UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE


ACT OF
1934





For the
fiscal year ended December 31, 2008.





OR





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES


AND
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)








Commission
File Number 0-29195





Waytronx,
Inc.


(Exact
name of registrant as specified in its charter)





Colorado
                (7310)
                84-1463284(State
      or jurisdiction of
                (Primary
      Standard Industrial
                (I.R.S.
      Employerincorporation
      or organization)
                Classification
      Code Number)
                Identification
      No.)





20050 SW
112th
Avenue


Tualatin,
Oregon 97062


(503)
612-2300


(Address
and Telephone Number of Principal Executive Offices and Principal Place
of


Business)





William
J. Clough, CEO/President


Waytronx,
Inc.


20050 SW
112th
Avenue


Tualatin,
Oregon 97062


(503)
612-2300


(Name,
Address and Telephone Number of Agent for Service)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈ Yes x
No





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  ̈ Yes x
No





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. x Yes  ̈
No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large
accelerated filer   ̈ Accelerated
filer  ̈Non-accelerated
filer   ̈(Do not
check if a smaller reporting company)Smaller reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  ̈ Yes x
No





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of December 31, 2008, computed by reference to the price
at which the common equity was last sold, or the average bid and asked price of
such common equity, was $12,646,209.





As of
March 24, 2009, the registrant had 166,598,406 shares of common stock
outstanding and 50,543 shares of Series A Convertible Preferred Stock
outstanding and no shares of Series B Convertible Preferred
outstanding.





PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:


Not
Applicable





DOCUMENTS
INCORPORATED BY REFERENCE


None.


2




Index    Part IItem
      1. Business
                                                  5WayCool
      Thermal Management Technology
                                                  5Waytronx
      Business Strategy
                                                  6Intellectual
      Property Ownership
                                                  6Fusion
      Three, LLC Settlement
                                                  7Waytronx
      Intellectual Property Protection
                                                  7Employees
                                                  8Item
      1A. Risk Factors
                                                  9Risks
      Related to Our Common Stock
                                                  11Item
      1B.  Unresolved Staff Comments
                                                  14Item
      2. Properties
                                                  15Item
      3. Legal Proceedings
                                                  15Item
      4. Submission of Matters to a Vote of Security Holders
                                                  15Part
      IIItem
      5. Market for Common Equity, Related Stockholder Matters and
      IssuerPurchases
      of Equity Securities
                                                  15Small
      Business Issuer Purchases of Equity Securities
                                                  14Recent
      Sales of Unregistered Securities
                                                  18Shares
      Eligible for Sale
                                                  20Item
      6. Selected Financial Data
                                                  21Item
      7. Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                                                  21Critical
      Accounting Policies
                                                  22Liquidity
      and Capital Resources
                                                  23Results
      of Operations
                                                  25Item
      7A.  Quantitative and Qualitative Disclosures about Market
      Risk
                                                  29Item
      8. Financial Statements and Supplementary Data
                                                  29Item
      9. Changes In and Disagreements with Accountants on Accounting and
      Financial Disclosure
                                                  29Item
      9A.  Controls and Procedures
                                                  29Item
      9A(T)  Controls and Procedures
                                                  29Item
      9B  Other Information
                                                  30Part
      IIIItem
      10.  Directors, Executive Officers and Corporate Governance
      Compliance
      with Section 16(a) of the Exchange Act
                                                  30Shareholder
      Communication
                                                  35Business
      Experience of Executive Officers and Directors
                                                  27Our
      Corporate Governance Practices
                                                  35Code
      of Ethics
                                                  37Audit
      Committee
                                                  37Audit
      Committee Report
                                                  37Item
      11.  Executive Compensation
                                                  39Compensation
      Discussion and Analysis
                                                  39Compensation
      Philosophy
                                                  40Compensation
      Setting Process
                                                  41Elements
      of Executive Compensation
                                                  42Compensation
      Committee Report
                                                  43Summary
      Compensation Table
                                                  44Outstanding
      Equity Awards at Fiscal Year-End
                                                  46Director
      Compensation
                                                  46Employment
      Agreements
                                                  47Item
      12.  Security Ownership of Certain Beneficial Owners and
      Management and
      Related Stockholder Matters
                                                  48Employee
      Equity Incentive Plans
                                                  50
  3




Item
      13.  Certain Relationships, Related Transactions and
      DirectorIndependence
                        51Item
      14.  Principal Accounting Fees and Services
                        53Part
      IVItem
      15. Exhibits, Financial Statement Schedules
                        53Exhibits
                        54Signatures
                        57Certifications
                        51




4





This
Annual Report on Form 10-K and the documents incorporated herein by reference
contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of
1995.  Such forward-looking statements are based on current
expectations, estimates and projections about our industry, management's
beliefs, and assumptions made by management.  Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements.  These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict; therefore, actual results and
outcomes may differ materially from what is expressed or forecasted in any such
forward-looking statements.





PART
I





Item
1. Business





Waytronx,
Inc. (sometimes hereafter referred to as “Waytronx” or “the Company”) is a
Colorado corporation organized on April 21, 1998.  The Company’s
principal place of business is located at Waytronx, Inc., 20050 SW 112th Avenue,
Tualatin, Oregon 97062.





