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 MARCH 31, 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)
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 May 19, 2006 was 31,913,267.
Transitional Small Business Format (check one); Yes |_| No |X|
WI-TRON, INC.
FORM 10-QSB
THREE MONTHS ENDED MARCH 31, 2006
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Balance Sheets......................................1-2
Statements of Operations..............................3
Statements of Cash Flows..............................4
Statement of Changes in Stockholders' Deficiency......5
Notes to Financial Statements......................6-10
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...............11-14
Item 3. Controls and Procedures..............................15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..........................................16
Item 2. Change in Securities.......................................16
Signatures..........................................................17
Certifications...................................................18-19
Exhibits.........................................................20-21
The following unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the company believes that the disclosures made are adequate to make the
information not misleading.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the company's
latest shareholders' annual report (Form 10-KSB).
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WI-TRON, INC.
BALANCE SHEETS
March 31 December 31
ASSETS (Pledged) 2006 2005
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 32,006 $ 34,998
Accounts receivable, net of allowance for doubtful accounts of
$1,000 and $702 in 2006 and 2005, respectively 13,284 21,926
Inventories 104,548 108,591
Prepaid expenses and other -- 1,208
------------ ------------
Total current assets 149,838 166,723
------------ ------------
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 (622,389) (621,306)
------------ ------------
16,778 17,861
------------ ------------
SECURITY DEPOSITS AND OTHER NON-CURRENT ASSETS 5,500 5,500
------------ ------------
$ 172,116 $ 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
(Reclassified for
comparability to
current period)
March 31 December 31,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 2006 2005
--------------- ---------------
CURRENT LIABILITIES
Secured note payable in connection with Phoenix investor
rescinded agreement - payment in default 20,000 20,000
Accounts payable 268,659 280,293
Notes payable issued in connection with private placement of
common stock, including accrued interest of $11,515
(2006) and $7,015 (2005) 311,515 307,015
Accrued expenses and other current liabilities (including
delinquent federal payroll taxes, penalties and interest
aggregating $101,676 at March 31, 2006 and
$90,752 at December 31, 2005 247,133 309,998
Loans payable - officers 408,900 423,200
--------------- ---------------
Total current liabilities representing total liabilities 1,256,207 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 March 31, 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 31,413,267 and 23,338,267 shares issued
and outstanding at March 31, 2006 and December 31,
2005, respectively 3,141 2,334
Additional paid-in capital 24,404,636 23,794,954
Subscriptions receivable - preferred stock (225,000) --
Accumulated deficit (25,266,882) (24,947,724)
--------------- ---------------
(1,084,091) (1,150,422)
--------------- ---------------
$ 172,116 $ 190,084
=============== ===============
Note: The balance sheet at December 31, 2005 has been derived from the restated
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 of America for complete financial statements.
The accompanying notes are an integral part of these financial statements
-2-
WI-TRON, INC.
STATEMENTS OF OPERATIONS
Three Months Ended March 31
Three Months Ended
March 31
2006 2005
------------ ------------
Net sales $ 40,156 $ 142,593
Cost of goods sold 65,522 103,408
------------ ------------
Gross profit (loss) (25,366) 39,185
------------ ------------
Operating expenses
Selling, general and administrative 190,444 99,252
Research, engineering and development 88,811 101,873
------------ ------------
Operating loss (304,621) (161,940)
------------ ------------
Nonoperating income (expenses)
Other income 3,292 3,563
Interest expense (4,500) (300)
Federal tax penalties and interest (12,827) (3,000)
------------ ------------
Loss before income taxes (318,656) (161,677)
Provision for income taxes 500 614
------------ ------------
NET LOSS $ (319,156) $ (162,291)
============ ============
Net loss per share - basic and diluted $ (0.01) $ (0.02)
============ ============
Weighted average number of shares outstanding 25,071,878 10,376,500
============ ============
The accompanying notes are an integral part of these financial statements
-3-
WI-TRON, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended March 31
Three Months Ended
March 31
2006 2005
--------- ---------
Cash flows from operating activities:
Net Loss $(319,156) $(162,291)
--------- ---------
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 1,082 1,747
Amortization of share based compensation 2,489 --
(Decrease) increase in allowance for doubtful accounts 298 (4,000)
Interest accrued on convertible promissory note 300
Interest accrued on notes payable issued in connection
with private placement of common stock 4,500 --
Salary deferred, added to officer loans -- 3,942
Changes in assets and liabilities
Accounts receivable 8,344 (23,436)
Inventories 4,043 (27,468)
Prepaid expenses and other assets 1,208
Customer advances -- 10,741
Accounts payable and accrued expenses (74,500) 32,201
--------- ---------
Total adjustments (52,536) (27,455)
--------- ---------
Net cash (used) for operating activities (371,692) (189,746)
--------- ---------
Cash flows from investing activities:
Net cash provided by investing activities -- --
--------- ---------
Cash flows from financing activities:
Officer loans (14,300) (2,200)
