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, 2005
[_] 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.
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(Name of Small Business Issuer in Its Charter)
Delaware 22-3440510
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
59 LaGrange Street, Raritan, New Jersey 08869
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(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. |_|
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 |_|
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. |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule12b-2 of the Exchange Act). |_|
Issuer's revenues for its most recent fiscal year were $471,487
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, 2006, was approximately $2,095,726.
The number of shares outstanding of the issuer's common stock as of March
31, 2006 was 30,113,267
Documents Incorporated by Reference: None
Transitional Small Business Disclosure Format Yes |_| No |X|
1
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
Background
Wi-Tron, Inc., a Delaware corporation ("we," "us," "our," the "Company")
incorporated in Delaware on December 14, 1995 as the successor to Amplidyne,
Inc., a New Jersey corporation ("Amplidyne-NJ"), which was incorporated in
October 1988. Our executive offices are located at 59 LaGrange Street, Raritan,
NJ 08869 and our telephone number is (908) 253-6870. O November 4, 2005, as part
of our current restructuring and the development of a new product strategy, we
changed our name to Wi-Tron, Inc. Our common stock trades on the OTC Bulletin
Board under the symbol WTRO.OB.
Amplifier Products
We design, manufacture and sell ultra-linear power amplifiers and related
subsystems to the worldwide wireless, local loop and satellite uplink
telecommunications market. These power amplifiers, which are a key component in
cellular base stations, increase the power of radio frequency ("RF") and
microwave signals with low distortion, enabling the user to significantly
increase the quality and quantity of calls processed by new and existing
cellular base stations. Our wireless telecommunications products consist of
solid-state, RF and microwave, single and multi-carrier power amplifiers that
support a broad range of analog and digital transmission protocols including
advanced mobile phone services ("AMPS"), code division multiple access ("CDMA"),
time division multiple access ("TDMA"), total access communication systems
("TACS"), extended total access communication systems ("ETACS"), Nordic mobile
telephone ("NMT"), global system for mobile communications ("GSM"), digital
communication service at 1800 MHz ("DCS-1800") and wideband code division
multiple access 3G communications ("W-CDMA"). The products are marketed to the
cellular, wireless local loop and personal communication systems ("PCS")
segments of the wireless telecommunications industry.
We continue to develop products and have completed the development of a
multi-carrier W-CDMA (Wide Band CDMA) 80-Watt amplifier with digital signal
processing, which meets 3GPP standards. 3GPP refers to the 3rd Generation
Partnership Project, a collaboration agreement between ETSI (Europe), ARIB/TTC
(Japan), CCSA (China), ATIS (North America) and TTA (South Korea) that was
established in December 1998 to develop mobile phone standards.
2
In 2005 and presently, the Company has been engaged in restructuring its
business. As a result, we have experienced a considerable downturn in overall
business due to a decline in sales of our local loop products, which were being
deployed at a much lower rate by our customer. We also maintained low levels of
staffing throughout 2005, after significant staff cutbacks in the previous two
years. Although, we were able to raise additional funds to restructure our
business and fund development of our W-CDMA amplifier and digital signal
processing techniques, these funds are not sufficient and as a result we have
been operating under severe cash flow conditions for most of 2005. These
conditions have considerably limited our sales and marketing efforts.
We have several products covered by a patent issued by the United States
Patent and Trademark Office for Pre-Distortion and Pre-Distortion Linearization
which, the Company believes is effective in reducing distortion, in amplifiers.
In addition to our product line of single channel power amplifiers, which are
currently utilized by the wireless communications industry, we also develop,
design and manufacture Multi-carrier Linear Power Amplifiers ("MCLPA"). MCLPA
combine the performance capabilities of many single carrier amplifiers into one
unit, eliminating the need for numerous single carrier amplifiers and the
corresponding unnecessary space occupied by the cavity filters encasing the
amplifiers. Management believes that with our (i) proprietary technology (which
effectively reduces distortion), (ii) technological expertise and (iii)
established product line consisting of ultra-linear single channel power
amplifiers, we can achieve similar performance with MCLPA. Our linear power
amplifiers and MCLPA utilize our patented pre distortion and proprietary
feed-forward technology, which simultaneously amplifies many channels with
minimal distortion. This capability has been enhanced by development of digital
signal processing techniques.
High Speed Wireless Internet Products
In 1999, we made our entry into the emerging wireless Internet access
market with new products in the ISM license exempt operating band (2.4 to 2.4835
GHz). The line of spread spectrum radio products has been expanded to provide
complete solutions, with designs for indoor, outdoor and hybrid indoor/outdoor
network coverage including point-to-point and point-to-multi-point
configurations.
In 2005, the Company decided to cease any further investment in this
technology and products. However, we will continue to review the market place,
especially the opportunities in the evolving Wi-Max technologies.
Cellular Systems
A cellular system consists of a number of cell sites that are networked to
form a cellular system operator's geographic coverage area. Each cell site has a
base station which houses the equipment that transmits and receives telephone
calls between the cellular subscriber within the cell and the switching office
of the local wireline telephone system. Such base station equipment includes an
antenna and a series of transceivers, power amplifiers and cavity filters. Large
cell sites, which generally cover a geographic area of up to five miles in
radius, are commonly referred to as "macro cells."
The ability of cellular system operators to increase system capacity
through the use of micro cells is largely dependent on their ability to
broadcast multiple signals with acceptable levels of interference and
distortion. In cellular systems, the amplifier is generally the greatest source
of signal interference and distortion, particularly with multi-carrier high
power amplifiers. Consequently, obtaining amplifiers that can transmit and
receive multiple signals with low distortion or interference from adjacent
signals ("high spectral purity") is critical to a cellular system operator's
ability to increase system capacity. Substantial resources and technical
expertise are required to design and manufacture multi carrier power amplifiers
with high spectral purity. To achieve high spectral purity, multi-carrier
amplifier systems must have high interference cancellation properties.
We believe that the potential opportunities for wireless communication
services in countries without reliable or extensive wire line systems may be
even greater than in countries with developed telecommunication systems.
3
Strategy
Utilizing our proprietary, patented technology and experience in
interference cancellation, we are focused on developing amplifier products
required by telecommunication operators. These amplifier products address the
telecommunication operators' wide bandwidth requirements, while maintaining
digital signal processing capabilities and higher efficiencies. We developed our
W-CDMA 80-Watt amplifier with digital signal processing to meet these
requirements, and will continue to develop high-efficiency amplifiers during
2006. We are also looking to broaden our product line by introducing filters,
diplexers and repeaters by forming strategic alliances. In addition, we intend
to enhance our analog pre distortion technology by introducing digital pre
distortion correction techniques.
The Company's business strategy focuses primarily on the wireless
communication market and consists of the following elements:
Increase Penetration of Wireless Equipment Manufacturers. Since 1991, we
have positioned ourselves as a supplier of amplifier products to large wireless
telecommunications OEMs. We seek to capitalize on our existing customer
relationships and become a more significant source of our customers' amplifiers
by working closely with OEM customers to offer innovative solutions to technical
requirements and problems. During 2006, we intend to use our W-CDMA amplifier
products as a major marketing and sales thrust both in the U.S. and Asian
markets.
Maintain a Technology Edge. We believe that, with our products have been
addressing the needs of our customers for products that solve significant
technical problems. We believe our interference cancellation technologies are
among the most advanced that are commercially available in the industry, both in
performance and diversity of methodology. We utilize proprietary and patented
pre-distortion technology and proprietary feed-forward interference cancellation
technology in our linear power amplifiers and MCLPAs to enable the user to
significantly increase the quality and quantity of calls processed by new and
existing cellular base stations. We intend to continue to maintain resources in
research and development, and continue the development of digital signal
processing, digital predistortion techniques, and high efficiency amplifiers.
Develop Innovative Proprietary Products. To date, we have focused our
efforts in the development of amplifier products which are highly innovative,
and which are not the standard "commodity" type product. In addition, we believe
that we have compiled an extensive design library in the solid-state, high power
amplifier industry utilizing our proprietary and patented technology and
expertise in interference cancellation. We have developed and intend to continue
to develop products that combine basic components in unique and high performance
configurations, to command higher prices in the wireless communications market.