In May
2008, Waytronx formed a wholly owned subsidiary that acquired the assets of CUI,
Inc., a provider of electromechanical components and industrial controls for OEM
manufacturing.  Since its inception in 1989, CUI has been delivering
quality products, extensive application solutions, and superior personal
service.  CUI's solid customer commitment and honest corporate message
are a hallmark in the industry.





Through
the acquisition of CUI, Inc. the Company obtained 352,589 common shares
representing a 10.47% interest in Test Products International, Inc., a provider
of handheld test and measurement equipment.





The
Company is primarily focused on the commercialization of its innovative thermal
cooling technology, WayCoolTM, as
well as the continued expansion of the CUI product offering and market
reach.





WayCool
Thermal Management Technology


Utilizing
its patented hybrid mesh architecture, Waytronx can enhance system performance
and remove thermal barriers caused by "microwarming" in today's advanced
computing devices.  The Waytronx architecture incorporates a variety
of patented and patent pending designs of a new scientific approach to
addressing intense heat generated in electronic systems, including central and
graphics processors, solar energy devices and power supplies.  The
technology uses a capillary network of microchannels to transport fluid at a
rapid rate to move heat away from the source instead of traditional passive heat
transference through solid materials; thus, WayCool’s efficiency is not limited
to the thermal conductivity of the material.  This fluid transport
ensures active removal of hot fluid from the area in contact with the heat
source and replacement with colder fluid.  The result is a more even
temperature across the entire body of the cooling device
(isothermicity). As micro electronics components run at higher speeds with
more computing capacity, the primary gating factor is thermal management;
WayCool technology offers a highly scalable and cost effective
alternative.





WayCoolTMApplications
 WayCool
can be universally adapted to any device with cooling
requirements.


5


Applications
Waytronx has currently identified for WayCool include:


·
            Graphics
      Processing Units ("GPU")


·
            Central
      Processing Units ("CPU")


·
            Power
      Supply Units ("PSU")


·
            Solar
      Energy


·
            Medical
      Monitors


·
            Test
      Appliances


·
            Home
      Electronics Displays





Waytronx,
Inc. Business Strategy


The
implemented Company business strategy includes an expanding basis of innovative
ideas and products based on its thermal cooling technology,
WayCoolTM.





Licensing


The
Company has begun to implement a broad intellectual property licensing program
for select products to commercialize WayCoolTM.  Through
this program, the WayCool thermal management cooling technology is intended to
be exploited through the development of worldwide license and royalty
agreements.  This strategy has been adopted for several
reasons:


·
            It
      is considerably less capital intensive than developing manufacturing and
      marketing capabilities.


·
            It
      provides revenue streams immediately through advance licensing
      fees.


·
            It
      provides an opportunity to fund further research and to build/develop the
      intellectual property portfolio of the
Company.


·
            It
      can provide continuous long-term revenue
  streams.


·
            It
      provides a more rapid adaptation and proliferation of the WayCool thermal
      management cooling technology.


·
            It
      expedites finding potential corporate
  “partners”.


·
            It
      provides the opportunity for greater
margins.





These
benefits are intended to be used as the primary method for promoting rapid
adoption of WayCoolTM (Please
see above the section “WayCool Thermal Management Technology”) through licensing
agreements with various suppliers in the microprocessor-based electronics
markets.  These include potential licensing relationships with chip
original equipment manufacturers (OEMs), original development manufacturers
(ODMs), as well as potential relationships with companies serving the
after-market retail market segment.  It is intended that a worldwide
licensing strategy for WayCool will open significant business opportunities for
this technology in a number of vertical market applications.  More
technical details of WayCool are discussed above in the section entitled WayCool
Thermal Management Technology.





Direct
Distribution


The May
2008 union of CUI with Waytronx makes readily available to Waytronx the existing
CUI electromechanical components and industrial controls manufacturing,
distribution and marketing network.  This synergy opens to WayCool the
worldwide CUI personal relationships, and customer base.





Intellectual
Property Ownership of Waytronx Technology


The
following describes the evolution of the license and ownership of the Waytronx
technology patents:





·
                On or about July 23,
      2001, the Company entered into a Contract and License Agreement (hereafter
      the “License Agreement”) with the inventor of the Company’stechnology
      that underlies the WayCool technology which agreement guaranteed the
      inventor a minimum royalty of $50,000 the first year, $100,000 the second
      year and $250,000 each year
thereafter.




6


·
            On
      January 10, 2005 and February 16, 2005, the inventor/owner of the
      technology patent conveyed ownership of the WayCool and WayFast patents to
      CH Capital, a related party of the Company, for value
      received.  CH Capital is a California general partnership
      controlled by Bradley J. Hallock, currently a shareholder, Corporate
      Secretary and William Clough, currently a shareholder, President/CEO and
      director.


·
            On
      February 16, 2005, in consideration for the payment of two hundred
      thousand dollars ($200,000), CH Capital conveyed the technology patent
      rights to the Company.


·
            On
      March 24, 2006, CH Capital assigned to the Company all right, title and
      interest to the WayCool patent in consideration for eight hundred thousand
      dollars ($800,000) and a three year warrant to purchase 7,040,485 common
      shares at a per share price of $0.20.  The $800,000 amount
      represents reimbursement for the time and money CH Capital spent acquiring
      and developing the WayCool technology.  This assignment has been
      recorded and is a matter of record with the United States Patent and
      Trademark Office.  The Company now owns all right, title and
      interest of the WayCool patent.


