UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2006.
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
Commission File Number 0-21931
WI-TRON, INC.
-------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3440510
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
59 LaGrange Street
Raritan, New Jersey 08869
(Address of principal executive offices)
(908) 253-6870
--------------
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par
Value, as of August 11, 2006 was 33,611,047.
Transitional Small Business Format (check one); Yes |_| No |X|
WI-TRON, INC.
FORM 10-QSB
SIX MONTHS ENDED June 30, 2006
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets...........................................1-2
Statements of Operations...................................3
Statement of Cash Flows....................................4
Statement of Changes in Stockholders' Deficiency...........5
Notes to Financial Statements...........................6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................13-19
Item 3. Controls and Procedures...................................19
Item 6. Exhibits..................................................20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................21
Item 2. Change in Securities.............................................21
Signatures....................................................................22
Certifications
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WI-TRON, INC.
BALANCE SHEETS
ASSETS - Pledged Reclassified for
comparability to
(Unaudited) current period
June 30 December 31
2006 2005
---------------- ----------------
CURRENT ASSETS
Cash $ 38,836 $ 34,998
Accounts receivable, net of allowance for doubtful accounts of
$1,000 and $702 in 2006 and 2005, respectively 86,589 21,926
Inventories 89,501 108,591
Prepaid expenses and other 14,577 1,208
---------------- ----------------
Total current assets 229,503 166,723
---------------- ----------------
PROPERTY AND EQUIPMENT - AT COST
Machinery and equipment 587,276 587,276
Furniture and fixtures 43,750 43,750
Leasehold improvements 8,141 8,141
---------------- ----------------
639,167 639,167
Less accumulated depreciation and amortization (623,472) (621,306)
---------------- ----------------
15,695 17,861
---------------- ----------------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS 5,500 5,500
---------------- ----------------
TOTAL ASSETS $ 250,698 $ 190,084
================ ================
Note: The balance sheet at December 31, 2005 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
The accompanying notes are an integral part of these financial statements
-1-
WI-TRON, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIENCY Reclassified for
comparability to
(Unaudited) current period
June 30 December 31
2006 2005
---------------- ----------------
CURRENT LIABILITIES
Secured note payable in connection with Phoenix investor
rescinded agreement - payment in default $ 10,000 $ 20,000
Accounts payable 226,997 280,293
Notes payable issued in connection with private placement of
common stock, including accrued interest of $16,015 316,015 307,015
(2006) and $7,015 (2005)
Accrued expenses and other current liabilities 166,737 219,246
Delinquent payroll taxes, penalties & interest -- Note I 53,635 90,752
Loans payable - officers 402,900 423,200
---------------- ----------------
Total current liabilities, representing total liabilities 1,176,284 1,340,506
---------------- ----------------
STOCKHOLDERS' DEFICIENCY
Convertible Preferred stock, Series C authorized 5,000,000
shares of $.0001 par value; 136,000 and 140,000 shares
issued and outstanding at June 30, 2006 and
December 31, 2005, respectively, with a liquidation
preference of $2 per share ($272,000) 14 14
Common stock - authorized, 100,000,000 shares of $.0001 par
value; shares 32,811,047 and 23,338,267 shares issued
and outstanding at June 30, 2006 and December 31,
2005, respectively -- Note C 3,281 2,334
Additional paid-in capital 24,747,348 23,794,954
Accumulated deficit (25,676,229) (24,947,724)
---------------- ----------------
(925,586) (1,150,422)
---------------- ----------------
$ 250,698 $ 190,084
================ ================
Note: The balance sheet at December 31, 2005 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
The accompanying notes are an integral part of these financial statements
-2-
WI-TRON, INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three and Six Months Ended June 30
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales $ 77,375 150,785 $ 117,529 $ 293,377
Cost of goods sold 157,383 190,219 222,906 293,627
------------ ------------ ------------ ------------
Gross profit (loss) (80,008) (39,434) (105,377) (250)
------------ ------------ ------------ ------------
Operating expenses
Selling, general and administrative 223,859 109,893 414,301 209,144
Research, engineering and development 87,531 128,105 176,342 229,978
------------ ------------ ------------ ------------
Total operating expenses 311,390 237,998 590,643 439,122
------------ ------------ ------------ ------------
Operating loss (391,398) (277,432) (696,020) (439,372)
------------ ------------ ------------ ------------
Nonoperating income (expenses)
Interest income and other income -- -- 3,292 3,563
Interest expense (4,500) (300) (9,000) (600)
Tax penalties and interest (13,325) (2,500) (26,152) (5,500)
------------ ------------ ------------ ------------