In addition, we have adapted this expertise for new commercial market
applications and have developed products for W-CDMA 3G (third generation)
communications.
Provide Support from Product Design through Installation and Operation. We
work with our customers throughout the design process to assist them in refining
and developing their amplifier specifications. Once the specifications have been
met and the product delivered, we continue to provide technical support to
facilitate system integration, start-up and continued operation. By providing
customer support services from the product design phase through installation and
operation, management believes it fosters increased levels of customer loyalty
and satisfaction. In addition, through this process, we believe we will develop
new product definitions and implementations to further enhance our strategic
position in the wireless market.
Maintain Control of the Manufacturing Process. We have consistently
analyzed in house automated manufacturing versus the use of subcontracted
manufacturers in order to control our production schedule. In certain instances,
we have made the strategic decision to select single or limited source suppliers
in order to obtain lower pricing, receive more timely delivery and maintain
quality control.
4
The Wi-Tron Advantage
We believe that our products have several features, which differentiate
them from those of our competitors, such as:
The Predistortion Solution. Utilizing its proprietary technology, we can
obtain significant distortion reduction in our core amplifiers. This enables the
pre-distorted amplifier to have feed-forward correction (which is described
below, see "Technology") applied to it to achieve distortion cancellation.
Distortion and Spurious Cancellation Resulting in Ultra Linear High Power
Amplifiers. We believe the use of MCLPA is critical in the implementation of new
cellular systems and the upgrade of older analog systems. Cellular systems need
to cover large areas with minimum hardware in order to minimize cost per
subscriber. Reduction of the distortion and spurious signals from the amplifiers
is a key enabling technology. We have developed proprietary interference
cancellation technology using multiple methods to achieve high suppression of
spurious output and distortion typically associated with higher power
amplifiers. Our single channel amplifiers have also been well received in the
industry; however, we have experienced more competition in this area. We are
seeking to position ourselves to be a viable source in this area. We constantly
monitor these situations and will employ sources to explore such opportunities,
as financing permits.
By utilizing our proprietary and patented predistortion technology and our
proprietary feed forward technology, the MCLPA amplification capacities of our
amplifiers are, in management's belief, among the better products in the
industry.
Linearity, Low Distortion and High Amplification. Wireless service
providers' ability to manage scarce spectrum resources more effectively and
accommodate large numbers of subscribers is largely dependent on their ability
to broadcast signals with high linearity, which pertains to the ability of a
component to amplify a wave form without altering its characteristics in
undesirable ways. Linear amplifiers allow signals to be amplified without
introducing spurious emissions that might interfere with adjacent channels.
Higher linearity increases the capacity of cellular systems by enabling a more
efficient use of digital transmission technologies, micro-cellular architectures
and adaptive channel allocation. In current cellular systems, the power
amplifier is generally the source of the greatest amount of signal distortion.
Consequently, obtaining power amplifiers with high linearity and low distortion
is critical to wireless service providers' ability to improve spectrum
efficiency.
We have several products covered by a patent issued by the United States
Patent and Trademark Office, which we believe, gives us a significant advantage
over our competitors.
Multicarrier Designs. Multicarrier amplification, in which all channels
are amplified together by a MCLPA, rather than each channel using a separate
amplifier, allows for instantaneous electronic channel allocation. Functionally,
it combines many single channel power amplifiers, into a single unit, thereby
eliminating the single channel power amplifiers and the corresponding tunable
cavity filters. MCLPA require significantly higher linearity compared to single
channel designs.
Our high linearity products, incorporating pre-distortion and feed-forward
technology, in management's belief, achieve among the lowest distortion in the
industry. The MCLPA amplified signal remains within its prescribed band and
spectrum with low interference of adjacent channels, thus providing flexibility
to accommodate any frequency plan.
Bi-Directional Tower Top Amplifier. One of the key components in the
wireless Internet access system is the bi-directional tower top amplifier. We
also have considerable experience in the design, development and deployment of
fixed broadband amplifier products. The amplifier has to operate reliably in an
outdoor application. Our expertise in this area is an advantage over competitors
who are required to purchase their amplifiers from outside sources.
5
We also have considerable know-how of other related products such as
antennas, filters, power supplies and digital control circuits. We are therefore
able to offer a turnkey solution to ISP's, providing indoor and outdoor
networking support using our existing resources. We have a cost advantage
because we manufacture our own amplifiers, which we can, if necessary, rapidly
refine and change.
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.
6
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.
Our wireless Internet access products consist of point-to-point and point
to multipoint indoor and outdoor units that can be configured to provide broad
coverage over a city or region or to create coverage in an indoor space with
free roaming access.
At the remote site an indoor or outdoor LAN system can be connected using
a single channel CPE or Access Point, with various antennae combinations.
Amplifiers are used for range extension purposes.
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. Wireless local loop systems are increasingly being
adopted in developing markets to more quickly implement telephone and Data
communication services. In certain developing countries, wireless local loop
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 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. In addition, we also sell a
complete line of fixed broadband wireless networking and LAN products for
private networks, virtual private networks and Internet access.
7
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, we completed the development of a
wide band 80W MCLPA with Digital Signal Processing technology.
Local Loop and Mini Cell Amplifiers. Local loop and mini cell amplifiers
are designed with a proprietary circuit to achieve a high IMD specification,
which translates to better call quality through the mini cell. These amplifiers
can be ordered as modules or in a rack configuration.
Low Noise Amplifier, Cellular, PCN, PCS, GSM. Our low noise amplifiers are
manufactured with a mix of silicon 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, the decline in the telecommunications industry resulted
in low activity during most of 2004 and 2005. 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.
8
The Company has backlog of orders worth approximately $1.5m and expects to
ship these products during the second half of 2006. 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 2006. 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 2005 and 2004.
Net Revenues By Market Categories
(In thousands)
Year Ended
December 31,
--------------------
2005 2004
---- ----
Amplifier Markets
-----------------
Wireless Telephony . . . . . . . . . . . . . . . . . . . . . . . 471 $656
Satellite Communications, Custom and other Products . . . . . . .
Ampwave Market
--------------
Wireless Internet Products. And Broadband solutions . . . . . . . 0 88
---- ----
Total . . . . . . . . . . . . . . . . . . . . . . . . . $471 $744
==== ====
* Wireless Telephony. Sales to the wireless telephone segments of the wireless
communications industry decreased from approximately $656,000 in 2004 to
$472,000 in 2005.
* 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 almost all the sales in 2005
* 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.
9
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.
10
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.
We have started to manufacture some of the products for our high speed wireless
internet products.
We manufacture some of our high speed wireless internet products and
amplifiers in our New Jersey facility and the rest in offshore facilities, which
are ISO 9001 certified.
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 2005 and 2004 were approximately $552,000 and
$256,000, respectively, and represented approximately 117% and 34% 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.
During most of 2005, we spent substantial sums to develop our 3G 80W
W-CDMA amplifier, of which we have produced four pre-production units that are
available for evaluation or sale to customers.
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.
11
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. Our wireless internet access products are marketed under the trademark
Ampwave(TM) .
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 March 31, 2006, we had a total of 14 employees: 7 in operations, 3
in engineering, 3 in administration, and 1 in international sales. We employ one
consultant in sales and marketing. 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.
12
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:
o the statements may discuss our future expectations;
o the statements may contain projections of our future earnings or of
our financial condition; and
o 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 $1,318,735 and $768,878 for the years ended
December 31, 2005 and 2004, 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 $24,947,724 as of
December 31, 2005.
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
$110,000 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.
13
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,
2005 includes 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 2005 and 2004, a major downturn occurred in the telecommunications market
and recovery 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.
14
Our limited number of suppliers could adversely affect our business.
Power transistors and certain other key components used in our products for our
amplifiers, as well as our wireless internet business 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 and our sales orders have had
a high degree of delays and cancelled orders.