·
            On
      May 2, 2008, CH Capital assigned to the Company all right, title and
      interest in the WayFast patent.  WayFast is a next
      generation developmental application of
  WayCool.





Fusion
Three, LLC Settlement


During
May 2006 Fusion Three, LLC relinquished all rights and claims to any revenues
and fees of the Company in consideration for a three year warrant authorizing
Fusion Three, LLC to purchase up to five million six hundred thousand
(5,600,000) shares of our common stock at a per share price of $0.20 plus a
warrant to purchase up to one million two hundred thousand (1,200,000) shares of
our common stock at a per share price of $0.35 for 300,000 shares; $0.50 for
300,000 shares; $0.75 for 300,000 shares and $1.00 for 300,000 shares before
November 15, 2007.  In compliance with the settlement agreement, the
common shares underlying these warrants were included in a registration
statement that was effective October 26, 2007.





Waytronx
Intellectual Property Protection


The
Company relies on various intellectual property laws and contractual
restrictions to protect its proprietary rights in products and
services.  These include confidentiality, invention assignment and
nondisclosure agreements with its employees, contractors, suppliers and
strategic partners.  The confidentiality and nondisclosure agreements
with employees, contractors and suppliers are in perpetuity or for a sufficient
length of time so as to not threaten exposure of proprietary
information.  The Company retained Knobbe, Martens, Olson & Bear,
LLP, Banner & Witcoff, Ltd. and Law Offices of William W. Haefliger to
manage its current interests relative to the prosecution of the national and
international patents.  The Company intends to pursue the registration
of our trademarks and service marks in the United States and
internationally.


·
            August
      20, 2003 Patent Cooperation Treaty applications were filed relating to the
      basic mesh design.


·
            December
      21, 2005 Patent Cooperation Treaty applications were filed relating to the
      WayCool product design.


·
            February
      10, 2006 Patent Cooperation Treaty applications were filed relating to the
      aerodynamic LED sign system design.


·
            March
      24, 2006 CH Capital assigned to the Company all right, title and interest
      of the WayCool patent.  This assignment has been recorded and is
      a matter of record with the United States Patent and Trademark
      Office.


7


·
            In
      the months of June, July, September and October 2006 Provisional patent
      applications were filed relating to various modifications and enhancements
      for the WayCool product design.


·
            September
      7, 2006 a provisional patent application was filed relating to the
      OnScreen Tensile roll-up sign technology
design.


·
            September
      12, 2006 a utility patent was issued relating to electronic
      assembly/system with reduced cost, mass and volume and increased
      efficiency and power density, the technology that underlies WayCool that
      contains over 50 separate claims.


·
            October
      4, 2006 a series of four Divisional patent applications were filed
      relating to the Living Window product
design.


·
            November
      21, 2006 a utility patent was issued relating to the Living Window LED
      assembly with vented circuit board.


·
            A
      utility patent was issued December 5, 2006 relating to our basic WayCool
      architecture design.  This basic architecture is the basic
      principle for the WayCool product
line.


·
            A
      divisional patent was issued January 1, 2008, relating to the Living
      Window LED assembly with vented circuit
board.


·
            A
      utility patent was issued May 22, 2007 relating to the WayCool Thermal
      Management Technology.


·
            August
      5, 2008 a utility patent was issued relating to the RediAlert aerodynamic
      light display panel.





During
2005 through 2008 under the Trademark Act of 1946, as amended, the United States
Patent and Trademark Office permitted our registration of the following
trademarks: RediAlert, Rapid Dispatch Emergency Signs, RediAd, Living Window and
OnScreen Technology.  We are required to disclaim the unitary
expression because the individual component words of a complete descriptive
phrase are not registerable.  This disclaimer does not impair the
“OnScreen” trademark or the “OnScreen technology” words when used in conjunction
with the trademark.





During
2006 and 2007 we filed applications with the United States Patent and Trademark
Office to register the following trademarks: WayCool, WayCoolant, WayFast and
Waytronx.





The
Company continuously reviews and updates the existing patent and trademark
filings and files new documentation both nationally and internationally (Patent
Cooperation Treaty) in a continuing effort to maintain up to date patent and
trademark protection of its intellectual property.





For those
applications pending, there is no assurance that the patents and trademark
registrations will be granted.  Furthermore, the Company is exposed to
the risk that other parties may claim the Company infringes their existing
patent and trademark rights, which could result in the Company’s inability to
develop and market its products unless the Company enters into licensing
agreements with the technology owner or could force the Company to engage in
costly and potentially protracted litigation.





Employees


As of
December 31, 2008, the Company, together with its wholly owned subsidiary, had
forty-seven full-time and five part-time employees.  None of its
employees is represented by a labor union.  The Company considers its
relations with its employees to be good.  The Company plans to add
additional staff as needed to handle all phases of its
business.


8





Item
1A. Risk
Factors





The
Company’s limited operating history makes evaluating its business and prospects
difficult.