Loss before income taxes (409,223) (280,232) (727,880) (441,909)
Provision for income taxes 125 60 625 674
------------ ------------ ------------ ------------
NET LOSS $ (409,348) $ (280,292) $ (728,505) $ (442,583)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.01) $ (0.03) $ (0.03) $ (0.04)
============ ============ ============ ============
Weighted average number of shares outstanding 31,929,946 10,622,396 28,519,857 10,500,127
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
-3-
WI-TRON, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30
Six Months Ended
June 30
2006 2005
------------ ------------
Cash flows from operating activities:
Net Loss $ (728,505) $ (442,583)
------------ ------------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 2,166 1,747
Provision for doubtful accounts (4,740) (2,878)
Public/investor relations fees payable by issuable common stock 39,445 --
Amortization of share-based compensation 4,978
Salaries deferred, added to officer loans -- 3,942
Interest accrued on notes payable - private placement 9,000 600
Changes in assets and liabilities
Accounts receivable (59,922) 2,498
Inventories 19,090 (42,532)
Prepaid expenses and other assets (13,369)
Customer advances -- 22,008
Accounts payable and accrued expense (95,888) (18,125)
Delinquent payroll taxes payable (37,117) 64,364
------------ ------------
Total adjustments (136,357) (12,392)
------------ ------------
Net cash (used) for operating activities (864,862) (454,975)
------------ ------------
Cash flows from financing activities:
Repayment of officers' loans (20,300) (5,700)
Proceeds from convertible notes received directly in cash
pursuant to Lee financing agreement -- 194,745
Partial payment of Phoenix secured promissory note (Note H) (10,000) (10,000)
Proceeds from private placement of common stock 899,000 270,000
------------ ------------
Net cash provided by financing activities 868,700 449,045
------------ ------------
NET INCREASE (DECREASE) IN CASH 3,838 (5,930)
Cash at beginning of period 34,998 122,234
------------ ------------
Cash at end of period $ 38,836 $ 116,304
============ ============
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ NIL $ NIL
Income taxes $ 625 $ 674
The accompanying notes are an integral part of these financial statements
-4-
WI-TRON, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
Six Months Ended June 30, 2006
Series C Convertible
Preferred Stock Common Stock
------------------------------ -----------------------------
Shares Par Value Shares Par Value
------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31, 2005 140,000 $ 14 23,338,267 $ 2,334
Private placements of common stock 8,875,000 887
Conversion of preferred stock into common stock (4,000) NIL 400,000 40
Offering costs paid through the issuance of stock options
Shares issued to employee in satisfaction of vacation pay 40,000 4
Amortization of share based compensation
Public/investor relations fees payable by issuable common
stock 157,780 16
Net loss for six months ended June 30, 2006
------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 2006 136,000 $ 14 32,811,047 $ 3,281
============= ============= ============= =============
----------------------------------------------------------------------------------------------------------------------------------
Additional
Paid-In Accumulated Subscriptions
Capital Deficit Receivable Total
------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31, 2005 $ 23,794,954 $ (24,947,724) $ -- $ (1,150,422)
Private placements of common stock 835,304 836,191
Conversion of preferred stock into common stock (40) --
Offering costs paid through the issuance of stock options 62,809 62,809
Shares issued to employee in satisfaction of vacation pay 9,914 9,918
Amortization of share based compensation 4,978 4,978
Public/investor relations fees payable by issuable common
stock 39,429 39,445
Net loss for six months ended June 30, 2006 (728,505) (728,505)
------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 2006 24,747,348 $ (25,676,229) $ -- $ (925,586)
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
-5-
WI-TRON, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2006
NOTE A - NATURE OF OPERATIONS
Wi-Tron, Inc. designs, manufactures and sells state-of-the-art
ultra-linear single and multi-channel power amplifiers, cellular base station
components, and broadband wireless products to the worldwide wireless
telecommunications market.
NOTE B - UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for financial statements.
For further information, refer to the audited financial statements and notes
thereto for the year ended December 31, 2005 included in the Company's Form
10-KSB filed with the Securities and Exchange Commission on April 06, 2006.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments necessary for a fair statement of (a) results of
operations for the three and six month periods ended June 30, 2006 and 2005, (b)
the financial position at June 30, 2006, (c) the statements of cash flows for
the six month period ended June 30, 2006 and 2005 , and (d) the changes in
stockholders' deficiency for the six month period ended June 30, 2006 have been
made. The results of operations for the three or six months ended June 30, 2006
are not necessarily indicative of the results to be expected for the full year.
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.