In 2005, one customer accounted for 95% of our sales and 100% of our accounts
receivable. In the past few years we have experienced reductions, delays and
cancellations in orders from our new and existing customers and we have lost
important North American customers. We anticipate that sales of our products to
relatively few customers will account for a majority of our 2006 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. In
addition, we have limited experience in the marketing and sales of our wireless
internet products, and cannot be certain that this sector will grow in revenue
as expected, particularly with our reduced staff levels.
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 42%
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 130,000 shares of our Series C
Convertible Preferred Stock, which is convertible at any time into 13,000,000
shares of common stock. As a result, Mr. Lee holds approximately 33% 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.
15
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 internet and 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.
16
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:
o effectively use established technologies;
o continue to develop our technical expertise; and
o 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 close to 100% of our net revenues for the years
ended December 31, 2005 and 2004. 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:
o the impact of recessionary environments in economies outside the
United States;
o generally longer receivables collection periods;
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o potentially adverse tax consequences;
o reduced protection for intellectual property rights in some
countries;
o 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:
o our ability to attract and retain customers;
o development of competitive products;
o the short term nature of manufacturing and engineering orders to
date;
o unforeseen changes in operating expenses;
o the loss of key employees; and
o 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.
17
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.
18
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:
o Limited release of the market prices of our securities;
o Limited news coverage of us;
o Limited interest by investors in our securities;
o Volatility of our stock price due to low trading volume;
o Increased difficulty in selling our securities in certain states due
to "blue sky" restrictions;
o 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.
19
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, 2005, there were 23,338,267 shares of our common stock issued and
outstanding, which amount does not include:
o 20,000 warrants exercisable at $1.00 through May 2010
o 75,000 warrants exercisable at $.96 through March 2007
o 1,350,000 options exercisable at $.15 through May 31, 2009
o 50,000 options exercisable at $.20 through March 31, 2006
As of December 31, 2005 we had at least 55,516,733 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 1,495,000 shares, exercise of options granted to
our securities lawyer of 1,000,000 shares, additional private placement shares
of 5,550,000 issued in 2006, and conversion of 140,000 preferred shares into
14,000,000 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, 2005, we had 140,000 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.
20
Item 2. Description of Property.
The Company leases approximately 11,000 square feet, at 59 LaGrange
Street, Raritan, NJ 08869 from Tek Ltd., a company wholly owned by John C. Lee.
These premises serve as the Company's executive offices and manufacturing
facility. The current lease terminates on December 31, 2007 and provides that
the Company pay monthly rent in the amount of $5,500 for 2005, $5,750 for 2006,
and $ 6,000 for 2007.
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. Other than as set forth below, the Company is not a party to
any material pending litigation or governmental proceedings that, management
believes, would result in judgments or fines that would have a material adverse
effect on the Company.
The Company is or was a party to the following matters:
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, 2005.
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.
4. 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 provides for the following obligations by the Company to Mr. Fogel:
(1) payment of $12,000 by July 14, 2004; (2) issuance of 250,000 shares of
restricted common stock by July 14, 2004 and; (3) the shipment of specified
items of inventory valued at approximately $22,000. The agreement further called
for the issuance of common stock of one share for each $1 of inventory not
delivered in lieu of the inventory in the event the company cannot deliver.
Since non-delivery of the specified items is definite, the financial statements
provide for the issuance of 22,000 additional shares. All shares in connection
with this transaction were valued at the publicly traded market value of $.05 on
the date of the settlement, less a discount of 40% for the restriction on sale,
with a provision for a loss provided for by the Company during the year ended
December 31, 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
On August 31, 2005, holders of approximately 51% of the Company's
outstanding shares of common stock, adopted, by written consent, resolutions
authorizing the Company to (a) effectuate an increase in the authorized shares
of common stock from 25,000,000 to 100,000,000, and increase the authorized
shares of preferred stock from 1,000,000 to 5,000,000; (b) change our name to
Wi-Tron, Inc.; and (c) ratify and approve the Company's 2005 Stock Option Plan.
21
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, 2006 .18 .10
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
2004 Calendar Year
------------------
January 1-March 31 .20 .04
April 1-June 30 .12 .04
July 1-September 30 .09 .05
October 1-December 31 .08 .03
On March 31, 2006, the closing price of the common stock as reported on
OTCBB was $.18 On March 31, 2006 there were 30,113,267 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 2006 and 2005 not previously reported on a Current Report on Form 8-K,
or on a Quarterly Report on Form 10-QSB.
On December 12, 2005, the Company issued a total of 600,000 shares to four
accredited investors resident in the United States pursuant to Rule 506 of
Regulation D. Pursuant to a Term Sheet dated August 5, 2005, the Company offered
Units, each Unit consisting of (a) 100,000 shares of the common stock, and (b) a
$50,000 6% promissory note. The Units were sold at a price of $56,000 each for
total gross proceeds of $336,000.
On March 31, 2006, the Company agreed to issue 625,000 shares of common
stock to the spouse of John Chase Lee, the Company's president, chief executive
officer, and director, for a total purchase price of $50,000. The proceeds were
used for operating expenses.
22
Neither we nor any person acting on our behalf offered or sold the foregoing
securities by means of any form of general solicitation or general advertising.
All purchasers represented in writing that they acquired the securities for
their own accounts. A resale legend has been provided for the stock certificates
stating that the securities have not been registered under the Securities Act of
1933 and cannot be resold or otherwise transferred without registration or an
exemption (such as that provided by Rule 144).
23
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations - Fiscal Year ended December 31, 2005 compared to Fiscal
Year ended December 31, 2004.
Revenues for the fiscal year ended December 31, 2005 decreased by $272,303 from
$743,790 to $471,487, or 37% compared to the fiscal year ended December 31,
2004. This was due to build up of inventory and reduced demand during the
previous year at our major customer. The decline is largely represented by the
decrease in sales to North American customers, which went down to approximately
$13,000 in 2005 from approximately $201,000 in 2004, a decrease of approximately
$188,000 or 94%.
The majority of the amplifier sales for the year ended December 31, 2005 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 $626,003 or 133% of sales (including an inventory write-down
of $129,906) during the year ended December 31, 2005, compared to 104% during
the same period for 2004 as restated. Our fixed overhead costs are relatively
high for our current sales volume. Excluding the inventory write-down, the cost
of sales for the year ended December 31, 2005 as restated was $496,097 or 105%
of sales. 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 2005 by $53,797 to
$603,211 from $549,414, as restated in 2004. Expressed as a percentage of sales,
the selling, general and administrative expenses (excluding stock based
compensation) were 128% in 2005 and 74% in 2004. The principal factors
contributing to the increase in selling, general and administrative expenses
were related to increases in the costs of consultants and travel expenses
connected with the Company's marketing efforts in Asia.
Research, engineering and development expenses were $552,076 representing 117%
of net sales in 2005 compared to $256,175 representing 34% of net sales in 2004
an increase of $295,901 or 116%. In 2005 and 2004, 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 2004 of $4,535. Other income was $NIL in 2005.
The Company also sold New Jersey Net operating loss carryforwards pursuant to
the New Jersey Technology Certificate Transfer Program, receiving $73,126 in
2005 and $129,317 in 2004.
24
Interest expense was $8,092 in 2005 principally related to $300,000 of
convertible notes issued in private placements in 2005; whereas, the $1,200 in
2004 related to other convertible notes converted into common stock in 2005.
Actual and estimated litigation settlement costs (see financial statement Note G
- Litigation) have been provided in 2004, to reflect the actual cost of the
settlement of the Fogel matter in 2004, for which we provided a charge of
$20,460.
There was no stock compensation cost for 2005 or 2004.
As a result of the foregoing, the Company incurred net losses of $1,318,735 or
$0.09 per share for the year ended December 31, 2005 compared with net losses of
$768,878 or $0.07 per share for the same period in 2004.
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 and private placements. 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, 2005, we had an accumulated deficit of
$24,947,724. Potential immediate sources of liquidity are private placements of
common stock.