The
Company has recently begun to direct its efforts to commercialization of the
WayCool thermal management cooling technology.  The Company’s limited
operating history in this industry and the unique nature of the WayCool
technology makes evaluation of its future prospects very
difficult.  To date commercialization of the WayCool technology has
not achieved profitability and the Company cannot be certain that it will
sustain profitability on a quarterly or annual basis in the
future.  One should carefully consider the Company’s prospects in
light of the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving technology.





In May
2008, the Company acquired the assets of CUI, Inc., an Oregon based provider of
electronic components for Original Equipment Manufacturers.  It is the
intention of management that the marketing, sales and distribution organization
of CUI will be beneficial to the future of the WayCool
technology.  Notwithstanding that CUI has in recent years generated
positive cash flow, there is no assurance that the synergy between the Company
and CUI will result in a financial advantage for future
operations.  Because of the newness of this business combination
future profitability is an uncertainty.





The
Company has all the risks of a new product developer in the technology
business.


The
Company, as the owner of the WayCool thermal management cooling technology
patents, assumed the responsibility for completing the development of the
WayCool thermal management cooling technology and determining which products to
commercialize utilizing the WayCool technology.  Because this is a new
technology, there is a risk that the technology, operation and development of
products could be unsuccessful or that the Company will not be successful in
marketing any products developed with the WayCool technology.  Such
failures would negatively affect the Company’s business, financial condition and
results of operations.





There is no assurance the
Company will achieve profitability.


To date
the Company has not received significant revenue from the WayCool thermal
management cooling technology.  The Company has focused its scope of
operation to the commercialization of the innovative thermal cooling technology,
WayCool.  For the year ended December 31, 2008, the Company had a net
loss of $1,830,367.  The Company will need to generate significant
revenues from the WayCool product line and CUI product offering to offset
current operational and development losses if the Company is to cover its
current overhead expenses, including further development costs and marketing
expenses.  There is no assurance that the Company will achieve
profitability.





During
2007 and 2008, the Company funded its operations with net proceeds of
approximately $8.9 million it received from financing activities.  The
Company believes that additional equity financing or debt will be necessary to
fund its operations until revenue streams are sufficient to fund operations;
however, the terms and timing of such additional equity or debt cannot be
predicted.  The Company cannot assure that its revenues will be
sufficient to cover all operating and other expenses of the
Company.  If revenues are not sufficient to cover all operating and
other expenses, the Company will require additional
funding.


9


The Company will be
dependent on third parties and certain relationships to fulfill its
obligations.


Because
it is the intention of the Company to license the manufacturing and distribution
of the WayCool technology to unrelated companies that are better equipped
financially and technologically to design and manufacture WayCool technology end
products, the Company will be heavily dependent on these third parties to
adequately and promptly provide the end product.  The Company will be
dependent upon its ability to maintain the agreements with these designers and
manufacturers and other providers of raw materials and components who provide
the necessary elements to fulfill the Company’s product delivery obligations at
the negotiated prices.





The
market forelectronicsis
extremely competitive.


Because
the electronics industry is highly competitive, the Company cannot assure that
it will be able to compete effectively.  The Company is aware of
several other companies that offer similar products, utilizing different
technology than its WayCoolTM technology.  Many
of these competitors have been in the electronics business longer than the
Company and have significantly greater assets and financial resources than are
currently available to the Company.  The Company expects competition
to intensify as innovation in the electronics industry advances and as current
competitors expand their market into the thermal management
sector.  The Company cannot assure you that it will be able to compete
successfully against current or future competitors.  Competitive
pressures could force the Company to reduce its prices and may make it more
difficult for the Company to attract and retain customers.





The
Company depends on key personnel and will need to recruit new personnel as its
business grows.


As a
small company, Waytronx, Inc. is currently dependent on the efforts of a limited
number of management personnel.  The Company believes that given the
large amount of responsibility being placed on each member of its management
team, the loss of the services of any member of this team at the present time
would harm its business.





If the
Company is successful in expanding its product and customer base, the Company
will need to add additional key personnel as its business continues to
grow.  If the Company cannot attract and retain enough qualified and
skilled staff, the growth of its business may be limited.  The
Company’s ability to provide services to customers and expand its business
depends, in part, on its ability to attract and retain staff with professional
experiences that are relevant to technology development and other functions the
Company performs.  Competition for personnel with these skills is
intense.  The Company may not be able to recruit or retain the caliber
of staff required to carry out essential functions at the pace necessary to
sustain or expand its business.





The
Company believes its future success will depend in part on the
following:


·
            the
      continued employment and performance of its senior
    management,


·
            its
      ability to retain and motivate their officers and key employees,
      and


·
            its
      ability to identify, attract, hire, train, retain, and motivate other
      highly skilled technical, managerial, marketing, sales and customer
      service personnel.





If the Company fails to
adequately protect its patents, trademarks and proprietary rights, its business
could be harmed.


The
Company regards its patents, trademarks, trade secrets and similar intellectual
property as critical to its success.  The Company relies on trademark
and patent law, trade secret protection and confidentiality or license
agreements with their employees, customers, partners and others to protect its
proprietary rights.  Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use the Company’s intellectual
property without its authorization.  There is no assurance its pending
trademark applications for WayCool, WayCoolant, Waytronx, and WayFast will be
approved.  Effective trademark, patent and trade secret protection may
not be available in every country in which the Company may in the future offer
its products.  Therefore, the Company may be unable to prevent third
parties from infringement on or otherwise decreasing the value of its
trademarks, patents and other proprietary rights.


