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 SEPTEMBER 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 La Grange Street
Raritan, New Jersey 08869
(Address of principal executive offices)
(908) 253-6870
(Issuer's telephone number)
Check whether the issuer (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 November 14, 2006 was 36,653,293.
Transitional Small Business Format (check one); Yes |_| No |X|
WI-TRON, INC.
FORM 10-QSB
NINE MONTHS ENDED SEPTEMBER 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................................. 6-13
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 14-20
Item 3. Controls and Procedures....................................... 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................. 21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds... 21
Item 3. Defaults Upon Senior Securities............................... 21
Item 4. Submission of Matters to a Vote of Security Holders........... 21
Item 5. Other Information............................................. 21
Item 6. Exhibits...................................................... 22
Signatures.............................................................. 23
Exhibits
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WI-TRON, INC.
BALANCE SHEETS
September
30, December 31,
2006 2005
----------- -----------------
(Unaudited) (Reclassified
for Comparability)
ASSETS
CURRENT ASSETS
Cash $ 127,634 $ 34,998
Accounts receivable, net of allowance for doubtful accounts of
$1,000 and $702 in 2006 and 2005, respectively 18,955 21,926
Inventories 92,243 108,591
Prepaid expenses and other -- 1,208
--------- --------
Total current assets 238,832 166,723
--------- --------
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 (624,554) (621,306)
--------- --------
14,613 17,861
--------- --------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS 5,500 5,500
--------- --------
TOTAL ASSETS $ 258,945 $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 Unites
States for complete financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-1-
WI-TRON, INC.
BALANCE SHEETS
September 30, December 31,
2006 2005
------------- -----------------
(Unaudited) (Reclassified for
Comparability)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Note payable in connection with Phoenix investor rescission - in default $ 10,000 $ 20,000
Accounts payable 171,831 280,293
Notes payable issued in connection with private placement of common
stock, including accrued interest of $20,515 (2006) and $7,015 (2005) 320,515 307,015
Accrued expenses and other current liabilities 164,916 219,246
Federal and state payroll taxes, penalties & interest (delinquent in 2005) 13,784 90,752
Loans payable - officers 150,000 423,200
------------- ------------
Total current liabilities, representing total liabilities 831,046 1,340,506
------------- ------------
STOCKHOLDERS' DEFICIENCY
Convertible Preferred stock, Series C authorized 5,000,000 shares of
$.0001 par value; 131,000 and 140,000
shares issued and outstanding at September 30, 2006
and December 31, 2005, respectively, with a
liquidation preference of $2 per share (262,000) 13 14
Common stock - authorized, 100,000,000 shares of $.0001 par value;
36,528,293 shares and 23,338,267 shares issued
and outstanding at September 30, 2006 and
December 31, 2005, respectively 3,653 2,334
Additional paid-in capital 25,919,135 23,794,954
Subscriptions receivable - common stock (3,000) --
Accumulated deficit (26,491,902) (24,947,724)
------------- ------------
(572,101) (1,150,422)
------------- ------------
$ 258,945 $ 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 Unites
States for complete financial statements.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-2-
WI-TRON, INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three and Nine Months Ended September 30
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales $ 16,380 105,363 $ 133,910 $ 402,304
Cost of goods sold 58,264 176,128 281,169 469,756
----------- ----------- ----------- -----------
Gross profit (loss) (41,884) (70,765) (147,259) (67,452)
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative,
including share- based compensation (A) 707,502 205,796 1,121,804 413,819
Research, engineering and development 79,011 86,570 255,353 316,547
----------- ----------- ----------- -----------
Total operating expenses 786,513 292,366 1,377,157 730,366
----------- ----------- ----------- -----------
Operating loss (828,397) (363,131) (1,524,416) (797,818)
Nonoperating income (expenses)
Interest income and other income -- -- 3,292 --
Interest expense (4,501) (2,516) (13,500) (3,115)
Federal tax penalties and interest (406) (8,205) (26,558) (13,705)
Settlements of accounts payable incurred
in prior years 17,629 -- 17,629 --
Loan conversion costs -- (21,627) -- (21,627)
----------- ----------- ----------- -----------
Loss before income taxes. (815,675) (395,479) (1,543,553) (836,265)
Provision for income taxes -- -- 625 674
----------- ----------- ----------- -----------
NET LOSS $ (815,675) $ (395,479) $(1,544,178) $ (836,939)
=========== =========== =========== ===========
Net loss per share - basic and diluted $ (0.02) $ (0.04) $ (0.05) $ (0.08)
=========== =========== =========== ===========
Weighted average number of shares outstanding 34,318,780 10,376,500 30,441,082 10,376,500
=========== =========== =========== ===========
(A) Share-based compensation:included in