As of December 31, 2005, our current liabilities exceeded our cash and
receivables by $1,283,582. Our current ratio was 0.12 to 1.00, but our ratio of
accounts receivable to current liabilities was only 0.02 to 1.00. This indicates
that we will have difficulty meeting our obligations as they come due. We are
carrying $108,591 in inventory, of which $58,177 represents component parts.
Based on last year's usage, we are carrying 54 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, 2005, we had cash in banks of $34,998 compared to $122,234 at
December 31, 2004, while overall our cash position declined by $87,236 during
2005. This balance is not sufficient for our operations and we are dependent on
private placement funds to cover our working capital needs. Our cash used for
operating activities was $1,167,083, excluding the benefit of salary deferrals
by officer/stockholders of $62,635. This year we repaid loans of to officers of
$8,141.
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.
Provision for doubtful accounts decreased from $21,260 in 2004 to $NIL in 2005.
Our inventories decreased by $201,042 to $108,591 in 2005 compared to $309,633
in 2004, a decrease of 65% We believe that the reasons for the decreased
inventories was largely due to the $129,906 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.
25
The Company has a lease obligation for its premises requiring minimum monthly
payments of approximately $5,750 to $6,000 through 2008.
Although the Company did not convert salaries to officers through the issuance
of Common Stock in 2005 or 2004, it may to do so in 2006. To help alleviate the
cash flow difficulties, officers agreed to defer an aggregate of $62,635 of
salaries.
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.
26
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.
27
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
Stock-based employee compensation is accounted for under the intrinsic value
based method as prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations as
clarified by Financial Interpretation No. 44 (FIN 44), Accounting for Certain
Transactions Involving Stock Compensation.
Under the fair value method, the Company's net loss and loss per share would
have been as follows:
2005 2004
--------------- --------------
Net loss $ (1,406,279) $ (923,061)
Loss per share $ (0.09) $ (0.09)
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.
28
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.
None.
29
Item 8a: Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures:
1. Management is responsible for establishing and maintaining adequate
disclosure controls and procedures.
2. 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 and Principal Accounting Officer, of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Chief Executive and
Principal Accounting Officer concluded that the Company's disclosure
controls and procedures were not effective as of the original filing
of the December 31, 2004 Form 10KSB in timely alerting him 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.
3. 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.
o We had particular difficulty in recording transactions related
to stockholders' equity and tracking and recording related
charges to operations.
o We further found that while the controls over initiating and
recording routine transactions were adequate, we had
inadequate procedures to determine the continued existence of
recorded balances in the area of trade accounts payable. The
finding of this weakness resulted in the restatement of the
Company's annual 2003 and 2004 financial statements to correct
for previously recorded liabilities that were no longer due
and payable that should have already been written off in those
years. We believe that we have corrected this deficiency and
will continue to carefully monitor the proper application of
this control.
o The liabilities written off in some cases represented
amounts where the creditor failed to or elected not to
pursue collection from the Company in its strained
financial circumstances. For example, certain legal and
consulting fees incurred were not paid. In other cases,
amounts related to erroneously recorded premiums for
cancelled employee healthcare benefit and other policies
were not paid.
o 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 and we needed to apply substantial downward
adjustments to the carrying amounts of pre-production units
which carried substantial labor costs, much of which should
have been charged to research and development.
o We are currently unable to produce our financial statements
and periodic filings without the assistance of a third-party
financial accounting consulting firm who needs to apply
substantial adjustments to our records to produce accurate
financial statements.
(b) Changes in Internal Controls Over Financial Reporting:
1. Effective with the Company's filing of a Form 10QSB for the six
months ended June 30, 2005 made on August 22, 2005, we changed the
procedures management now uses to determine and evaluate the
continued existence of liabilities to assure that the financial
statements present only those liabilities that are properly due and
payable.
30
2. Controls essentially put in place, effective August 22, 2005,
require careful review of Accounts Payable aging reports by the
Company's Controller on at least a quarterly basis, coincident to
the Company filing Forms 10KSB and 10QSB, specifically for vendor
amounts that remain unpaid for periods approaching or exceeding 90
days from the date incurred.
3. We engaged the services of a third-party financial accounting
consulting firm to help us produce our financial statements and
periodic filings.
4. There were no changes in Internal Controls put in place during the
fourth quarter of the year ended December 31, 2004. That is because
the weakness identified related to evaluation of recorded trade
accounts payable was not identified until the filing of the
Company's 10QSB for the three months ended March 31, 2005, and we
determined the appropriate controls necessary to respond to this
weakness after carefully completing our investigation of the facts
related thereto in conjunction with filing Form 10QSB for the six
months ended June 30, 2005. Based on the nature of the weakness we
believe the controls put in place will satisfactorily remediate them
for the Company going forward.
31
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* 76 Chief Executive Officer, President, and Director.
Tarlochan Bains* 56 Vice President - Amp Division, and Director
Jessica Hye Lee 44 Chief Financial Officer, Secretary, and Director
Joong Bin Lee 51 Vice President - Korea Division
Devendar S. Bains 55 Chief Technology Officer
Mikio Tajima 72 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 serves 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.
Jessica Hye Lee has served as Chief Financial Officer, Secretary, and a Director
since June 2005. From September 2004 to June 2005, she served as Secretary and
director. Since 1997, Ms. Lee has been managing and operating her own accounting
firm in Princeton, NJ, and has assisted with accounting and finance for number
of companies in New Jersey. Ms. Lee received a BA from Yonsei University in
Seoul, Korea, and an MBA from Rutgers University.
32
Joong Bin Lee has served as Vice President - Korea Division since June 2005. For
the past fourteen years, Mr. Lee had been employed by Lucent Technologies in its
Wireless Business Unit in Whippany, New Jersey. Mr Lee is a graduate of Yonsei
University, Seoul, Korea. Mr. Lee will head Wi-Tron's penetration of South Korea
market for recently developed W-CDMA amplifiers.
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
We do not have a formal audit committee. The board, in lieu of a formal
audit 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.
The financial expert on the board of directors is Jessica Hye Lee, a
certified public accountant with over 20 years of experience.
The board, in lieu of a formal 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, 2005.
For the year ended December 31, 2005, the Company incurred professional
fees to its auditors in the amount of $41,092, 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.
33
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, 2005, 2004 and 2003 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 Payouts
------ -------
Annual Compensation
--------------------- Securities
Name and Principal Position Salary ($) Bonus ($) Other Annual Restricted Underlying All
--------------------------- ---------- --------- ------------ Stock Options/ LTIP Other
Year Awards SARS (#) Payout Comp
---- ------ -------- ------ ----
Compensation
------------
John C. Lee 2005 $ 24,000( ) --
Chief Executive Officer
And Director
Devendar S. Bains, 2005 $121,000(6) -- $20,000 (1)
Chief technology officer 2004 $140,250(5) -- $20,000 (1)
2003 $162,000(2) -- $20,000 (1)
Tarlochan Bains, 2005 $ 90,000(7) --
Vice President 2004 $100,000(4) --
and Director 2003 $100,000(3) --
(1) Represents payment for health insurance and automobile insurance/lease
payments on behalf of such individual but does not include deferred
compensation.
(2) Of the salary, $22,293 was paid and $139,707 was accrued but not paid in
the year ended December 31, 2003. Does not include $50,000 paid to Nirmal
Bains, the wife of Devendar Bains.
(3) Of the salary, $55,719 was paid and $44,281 was accrued but not paid in
the year ended December 31, 2003.
(4) Of the salary, $9,331 was accrued but unpaid at December 31, 2004.
(5) Of the salary, $58,000 was accrued but unpaid at December 31, 2004. Does
not include $50,000 paid to Nirmal Bains, the wife of Devendar Bains.
(6) Of the salary, $46,000 was accrued but unpaid at December 31, 2005. Does
not include $50,000 paid to Nirmal Bains, the wife of Devendar Bains.
(7) Of the salary, $10,000 was accrued but unpaid at December 31, 2005.