10





If the Company is to remain
competitive, the Company must be able to keep pace with rapid technological
change.


Because
the Company competes in the highly volatile electronics industry, the Company’s
future success depends, in part, on its ability to develop or license leading
technologies useful in its business, enhance the ease of use of existing
products, develop new products and technologies that address the varied needs of
customers, and respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.  If the Company is
unable, for technical, legal, financial or other reasons, to incorporate new
technology in new features or products, the Company may not be able to adapt in
a timely manner to changing market conditions or customer
requirements.





The Company may infringe
intellectual property rights of third parties.


Litigation
regarding intellectual property rights is common in the technology
industry.  The Company may, in the future, be the subject of claims
for infringement, invalidity or indemnification claims based on such claims of
other parties' proprietary rights.  These claims, whether with or
without merit, could be time consuming and costly to defend or litigate, divert
the Company’s attention and resources, or require the Company to enter into
royalty or licensing agreements.  There is a risk that such licenses
would not be available on reasonable terms, or at all.  Although the
Company believes it has full rights to use its current intellectual property
without incurring liability to third parties, there is a risk that its products
infringe the intellectual property rights of third parties.





Third parties may infringe
on the Company’s intellectual property rights


There can
be no assurance that other parties will not infringe on our intellectual
property rights with respect to its current or future
technologies.  The Company expects that participants in its markets
will be increasingly subject to infringement claims as the number of services
and competitors in its industry segment grows.  Any such claim, with
or without merit, could be time-consuming, result in costly litigation, create
service upgrade delays or require the Company to enter into royalty or licensing
agreements.  Such royalty or licensing agreements might not be
available on terms acceptable to the Company, or at all.  As a result,
any such claim of infringement by the Company could have a material adverse
effect upon its business, results of operations and financial
condition.





Risks
Related to Our Common Stock


The Company’s Common Stock
price may be volatile, which could result in substantial losses for individual
stockholders.


The
market price for the Company’s Common Stock is volatile and subject to wide
fluctuations in response to factors, including the following, some of which are
beyond its control, which means its market price could be depressed and could
impair its ability to raise capital:


·
            actual
      or anticipated variations in its quarterly operating
    results;


·
            announcements
      of technological innovations or new products or services by the Company or
      its competitors;


·
            changes
      in financial estimates by securities
analysts;


·
            conditions
      or trends relating to the thermal management cooling
      technology;


·
            changes
      in the economic performance and/or market valuations of other
      electromechanical and thermal management related
  companies;


11


·
            conditions
      or trends relating to the marketing, sale or distribution of
      electromechanical components and industrial controls to OEM
      manufacturing customers;


·
            changes
      in the economic performance and/or market valuations of other
      electromechanical components and industrial controls related
      companies;


·
            additions
      or departures of key personnel;


·
            fluctuations
      of the stock market as a whole.





The Company’s Certificate of
Incorporation limits director liability, thereby making it difficult to bring
any action against them for breach of fiduciary duty.


The
Company is a Colorado corporation.  As permitted by Colorado law, the
Company's Articles of Incorporation limits the liability of directors to the
Company or its stockholders for monetary damages for breach of a director's
fiduciary duty, with certain exceptions.  These provisions may
discourage shareholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by
shareholders on behalf of the Company against a director.





The Company may be unable to
meet its future capital requirements.


The
Company is dependent on receipt of additional capital to effectively execute its
business plan.  If adequate funds are not available to the Company on
favorable terms, the Company will not be able to develop new products or enhance
existing products in response to competitive pressures, which could affect its
ability to continue as a going concern.  The Company cannot be certain
that additional financing will be available to it on favorable terms when
required, or at all.  If the Company raises additional funds through
the issuance of equity, equity-related or debt securities, such securities may
have rights, preferences or privileges senior to those of the rights of its
common stock and its stockholders may experience additional
dilution.





Penny
stock regulations may impose certain restrictions on marketability of our
stock.


The
Securities and Exchange Commission (the "Commission") has adopted regulations
which generally define a "penny stock" to be any equity security that has a
market price (as defined) of less than $5.00 per share or an exercise price of
less than $5.00 per share, subject to certain exceptions.  As a
result, the Company’s Common Stock is subject to rules that impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally
those with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse).  For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase.  Additionally, for
any transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the Commission relating to the penny stock market.  The broker-dealer
must also disclose the commission payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the
market.  Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks.  Consequently, the "penny stock" rules
may restrict the ability of broker-dealers to sell our securities.





For the
foreseeable future, the Company’s securities will likely have a trading price of
less than $5.00 per share and will not be traded on any exchanges; therefore, we
will be subject to Penny Stock Rules.  As a result of the aforesaid
rules regulating penny stocks, the market liquidity for our securities could be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of shareholders to sell their securities in the
secondary market.


12


The Company has never paid
dividends on its Common Stock and does not expect to pay any in the foreseeable
future.  Preferred Shares impose restrictions on our ability to pay
Common Stock dividends.