As further discussed in Note F, the Company incurred losses of $728,505 for the
six months ended June 30, 2006, has improved its working capital by $227,002 to
a deficiency of $946,781 since the beginning of the fiscal year, but has limited
cash reserves. Current liabilities exceed cash and receivables by $1,050,859
indicating that the Company may have difficulty meeting its financial
obligations for the balance of this fiscal year. These factors raise substantial
doubt as to the Company's ability to continue as a going concern. Recently,
operations have been funded by issuances of restricted common stock to an
individual who is a public/investor relations consultant of the Company.
As further discussed in Note F, management intends to seek additional financing,
aggressively market its products, control operating costs and broaden its
product base through development and marketing new products. The Company
believes that these measures will provide sufficient liquidity for it to conduct
current operations as going concern. Accordingly, the financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of liabilities or any
other adjustments that might be necessary should the Company be unable to
continue as a going concern in its present form.
Off-balance sheet arrangements
We do not have any transactions, agreements or other contractual arrangements
that constitute off balance sheet arrangements.
-6-
WI-TRON, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2006
NOTE C - STOCKHOLDERS' EQUITY
1. Warrants and Options
At June 30, 2006, the following 95,000 warrants, remained outstanding:
(1) 20,000 exercisable at $1.00 through May 2010
(2) 75,000 exercisable at $.96 through March 2007
At June 30, 2006, the Company had employee stock options outstanding to
acquire 1,400,000 shares of common stock at exercise prices of $0.15 to $.20 per
share.
2. Private Placements of Common Stock and Debt
In connection with the August 10, 2005 private placement of restricted
common stock and notes there remains an unsecured note payable balance of
$300,000, which were due upon the earlier of the Company completing any
financing with gross proceeds in excess of $1,000,000; or March 1, 2006. Since
the Company was unable to repay the notes on March 1, 2006. The Company
requested and all of the investors agreed to a 90 day extension on the notes
until June 1, 2006. These notes remain unpaid at June 30, 2006, and the Company
is seeking a further extension through October 2006. No actions have been taken
by the note holders to collect the balance up to and since June 30, 2006 through
the date of this filing.
On March 10, 2006, the Company issued 5,550,000 shares of common stock
through a private offering to accredited investors at $.06 per share (gross
proceeds of $333,000) pursuant to Regulation D of the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder. The Company's officers and
directors directed the sale and received no commissions or other remuneration.
In March 2006, the Company received gross proceeds of $50,000 ($.08 per
share) from John C. Lee's wife for 625,000 shares of restricted common stock.
3. Series C Convertible Preferred Stock
As of June 30, 2006, there were 136,000 shares of Series C Convertible
Preferred Stock outstanding, 128,000 of which are owned by John Lee, the
Chairman of the Board of Directors. Each share of the preferred stock is
convertible into 100 shares of common stock. Accordingly, the outstanding
preferred shares, in the aggregate, are convertible into 13,600,000 shares of
common stock.
4. Other Issuances of Common Stock and Related Matters
In January 2006, the Company issued to the securities lawyer non-qualified
10 year options to purchase 1,000,000 shares at $.20 per share for services
rendered in connection with successful private placements. The options were
value at $62,809 and were charged against the proceeds of private placements
during the quarter ended March 31, 2006.
-7-
WI-TRON, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2006
In January 2006, John Lee and Jessica Lee each converted 2,000 shares of
their preferred stock into 200,000 shares of restricted common stock (aggregate
of 400,000 shares).
On February 8, 2006, the Company issued 50,000 shares of restricted common
stock to Eric Popkoff for consulting services pursuant to an agreement with
Undiscovered Equities Research Corporation ("UERC") dated September 23, 2005
($5,850 was charged to operations in 2005).
In March 2006, the Company's lawyer was issued 200,000 shares of
restricted common stock which were granted in 2005 in connection with the
private placements of securities and accounted for in the Statement of
Stockholders' Equity as of December 31, 2005 ($26,000 was recorded as offering
costs reducing stockholders' equity in 2005).
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 to this change to be made and the amendment was
filed on May 19, 2006.
Pursuant to a series of subscription agreements, the Company received
$435,000 in proceeds from several issuances of restricted common stock it made
to an individual who is a public/investor relations consultant as follows:
Date Shares Gross
Issued Issued Proceeds
-------- --------- ---------
03/30/06 1,500,000 $ 225,000
05/04/06 500,000 110,000
05/17/06 (A) 400,000 100,000
--------- ---------
2,400,000 $ 435,000
========= =========
(A) Governed by a subscription agreement dated July 18, 2006 for 1,200,000
shares at $.25 per share -- see Note I.
On May 16, 2006, the Company issued 300,000 shares of restricted common
stock to an accredited investor for gross proceeds of $81,000.