34
Employment Agreements
The Company entered into employment agreements with each of Devendar Bains
(Chairman, Chief Executive Officer and Treasurer), Tarlochan Bains (Vice
President - Operations), and Nirmal Bains (Secretary), which, as extended, now
expire on April 30, 2005. The employment agreements provide for annual base
salaries of $162,000, $100,000 and $50,000 with respect to Devendar Bains,
Tarlochan Bains and Nirmal Bains, respectively. The employment agreements
provide for discretionary bonuses to be determined in the sole discretion of the
Board of Directors and contain covenants not to compete with the Company
following termination of employment.
In June 1998, the Company issued 40,000 shares of Common Stock to Devendar
S. Bains, the Company's President and Chief Executive Officer, in consideration
of the forgiveness by Mr. Bains of $50,000 of accrued salary owed to him.
On December 31, 1998, accrued and unpaid salary in the aggregate amount of
$195,000 owed as of September 30, 1998 to Devendar S. Bains ($117,000),
Tarlochan Bains ($54,600) and Nirmal Bains ($23,400), were forgiven. In
consideration of such forgiveness of accrued salary, the Company issued 104,000,
48,533 and 20,800 shares, respectively, to such persons (based upon the closing
sales price of the Common Stock as of September 30, 1998).
On March 31, 1999, accrued and unpaid salary in the aggregate amount of
$20,717 owed as of December 31, 1998 to Devendar S. Bains ($10,566), Tarlochan
Bains ($6,629) and Nirmal Bains ($3,522) were forgiven. In consideration of such
forgiveness of accrued salary, the Company issued 4,025, 2,526 and 1,342 shares,
respectively, to such persons (based upon the closing sales price of the Common
Stock as of March 31, 1999).
On March 31, 1999, accrued and unpaid salary in the aggregate amount of
$41,920 owed as of March 31, 1999 to Devendar S. Bains ($14,346), Tarlochan
Bains ($25,474) and Nirmal Bains ($2,100) were forgiven. In consideration of
such forgiveness of accrued salary, the Company issued 5,465, 9,704 and 800
shares, respectively, to such persons (based upon the closing sales price of the
Common Stock as of March 31, 1999).
On June 30, 1999, accrued and unpaid salary in the aggregate amount of
$57,546 owed as of June 30, 1999 to Devendar S. Bains ($27,424), Tarlochan Bains
($22,822) and Nirmal Bains ($7,300) were forgiven. In consideration of such
forgiveness of accrued salary, the Company issued 15,398, 12,815 and 4,099
shares, respectively, to such persons (based upon the closing sales price of the
Common Stock as of June 30, 1999).
On September 30, 1999, accrued and unpaid salary in the aggregate amount
of $38,541 owed as of September 30, 1999 to Devendar S. Bains ($20,885),
Tarlochan Bains ($12,986) and Nirmal Bains ($4,700), were forgiven. In
consideration of such forgiveness of accrued salary, the Company issued 3,358,
2,088 and 756 shares, respectively, to such persons (based upon the closing
sales price of the Common Stock on September 29, 1999).
On December 31, 1999, accrued and unpaid salary in the aggregate amount of
$22,369 owed as of December 31, 1999 to Devendar S. Bains ($14,346), Tarlochan
Bains ($5,923) and Nirmal Bains ($2,100), were forgiven. In consideration of
such forgiveness of accrued salary, the Company issued 3,566, 1,060 and 376
shares, respectively, to such persons (based upon the closing sales price of the
Common Stock on December 31, 1999).
35
There was no conversion of unpaid salary into equity from 2000 to 2004.
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, 2005, 1,400,000 options to purchase Common Stock under
the 1996 Option Plan were granted and/or reserved to certain employees, and no
options were issued under the 2005 Option Plan. The options are exercisable at
between $.15 and $0.20 and expire on at various dates through 2009. 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.
36
Other Options
Pursuant to the terms a former employee's employment agreement employment
agreement, the Company issued 300,000 options to purchase common stock
exercisable at $1.50 per share. The options were fully vested but expired
December 31, 2005.
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, 2006, 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 30,113,267
shares of common stock issued and outstanding as of March 31, 2006.
Name and Address of Shares of Common Percentage
Beneficial Owner* Stock Owned(1) Ownership
----------------- -------------- ---------
John Chase Lee 14,380,632(2) 33.5%
Jessica Hye Lee (3) 1,000,000(3) 3.2%
Tarlochan Bains 76,726 <1%
Devendar S. Bains 3,212,985(4) 10.7%
Joong Bin Lee (5) -- --
Mikio Tajima -- --
Harris Freedman 2,509,525(6) 8.3%
1241 Gulf of Mexico Dr.
Longboat Key, FL 34228
Jerome Belson 2,240,000 6.8%
495 Broadway
New York, NY
GRQ Consultants, Inc. 1,700,000(7) 5.6%
595 S. Federal Highway
Boca Raton, FL 33432
James Davidson 1,525,000 5.1%
321 South Saint Asaph St
Alexandria, VA 22314
All Officers and Directors 18,670,343 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
37
(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) Represents (a) 200,000 shares of common stock, and (b) 8,000 shares of
Series C Convertible Preferred Stock, which is convertible into 800,000 shares
of common stock at any time. Jessica Hye Lee is the wife of Joong Bin Lee, and
is not related to John Chase Lee.
(4) 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.
(5) Joong Bin Lee is the husband of Jessica Hye Lee.
(6) 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.
(7) Represents shares of common stock held by GRQ Consultants, Inc. 401K Plan,
of which Mr. Honig is sole trustee.
Item 12. Certain Relationships and Related Transactions.
Devendar S. Bains, the former Chief Executive Officer agreed to defer
$46,000 (2005) and $58,000 (2004) of salaries to help the Company with its cash
flow. The current the Vice President of Operations also agreed to defer $10,000
of salaries. In 2004, Devendar S. Bains loaned the Company an additional $37,991
and was repaid $4,500. As of December 31, 2005, the Company owed $345,842 to the
Devendar S. Bains for loans ($97,501) and accrued salaries ($248,341) and owed
other officers an aggregate of $77,358 for accrued salaries. The total due to
all officers combined at December 31, 2005 was $416,200.
See "Management - Employment Agreement" for issuances to officers and
directors.
38
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
Financial Statements
Balance Sheets F-3 to F-4
Statements of Operations F-5
Statement of Stockholders' Deficiency F-6
Statements of Cash Flows F-7 to F8
Notes to Financial Statements F-9 to F-25
39
(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.
40
WI-TRON, INC. (F/K/A AMPLIDYNE, INC.)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets F-3 to F-4
Statements of Operations F-5
Statement of Stockholders' Deficiency F-6
Statements of Cash Flows F-7 to F-8
Notes to Financial Statements F-9 to F-25
-F1-
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. (f/k/a
Amplidyne, Inc.) as of December 31, 2005 and 2004, and the related statements of
operations, stockholders' deficiency, and cash flows for the years 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, 2005 and 2004, 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
-F2-
WI-TRON, INC. (F/K/A AMPLIDYNE, INC.)
