NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
September
30, 2007
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.
Recent
Developments
On
June
29, 2007, the Company entered into an Agreement and Plan of Merger (the
"Agreement") with Tek Ltd., a New Jersey corporation ("Tek") and John Chase
Lee,
the sole shareholder of Tek and president and CEO of the Registrant
("Lee").
Pursuant
to the Agreement, (a) the Company will form a wholly-owned subsidiary to merge
with and into Tek, whereby Tek is the surviving corporation, and (b) the Company
will issue 40,000,000 shares of its common stock to the shareholders of Tek
in
exchange for all of Tek's outstanding stock. Upon completion of the merger,
the
Company will have 90,528,293 shares of common stock outstanding, with Lee
beneficially owning 54,380,632 shares or approximately 60%. The merger was
scheduled to close on or about July 15, 2007, and is conditioned upon
satisfactory completion of due diligence and other corporate actions. As of
the
date of this filing, the merger has not been consummated.
Recently
Issued Accounting Pronouncements
:
In
February, 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities including an amendment of FAS 115, or FAS
159.
This statement provides companies with an option to report selected financial
assets and liabilities at fair value. This statement is effective for fiscal
years beginning after November 15, 2007 with early adoption permitted. We are
assessing FAS No. 159 and have not yet determined the impact that the adoption
of FAS No. 159 will have on our results of operations or financial position,
if
any.
In
September 2006, the FASB issued SFAS No. 158 Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans - an Amendment of FASB Statements
No. 87, 88, 106, and 132(R). This statement requires a company to recognize
the
funded status of a benefit plan as an asset or a liability in its statement
of
financial position. In addition, a company is required to measure plan assets
and benefit obligations as of the date of its fiscal year-end statement of
financial position. The recognition provision of this statement, along with
additional disclosure requirements, is effective for fiscal years ending after
December 15, 2006, while the measurement date provision is effective for fiscal
years ending after December 15, 2008. Management does not believe that adoption
of this statement will have a material impact on the financial position of
the
Company.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 clarifies the
definition of fair value, establishes a framework for measuring fair value,
and
expands on required disclosures about fair value measurement. SFAS 157 will
be
effective for the Company on January 1, 2008 and will be applied prospectively.
The Company is currently assessing whether adoption of SFAS 157 will have an
impact on our financial
WI-TRON,
INC.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
September
30, 2007
statements
but does not believe the adoption of SFAS 157 will have a material impact on
the
Company’s financial position, cash flows, or results of operations.
In
June,
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income
Taxes (FIN48), to create a single model to address accounting for uncertainty
in
tax positions. FIN 48 clarifies the accounting for income taxes by prescribing
a
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest, and penalties, accounting
in interim periods, disclosure and transition. The Company adopted FIN 48 as
of
January 1, 2007 and the adoption did not have a material impact to the Company's
consolidated financial statements or effective tax rate and did not result
in
any unrecognized tax benefits.
Interest
costs and penalties related to income taxes are classified as interest expense
and general and administrative costs, respectively, in the Company's
consolidated financial statements. For the nine months ended September 30,
2007
and 2006, the Company did not recognize any interest or penalty expense related
to income taxes. The Company is currently subject to a three year statue of
limitations by major tax jurisdictions. The Company files income tax returns
in
the U.S. federal jurisdiction and New Jersey.
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, 2006 included in the Company's Form 10-KSB filed with
the Securities and Exchange Commission on April 6, 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 nine month periods ended September 30, 2007 and 2006, (b) the
financial position at September 30, 2007, (c) the statements of cash flows
for
the nine month period ended September 30, 2007 and 2006 , and (d) the changes
in
stockholders' deficiency for the nine month period ended September 30, 2007
have
been made. The results of operations for the three or nine months ended
September 30, 2007 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 $940,164 for the
nine months ended September 30, 2007 and has limited cash reserves. Current
liabilities exceed cash and receivables by $1,878,337 indicating that the
Company will have difficulty meetings its financial obligations for
the
WI-TRON,
INC.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
September
30, 2007
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. 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.