On May 17, 2006, the Company issued 40,000 shares of restricted common
stock to an employee in payment of a previously accrued vacation liability of
$9,918 .
Net cash proceeds received by the Company were $899,000 for the first six
months of 2006, compared to $464,745 during the first six months of 2005. As of
June 30, 2006 the Company had 32,811,047 shares of common stock issued and
outstanding, compared to 17,778,267 in 2005.
5. Preferred and Common Stock Restricted under Rule 144
All preferred shares and all shares referred to as restricted common stock
are governed by SEC Rule 144 and cannot be sold unless they are registered
pursuant to the Securities Act of 1933, as amended, or if such sale is pursuant
to a valid exemption from registration.
-8-
WI-TRON, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2006
NOTE D - 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.
NOTE E - 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.
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.
NOTE F - LIQUIDITY
The Company's financial statements are presented on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has a recent history of
significant losses and has incurred losses of $728,505 and $442,583 for the six
months ended June 30, 2006 and 2005, respectively.
During the three months ended June 30, 2006, the Company increased efforts
to improve sales of its legacy products and to gain new sales for current and
future products, which are in various stages of development. The Company also is
working towards the establishment of a Wi-Tron subsidiary in China. Our
financial condition relies on continuing equity investment until, if ever, we
are successful in commercializing our new product lines and opening up new
geographic regions. During the first six months of 2006 sales revenues were not
enough to offset operations, SG&A and R&D expenses.
-9-
WI-TRON, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2006
From time-to-time, we have issued stock, options and warrants to satisfy
operating expenses, which provides us with a form of liquidity. Due, in part, to
our prior lack of earnings, our current net losses, and our current debt level
our success in attracting additional funding has been limited to transactions
with accredited investors. In light of the availability of this type of
financing, the continued use of our equity for these purposes may be necessary
if we are to sustain operations, prior to reaching operating profitability.
Equity financings of the type we have been required to pursue are dilutive to
our stockholders and may adversely impact the market price for our shares.
Now, under new management, the Company is working to increase sales of
legacy systems while simultaneously developing cutting edge technological
designs for near and long term sales growth. The key to long term growth in the
wireless industry is anticipating and leading the evolution of power amplifier
development. The Company intends to build partnerships and marketing strengths
from a series of new design platforms - some of which have already have been
developed - in order to expand market opportunities across technologies,
frequency bands and power ranges.
NOTE G - OFFICERS LOANS AND OTHER RELATED PARTY TRANSACTIONS
1. Officer Loans and Employment Agreements
As of June 30, 2006, the Company owes $345,842 to Devendar S. Bains, a
former Chief Executive Officer for loans and unpaid salaries. The Company also
owes other officers an aggregate of $57,058. These balances are non-interest
bearing, unsecured, and have no fixed maturity date. During the six months ended
June 30, 2006, the Company repaid $20,300 to officers.
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 - (as verbally amended on August 14, 2006) 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");
b. pay the amount of $200,000 in full settlement of the debt due him
from the Company, payable in quarterly installments of $50,000
starting September 30, 2006 through June 30, 2007;
c. cancel 250,000 warrants for each $50,000 quarterly installment paid;
d. provide the right to exercise the warrants periodically in lieu of
receiving the quarterly cash payments;
e. offer continued employment with the Company through June 30, 2007 at
a salary of $80,000 per year and;
f. offer a 2 year consulting agreement for $60,000 per year, commencing
on or around July 1, 2007, immediately following the last $50,000
quarterly payment.
Devendar S. Bains owns 1,050,000 stock options that have been extended until May
2008, and are otherwise not affected by this settlement.
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.
-10-
WI-TRON, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2006
Neither the Warrants nor the Options described above have as yet been
issued, nor have the Employment Agreements been executed and signed. However,
the settlement of the liability to Devendar S. Bains was memorialized in an
agreement dated April 12, 2006. As some of 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.
2. Other Related Party Transactions
As of June 30, 2006, accounts payable includes $28,560 due to Tek, Ltd., a
company wholly owned by John C. Lee. During the six months ended June 30, 2006,
Tek, Ltd. made purchase of parts on behalf of the Company for a total of $5,443.
NOTE H - COMMITMENTS AND OTHER COMMENTS
1. Premises leases
On April 22, 2005, concurrent with the closing of the purchase of the
building by Tek, Ltd. ("Tek") a company wholly owned by John Lee, 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 $ 34,500
2007 72,000
2008 30,000
--------
$136,500
========
Rent expense, including the Company's share of real estate taxes,
utilities and other occupancy costs, was $34,500 and $51,387 for the six months
ended June 30, 2006 and 2005, respectively.