BALANCE SHEETS
December 31, 2005
ASSETS - PLEDGED
2005 2004
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 34,998 $ 122,234
Accounts receivable, net of allowance for doubtful accounts of
$702 and $NIL in 2005 and 2004, respectively 21,926 15,597
Inventories 108,591 309,633
Prepaid expenses and other 1,208 --
--------- ---------
Total current assets 166,723 447,464
--------- ---------
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 587,276 565,629
Furniture and fixtures 43,750 43,750
Autos and trucks -- 66,183
Leasehold improvements 8,141 8,141
--------- ---------
639,167 683,703
Less accumulated depreciation and amortization (621,306) (681,956)
--------- ---------
17,861 1,747
--------- ---------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS 5,500 --
--------- ---------
TOTAL ASSETS $ 190,084 $ 449,211
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-F3-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
BALANCE SHEETS
December 31, 2005
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) 2005 2004
------------ ------------
CURRENT LIABILITIES
Secured note payable -- Phoenix -- payment default $ 20,000 $ 40,000
Convertible notes payable pursuant to Lee financing agreement -- 406,000
Notes payable to business associates of Lee -- 100,000
Accounts payable 280,293 321,063
Other convertible notes payable -- 22,173
Notes payable issued in connection with private placement of common stock,
including accrued interest of $7,015 - payment default effective March 1, 2006 307,015 --
Accrued expenses and other current liabilities (including delinquent federal payroll
taxes, penalties and interest aggregating $90,752 (2005) and $81,353 (2004) 214,998 199,198
Accrued settlement of litigation 95,000 95,000
Advances from customers -- 22,008
Loans payable - officers 423,200 368,706
------------ ------------
TOTAL CURRENT LIABILITIES REPRESENTING TOTAL
LIABILITIES 1,340,506 1,574,148
------------ ------------
STOCKHOLDERS' (DEFICIENCY)
Convertible Preferred stock, Series C - authorized 5,000,000 shares of $.0001 par
value; 140,000 shares issued and outstanding at December 31,
2005, with a liquidation preference of $2 per share ($280,000) 14 --
Common stock - authorized, 100,000,000 shares of $.0001 par value;
shares 23,338,267 and 10,668,267 shares issued/issuable
and outstanding at December 31, 2005 and 2004, respectively 2,334 1,067
Additional paid-in capital 23,794,954 22,502,985
Accumulated deficit (24,947,724) (23,628,989)
------------ ------------
(1,150,422) (1,124,937)
------------ ------------
$ 190,084 $ 449,211
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-F4-
WI-TRON, INC. (F/K/A AMPLIDYNE, INC.)
STATEMENTS OF OPERATIONS
Year ended December 31, 2005
2005 2004
------------ ------------
Net sales $ 471,487 $ 743,790
Cost of goods sold (including write-down of raw materials
inventory of $129,906 in 2005 and $129,906 in 2004) 626,003 770,157
------------ ------------
Gross loss (154,516) (26,367)
------------ ------------
Operating expenses
Selling, general and administrative 603,211 549,414
Research, engineering and development 552,076 256,175
------------ ------------
1,155,287 805,589
------------ ------------
Operating loss (1,309,803) (831,956)
Nonoperating income (expenses)
Interest income and other income -- 4,535
Loss incurred on rescission of prior year
agreements with Phoenix to invest in the Company -- (40,780)
Interest expense (8,092) (1,200)
Federal tax penalties and interest (51,738) (11,684)
Litigation settlement costs -- (20,460)
Gain on sale of property & equipment -- 4,000
Loan conversion costs (21,627) --
Sale of New Jersey tax benefits 73,126 129,317
------------ ------------
Loss before income taxes (1,318,134) (768,228)
Provision for income taxes 601 650
------------ ------------
NET LOSS $ (1,318,735) $ (768,878)
============ ============
Net loss per share - basic and diluted $ (0.09) $ (0.07)
============ ============
Weighted average number of shares outstanding 15,195,746 10,376,500
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-F5-
WI-TRON, INC. (F/K/A AMPLIDYNE, INC.)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Years Ended December 31, 2005 and 2004
Series C Convertible
Preferred Stock Common Stock
------------------------ -----------------------
Shares Par Value Shares Par Value
------ --------- ------ ---------
BALANCE AT DECEMBER 31, 2003 (restated) -- $ -- 10,418,267 $ 1,042
Net loss for the year ended December 31, 2004 (restated)
Litigation settlement to be paid through issuable common stock 250,000 25
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 2004 (restated) -- -- 10,668,267 1,067
Net loss for the year ended December 31, 2005
Issuance of convertible preferred stock in satisfaction of certain
loans from John C. Lee and Jessica Lee 140,000 14
Notes payable converted into common stock 370,000 37
Private placement of common stock, net of costs of $56,000 12,050,000 1,205
Private placements costs to be paid with issuable common stock 200,000 20
Services rendered by third party to be paid with common stock 50,000 5
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 2005 140,000 $ 14 23,338,267 $ 2,334
========== ========== ========== ==========
----------------------------------------------------------------------------------------------------------------------
Additional
Paid-In Accumulated
Capital Deficit Total
------- ------- -----
BALANCE AT DECEMBER 31, 2003 (restated) $ 22,494,850 $(22,860,111) $ (364,219)
Net loss for the year ended December 31, 2004 (restated) (768,878) (768,878)
Litigation settlement to be paid through common stock 8,135 8,160
------------ ------------ ------------
BALANCE AT DECEMBER 31, 2004 (restated) 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 699,986 -- 700,000
Notes payable converted into common stock 44,363 44,400
Private placements of common stock, net of costs of $56,000 515,795 517,000
Private placement costs to be paid with common stock 25,980 26,000
Services rendered by third party to be paid with common stock 5,845 5,850
------------ ------------ ------------
BALANCE AT DECEMBER 31, 2005 $ 23,794,954 $(24,947,724) $ (1,150,422)
============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-F6-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
STATEMENTS OF CASH FLOWS
Year ended December 31, 2005
2005 2004
----------- -----------
Cash flows from operating activities:
Net Loss $(1,318,735) $ (768,878)
----------- -----------
Adjustments to reconcile net loss to net cash used in operating activities
Provision for doubtful accounts receivable -- 21,260
Gain on sale of property & equipment -- (4,000)
Salary deferrals added to officer loans 62,635 74,217
Issuance of secured promissory note in connection with loss
incurred on rescission of agreements with Phoenix to invest in the Company -- 40,000
Provision for inventory write-down 129,906 101,039
Depreciation and amortization 5,537 35,329
Provision for litigation settlements -- 20,460
Litigation settlements paid in cash -- (42,000)
Interest accrued added to private placement and convertible promissory notes 7,015 1,200
Loan conversion costs 21,627 --
(Payment) return of security deposits (5,500) 35,625
Payment of legal fees by Lee on behalf of the Company -- 12,000
Consultant paid through the issuance of common stock 5,850 --
Changes in assets and liabilities
Accounts receivable (6,329) 54,626
Inventories 71,136 (2,963)
Prepaid expenses and other assets (1,212) 12,307
Accounts payable and accrued expense (54,370) 97,367
Advances from customer (22,008) (37,992)
----------- -----------
Total adjustments 214,287 418,475
----------- -----------
Net cash used in operating activities (1,104,448) (350,403)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment -- 4,000
Purchase of property and equipment (21,647) --
----------- -----------
Net cash (used in) provided by investing activities (21,647) 4,000
----------- -----------
Cash flows from financing activities:
(Decrease) Increase in overdraft -- (17,855)
Payment of secured promissory note to Phoenix (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 573,000 --
Proceeds of stock purchase and financing agreements by Phoenix, deal subsequently
rescinded; repaid by Lee on behalf of the Company -- 100,000
Proceeds from convertible notes received directly in cash pursuant to Lee financing -- 243,000
Proceeds of temporary additional advance from Lee -- 6,000
Proceeds from notes payable to business associates of Lee -- 100,000
(Payment of) proceeds from loans from officers (8,141) 37,492
----------- -----------
Net cash provided by financing activities 1,038,859 468,637
----------- -----------
Continued on next page
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-F7-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
STATEMENTS OF CASH FLOWS
Year ended December 31, 2005
Continued from previous page
NET (DECREASE) INCREASE IN CASH $ (87,236) $ 122,234
Cash and cash equivalents at beginning year 122,234 --
--------- ---------
Cash and cash equivalents at end year $ 34,998 $ 122,234
========= =========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ -- $ --
Income taxes 601 650
Noncash financing activities:
Book value of other convertible notes payable converted $ 22,773 $ --
Loan conversion cost reflected in operations for this debt 21,627 --
--------- ---------
$ 44,400 $ --
========= =========
Fair value of notes converted credited to stockholders' deficiency
Common Stock $ 37 $ --
Additional paid-in-capital 44,363 --
--------- ---------
$ 44,400 $ --
========= =========
Convertible notes issued by Company pursuant to Lee financing agreement $ -- 500,000
Less: Proceeds received directly in cash by Company -- 343,000
--------- ---------
Payment of Company obligations by lender in connection with
financing agreement in exchange for convertible notes $ -- $ 157,000
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-F8-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
NOTE A - NATURE OF OPERATIONS AND LIQUIDITY
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.) (the Company) has historically
operated in one segment, which is the design, manufacture and selling of ultra
linear power amplifiers and related subsystems to the worldwide wireless, local
loop and satellite uplink 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 $1,318,735 and $768,878 in 2005 and 2004,
respectively.