general and administrative expenses
Officers $ 273,365 $ -- $ 273,365 $ --
Employees 9,689 -- 24,585 --
Consultants (1) 226,250 -- 265,695 --
----------- ----------- ----------- -----------
$ 509,304 $ -- $ 563,645 $ --
=========== =========== =========== ===========
(1) Paid to an officer/director and an entity owned by him in his capacity as a
investor/public relations consultant
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-3-
WI-TRON, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
September 30
-----------------------
2006 2005
----------- ---------
Cash flows from operating activities:
Net Loss $(1,544,178) $(836,939)
----------- ---------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 3,248 3,369
Provision for doubtful accounts (4,740) (702)
Public/investor relations fees paid by issuance of common stock 59,445 --
Additional public/investor relations fees pursuant to
consulting agreement 206,250 --
Restricted common stock issued to employee in satisfaction of
vacation pay 9,918 --
Restricted common stock issued on employee options exercise 7,200 --
Amortization of share based compensation 7,467 --
Officer compensation from restricted common stock issued at
below market 3,200 --
Officer compensation arising from options granted/restricted
common stock issued pursuant to new employment agreement and
settlement of officer loans 223,879 --
Deferred officer compensation -- 57,212
Interest accrued on notes payable 13,500 3,116
Restricted common stock issued to officer as reimbursement for legal
fees paid by him in 2003 with Company shares owned by him 46,286 --
Loan conversion costs -- 21,627
Changes in assets and liabilities
Accounts receivable 7,711 (2,547)
Inventories 16,348 12,346
Prepaid expenses and other assets 1,208 --
Customer advances -- 22,008
Delinquent federal and state payroll taxes, interest and penalties (76,968) 75,807
Accounts payable and accrued expense (162,792) (46,774)
----------- ---------
Total adjustments 361,160 101,446
----------- ---------
Net cash (used) for operating activities (1,183,018) (735,493)
----------- ---------
Cash flows from investing activities:
Change in security deposits -- (5,500)
Purchase of property and equipment -- (21,647)
----------- ---------
Net cash provided by (used for) investing activities -- (27,147)
----------- ---------
Cash flows from financing activities:
Proceeds from shares sold to officer at prices below market 10,000 --
Repayment of officer's loans (76,346) (6,141)
Proceeds from convertible notes received directly in cash
pursuant to Lee financing agreement -- 194,000
Payments on Phoenix secured promissory note (10,000) (15,000)
Proceeds from private placements of common stock 1,349,000 300,000
Proceeds from exercise of employee stock options 3,000 --
Proceeds from issuance of notes payable in connection
with private placement of common stock -- 300,000
----------- ---------
Net cash provided by financing activities 1,275,654 772,859
----------- ---------
NET INCREASE (DECREASE) IN CASH 92,636 10,219
Cash at beginning of period 34,998 122,234
----------- ---------
Cash at end of period $ 127,634 $ 132,453
=========== =========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ 10,667 $ NIL
Income taxes $ 625 $ 674
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-4-
WI-TRON, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY (Unaudited)
Nine Months Ended September 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 10,675,000 1,067
Shares sold to officer at prices below market 40,000 4
Conversion of preferred stock into common stock (9,000) (1) 900,000 90
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 paid by issuance of common stock 237,780 24
Public/investor relations consulting agreement 625,000 63
Shares issued to officer to reimburse for legal fees paid by
him in 2003 with Company shares owned by him 132,246 13
Settlement of officer loans through issuance of common stock 500,000 50
Contribution of capital by officer - settlement of officer
loans at less than face amounts -- --
Employee options exercises 40,000 4
Net loss for nine months ended September 30, 2006
------- --- ---------- ------
BALANCE AT SEPTEMBER 30, 2006 131,000 $13 36,528,293 $3,653
======= === ========== ======
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 1,285,124 1,286,191
Shares sold to officer at prices below market 13,196 13,200
Conversion of preferred stock into common stock (89) --
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 7,467 7,467
Public/investor relations fees paid by issuance of common stock 59,421 59,445
Public/investor relations consulting agreement 206,187 206,250
Shares issued to officer to reimburse for legal fees paid by him
in 2003 with Company shares owned by him 46,273 46,286
Settlement of officer loans through issuance of common stock 274,840 274,890
Contribution of capital by officer - settlement of officer loans
at less than face amounts 145,843 145,843
Employee options exercises 13,196 (3,000) 10,200
Net loss for nine months ended September 30, 2006 (1,544,178) (1,544,178)
----------- ------------ ------- -----------
BALANCE AT SEPTEMBER 30, 2006 $25,919,135 $(26,491,902) $(3,000) $ (572,101)
=========== ============ ======= ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
-5-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
NOTE A - NATURE OF OPERATIONS AND ADJUSTMENTS
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.