2. Phoenix Opportunity Fund II, L.P.
On January 28, 2004, the Company entered into a Subscription Agreement
(the "Agreement") with Phoenix Opportunity Fund II, L.P. ("Phoenix"), to make
certain investments in the Company. 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 in settlement,
which included a $40,000 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 all of the required payments due
under the Phoenix rescission agreement, and the Company remains currently
delinquent. The balance due on the note at June 30, 2006 was $10,000. In May
2006, the Company responded to a demand by Phoenix and paid $10,000 leaving a
balance of $10,000 due as of the date of this filing. As yet, no action has been
taken by Phoenix concerning this default.
-11-
WI-TRON, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
June 30, 2006
NOTE I - SUBSEQUENT EVENTS
1. Stock Subscriptions
On July 18, 2006, a subscription agreement was entered into with an
individual who is a public/investor relations consultant (the same individual
discussed in Note C.4) whereby the Company agreed to sell 1,200,000 shares of
common stock for gross proceeds of $300,000. Of this subscription agreement,
$100,000 was received in June 2006 and $200,000 was received in August 2006.
Additionally, during the quarter ended June 30, 2006, the Company agreed to
issue this individual 157,780 shares as compensation to him for public/investor
relations services valued at $39,445, resulting in a charge to operations for
the period then ended.
2. Satisfaction of Delinquent Federal Payroll Taxes Payable
In July 2006, all delinquent federal payroll taxes, interest and penalties
approximating $22,000 were paid in full.
3. Settlement of Loans Payable to Devendar S. Bains
On August 14, 2006, Devendar S. Bains verbally agreed to amend the
settlement agreement (Note G.1.) by
a. accepting the amount of $200,000 in full settlement of the debt due
him from the Company, payable in quarterly installments of $50,000
starting September 30, 2006 through June 30, 2007;
b. agreeing to the cancellation of 250,000 warrants for each $50,000
quarterly installment paid; c. accepting the right to exercise the
warrants periodically in lieu of receiving the quarterly cash
payments;
d. accepting continued employment with the Company through June 30,
2007 at a salary of $80,000 per year and;
e. accept a 2 year consulting agreement for $60,000 per year,
commencing on or around July 1, 2007, immediately following the last
$50,000 quarterly payment.
-12-
WI-TRON, INC.
PART I - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain disclosures in this Quarterly Report on Form 10-QSB include certain
forward-looking statements within the meaning of the safe harbor protections of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Statements that include words such
as "believe," "expect," "should," intend," "may," "anticipate," "likely,"
"contingent," "could," "may," "estimate," or other future-oriented statements,
are forward-looking statements. Such forward-looking statements include, but are
not limited to, statements regarding our business plans, strategies and
objectives, and, in particular, statements referring to our expectations
regarding our ability to continue as a going concern, realize improved gross
margins, and timely obtain required financing. These forward-looking statements
involve risks and uncertainties that could cause actual results to differ from
anticipated results. The forward-looking statements are based on our current
expectations and what we believe are reasonable assumptions given our knowledge
of the markets; however, our actual performance, results and achievements could
differ materially from those expressed in, or implied by, these forward-looking
statements. Factors, within and beyond our control, that could cause or
contribute to such differences include, among others, the following: the success
of our capital-raising and cost-cutting efforts, developing and marketing new
technology devices, including technological advancements and innovations;
consumer receptivity, preferences and availability and affordability; whether a
third-party can successfully develop, manufacture and market products that
incorporate our technology; political and regulatory environments and general
economic and business conditions; the effects of our competition; the success of
our operating, marketing and growth initiatives; development and operating
costs; the amount and effectiveness of our advertising and promotional efforts;
brand awareness; the existence of adverse publicity; changes in business
strategies or development plans; quality and experience of our management;
availability, terms and deployment of capital; labor and employee benefit costs,
as well as those factors in our filings with the Securities and Exchange
Commission, particularly the discussions under "Risk Factors" in our 10KSB filed
on April 6, 2006. Readers are urged to carefully review and consider the various
disclosures made by us in this report and those detailed from time to time in
our reports and filings with the SEC.
Our fiscal year ends on December 31. References to a fiscal year refer to the
calendar year in which such fiscal year ends.
The following analysis of our financial condition and results of operations for
the three and six months ended June 30, 2006 should be read in conjunction with
the Financial Statements and other information presented elsewhere in this
report and in the Company's 10-KSB annual report filed April 6, 2006.
GENERAL INFORMATION ABOUT WI-TRON
Background: August 2005, the Company, which was formerly known as Amplidyne,
Inc., changed its name to Wi-Tron, Inc. and commenced with a reorganization of
management. The Chairman of the Board, Mr. John C. Lee brought new management
and RF design engineers to help make the Company a global leader in RF amplifier
design and sales for wireless telecommunications.