Advances pursuant to financing agreement -- 92,000
Proceeds from sale of common stock 383,000 --
--------- ---------
Net cash provided by financing activities 368,700 89,800
--------- ---------
DECREASE IN CASH (2,992) (99,946)
Cash at beginning of period 34,998 122,234
--------- ---------
Cash at end of period $ 32,006 $ 22,288
========= =========
Supplemental disclosures of cash flow information:
Cash paid for: Interest $ -- $ --
Income taxes $ 500 $ 614
The accompanying notes are an integral part of these financial statements
-4-
WI-TRON, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Three Months Ended March 31, 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 7,675,000 767
Conversion of preferred stock into common stock (4,000) NIL 400,000 40
Offering costs paid through the issuance of stock options
Amortization of share based compensation
Net loss for March 31 March 31, 2006
------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 2006 136,000 $ 14 31,413,267 $ 3,141
============ ============ ============ ============
--------------------------------------------------------------------------------------------------------------------------------
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 544,424 (225,000) 320,191
Conversion of preferred stock into common stock (40)
Offering costs paid through the issuance of stock options 62,809 62,809
Amortization of share based compensation 2,489 2,489
Net loss for March 31 March 31, 2006 (319,158) (319,158)
------------ ------------ ------------- -------------
BALANCE AT MARCH 31, 2006 24,404,636 $(25,266,882) $ (225,000) $ (1,084,091)
============ ============ ============= =============
The accompanying notes are an integral part of these financial statements
-5-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006
NOTE A - ADJUSTMENTS
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 month periods ended March 31, 2006 and 2005 (b) the
financial position at March 31, 2006 (c) the statements of cash flows for the
three month period ended March 31, 2006 and 2005 , and (d) the changes in
stockholders' deficiency for the three month period ended March 31, 2006 have
been made. The results of operations for the three months ended March 31, 2006
are not necessarily indicative of the results to be expected for the full year.
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 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 $319,156 for the
three months ended March 31, 2006, has limited cash reserves even though its
working capital improved by $67,414 to a deficiency of $(1,106,369) since the
beginning of the fiscal year. Current liabilities still exceed cash and
receivables by $1,210,917 indicating that the Company will have substantial
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 loans from
the Chief Executive Officer and costs have been cut through substantial
reductions in labor and operations.
As further discussed in Note F, management is seeking additional financing and
intends to aggressively market its products, control operating costs and broaden
its product base through enhancements of products. The Company believes that
these measures may provide sufficient liquidity for it to continue as a going
concern in its present form. 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
MARCH 31, 2006
NOTE C - STOCKHOLDERS' EQUITY
1. Warrants and Options
At March 31, 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 March 31, 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 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.
3. Series C Convertible Preferred Stock
As of March 31, 2006, there were 136,000 shares of Series C Convertible
Preferred Stock outstanding, 128,000 of which are owned by John Lee, the Chief
Executive 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 13,600,000 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.
In January 2006, John Lee and Jessica Lee each converted 2,000 shares of
their preferred stock into 200,000 shares of common stock (aggregate of 400,000
shares).
On February 8, 20306, the Company issued 50,000 shares of common stock to
Eric Popkoff for consulting services pursuant to an agreement with Undiscovered
Equities Research Corporation ("UERC") dated September 23, 2005 ($5,850 was
charged to operations in 2005).
In March 2006, the Company's lawyer was issued 200,000 shares of common
stock which were granted in 2005 in connection with the private placements of
securities and accounted for in the Statement of Stockholders' Equity as of
December 31, 2005 ($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.
-7-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006
On March 30, 2006, a subscription agreement was entered into with an
individual who is a public/investor relations consultant whereby the Company
agreed to sell 1,500,000 shares of common stock for gross proceeds of $225,000.
In May, this individual made an additional investment of $110,000 (see Note J).
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 have been presented on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The liquidity of the Company has
been adversely affected in recent years by significant losses from operations.
The Company has incurred losses of $319,156 and $162,291 for the three months
ended March 31, 2006 and 2005, respectively.
With little remaining cash and reduced revenues, management believes that
the Company will have great difficulty meeting its working capital and
litigation settlement obligations over the next 12 months. The Company is
presently dependent on cash flows generated from sales and private placements of
common stock to meet our obligations. Our failure to consummate a merger with an
appropriate partner or to substantially improve our revenues will have serious
adverse consequences and, accordingly, there is substantial doubt in our ability
to remain in business over the next 12 months. There can be no assurance that
any financing will be available to the Company on acceptable terms, or at all.