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 nine month periods ended September 30, 2006 and
2005, (b) the financial position at September 30, 2006, (c) the statements of
cash flows for the nine month period ended September 30, 2006 and 2005, and (d)
the changes in stockholders' deficiency for the nine month period ended
September 30, 2006 have been made. The results of operations for the three or
nine months ended September 30, 2006 are not necessarily indicative of the
results to be expected for the full year.
NOTE B - UNAUDITED INTERIM FINANCIAL INFORMATION
In November 2005, the Company amended its certificate of incorporation
with the State of Delaware to change its name from Amplidyne, Inc. to Wi-Tron,
Inc.
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 6, 2006.
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 $1,544,178 for
the nine months ended September 30, 2006 and has limited cash reserves, even
though it has seen its working capital improve by $581,569 to a deficiency of
$592,214 since the beginning of the fiscal year. Current liabilities exceed cash
and receivables by $684,457 indicating that the Company will have difficulty
meetings 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 well as the Secretary and a Director. Additionally, the Company
received funds from other private placements and used restricted common stock,
options and warrants to pay officers and consultants in lieu of cash.
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 a 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.
-6-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
Off-balance sheet arrangements
We do not have any transactions, agreements or other contractual arrangements
that constitute off balance sheet arrangements.
NOTE C - STOCKHOLDERS' EQUITY
1. Warrants and Options
At September 30, 2006, the following 1,445,000 warrants, remained
outstanding:
(1) 20,000 exercisable at $1.00 through May 2010
(2) 600,000 exercisable at $.20 through August 31, 2009
(3) 75,000 exercisable at $.96 through March 2007
(4) 750,000 exercisable at $.20 through September 2009
At September 30, 2006, the Company had employee stock options outstanding
to acquire 4,550,000 shares of common stock at exercise prices of $0.20 to
$0.37. These option expire at various dates from March 2007 through January
2016.
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 unsecured notes payable balances 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 September 30, 2006, and the
Company is continuing to seek further similar extensions on an ongoing basis. No
actions have been taken by the note holders to collect the balance up to and
since September 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 the wife of John C. Lee (Chairman of the Board of Directors) for
625,000 shares of restricted common stock.
3. Series C Convertible Preferred Stock
As of September 30, 2006, there were 131,000 shares of Series C
Convertible Preferred Stock outstanding, 125,000 of which are owned by John Lee,
the Chairman of the Board of Directors and 6,000 of which are owned by Jessica
Lee, the Chief Financial Officer. Each share of the preferred stock is
convertible into 100 shares of common stock. Accordingly, the outstanding
preferred shares, in the aggregate, are convertible into 13,100,000 shares of
common stock.
-7-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
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
valued at $62,809 and were charged against the proceeds of private placements
during the quarter ended March 31, 2006. In November 2006, this lawyer
voluntarily returned 250,000 of these options.
In January 2006, John Lee and Jessica Lee each converted 2,000 shares of
their preferred stock into 200,000 shares of restricted common stock (aggregate
of 400,000 shares). In September 2006, John Lee converted 3,000 shares of his
preferred stock into 300,000 shares of restricted common stock. Also in
September 2006, Jessica Lee converted 2,000 shares of her preferred stock into
200,000 shares of restricted common stock.
On February 8, 2006, the Company issued 50,000 shares of restricted common
stock to Eric Popkoff for consulting services pursuant to an agreement with
Undiscovered Equities Research Corporation ("UERC") dated September 23, 2005
($5,850 was charged to operations in 2005).
In March 2006, the Company's lawyer was issued 200,000 shares of
restricted common stock which were granted in 2005 in connection with the
private placements of securities and accounted for in the Statement of
Stockholders' Equity as of December 31, 2005 ($26,000 was recorded as offering
costs reducing stockholders' equity in 2005).
Pursuant to a series of subscription agreements, the Company received
$885,000 in proceeds from several issuances of restricted common stock it made
to the secretary/director (who is also the Company's public/investor relations
consultant) as follows:
Date Issued Shares Issued Gross Proceeds
----------- ------------- --------------
03/30/06 1,500,000 $225,000
05/04/06 500,000 110,000
05/17/06 (A) 400,000 100,000
07/18/06 (A) 800,000 200,000
09/08/06 1,000,000 250,000
---------- --------
4,200,000 $885,000
========== ========
(A) Governed by a subscription agreement dated July 18, 2006 for 1,200,000
shares at $.25 per share.