With remaining cash of only $34,998 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.
The Company funded certain operating expenses through borrowings (in the
form of deferring salaries and cash advances) from officers and principal
shareholders. The Company has in the past 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
-F9-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
machinery to produce components for our products;
- Deferral of payments of officers' salaries, as needed;
- Selling remaining net operating losses applicable to the State of New
Jersey, pursuant to a special government high-technology incentive program
in order to provide working capital, if possible;
- 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.
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, 2005
and 2004, inventories consisted of the following:
-F10-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
2005 2004
-------- --------
Component parts $ 58,177 $230,812
Work-in-progress 36,431 76,568
Finished Goods 13,983 2,253
-------- --------
$108,591 $309,633
======== ========
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, 2005.
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.
-F11-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
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 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.
During 2004, one customer accounted for approximately 95% of net sales and
100% of net accounts receivable at December 31, 2004. Export sales in 2004
accounted for approximately 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
Stock-based employee compensation is accounted for under the intrinsic
value based method as prescribed by Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations as
clarified by Financial Interpretation No. 44 (FIN 44), Accounting for Certain
Transactions Involving Stock Compensation. Included in these notes to the
financial statements are the pro forma disclosures required by Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for
Stock-Based Compensation. Effective 2006, FAS 123R supersedes APB 25 (see impact
of Recent Accounting Pronouncements below).
-F12-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
Under the fair value method, the Company's net loss and loss per share
would have been as follows:
2005 2004
---------------- ---------------
As Restated
Net loss $ (1,406,279) $ (923,061)
Loss per share $ (0.09) $ (0.09)
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 $500 and $6,649 for the years ended December 31, 2005 and 2004,
respectively.
11. RESTATEMENT OF PRIOR AND CURRENT YEAR'S FINANCIAL STATEMENTS
During the quarter ended March 31, 2005, as a result of management review
of accounts payable details, it was determined that liabilities reflected as
outstanding at both December 31, 2004 and 2003 for accounts payable were no
longer due and payable. The write-off of these liabilities resulted in the
reflection of a gain of $135,846 reflected in operations for the year ended
December 31, 2003, and reduction in Company liabilities and a reduction in its
shareholders' deficit at December 31, 2004 and 2003. Accordingly, the
accumulated deficit as originally reported at December 31, 2003 as reflected in
the Statement of Shareholders' Deficiency has been restated to reflect the
write-off of accounts payable balances as they should have occurred prior to
December 31, 2003.
12. 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.
-F13-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
13. SEGMENT INFORMATION
The Company has not pursued its wireless Internet connectivity business
since 2003 and is essentially currently operating in one segment.
14. 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.
15. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In May 2005, the Financial Accounting Standards Board ("FASB") issued
Statement No. 154, "Accounting Changes and Corrections - A Replacement of APB
No. 29 and FASB No. 3." The statement changes the requirements for the
accounting for and reporting of a change in accounting principles. This
Statement applies to all voluntary changes in accounting principles. It also
applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions.
When a pronouncement includes specific transition provisions those provisions
should be followed.
Opinion 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. When it is impracticable to determine the period-specific effects of an
accounting change on one or more individual prior periods presented, this
Statement requires that the new accounting principle be applied to the balances
of assets and liabilities as of the beginning of the earliest period for which
retrospective application is practicable and that a corresponding adjustment be
made to the opening balance of retained earnings (or other appropriate
components of equity or net assets in the statement of financial position) for
that period rather than being reported in an income statement. When it is
impracticable to determine the cumulative effect of applying a change in
accounting principle to all prior periods, this Statement requires that the new
accounting principle be applied as if it were adopted prospectively from the
earliest date practicable.
The Statement is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. Early adoption is
permitted for accounting changes and corrections of errors made in fiscal years
beginning after the date this Statement is issued.
-F14-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
In December 2004, the FASB issued a revision of FASB Statement No. 123,
"Accounting for Stock-Based Compensation". This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees", and its related
implementation guidance. This statement establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods
and services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods and services that are based on the fair value
of the entity's equity investments or that may be settled by the issuance of
those equity instruments. This statement focuses primarily on accounting
transactions in which an entity obtains employee services in share-based payment
transactions. This statement requires all share based payments to employees
including grants of employee stock options, to be recognized in the financial
statements. The proforma disclosures previously permitted will no longer be an
alternative to financial statement recognition. For public entities that file as
small business issuers, this statement is effective as of the beginning of the
first interim period or annual reporting period that begins after December 31,
2005. We will adopt this new standard effective for the first quarter of 2006.
Future compensation expense may be impacted by various factors including the
number of options granted and their related fair value at the date of grant.
In December, 2004, the FASB issued Statement No. 153 "Exchange of
Nonmonetary Assets - an amendment to APB Opinion No. 29". The guidance in APB
No. 29, Accounting for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured on the fair value of the
assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This statement amends Opinion 29 to eliminate the
exception for the nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a
result of the exchange. The provisions of this statement are effective for
nonmonetary exchanges Occurring in fiscal periods beginning after June 15, 2005.
Management does not believe the adoption of this statement will have any
material effect on the Company.
In November, 2004, the FASB issued Statement No. 151, "Inventory Costs -
an amendment of ARB No. 43, Chapter 4". This statement amends the guidance in
ARB No. 43, Chapter 4, "Inventory Pricing", to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that
"under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges." This statement requires that those items
be recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. This statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Management
does not believe the adoption of this statement will have any material effect on
the Company.
-F15-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
NOTE C - STOCKHOLDERS' EQUITY
1. Warrants and Options
At December 31, 2005, the following 95,000 warrants, remained outstanding:
(1) 20,000 exercisable at $1.00 through May 2010
(3) 75,000 exercisable at $.96 through March 2007
At December 31, 2005, the Company had employee stock options outstanding
to acquire 1,400,000 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. However, the Company did make a payment of $10,000 during the
quarter ended June 30, 2005, a payment of $5,000 during the quarter ended
September 30, 2005 and a payment of $5,000 during the quarter ended December 31,
2005. 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 John 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 are payable on demand, provided that
demand cannot be made before December 31, 2004, unless the Company is in default
of the Note Purchase Agreement.
-F16-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
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);
- 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);
-F17-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
- Issue 200,000 shares of common stock and 200,000 cashless warrants
exercisable at $.30 per share to its lawyer for services rendered (these
shares have not been issued);
- 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. The Company has sent letters to the investors
requesting a 90 day extension on the notes until June 1, 2006. To date, the
Company has not heard back from the investors.
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.
-F18-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
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. 1,400,000 options remained outstanding at December
31, 2005.
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.
Under the fair value method, the Company's net loss and loss per share
would have been as follows:
2005 2004
----------------- --------------
As restated
Net loss $ (1,406,279) $ (923,061)
Loss per share $ (0.09) $ (0.09)
Stock option activity during 2005 and 2004, is summarized below:
Shares of common Weighted average
stock attributable exercise price of
to options options
---------- -------
Unexercised at December 31, 2003 2,221,000 1.595
Expired at December 31, 2004 (as restated) (501,000) 1.413
----------
Unexercised at December 31, 2004 (as restated) 1,720,000 0.398
Expired at December 31, 2005 (320,000) 1.474
----------
Unexercised at December 31, 2005 1,400,000 0.152
==========
-F19-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
The following table summarizes information concerning outstanding and
exercisable options, including warrants issued to officers, at December 31,
2005:
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
Weighted
Number average Weighted Number Weighted
outstanding at remaining average exercisable at average
Exercise Prices period end contractual life exercise price period end exercise price
--------------- --------------- ---------------- -------------- --------------- --------------
$ 0.150 1,350,000 3.4 years (1) $ 0.150 1,350,000 $ 0.150
0.200 50,000 0.25 years 0.200 50,000 0.200
----------- -----------
1,400,000 1,400,000
----------- -----------
(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, 2005, the Federal net
operating loss carryforwards are approximately $16,269,000. The net operating
loss carryforwards expire at various dates through 2024, and because of the
uncertainty in the Company's ability to utilize the net operating loss
carryforwards, a full valuation allowance of approximately $5,600,000 and
$5,200,000 has been provided on the deferred tax asset at December 31, 2005 and
2004, 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 2005 and 2004, the
Company received $73,126 and $129,317, respectively, from the sale of such net
operating losses. The Company expects to sell additional New Jersey net
operating losses in 2006, although there can be no assurance a suitable
transaction will be consummated. 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, 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 2005 and 2004 is principally due to the
impact of state income and minimum taxes.