If adequate funds are not available, the Company may be required to delay, scale
back or eliminate its research, engineering and development or manufacturing
programs or obtain funds through arrangements with partners or others that may
require the Company to relinquish rights to certain of its technologies or
potential products or other assets. Accordingly, the inability to obtain such
financing could have a material adverse effect on the Company's business,
financial condition and results of operations.
-8-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006
Management's plans for dealing with the foregoing matters include:
o Increasing sales of its high speed internet connectivity products through
both individual customers, strategic alliances and mergers.
o Decreasing the dependency on certain major customers by aggressively
seeking other customers in the amplifier markets;
o Partnering with significant companies to jointly develop innovative
products, which has yielded orders with multinational companies to date, and
which are expected to further expand such relationships;
o Maintaining a reduced cost structure through a more streamlined operation
by using automated machinery to produce components for our products;
o Deferral of payments of officers' salaries, as needed;
o Selling remaining net operating losses applicable to the State of New
Jersey, pursuant to a special government high-technology incentive program
in order to provide working capital, if possible;
o Reducing overhead costs and general expenditures.
o Merging with another company to provide adequate working capital and
jointly develop innovative products.
NOTE G - OFFICER LOANS
As of March 31, 2006, the Company owes $345,842 to the Chief Technology
Officer (formerly the Chief Executive Officer) for loans and unpaid salaries.
The Company also owes other officers an aggregate of $63,058. These balance are
non-interest bearing, unsecured, and have no fixed maturity dates.
-9-
WI-TRON, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006
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
1. Premises leases
In July 2004, Tek, Ltd. ("Tek") a company wholly owned by John Lee,
entered into a contract with the existing landlord of the operating premises to
purchase the building. In connection therewith, Tek negotiated a return of the
security deposit and accumulated interest thereon to the Company in the
aggregate amount of $40,160. The Company was leasing the premises on a month to
month basis and paying rent on a semi-monthly basis. On April 22, 2005,
concurrent with the closing of the purchase of the building by Tek, the Company
entered into a non-cancelable operating lease with Tek which 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 $ 51,750
2007 72,000
2008 30,000
-----------
$ 153,750
===========
Rent expense, including the Company's share of real estate taxes,
utilities and other occupancy costs, was $17,250 and $29,431 for the three
months ended ended March 31, 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 March 31, 2006 was $20,000. 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.
NOTE J - SUBSEQUENT EVENTS
On May 4, 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 500,000 shares of
common stock for gross proceeds of $110,000.
In April 2006, the Company paid the balance of its payroll tax liability
incurred during the first quarter of 2006 as follows: Federal $49,106; New
Jersey State $13,710.
-10-
WI-TRON, INC.
MARCH 31, 2006
PART I - FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
Financial Condition and Results of Operations
Results of Operations - The Three Months Ended March 31, 2006 Compared to Three
Months Ended March 31, 2005.
Revenues for the three months ended March 31, 2006 decreased by $102,437 from
$142,593 to $40,156, or 72% compared to the three months ended March 31, 2005.
Coupled with the increased production costs, the first quarter losses
significantly increased compared with the first quarter of last year.
The majority of the amplifier sales for the three months ended March 31, 2006
were obtained from the sale of 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.
Cost of sales was $65,522 or 163% of sales compared to 73% during the same
period for 2005. The decline in gross margin was principally due to insufficient
sales volume. The Company is continuing to assess ways to achieve cost reduction
for its products and sales volume increases to improve gross margins in 2006.
Selling, general and administrative expenses (excluding stock based
compensation) increased in 2006 by $91,192 to $190,444 from $99,252, in 2005.
Expressed as a percentage of sales, the selling, general and administrative
(SG&A) expenses (excluding stock based compensation) were 474% in 2006 and 70%
in 2005. Most of the SG&A expenses are fixed and management has cut costs about
as low as operations can sustain. The actual dollar increase in SG&A from the
previous year was $91,192 or 92%. The principal factors contributing to the
increase in selling, general and administrative expenses were related to
regulatory compliance costs.
Research, engineering and development expenses were 221% of net sales for the
three months ended March 31, 2006 compared to 71% in 2005. In 2006 and 2005, the
principal activity of the business related to the design and production of
product for OEM manufacturers, particularly for the W-CDMA amplifier and 3.5 GHz
single channel products and refinements to the High Speed Internet products. 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.
We had no appreciable interest income in 2006 and 2005 because our excess cash
balances which we have historically temporarily invested in interest bearing
accounts have been fully depleted.
-11-
WI-TRON, INC.
MARCH 31, 2006
As a result of the foregoing, the Company incurred net losses of $319,156 or
$0.01 per share for the three months ended March 31, 2006 compared with net
losses of $162,291 or $0.02 per share for the same period in 2005.