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WI-TRON, INC.
This new team, led by Mr. Joe Nordgaard (CEO) is beginning to grow Wi-Tron's
customer base through sales of legacy systems while simultaneously developing
cutting edge technological designs for near and long term sales growth to
leverage into a growing $2 billion a year amplifier market.
PLANS FOR IMPROVING RESULTS OF OPERATIONS
Purpose: To grow revenues and profits by continuously outperforming the
competition in developing, manufacturing and selling high-value, high-demand
wireless technology products.
Method: Initially, Wi-Tron will work to increase sales of legacy systems while
simultaneously developing cutting edge technological designs for near and long
term sales growth. The key to long term growth in the wireless industry is
anticipating and leading the evolution of power amplifier development. Wi-Tron
intends to build partnership and marketing strengths from a series of design
platforms - some of which have already have been developed - in order to expand
our market opportunities across technologies, frequency bands and power ranges.
Corporate Strategy - Develop, manufacture and sell the most advanced amplifier
products in the world, which will give Wi-Tron a lead-time to market advantage
against the largest names in the industry. Wi-Tron's new amplifiers already
under development are key components in achieving power efficient, high voice
quality, high speed data, video and streaming video transmissions to hundreds of
millions of wireless customers spread across the world.
The development team is building strength through a series of product design
platforms - some of which have already have been developed - in order to expand
the market opportunity across technologies, frequency bands and power ranges.
These products are in great demand by wireless service providers and equipment
vendors around the world. Wireless operators will benefit from Wi-Tron's
products.
Current Sales: Wi-Tron has a proven design library; patents (first in Analog
Pre-Distortion techniques); over 10 years experience custom designing RF
amplifiers; manufacturing experience.
Future sales: Wi-Tron is exploiting many opportunities by developing RF
amplifier technology for the second, third and fourth generation wireless
telecommunications systems. Wi-Tron is already developing advanced RF amplifier
designs that increase power and frequency efficiency and resolving key issues
relating to the ever increasing need for more complex broadband, multi-channel
solutions. Wi-Tron has assembled an engineering team to address these
opportunities at the cutting edge of advance RF Amplifier design, where both the
greatest demand and the greatest opportunity to gain market-share with high
margin solutions exist.
Results of Operations - The Three Months Ended June 30, 2006 Compared to Three
Months Ended June 30, 2005.
Revenues for the three months ended June 30, 2006 declined by $73,410 from
$150,785 to $77,375, or 49% compared to the three months ended June 30, 2005.
The sales decreases were primarily in amplifiers. The majority of the amplifier
sales for the three months ended June 30, 2006 were obtained from the Wireless
Local Loop amplifier products to a major European customer. Sales of amplifiers
were 100% of total sales compared to 94% of total sales for the same period last
year. The Ampwave high speed wireless Internet products and broadband solutions
accounted for approximately 6% of total sales for the three months ended June
30, 2005.
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WI-TRON, INC.
The Company has continued to develop and refine its amplifier products for the
wireless communications market. The company completed the development of its
W-CDMA amplifier with DSP control. The sale of this product is initially
targeted at Asian markets. To this end product is being submitted to potential
customers for evaluation. The company hopes this will turn into production
orders and such company is retaining its core production personnel even though
the sales of older product are declining
Cost of sales was $157,383 or 203% of sales compared to 126% during the same
period for 2005. Gross margin for the three months ended June 30, 2006 amounted
to a loss of $(80,008) ((103)%) compared to a loss of $(39,434) ((26)%), for the
same period ended June 30, 2005. 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 and
is promoting increased product demand to improve gross margins in 2006.
Selling, general and administrative expenses increased in 2006 by $113,966 to
$223,859 from $109,893 in 2005. Expressed as a percentage of sales, the selling,
general and administrative expenses were 289% in 2006 and 73% in 2005. The
principal factors contributing to the increase of selling, general and
administrative expenses were increased expenses to attend sales related meetings
and events; and costs associated with preparations for setting up our planned
subsidiary in China.
Research, engineering and development expenses were $87,531 or 113% of net sales
for the three months ended June 30, 2006 compared to $128,105 or 85% of net
sales in 2005. In 2006, the principal activity of the business related to the
design and production of product for OEM manufacturers, particularly for the
W-CDMA with DSP control. 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 (R&D) efforts are expected to result in
revenues for new product sales beginning in 4th quarter, 2006 and increasing
substantially in the future.
Interest income was $NIL in 2006 and 2005 because we have not been investing our
cash balances in interest bearing accounts due to immediate cash flow needs.