-F20-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
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
2006 $ 69,000
2007 72,000
2008 30,000
------------
$ 171,000
============
Rent expense, including the Company's share of real estate taxes,
utilities and other occupancy costs, was $73,417 (of which $38,500 was in
connection with the lease with Tek) and $71,672 for the years ended December 31,
2005 and 2004, respectively.
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 is negotiating payment terms
with the government, the agreement of which is expected to forestall any
enforcement action. Although enforcement action (such as seizure of assets) is
not presently anticipated, the government retains the right to take such action.
Furthermore, even if satisfactory payment terms are agreed to, the lien will
remain until the related liabilities are fully satisfied.
-F21-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
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. Loans payable - officers and officer compensation
On June 27, 2005, the Board of Directors resolved to enter into settlement
agreements with Devendar S. Bains and Tarlochan S. Bains to settle the liability
for unpaid salaries as follows:
Devendar S. Bains - in settlement of the liability for accrued and unpaid
salaries, the Company shall (a) issue a three-year warrant for the purchase of
1,000,000 shares common stock exercisable at $.20 per share (the "Warrant"), and
(b) enter into a three-year employment agreement at $80,000 per year. The
Company will also provide an option, in lieu of the Warrant and the employment
agreement, for the payment of $250,000 in cash and a consulting agreement at
approximately $65 per hour, to be exercised within 90 days upon successful
completion of a contemplated private offering of the Company's securities
raising gross proceeds of $2,500,000 (the "Option"). Devendar S. Bains owns
1,050,000 stock options that have been extended until May 2008, and are
otherwise not affected by this settlement.
-F22-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
Tarlochan S. Bains - in settlement of the liability for accrued and unpaid
salaries, the Company shall (a) issue a three-year warrant for the purchase of
1,000,000 shares of common stock exercisable at $.20 per share (b) enter into a
three-year employment agreement at $80,000 per year, and (c) issue 500,000
employee stock options pursuant to the Plan, of which 166,667 will vest per year
for three years and be exercisable at $.20 per share.
Neither the Warrants or Options described above have as yet been issued,
nor have the Employment Agreements been executed and signed. As the terms of the
agreement are presently under re-negotiation and the warrants have not been
issued, all debts owing to these parties at the time of the agreement and for
any subsequent salary accruals remain on the Company's books as unpaid, and no
effect has been given to the proposed issuance of the warrants.
As of December 31, 2005, the Company owes $345,842 to the former Chief
Executive Officer, Devendar S. Bains for loans and unpaid salaries. During the
twelve months ended December 31, 2005, Devendar S. Bains deferred salaries of
$50,135, while other officers deferred $12,500 of salaries during this period.
During the twelve months ended December 31, 2005, the Company repaid $8,141 of
loans to officers.
2. PURCHASES FROM RELATED PARTY
A former member of the Company's Board of Directors is President and CEO
of a vendor that the Company's used to make purchases from. During 2004, the
Company made purchases of approximately $14,000, respectively, from this vendor.
In 2005, the vendor commenced an action to recover funds owed to it by the
Company. The dispute was settled with substantially full payment of the balance
due.
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, 2005.
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.
-F23-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
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 provides for the following obligations by the Company to Mr. Fogel:
(1) payment of $12,000 by July 14, 2004; (2) issuance of 250,000 shares of
restricted common stock by July 14, 2004 and; (3) the shipment of specified
items of inventory valued at approximately $22,000. The agreement further called
for the issuance of common stock of one share for each $1 of inventory not
delivered in lieu of the inventory in the event the company cannot deliver.
Since non-delivery of the specified items is definite, the financial statements
provide for the issuance of 22,000 additional shares. All shares in connection
with this transaction were valued at the publicly traded market value of $.05 on
the date of the settlement, less a discount of 40% for the restriction on sale,
with a provision for a loss provided for by the Company during the year ended
December 31, 2004. On November 8, 2005, 250,000 shares were issued in connection
with this settlement.
NOTE I - SUBSEQUENT EVENTS
1. PRIVATE OFFERINGS
In connection with the November 2005 private placement offering of 10,000
shares of common stock pursuant to Regulation D of the Securities Act of 1933,
as amended, and Rule 506 promulgated thereunder, the following transactions were
completed in 2006:
On January 18, 2006, the Company issued 4,450,000 shares of common stock
through a private offering to accredited investors at $.06 per share pursuant to
Regulation D of the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. The Company raised $267,000 in 2005, but the shares were not issued
until 2006. The Company's officers and directors directed the sale and received
no commissions or other remuneration.
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 pursuant to
Regulation D of the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. The Company raised $333,000 in 2006. As of that date, the Company
has 28,638,267 shares of common stock issued and outstanding. The Company's
officers and directors directed the sale and received no commissions or other
remuneration.
2. OTHER
In January 2006, the Company issued to the securities lawyer for services,
non-qualified options to purchase 1,000,000 shares at $.20 per share.
In January 2006, John Lee and Jessica Lee each converted 2,000 shares of
their preferred stock into 200,000 shares of common stock (aggregate of 400,000
shares)
-F24-
Wi-Tron, Inc. (f/k/a Amplidyne, Inc.)
Notes to Financial Statements
December 31, 2005 and 2004
On February 8, 2006, the Company issued 50,000 shares of common stock to
Eric Popkoff for consulting services pursuant to an agreement with Undiscovered
Equities Research Corporation ("UERC") dated September 23, 2005. UERC will
prepare and publish a single edition of its newsletter about the Company in
order to expand awareness about the Company to the financial industry. The
agreement further provides for the payment of $4,000 in cash compensation and a
lockup on the sale of restricted shares by over 5% shareholders for a period of
45 days from the date of publication of the newsletter.
In March 2006, the Company's lawyer was issued 200,000 shares of 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.
In March 2006, the Company's lawyer drafted an amendment to its
certificate of designation for the preferred shares whereby the liquidation
preference will be corrected to be $2 per preferred share rather than the
incorrect $750,000 per share in the original certificate. The holders of the
preferred shares have agreed verbally that they will allow this change to be
made. This amendment has not as yet been filed.
On March 31, 2006, the Company agreed to issue 625,000 shares of common
stock to the spouse of John Chase Lee, the Company's president, chief executive
officer, and director, for a total purchase price of $50,000. The proceeds were
used for operating expenses.
-F25-
Item 14:
Audit fees
Aggregate fees bills by the Company's principal accountant were $41,092 in 2005
and $34,678 in 2004.
Audit-Related Fees
There were no audit related fees in 2005.
Audit Committee Policies and Procedures for Pre-Approval of Services
The board in lieu of a formal audit committee is in the process of formulating
procedures for pre-approval of all audit, review and attest services and
non-audit services.
41
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.
WI-TRON, INC.
By:/s/ John C. Lee
-------------------------------
Name: John C. Lee
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.
Signature Title Date
--------- ----- ----
/s/ John C. Lee Chief Executive Officer April 4, 2006
----------------------------
John C. Lee
/s/ Tarlochan S. Bains Vice President and Director April 4, 2006
----------------------------
Tarlochan S. Bains
/s/ Hye Joung (Jessica) Lee Chief Financial Officer and Director April 4, 2006
----------------------------
Hye Joung (Jessica) Lee
/s/ Mikio Tajima Director April 4, 2006
----------------------------
Mikio Tajima
42