-8-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
The Company issued 237,780 shares of restricted common stock to the
secretary/director as compensation for consulting services rendered valued at
$59,445, of which $20,000 was incurred in the current quarter. Pursuant to the
April 2006 consulting agreement (Note I .3.), the Company issued 625,000 shares
of restricted common stock to this individual resulting in charges to operations
of $206,250.
On May 16, 2006, the Company issued 300,000 shares of restricted common
stock to an accredited investor for gross proceeds of $81,000.
On May 17, 2006, the Company issued 40,000 shares of restricted common
stock to an employee in payment of a previously accrued vacation liability of
$9,918 charged as compensation.
On September 20, 2006, the Chief Executive Officer purchased 40,000 shares
(valued at $13,200) of restricted common stock for gross proceeds of $10,000,
resulting in a charge to operations for officer compensation of $3,200..
In September 2006, employees exercised stock options for an aggregate of
40,000 shares valued at $13,200, resulting in a charge to operations for
compensation of $7,200.
In September 2006, the Company issued 132,246 shares of restricted common
stock to Devendar S. Bains as reimbursement for legal fees of the Company
personally paid by him with common shares in 2003, resulting in a charge to
operations of $46,286.
During the three and nine month periods ended September 30, 2006 the
Company charged to operations a total of $509,304 and $563,645, respectively,
for consulting fees, legal fees and employee compensation. resulting from the
stock issuances in the preceding paragraphs.
Net cash proceeds received by the Company from private placements of
restricted common stock were $1,349,000 for the first nine months of 2006,
compared to $794,000 during the first nine months of 2005. As of September 30,
2006 the Company had 36,528,293 shares of common stock issued and outstanding,
compared to 23,338,267 in 2005.
5. Amendment to Certificate of Designation of Preferred Shares
In May 2006, the Company's certificate of designation for the preferred
shares was amended whereby the liquidation preference was corrected to be $2 per
preferred share rather than the incorrect $750,000 per share in the original
certificate.
6. Preferred and Common Stock Restricted under Rule 144
All preferred shares and all shares referred to as restricted common stock
are governed by SEC Rule 144 and cannot be sold unless they are registered
pursuant to the Securities Act of 1933, as amended, or if such sale is pursuant
to a valid exemption from registration.
NOTE D - 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.
-9-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
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. The balance due on
this judgment as of September 30, 2006 is approximately $11,000.
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 $1,544,178 and $836,939 for the
nine months ended September 30, 2006 and 2005, respectively.
During the three months ended September 30, 2006, the Company continued
its 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 continues to work 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 nine months of
2006 sales revenues were not enough to offset operations, SG&A and R&D expenses.
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. 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.
-10-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
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 been
developed - in order to expand market opportunities across technologies,
frequency bands and power ranges.
NOTE G - OFFICER LOANS
1. Officer Loans and Employment Agreements
On June 27, 2005, the Board of Directors resolved to enter into new
employment agreements with Devendar S. Bains and Tarlochan S. Bains to settle
the liability for unpaid salaries. In September 2006, that resolution was
memorialized in employment agreements as follows:
(i) Devendar S. Bains - (employment agreement dated September 1, 2006) in
settlement of the liability for accrued and unpaid salaries, the Company agreed
to:
a. issue a three year warrant for the purchase of 1,000,000 shares
common stock exercisable at $.20 per share (the "Warrant"), with
750,000 remaining outstanding at September 30, 2006;
b. pay the amount of $200,000 in full settlement of the debt due him
from the Company, payable in quarterly installments of $50,000
starting September 30, 2006 through June 30, 2007, with $150,000
remaining outstanding at September 30, 2006;
c. cancel 250,000 warrants for each $50,000 quarterly installment paid
(250,000 were canceled concurrent with the September 2006 payment);
d. provide the right to exercise the warrants periodically in lieu of
receiving the quarterly cash payments;
e. offer continued employment with the Company for a term of three (3)
years at a salary of $80,000 per year; and
f. revert to a consulting agreement at a monthly amount of $5,000 for
12 months upon the payment in full of the $200,000 debt settlement
(following the last $50,000 quarterly payment). As a consultant, the
customary benefits allowed under his regular employment will be
retained.