Interest expense was $9,000 in 2006 compared to $600 in 2005 and was for accrued
interest on other promissory notes issued in connection with a private
placement.
As a result of the foregoing, the Company incurred net losses of $409,348 or
$0.01 per share for the quarter ended June 30, 2006 compared with net losses of
$280,292 or $0.03 per share for the same quarter in 2005.
Results of Operations - The Six Months Ended June 30, 2006 Compared to Six
Months Ended June 30, 2005.
Revenues for the six months ended June 30, 2006 declined by $175,848 from
$293,377 to $117,529, or 60% compared to the six months ended June 30, 2005.
The majority of the amplifier sales for the six months ended June 30, 2006 were
obtained from the Wireless Local Loop amplifier products to a major 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.
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WI-TRON, INC.
Cost of sales was $222,906 or nearly 190% of sales compared to $293,627 or 100%
of sales during the same period for 2005. The decline in gross margin was
principally due to the lowered production while staff in production was retained
in anticipation rotating into new product. The Company is continuing to assess
cost reduction and is promoting increased product demand to improve gross
margins in 2006.
Selling, general and administrative expenses increased in 2006 by $205,157 to
$414,301 from $209,144, in 2005. Expressed as a percentage of sales, the
selling, general and administrative expenses (excluding stock based
compensation) were 353% in 2006 and 71% in 2005. The principal factors
contributing to the decrease in selling, general and administrative expenses
were increased expenses related to raising financial capital; expenses to attend
sales related meetings and events; and costs associated with preparations for
setting up our planned subsidiary in China.
Research, engineering and development expenses were $176,342 or 150% of net
sales for the six months ended June 30, 2006 compared to $229,978 or 78% in
2005. In 2006, 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.
Interest income was $NIL in 2006 and because we have not been investing our cash
balances in interest bearing accounts due to immediate cash flow needs.
As a result of the foregoing, the Company incurred net losses of $728,505 or
$0.03 per share for the six months ended June 30, 2006 compared with net losses
of $442,583 or $0.04 per share for the same period in 2005.
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WI-TRON, INC.
Item 3. Financial Condition - Liquidity and Capital Resources
Liquidity refers to our ability to generate adequate amounts of cash to meet our
needs. We have incurred a loss in each year since inception. We expect to incur
further losses, that the losses may fluctuate, and that such fluctuations may be
substantial. As of June 30, 2006 we had an accumulated deficit of $25,676,229.
Due, in part, to our prior lack of earnings, our current net losses, and our
current debt level our success in attracting additional funding has been limited
to transactions with accredited investors. In light of the availability of this
type of financing, the continued use of our equity for these purposes may be
necessary if we are to sustain operations, prior to reaching operating
profitability. Equity financings of the type we have been required to pursue are
dilutive to our stockholders and may adversely impact the market price for our
shares.
As of June 30, 2006, our current liabilities exceeded our cash and receivables
by $1,050,859. Our current ratio was 0.20 to 1.00, but our ratio of accounts
receivable to current liabilities was only 0.11 to 1.00. This indicates that we
will have difficulty meeting our obligations as they come due. We are carrying
$89,501 in inventory, of which $30,776 represents component parts. Based on year
to date usage, we are carrying 145 days worth of parts inventory. Because of the
lead times in our manufacturing process, we will likely need to 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 June 30, 2006, we had cash of $38,836 compared to an cash of $34,998 at
December 31, 2005. Overall our cash increased $(3,838) during 2006. Our cash
used for operating actives was $864,862. This year we repaid loans of $20,300
and deferred salary payments to officer/stockholders of $NIL. We also received
proceeds from private placements of $899,000.
Because of our relatively 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.
Our inventories decreased by $19,090 to $89,501 in 2006 compared to $108,591 at
December 31, 2005, a decrease of 18%.
The Company has a lease obligation for its premises requiring minimum monthly
payments of approximately $5,500 to $6,000 through 2008.
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.
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WI-TRON, INC.
The Company has plans to raise $1.5 million through a private equity placement.
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.
OFF BALANCE SHEET ARRANGEMENTS
Under SEC regulations, we are required to disclose our off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to investors. An off-balance sheet arrangement means
a transaction, agreement or contractual arrangement to which any entity that is
not consolidated with us is a party, under which we have:
o Any obligation under certain guarantee contracts;
o Any retained or contingent interest in assets transferred to an
unconsolidated entity or similar arrangement that serves as credit,
liquidity or market risk support to that entity for such assets;
o Any obligation under a contract that would be accounted for as a
derivative instrument, except that it is both indexed to our stock and
classified in stockholder's equity in our statement of financial position;
and
o Any obligation arising out of a material variable interest held by us in
an unconsolidated entity that provides financing, liquidity, market risk
or credit risk support to us, or engages in leasing, hedging or research
and development services with us.