Liquidity and Capital Resources
Liquidity refers to our ability to generate adequate amounts of cash to meet our
needs. We have been generating the cash necessary to fund our operations from
private placements. We have incurred a loss in each year since inception. It is
possible that we will incur further losses, that the losses may fluctuate, and
that such fluctuations may be substantial. As of March 31, 2006, we had an
accumulated deficit of $25,266,882. Potential immediate sources of liquidity
continued to be private placements of common stock.
As of March 31, 2006, our current liabilities exceeded our cash and receivables
by $1,210,917. Our current ratio was 0.12 to 1.00, but our ratio of accounts
receivable to current liabilities was only 0.01 to 1.00. This indicates that we
will have difficulty meeting our obligations as they come due. We are carrying
$104,548 in inventory, of which $42,484 represents component parts. 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 March 31, 2006, we had cash of $32,006 compared to $34,998 at December 31,
2005. Overall our cash and cash equivalents decreased $2,992 during 2006. Our
cash used for operating activities was $371,692. We received the proceeds from
private placements of equity securities of $383,000 during the quarter ended
March 31, 2006.
The allowance for doubtful accounts on trade receivables was $1,000 at March 31,
2006. 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 $4,043 to $104,548 in 2006 compared to $108,591 at
December 31, 2005, a decrease of 4%.
Although the Company did not convert salaries to officers through the issuance
of Common Stock since 2002, but it may do so in 2006.
The Company continues to explore strategic relationships with ISP's, customers
and others, which could involve jointly developed products, revenue-sharing
models, investments in or by the Company, or other arrangements. There can be no
assurance that a strategic relationship can be consummated.
In the past, the officers of the Company have deferred a portion of their
salaries or provided loans to the Company to meet short-term liquidity
requirements. Where possible, the Company has issued stock or granted warrants
to certain vendors in lieu of cash payments, and may do so in the future. There
can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate its research,
engineering and development or manufacturing programs or obtain funds through
arrangements with partners or others that may require the Company to relinquish
rights to certain of its technologies or potential products or other assets.
Accordingly, the inability to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations.
-12-
WI-TRON, INC.
MARCH 31, 2006
With little remaining cash and no near term prospects of private placements,
options or warrant exercises and reduced revenues, we believe that we will have
great difficulty meeting our working capital and litigation settlement
obligations over the next 12 months. We are presently dependent on cash flows
generated from sales and loans from officers to meet our obligations. Our
failure to consummate a merger. or 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.
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 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.
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WI-TRON, INC.
MARCH 31, 2006
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 $2,489 of stock-based compensation for the
three months ended March 31, 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.
7. SEGMENT INFORMATION
The Company commenced its wireless Internet connectivity business in the summer
of 2000. The Company does not measure its operating results, assets or
liabilities by segment. We presented certain segment information representing
sales and inventories for our amplifier and internet segments. However, this
information is becoming less relevant as we begin to move away from the internet
business and concentrate on our core competence, which is in the amplifier
business.
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WI-TRON, INC.
MARCH 31, 2006
Item 3. 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 March 31, 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.
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.
/ 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 for subsequent
quarters of the current year we may need to engage the assitance 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 addtional monitoring procedures by the Chief
Financial Officer, but otherwise have made no substantive changes to our
internal controls.
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WI-TRON, INC.
MARCH 31, 2006
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 first quarter ended March 31, 2006, the Company issued securities as
follows.
In January 2006, the Company issued to the securities lawyer for services
non qualified options to purchase 1,000,000 shares at $.20 per share.
In January 2006, John Lee and Jessica Lee each converted 2,000 shares of
their preferred stock into 200,000 shares of common stock (aggregate of 400,000
shares).
On February 8, 2006, the Company issued 50,000 shares of common stock to
Eric Popkoff for consulting services pursuant to an agreement with Undiscovered
Equities Research Corporation ("UERC") dated September 23, 2005 ($5,850 was
charged to operations in 2005).
In March 2006, the Company's lawyer was issued 200,000 shares of common
stock which were granted in 2005 in connection with the private placements of
securities and accounted for in the Statement of Stockholders' Equity as of
December 31, 2005 ($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.
On March 30, 2006, a subscription agreement was entered into with an
individual who is a public/investor relations consultant whereby the Company
agreed to sell 1,500,000 shares of common stock for gross proceeds of $225,000.
Subsequent to March 31, 2006, the Company also issued the following
securities:
On May 4, 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 500,000 shares of
common stock for gross proceeds of $110,000.
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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: May 19, 2006 By: /s/ John C. Lee
----------------
Name: John C. Lee
Title: Chief Executive Officer and Director
Dated: May 19, 2006 By: /s/ Jessica Lee
----------------
Name: Jessica Lee
Title: Chief Financial Officer and Director
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