As a result of the employment agreement with Devendar S. Bains, the face
amount of the loan balance of $345,843 immediately prior to the settlement
exceeded the minimum cash settlement amount of $200,000 by $145,843. The excess
was credited to additional paid-in capital. The current value of the warrants
(based on the current trading prices of the underlying common stock) that secure
this liability is less than the minimum cash settlement amount of $200,000.
Accordingly, the contribution to additional paid-in capital was measured by the
minimum cash settlement amount of $200,000.
-11-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
Devendar S. Bains beneficially owns 1,050,000 stock options (50,000 of
which are owned by his wife) that have been extended until May 2008, and are
otherwise not affected by this settlement.
(ii) Tarlochan S. Bains - (employment agreement dated July 1, 2005) in
settlement of the liability for accrued and unpaid salaries, the Company agreed
to (a) issue 500,000 shares of restricted common stock valued at $185,000, (b)
enter into an employment agreement at $80,000 per year, (c) issue 300,000
incentive stock options exercisable at $.20 per share pursuant to the 2005 Plan
valued at $61,695, and (d) issue 200,000 non-qualified stock options which vest
immediately and are exercisable at $.20 per share valued at $48,760, with an
unspecified number of additional options to be issued over the next two years at
exercise prices to be determined by the Board of Directors in accordance with
the 2005 Plan at the time of issuance. The value of the shares and options less
the face amount of the loan balance was charged to operations as officer
compensation.
2. Other Related Party Transactions
As of September 30, 2006, accounts payable includes $34,310 due to Tek,
Ltd., a company wholly owned by John C. Lee. During the nine months ended
September 30, 2006, Tek, Ltd. made purchases of parts, supplies, services and
equipment rentals on behalf of the Company for a total of $35,576 and, as per
Note I.1., incurred rent to Tek, Ltd of $51,750.
NOTE H - SEGMENT INFORMATION
The Company has not pursued its wireless Internet connectivity business
since 2003 and is essentially currently operating in one segment.
NOTE I - 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 commences 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 $ 17,250
2007 72,000
2008 30,000
--------
$119,250
========
-12-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2006
Rent expense, including the Company's share of real estate taxes,
utilities and other occupancy costs, was $51,750 and $67,887 for the nine months
ended September 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 September 30, 2006 was $10,000. As
yet, no action has been taken by Phoenix concerning this default.
3. Segue Ventures LLC - Craig H. Bird
On April 16, 2006, the Company entered into a one year consulting
agreement for investor/public relations services on behalf of the Company by
Craig H. Bird with Segue Ventures LLC (an entity owned by Craig H. Bird, who is
the Secretary of the Company and a director). The agreement provides for monthly
cash compensation of $10,000 and for Company issuance of 125,000 shares of the
Company's restricted common stock each month over a period of 12 months for a
total of 1,500,000 shares. The agreement is renewable for one additional year
through April 13, 2008, unless terminated by either party on 60 days written
notice.
-13-
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 nine months ended September 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
Wi-Tron's Mission is to become a world leader in ultra-linear, high-value power
amplifier technology products for wireless telecommunication infrastructure
providers by anticipating and exceeding their needs and expectations, while
providing high profit margins to the Company.
Background: The Company was incorporated on December 14, 1995 as Amplidyne Inc.
and renamed Wi-Tron, Inc in August 2005. Since that time Wi-Tron has been
reorganizing its operational structure and making management changes. In
November 2005, the Company retained Spectral Advantage to create a new business
strategy. In April 2006, the Company hired Segue Ventures as a business
consultant and IR/PR representative and in June 2006, Mr. Joe Nordgaard as CEO
and a director. Led by Mr. Joe Nordgaard (CFO), Wi-Tron is attempting to grow
its 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.
-14-
Wi-Tron has 15 proven product designs for Radio Frequency Amplifiers, Wi-Max
Amplifiers, Wi-Fi Solutions and Wireless Repeaters; patents in Analog
Pre-Distortion techniques and 15 years experience in custom RF amplifier design
and manufacturing.
HISTORY OF THE RF AMPLIFIER INDUSTRY
Until about 2003, large telecom equipment manufacturers such as Ericsson,
Motorola, Nortel and Lucent Technologies maintained comprehensive R&D
departments to design and manufactured their own RF amplifiers. This was
effective, but expensive and consequently they cut back much of their R&D
capabilities to streamline operations and reduce costs. As a result, the
industry became more standardized, but telecom service providers now have
increased their reliance on outsourced design, manufacturing and solutions.