As of the date of this Report, the Company has no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
SEASONALITY AND INFLATION
The wireless telecommunications products business is not considered seasonal in
nature, and management does not believe that our operations have been materially
affected by inflationary forces. If the increase in energy (oil, gas, coal,
electricity) prices continues, we believe interest in our higher efficiency
products will increase.
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.
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WI-TRON, INC.
2. INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined using
the first-in, first-out method. As virtually all of our products are made to
customer specifications, we do not keep finished goods in stock except for
completed customer orders that have not been shipped. Our work-in-progress
generally consists of customer orders that are in the process of manufacture but
are not yet complete at the period end date. We review all of our components for
obsolescence and excess quantities on a periodic basis and make the necessary
adjustments to net realizable value as deemed necessary.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Because of our small customer base, we determine our allowance for doubtful
accounts based on a specific customer-by-customer review of collectiblity.
Therefore, our allowance for doubtful accounts and our provision for doubtful
accounts may not bear a consistent relationship to sales but we believe that
this is the most accurate and conservative approach under our circumstances.
4. USE OF ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates. The principal areas
that we use estimates in are: allowance for doubtful accounts; work-in-process
percentage of completion; accounting for stock based employee compensation; and
inventory net realizable values.
5. STOCK-BASED EMPLOYEE COMPENSATION
The proforma disclosures previously permitted are no longer an alternative to
financial statement recognition. Accordingly, the Company has adopted FASB
Statement No. 123R and has recognized $4,978 of stock-based compensation for the
six months ended June 30, 2006.
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.
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 Officer and the Chief Financial 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 both as of June 30, 2006 and the date of this filing, 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.
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WI-TRON, INC.
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.
4. We had particular difficulty in recording transactions related to
stockholders' equity and tracking and recording related charges to
operations.
5. 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.
6. Although we produced our financial statements and Form 10-QSB
without outside assistance for the current quarter, we believe that for
subsequent quarters of the current year we may need to engage the
assistance of a third party financial accounting consulting firm as our
transactions, particularly in the area of stockholders' equity, become
more complex.
(b) Changes in Internal Controls Over Financial Reporting:
1. We have instituted additional monitoring procedures by the Chief
Financial Officer, but otherwise have made no substantive changes to our
internal controls.
Item 6. EXHIBITS
The following is a list of exhibits to this Form 10-QSB:
* 31.1 - Certification of the Company's Chief Executive and Principal
Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
* 31.2 - Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
* 32.1 - Certification of the Company's Chief Executive and Principal
Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
* 32.2 - Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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WI-TRON, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note E to the Company's financial statements set forth in Part I.
*
ITEM 2. CHANGE IN SECURITIES
During the three months ended June 30, 2006, the Company issued securities as
follows.
Pursuant to a series of subscription agreements, the Company received
$210,000 in proceeds from several issuances of restricted common stock it made
to an individual who is a public/investor relations consultant as follows:
Date Shares Gross
Issued Issued Proceeds
-------- -------- --------
05/04/06 500,000 $110,000
05/17/06 (A) 400,000 100,000
-------- --------
900,000 $210,000
======== ========
(A) Governed by a subscription agreement dated July 18, 2006 for 1,200,000
shares at $.25 per share.
On May 16, 2006, the Company issued 300,000 shares of restricted common
stock to an accredited investor for gross proceeds of $81,000.
On May 17, 2006, the Company issued 40,000 shares of restricted common
stock to an employee in payment of an previously accrued vacation liability of
$9,918 .
Subsequent to June 30, 2006, the Company also issued the following
securities:
On July 18, 2006, a subscription agreement was entered into with an
individual who is a public/investor relations consultant (the same individual
discussed in Note C.4) whereby the Company agreed to sell 1,200,000 shares of
common stock for gross proceeds of $300,000. Of this subscription agreement,
$100,000 was received in June 2006 and $200,000 was received in August 2006.
Additionally, during the quarter ended June 30, 2006, the Company agreed to
issue this individual 157,780 shares as compensation to him for public/investor
relations services valued at $39,445, resulting in a charge to operations for
the period then ended.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WI-TRON, INC.
Dated: August 14, 2006 By: /s/ Joe Nordgaard
-----------------------------
Name: Joe Nordgaard
Title: Chief Executive Officer,
Dated: August 14, 2006 By: /s/ Jessica Lee
-----------------------------
Name: Jessica Lee
Title: Chief Financial Officer
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