A
potential purchaser should not expect to receive a return on their investment in
the form of dividends on our Common Stock.  The Company has never paid
cash dividends on its Common Stock and the Company does not expect to pay
dividends in the foreseeable future.  Our ability to pay dividends on
our Common Stock is restricted by the terms of our agreements with the holders
of our Series A and Series B Convertible Preferred Stock.  Holders of
our Series A Convertible Preferred Stock are entitled to annual dividends of
10%.  As of December 31, 2008, the Company has 50,543 Series A
Convertible Preferred shares outstanding and no Series B Convertible Preferred
shares outstanding.  In the past, the Company has fulfilled its
dividend obligations on the Series A and Series B Convertible Preferred Stock
through a combination of the issuance of additional shares of its Series A
Convertible Preferred and/or Common Stock and cash payments.





On
December 31, 2007 dividends payable for the Series A Convertible Preferred Stock
was $5,054 and on December 31, 2008 the dividends payable for the Series A
Convertible Preferred Stock was $5,054.  Holders of the Company’s
Series B Convertible Preferred Stock are entitled to annual dividends of $1.00
per share.  As of this filing, all Series B Convertible Preferred
Stock had been converted to common shares.





Substantial
sales of our Common Stock could cause our stock price to rapidly
decline.


The
market price of our Common Stock may fall rapidly and significantly due to sales
of our Common Stock from other sources such as:


·
            Common
      Stock underlying the conversion rights of our Series A and Series B
      Convertible Preferred Stock.


·
            Common
      Stock underlying the exercise of outstanding options and
      warrants.


·
            Common
      Stock, which are available for resale under Rule 144 or are otherwise
      freely tradable and which are not subject to lock-up
      restrictions.


·
            Common
      Stock available on the secondary
market.


·
            Pledging
      stock to hedge funds or other corporate lenders as security to borrow
      money could result in short selling, encumbrance, stock pledge, transfer
      or sale to procure a hedge against adverse market
    conditions.





Any sale
of substantial amounts of our Common Stock in the public market, or the
perception that these sales might occur, whether as a result of the sale of
Common Stock received by shareholders upon conversion of our Series A
Convertible Preferred Stock, exercise of outstanding warrants or options or
otherwise, could lower the market price of our Common
Stock.  Furthermore, substantial sales of our Common Stock in a
relatively short period of time could have the effect of depressing the market
price of our Common Stock and could impair our ability to raise capital through
the sale of additional equity securities.





The
covenants with our Series A Convertible Preferred Stock shareholders restrict
our ability to incur debt outside the normal course, acquire other businesses,
pay dividends on our Common Stock, sell assets or issue our securities without
the consent of holders of a majority of the Series A Convertible Preferred Stock
outstanding.  Such arrangements may adversely affect our future
operations or may require us to make additional concessions to the holders of
the Series A Convertible Preferred Stock in order to enter into transactions or
take actions management deems beneficial and in the best interests of the
holders of our Common Stock.


13





Note conversions could
result in dilution of common stock


The
conversion of outstanding promissory notes may result in substantial dilution to
the interests of other holders of common stock, since the investors may
ultimately convert and sell the full amount issuable on conversion under the
notes.  To the extent the selling stockholders convert their notes and
then sell their common stock into the market, the common stock price may
decrease due to the additional shares in the market.  As of December
31, 2008, $1,350,000 principal of outstanding promissory notes and 12% per annum
simple interest accruing thereon are convertible to
equity.  $1,000,000 of these convertible promissory notes plus the
interest accruing thereon are convertible at a floating per share price
based at 80% of the average closing bid price 10 days preceding conversion
date.  There is, however, a $0.20 per share minimum conversion price,
which means that there is a maximum number of 5,000,000 shares related to the
principal conversion plus an additional amount related to interest accrued at
the time of conversion that the company may be obligated to issue related to the
conversion of the $1,000,000 of convertible promissory notes.  The
remaining $350,000 of outstanding convertible promissory notes plus the interest
accrued thereon are convertible at $0.25 per share, which means that there is a
maximum number of 1,400,000 shares related to the principal conversion plus an
additional amount related to the interest accrued at the time of conversion that
the Company may be obligated to issue related to the conversion of the $350,000
of convertible promissory notes.  Additionally, as a portion of the
CUI, Inc. asset purchase consideration, the Company has outstanding a
$17,500,000 convertible promissory note that accrues annual simple interest at a
rate of 1.7% which could convert to Company common stock at a per share
conversion of $0.25.  The convertible $17,500,000 promissory note is
convertible to the equivalent of 70,000,000 shares plus an additional amount
related to the interest accrued at the time of conversion that the Company may
be obligated to issue.





Downward pressure on the
stock price could encourage short selling


The
significant downward pressure on the price of the common stock as the selling
stockholders convert and sell material amounts of common stock could encourage
short sales by the selling stockholders or others.  This could place
significant downward pressure on the price of the common stock.





In
finance, short selling or “shorting” is a way to profit from the decline in
price of a security, such as stock or bond.  A short sale is generally
a sale of a stock you do not own.  Investors who sell short believe
the price of the stock will fall.  If the price drops, you can buy the
stock at the lower price and make a profit.  If the price of the stock
rises and you buy it back later at the higher price, you will incur a
loss.