This outsourcing shift, coupled with the rapid growth in the cellular industry,
caused rapid growth of the RF amplifier industry. The two largest US
manufacturers, Powerwave Inc. and Andrews Corp., dominate the RF amplifier
industry's cutting-edge technologies development, which represents the highest
profit margins in the industry. The rest of the industry is serviced by dozens
of small companies around the world, who tend to focus on lower technology
solutions and lower profit margins. Companies of any size that show R&D prowess
are quickly acquired by the industry giants so they retain the most advanced
technologies available.
This outsourcing and acquisition trend has led amplifier and component designs
toward increased complexity and technical sophistication in the form of complete
RF Subsystems. However, there are still major problems in the form of power and
signal inefficiencies that the major companies are not solving sufficiently.
Much of Wi-Tron's future success is based on solving these problems.
PLANS FOR IMPROVING RESULTS OF OPERATIONS
At Wi-Tron, Inc., we are taking advantage of many opportunities in the wireless
industry by developing state-of-the-art RF amplifier technology for the second,
third and fourth generation wireless telecommunications systems. We are
developing advanced RF amplifier designs that significantly increase power and
frequency efficiency and resolve key issues relating to the ever increasing need
for more complex broadband, multi-channel solutions. We continue to build our
R&D team to capitalize on these opportunities, where both the greatest demand
and the greatest opportunity to gain market-share with high margin solutions
exist.
Initially, Wi Tron will work to increase sales of legacy systems while
simultaneously developing cutting edge technological designs for near and long
term sales growth. Wi Tron intends to build partnership and marketing strengths
from a series of design platforms, some of which have already have been
developed, in order to expand our market opportunities across technologies,
frequency bands and power ranges.
Our strategy is to develop, manufacture and sell the most advanced amplifier
products in the world, which could give Wi Tron a lead time to market advantage
against the largest names in the industry. Wi Tron's new amplifiers are energy
efficient, have wide bandwidth and digital clarity, with embedded intellectual
property protection. These products are in great demand by wireless service
providers and equipment vendors around the world. Wi-Tron's products will save
energy costs, while providing high speed data, video and streaming video
transmissions, with high voice quality to wireless customers around the world.
There are additional savings to service providers each Wi-Tron amplifier can do
the workload of several older amplifiers.
-15-
We have developed eight new amplifier products for the wireless communications
market. Our sales and marketing efforts are focused on Latin America, Asia,
Europe and U.S. markets. We plan to establish "Wi-Tron China" to accelerate our
penetration of the Chinese market and to manage our outsourced manufacturing
operations in China.
Results of Operations - The Three Months Ended September 30, 2006 Compared to
Three Months Ended September 30, 2005.
Revenues for the three months ended September 30, 2006 declined by $88,983 from
$105,363 to $16,380, or 84% compared to the three months ended September 30,
2005. The majority of the amplifier sales for the three months ended September
30, 2006 were obtained from the Wireless Local Loop amplifier products to a
European customer. Sales of amplifiers were 100% of total sales compared to 97%
of total sales for the same period last year. The high speed wireless Internet
products and broadband solutions accounted for approximately 3% of total sales
for the three months ended September 30, 2005.
We continue to develop and refine our amplifier products for the wireless
communications market. We have completed the development of our W CDMA amplifier
with DSP control, with sales initially targeted at Asian markets. To this end
product is being submitted to potential customers for evaluation. If we are
successful, we anticipate production orders and as such we are retaining our
core production personnel even though the sales of our older products are
declining.
Cost of sales was $58,264 or 356% of sales compared to 167% during the same
period for 2005. Gross margin for the three months ended September 30, 2006
amounted to a loss of $(41,884) (256%) compared to a loss of $(70,765) (67%),
for the same period ended September 30, 2005. The decline in gross margin was
principally due to our very low sales volume and 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 ensuing periods.
Selling, general and administrative expenses for the three months ended
September 30, 2006 increased by $501,706 to $707,502 (including share based
compensation of $509,304) from $205,796 for the same period in 2005. Expressed
as a multiple of sales, the selling, general and administrative expenses were
approximately 43 times sales in 2006 and approximately 2 times sales in 2005.
The principal factors contributing to the increase in selling, general and
administrative expenses costs in connection with our efforts to improve
administrative activities, including increased accounting costs, as well as
management changes requiring additional (mostly share-based) compensation.
Excluding share-based compensation, total selling, general and administrative
expenses for the three months ended September 30, 2006 decreased by $7,598 to
$198,198 (approximately 12 time sales) from $205,796 (approximately 2 times
sales) for the same period in 2005. In the quarter ended September 30, 2006, we
continued to maintain lower staffing levels. In the fourth quarter of 2006 and
in 2007 we anticipate hiring key and essential engineers, technicians and
consultants to enhance our R&D program, improve international business
development and increase product sales.
