Agreements
As
of
December 31, 2006, the Company owes $150,000 to Devendar S. Bains, a former
Chief Executive
Officer for loans. This balance due is non-interest bearing and is secured
by
warrants to purchase 750,000 shares of common stock at $.20 per share,
exercisable through September 2009 . The balance of $150,000 (after payment
of
$50,000 made in September 2006) is payable in three quarterly installments
of
$50,000 through September 2007. Each installment payment requires the surrender
and cancellation of 250,000 warrants. 250,000 warrants were surrendered and
cancelled in September 2006 concurrent with the $50,000 payment.
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
On
June
27, 2005, the Board of Directors resolved to enter into new employment
agreements with Devendar S. Bains and Tarlochan S. Bains to settle the liability
for unpaid salaries. In September 2006, that resolution was memorialized in
employment agreements as follows:
(i) Devendar
S. Bains - (employment agreement dated September 1, 2006) in settlement of
the
liability for accrued and unpaid salaries, the Company agreed to:
| |
a.
|
issue
a three year warrant for the purchase of 1,000,000 shares common
stock
exercisable at $.20 per share (the "Warrant"), with 750,000 remaining
outstanding at December 31, 2006;
|
| |
b.
|
pay
the amount of $200,000 in full settlement of the debt due him from
the
Company, payable in quarterly installments of $50,000 starting September
30, 2006 through June 30, 2007, with $150,000 remaining outstanding
at
December 31, 2006;
|
| |
c.
|
cancel
250,000 warrants for each $50,000 quarterly installment paid (250,000
were
canceled concurrent with the September 2006
payment);
|
| |
d.
|
provide
the right to exercise the warrants periodically in lieu of receiving
the
quarterly cash payments;
|
| |
e.
|
offer
continued employment with the Company for a term of three (3) years
at a
salary of $80,000 per year; and
|
| |
f.
|
revert
to a consulting agreement at a monthly amount of $5,000 for 12 months
upon
the payment in full of the $200,000 debt settlement (following the
last
$50,000 quarterly payment). As a consultant, the customary benefits
allowed under his regular employment will be
retained.
|
As
a
result of the employment agreement with Devendar S. Bains, the face amount
of
the loan balance of $345,843 immediately prior to the settlement exceeded the
minimum cash settlement amount of $200,000 by $145,843. The excess was credited
to additional paid-in capital. The current value of the warrants (based on
the
current trading prices of the underlying common stock) that secure this
liability is less than the minimum cash settlement amount of $200,000.
Accordingly, the contribution to additional paid-in capital was measured by
the
minimum cash settlement amount of $200,000.
Devendar
S. Bains beneficially owns 1,050,000 stock options (50,000 of which are owned
by
his wife) that have been extended until May 2008, and are otherwise not affected
by this settlement.
(ii) Tarlochan
S. Bains - (employment agreement dated July 1, 2005) in settlement of the
liability for accrued and unpaid salaries, the Company agreed to (a) issue
500,000 shares of restricted common stock valued at $185,000, (b) enter into
an
employment agreement at $80,000 per year, (c) issue 300,000 incentive
stock options exercisable at $.20 per share pursuant to the 2005 Plan valued
at
$61,695, and (d) issue 200,000 non-qualified stock options which vest
immediately and are exercisable at $.20 per share valued at $48,760, with an
unspecified number of additional options to be issued over the next two years
at
exercise prices to be determined by the Board of Directors in accordance with
the 2005 Plan at the time of issuance. Accordingly, the Company has reflected
aggregate officer compensation charged to operations of $223,879 (the value
of
the shares and options of $274,890 less the face amount of the loan balance
of
$51,110).
WI-TRON,
INC.
Notes
to Financial Statements
December
31, 2006 and 2005
2. Other
Related Party Transactions
As
of
December 31, 2006, accounts payable includes $69,636 due to Tek, Ltd. ("Tek"),
a
company wholly owned by John C. Lee. Additionally in 2006, Tek loaned the
Company $44,500. between the accounts payable and the loan, the Company owes
Tek
114,136 as of December 31, 2006. During the year ended December 31, 2006. Tek,
Ltd. made purchases of parts, supplies, services and equipment rentals on behalf
of the Company for a total of $73,092 and incurred rent to Tek, Ltd of
$69,000.
NOTE
H - LITIGATION
From
time
to time, the Company is party to what it believes are routine litigation and
proceedings that may be considered as part of the ordinary course of its
business. Except for the proceedings noted below, the Company is not aware
of
any pending litigation or proceedings that could have a material effect on
the
Company's results of operations or financial condition.
1.
A
customer filed a complaint in the Circuit Court of the Eighteenth Judicial
District of the State of Florida on January 23, 1997 alleging breach of
contract. During 2000, the Company settled with that customer at a cost of
$175,000; $25,000 is to be paid quarterly over two years. $95,000 remained
unpaid at December 31, 2006.
2.
In
April
2004, a law firm filed a judgment against the Company in the amount of
approximately $40,000 in connection with non-payment of legal fees owed to
it.
Inasmuch as this is a perfection of an already recorded liability, management
does not believe that the judgment will have a material impact on the financial
position of the Company. In March 2005, a settlement was reached whereby the
Company made a down payment of $2,500 and agreed to pay the balance in 24 equal
monthly installments of approximately $1,600. The last payment made was in
November 2006 and the Company is in default of the settlement agreement. There
is a remaing balance of $7,917 as of December 31, 2006.
3.
In
June
2004, the Company entered into a Settlement Agreement with Wayne Fogel, et
al,
before the United states District court in Tampa, Florida. The settlement
provided for, among other obligations, issuance of 250,000 shares of restricted
common stock by July 14, 2004. On November 8, 2005, 250,000 shares were issued
in connection with this settlement.
NOTE
I - SUBSEQUENT EVENTS
On
January 11, 2007, John Lee converted 125,000 shares of their preferred stock
into 12,500,000 shares of common stock.
On
January 11, 2007, Jessica Lee converted 6,000 shares of their preferred stock
into 600,000 shares of common stock.
As
a
result of such preferred stock conversion, as of January 11, 2007, the
Registrant had 50,028,293 shares of Common Stock and no shares of preferred
stock issued and outstanding.
On
January 2, 2007, Joseph Nordgaard resigned his position of Chief Executive
Officer and Director. Mr. Nordgaard agreed to remain with the Registrant
initially as an unpaid business development advisor and agreed to negotiate
formal terms at some future point if the relationship was beneficial to both
parties.
Item
14:
Audit
fees
Aggregate
fees bills by the Company’s principal accountant were $51,052 in 2006 and
$41,092 in 2005.
Audit-Related
Fees
There
were no audit related fees in 2006.
Audit
Committee Policies and Procedures for Pre-Approval of Services
The
audit
committee is in the process of formulating procedures for pre-approval of all
audit, review and attest services and non-audit services.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
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WI-TRON,
INC.
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By: |
/s/
John
C. Lee |
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Name:
John
C. Lee |
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Title:
Chief Executive Officer, and Director |
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
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Signature
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Title
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Date
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/s/
John C. Lee
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John
C. Lee
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Chief
Executive Officer
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May
17, 2007
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/s/
Tarlochan S. Bains
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Tarlochan
S. Bains
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Vice
President and Director
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May
17, 2007
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/s/
Mikio Tajima
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Director
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May
17, 2007
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Mikio
Tajima
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