When you
sell short, your brokerage firm loans you the stock.  The stock you
borrow comes from either the firm’s own inventory, the margin account of another
of the firm’s clients or another brokerage firm.  As with buying stock
on margin, you are subject to the margin rules.  Other fees and
charges may apply.  If the stock you borrow pays a dividend, you must
pay the dividend to the person or firm making the loan.





Item
1B. Unresolved
Staff Comments





None.





14


Item
2. Properties





The
Company owns no real estate.  Effective September 1, 2008 the Company
mutually agreed with Safety Harbor Centre to terminate the December 1, 2004
Safety Harbor, Florida five year lease in consideration of a $40,000 termination
payment.





In
October 2005, a lease was signed with Market Place I & II, LLC for office
space in Portland, Oregon beginning November 1, 2005 and ending December
31, 2010.  This lease was terminated by mutual agreement February of
2008 in consideration of a termination payment of $22,000.





As an
integrated part of the CUI asset acquisition, the Waytronx, Inc. corporate
offices were relocated to the CUI location at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  CUI and Waytronx occupy the 61,380 square
feet of offices and warehouse premises under a ten year non-cancelable lease
agreement beginning September 1, 2006 with Barakel, LLC, a related party (see
Financial Statement Note 10. Related Party Transactions for further discussion),
at a base monthly rent subject to periodic base payment increases plus real
property taxes, utilities, insurance and common area maintenance
charges.  During the fiscal year ending December 31, 2008, the monthly
base rent was $39,900.





The
Company also leases office space in Malmo, Sweden pursuant to a renewable lease
that expires May 31, 2010.  In addition to the base rent of $1,845
(subject to periodic base lease payment increases), the Company is responsible
for property taxes, maintenance and related VAT taxes.





Item
3. Legal
Proceedings





The
Company is not involved in any legal proceedings.





Item
4. Submission
of Matters to a Vote of Security Holders





No matter
was submitted to a vote of security holders during the fourth quarter of
2008.





PART
II





Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities





Market
Value


The
Company’s Common Stock is traded on the OTC Bulletin Board (OTC:BB) under the
trading symbol "WYNX".  The following table sets forth, the high and
low bid prices of its Common Stock for the four quarters of 2007 and 2008 as
reported by the National Quotation Bureau.  The bid prices quoted on
the OTC:BB reflect inter-dealer prices without retail mark-up, markdown or
commission and may not represent actual transactions.





Year
                        
                        Quarter
                        
                        High Bid
                        
                        
                        Low Bid2007
                        
                        First
      Quarter
                        
                        
                        .330
                        
                        
                        
                        .210Second
      Quarter
                        
                        
                        .480
                        
                        
                        
                        .170Third
      Quarter
                        
                        
                        .420
                        
                        
                        
                        .310Fourth
      Quarter
                        
                        
                        .410
                        
                        
                        
                        .220




15




2008
                    
                    First
      Quarter
                    
                    
                    .340
                    
                    
                    
                    .160Second
      Quarter
                    
                    
                    .380
                    
                    
                    
                    .160Third
      Quarter
                    
                    
                    .250
                    
                    
                    
                    .160Fourth
      Quarter
                    
                    
                    .250
                    
                    
                    
                    .070





Description of
Securities


The
Company currently has authorized 325,000,000 common shares $0.001 par value and
10,000,000 preferred shares $0.001 par value.  Of the 10,000,000
authorized preferred shares, 5,000,000 shares have been designated as Series A
Convertible Preferred, 30,000 shares have been designated as Series B
Convertible Preferred and 10,000 shares have been designated as Series C
Convertible Preferred.  As of December 31, 2008, the Company’s
outstanding shares consisted of 166,208,406 issued and outstanding shares of
common stock, 50,543 shares of Series A Convertible Preferred Stock and no
shares of Series B and Series C Convertible Preferred Stock.  As of
December 31, 2008, the Company had in excess of 3,000 shareholders of
record.





The
description of the Company’s capital stock does not purport to be complete and
is subject to and qualified by its Articles of Incorporation and Bylaws,
amendments thereto, including the Certificates of Designation for its Series A,
Series B and Series C Convertible Preferred Stock and by the provisions of
applicable Colorado law.  The Company’s transfer agent is
Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden,
Colorado 80401.





The
holders of Common Stock and Series A and Series C Convertible Preferred are
entitled to one vote per share and holders of Series B Convertible Preferred
shares are entitled to one thousand votes per share for all purposes and do not
have cumulative voting rights.  There is a restriction on the payment
of any common stock dividends because any cumulative preferred stock dividends
are required to be paid prior to the payment of any common stock
dividends.  Also, the retained earnings of the Company would be
restricted upon an involuntary liquidation by the cumulative unpaid preferred
dividends to the preferred stockholders and for the $1.00 per share Series A and
$240 per share Series B liquidation preferences.  Holders of the
Company’s Common Stock do not have any pre-emptive or other rights to subscribe
for or purchase additional shares of capital stock, no conversion rights,
redemption, or sinking-fund provisions.





The
Company has not paid any dividends on its common stock since inception and
expects to continue to retain all earnings generated by its operations for the
development and growth of its business and does not anticipate paying any cash
dividends to its common shareholders in the foreseeable future.  The
payment of future dividends on the common stock and the rate of such dividends,
if any, will be determined by the Company’s Board of Directors in light of its
earnings, financial condition, capital requirements and other
factors.