-16-
Research, engineering and development expenses were $79,011 or approximately 5
times net sales for the three months ended September 30, 2006 compared to
$86,570 or 82% 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 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 2005 because we have not been investing our
cash balances in interest bearing accounts due to immediate cash flow needs.
In 2006 the Company settled an account with a vendor resulting in a gain of
$17,629.
Interest expense was $4,501 for the three months ended September 30, 2006
compared to $2,516 the three months ended September 30, 2005 and was principally
related to private placement notes payable in the current year and other
convertible notes payable in the preceding year..
As a result of the foregoing, the Company incurred net losses of $(815,675) or
$(0.02) per share for the quarter ended September 30, 2006 compared with net
losses of $(395,479) or $(0.04) per share for the same quarter in 2005.
Results of Operations - The Nine Months Ended September 30, 2006 Compared to
Nine Months Ended September 30, 2005.
Revenues for the nine months ended September 30, 2006 declined by $268,394 from
$402,304 to $133,910, or 67% compared to the nine months ended September 30,
2005.
The majority of the amplifier sales for the nine months ended September 30, 2006
were obtained from the Wireless Local Loop amplifier products to a European
customer.
Cost of sales was $281,169 or approximately 2 times sales compared to $469,756
or 117% of sales during the same period for 2005. The decline in gross margin
was principally due to our very low sales volume and 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 for the nine months ended
September 30, 2006 by $707,985 to $1,121,804 (including share based compensation
of $563,645) from $413,819 in 2005. Expressed as a multiple of sales, the
selling, general and administrative expenses were approximately 8.4 times sales
in 2006 and approximately 1 times sales in 2005. The principal factors
contributing to the increase in selling, general and administrative expenses
were costs in connection with our efforts to improve administrative activities,
including increased accounting costs, as well as management changes requiring
additional (mostly share-based) compensation. Excluding share-based
compensation, total selling, general and administrative expenses for the nine
months ended September 30, 2006 increased by $144,340 to $558,159 (approximately
4 time sales) from $413,819 (approximately 1 times sales) for the same period in
2005. In the quarter ended September 30, 2006, we continued to maintain lower
staffing levels. In the fourth quarter of 2006 and in 2007 we anticipate hiring
key and essential engineers, technicians and consultants to enhance our R&D
program, improve international business development and increase product sales.
-17-
Research, engineering and development expenses were $255,353 or 191% of net
sales for the nine months ended September 30, 2006 compared to $316,547 or 79%
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.
The Company had other income in 2006 of $NIL. Other income was $3,292 in 2005.
In 2006 the Company settled an account with a vendor resulting in a gain of
$17,629.
Interest expense was $13,500 in 2006 compared to $3,115 in 2005 and was
principally related to private placement notes payable in the current year and
other convertible notes payable in the preceding year..
As a result of the foregoing, the Company incurred net losses of $(1,544,178) or
$(0.05) per share for the nine months ended September 30, 2006 compared with net
losses of $(836,939) or $(0.08) per share for the same period in 2005.
Liquidity and Capital Resources
Liquidity refers to our ability to generate adequate amounts of cash to meet our
needs. We have been generating the cash necessary to fund our operations through
the sale of restricted common stock in private placements and paying officers
and consultants with restricted common stock, options and warrants in lieu of
cash. 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 September 30, 2006 we had an accumulated deficit of
$26,491,902. Potential immediate sources of liquidity are private placements of
common stock.
As of September 30, 2006, our current liabilities exceeded our cash and
receivables by $684,457. Our current ratio was 0.29 to 1.00, but our ratio of
accounts receivable to current liabilities was only 0.18 to 1.00. This indicates
that we will have difficulty meeting our obligations as they come due. We are
carrying $92,243 in inventory, of which $21,675 represents component parts.
Based on year to date usage, we are carrying 86 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 to realize cash from all of our existing inventories.
Our cash used for operating activities was $1,183,018. This year we repaid
officer loans of $76,346.
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 collectible
accounts. At September 30, 2006 and December 31, 2005 no allowance for doubtful
accounts was required.
Our inventories decreased by $16,348 to $92,243 in 2006 compared to $108,591 at
December 31, 2005, a decrease of 15%.
The Company has a lease obligation for its premises and certain equipment
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.
-18-
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.