NOTE
C -
STOCKHOLDERS' EQUITY
At
September 30, 2007, the following 1,370,000 warrants, remained
outstanding:
|
|
(1)
|
20,000
exercisable at $1.00 through May 2010
|
|
|
(2)
|
600,000
exercisable at $.20 through August
2009
|
|
|
(3)
|
750,000
exercisable at $.20 through August
2009
|
At
September 30, 2007, the Company had employee stock options outstanding to
acquire 2,900,000 shares of common stock at exercise prices of $0.15 to $.20
per
share. These option expire at various dates through January 2016.
|
2.
|
Private
Placements of Common Stock and
Debt
|
In
August
2005, the Company completed a private placement of common stock and notes
payable aggregating 600,000 shares with $336,000 in cash proceeds as of December
31, 2005. The offering was represented by 6 units at $56,000 each. Each unit
consists of 100,000 shares of common stock and a $50,000 note payable with
interest at 6%. A total of 600,000 shares were issued in this offering for
a
total of $36,000. The notes, aggregating $300,000, are due upon the earlier
of
the Company completing any financing with gross proceeds in excess of
$1,000,000; or March 1, 2006. Since the Company was unable to repay the notes
on
March 1, 2006. The Company requested and all of the investors agreed to a 90
day
extension on the notes until June 1, 2006 and again through November 2006.
The
Company issued warrants to purchase an aggregate of 600,000 shares of common
stock exercisable at $.20 per share. These notes remain unpaid at September
30,
2007, and the Company may continue to seek further similar
WI-TRON,
INC.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
September
30, 2007
extensions
on an ongoing basis. No actions have been taken by the note holders to collect
the balance up to and since September 30, 2007 through the date of this
filing.
3.
Series
C Convertible Preferred Stock
As
of
December 31, 2006, there were 131,000 shares of Series C Convertible Preferred
Stock outstanding, 125,000 of which were owned by John Lee, the Chief Executive
Officer and 6,000 of which were owned by Jessica Lee, the former Chief Financial
Officer. Each share of the preferred stock was convertible into 100 shares
of
common stock (13,100,000 shares of common stock). On January 11, 2007, all
of
the 131,000 outstanding preferred shares were converted into 13,100,000 shares
of common stock.
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 $1,595.
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 $940,164 and $1,544,178 for the nine months
ended September 30, 2007 and 2006, respectively.
WI-TRON,
INC.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
September
30, 2007
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 2007 sales revenues were
not
enough to offset operations, SG&A and R&D expenses. Management is
believes that the merger with Tek, Ltd. will provide liquidity to sustain
operations and continue research and development. There is no assurance that
the
merger will take place or that if it occurs, that it will provide the necessary
working capital to sustain operations without additional sales. Our failure
to
consummate that merger or to substantially improve our revenues will have
serious adverse consequences and, accordingly, there is substantial doubt in
our
ability to remain in business over the next 12 months. There can be no assurance
that any financing will be available to the Company on acceptable terms, or
at
all. If adequate funds are not available, the Company may be required to delay,
scale back or eliminate its research, engineering and development or
manufacturing programs or obtain funds through arrangements with partners or
others that may require the Company to relinquish rights to certain of its
technologies or potential products or other assets. Accordingly, the inability
to obtain such financing could have a material adverse effect on the Company's
business, financial condition and results of operations.
.
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. Furthermore, we have
been
unable to raise any capital in the manner since 2006 and our operations have
been sustained solely by loans from Tek, Ltd.
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 plans 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 -
OFFICER LOANS
1.
Officer
Loans and Employment Agreements
As
of
September 30, 2007, the Company owes $150,000 to Devendar S. Bains, a former
Chief Executive Officer for loans and unpaid salaries. These balances are
non-interest bearing, unsecured, and have no fixed maturity
date.
WI-TRON,
INC.
NOTES
TO FINANCIAL STATEMENTS (UNAUDITED)
September
30, 2007
2.
Other
Related Party Transactions
During
the nine months ended September 30, 2007, 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
$54,000.
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
|
|
|
|
|
|
2007
|
|
$
|
18,000
|
|
|
2008
|
|
|
30,000
|
|
|
|
|
$
|
48,000
|
|
Rent
expense, including the Company's share of real estate taxes, utilities and
other
occupancy costs, was
$54,000
and $51,750 for the nine months ended September 30, 2007 and 2006,
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, 2007 was $10,000.
As
yet, no action has been taken by Phoenix concerning this default.
3.
Delinquent
Federal and State Payroll Taxes
We
are
delinquent in paying Federal and State payroll taxes of which we currently
owe
$205,184 including accrued interest and penalties.
PART
I - FINANCIAL INFORMATION