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 collectible
accounts. 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 $563,645 of stock-based compensation for
the nine months ended September 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.
-19-
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.
Item 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures:
Management is responsible for establishing and maintaining adequate
disclosure controls and procedures.
WI-TRON, INC. carried out an evaluation, under the supervision and
with the participation of the Company's management, including the
Company's Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures pursuant
to Exchange Act Rule 13a-15 and 15d-15. Based upon that evaluation, the
chief Executive and Principal Accounting Officer concluded that the
Company's disclosure controls and procedures were not effective both as of
September 30, 2006 and the date of this filing, in timely alerting them to
material information required to be included in the Company's periodic SEC
filings relating to the Company. Our conclusions regarding the
deficiencies appear in the next item.
Our controls relating to disclosure and related assertions in the
financial statements, particularly in the area of non-routine and
non-systematic transactions were not adequate.
* We had particular difficulty in recording transactions related to
stockholders' equity and tracking and recording related charges to
operations.
* We found that our ability to track our inventory quantities and to
correctly apply complex pricing calculations to finished goods and
work-in-progress is inadequate and resulted in substantial additional
adjustments. Furthermore, we discovered that lower of cost or market tests
were not adequately applied.
* Although we produced our financial statements and Form 10-QSB without
outside assistance for the current quarter, we believe that we may need to
engage the assistance of a third party financial accounting consulting
firm as our transactions, particularly in the area of stockholders'
equity, become more complex.
(b) Changes in Internal Controls Over Financial Reporting:
We have instituted additional monitoring procedures by the Chief Financial
Officer, but otherwise have made no changes that have materially affected
or are likely to materially affect our internal controls over financial
reporting.
-20-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as otherwise noted, the securities described in this Item were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933 and/or Regulation D promulgated under the Securities Act.
Each such issuance was made pursuant to individual contracts that are discrete
from one another and are made only with persons who were sophisticated in such
transactions and who had knowledge of and access to sufficient information about
Wi-Tron, Inc. to make an informed investment decision.
Proceeds from all securities sales were used to fund day-to-day operations of
the Company.
Person or Class Total Offering Securities Act
Date Title Shares Issued of Persons Price Type of Consideration Exemption
-------- ------ ------------- --------------- -------------- ------------------------------ --------------
07/01/06 Common 250,000 Secretary $ 91,250 Compensation Section 4(2)
07/15/06 Common 125,000 Secretary 36,250 Compensation Section 4(2)
07/18/06 Common 800,000 Secretary 200,000 Cash Section 4(2)
07/18/06 Common 80,000 Secretary 20,000 Compensation Section 4(2)
08/15/06 Common 125,000 Secretary 37,500 Compensation Section 4(2)
09/05/06 Common 300,000 Chairman N/A Conversion of preferred shares Section 4(2)
09/15/06 Common 125,000 Secretary 41,250 Compensation Section 4(2)
09/15/06 Common 500,000 V.P. 185,000 Compensation Section 4(2)
09/16/06 Common 1,000,000 Secretary 250,000 Cash Section 4(2)
09/16/06 Common 132,246 Employee 46,286 Compensation Section 4(2)
09/20/06 Common 40,000 CEO 13,200 Cash Section 4(2)
09/20/06 Common 200,000 CFO N/A Conversion of preferred shares Section 4(2)
09/20/06 Common 40,000 Employees 13,200 Options exercise N/A
--------- --------
3,717,246 $933,936
========= ========
ITEM 3. Defaults Upon Senior Securities.
We are in default on payments of principal and interest on the notes payable in
connection with private placement of notes and common stock in the aggregate
principal amount of $300,000 and accrued interest of $20,515.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
Officers of the Company have voluntarily surrendered certain potential future
rights that could have resulted in the issuance of 6,200,000 options to acquire
the Company's common stock. A lawyer also voluntarily surrendered options to
acquire 250,000 shares of the company's common stock.
-21-
Item 6. EXHIBITS
The following is a list of exhibits to this Form 10-QSB:
10.1 - Employment Agreement - Devendar S. Bains
10.2 - Employment Agreement - Tarlochan S. Bains
10.3 - Consulting Agreement - Segue Ventures LLC
31.1 - Certification of the Company's Chief Executive Officer 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 Officer 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
-22-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WI-TRON, INC.
Dated: November 17, 2006 By: /s/ Joe Nordgaard
------------------------------------
Name: Joe Nordgaard
Title: Chief Executive Officer,
Dated: November 17, 2006 By: /s/ Jessica Lee
------------------------------------
Name: Jessica Lee
Title Chief Financial Officer
-23-