Set forth
below is a summary of the current outstanding securities, transactions and
agreements, which relate to 31,366,359 shares of common stock the Company is
required to reserve for potential future issuances.  As of December
31, 2008, there are 380,704 shares of the Company’s common stock available under
the 2008 Equity Incentive Stock Plan.





Convertible Preferred
Shares


As of
December 31, 2008, the Company had 50,543 shares of Series A Convertible
Preferred stock outstanding and no shares of Series B and Series C Convertible
Preferred Stock outstanding.  The Series A preferred shares convert to
common shares at a ratio of four common shares plus one common bonus share for
each share of Series A Preferred.  As of December 31, 2008, there is
$5,054 in accrued Series A Preferred dividends that convert into 25,271 shares
of the Company’s common stock at a per share price of $0.20 for certain
shareholders who elected to convert accrued dividends to common
shares.


16





April 24,
2007, pursuant to Section 7-106-102 of the Colorado Business Corporation Act,
the Board of Directors designated ten thousand (10,000) shares of the authorized
ten million shares of Preferred Stock as Series C Preferred
Stock.  These shares became effective on May 15, 2007 upon filing
appropriate documentation with the Colorado Department of State.  The
Series C Preferred Stock was created to fulfill the terms of a funding agreement
with Central Finance, LLC.  On May 9, 2007, Central Finance, LLC
agreed to loan to the Company one million dollars ($1,000,000) in five monthly
loans of two hundred thousand dollars ($200,000) each.  Twelve percent
(12%) per annum simple interest is payable monthly and the principal payment to
be determined at the time of each monthly loan.  This loan was
conditioned on a sale to Central Finance, LLC, by two of our former directors,
of five hundred thousand (500,000) restricted common shares for a per share
price of $0.15.  As a further condition, ten thousand (10,000)
restricted common stock owned by Central Finance, LLC may be exchanged, on a one
for one ratio, for the newly created 10,000 shares of Series C Preferred
stock.  These preferred shares may, at any time, at the election of
Central Finance, LLC, be re-exchanged back to common stock at the same, one for
one, ratio.  The Series C Preferred stock has the exclusive right to
elect three (3) directors to three (3) newly created board
seats.  Clifford Melby, a former corporate officer of Waytronx, is a
member of the LLC.





Promissory
Notes


During
2005 and the first quarter of 2006, the Company privately placed $10,300,000 of
12% convertible promissory notes.  These notes are convertible to
common stock at $.25 per share with piggyback registration rights for the
Company’s common shares underlying the conversion feature of the
notes.  Note holders who purchased $500,000 or more of these notes
received 100,000 additional common shares.  The note holders include
one current director, three former directors and a former Chief Financial
Officer.  All of the notes were converted into 41,200,000 shares of
the Company’s common stock during the second quarter of 2006.  In
addition, the Company issued to such note holders warrants to acquire 10,300,000
shares of its common stock at an exercise price of $.01 per share within three
(3) years.  All of the shares of the common stock issued upon the
conversion of the notes and the shares of common stock underlying the common
stock purchase warrants were included in the Form SB-2 registration statement
that became effective October 26, 2007.  Warrants representing 125,000
common shares have not yet been exercised as of December 31, 2008.





During
the last three quarters of 2006 through 2008, the Company privately placed
approximately $3,450,000 of 12% promissory notes.  $1,650,000
($650,000 of this amount has been repaid) of these notes are convertible to
common stock at a per share price equal to eighty percent (80%) of the average
closing bid price of one share of Company common stock for 10 days preceding the
Conversion Date.  There is, however, a $0.20 per share minimum limit
on the conversion price, which means that there is a limit on the number of
shares that the company may be obligated to issue.  Additionally, each
investor was issued a warrant to purchase at any time within three (3) years
following the date of investment, at a per share price of one cent ($0.01), that
number of shares of Waytronx, Inc. common stock as is equal in value to one
tenth the principal investment.  Such value to be determined by the
average per share closing bid price of Waytronx, Inc. common stock for the 10
days preceding the date of investment.  Of the remaining $1,800,000
notes, $700,000 ($350,000 of this amount has been repaid) of these notes are
convertible to common stock at a per share price of $0.25 and $1,100,000
($100,000 of this amount has been repaid) are not convertible.  As of
December 31, 2008, 13,368,992 common shares were issued pursuant to the
conversion of these promissory notes and exercise of the warrants; 6,400,000
common shares are held in reserve as issuable upon the conversion of the balance
of the promissory notes and the shares of common stock underlying the common
stock purchase warrants and common share underlying the
warrants.


17





A
$17,500,000 convertible promissory note related to the acquisition of CUI, Inc.,
with 1.7% annual simple interest and a 2.3% annual success fee, permitting payee
to convert any unpaid principal, interest and success fee to Waytronx common
stock at a per share price of $0.25 and at the end of the three year term (May
15, 2011) giving to Waytronx the singular, discretionary right to convert any
unpaid principal, interest and success fee to Waytronx common stock at a per
share price of $0.25.  This note also provides a right of first
refusal to the note payee, International Electronic Devices, Inc., relating to
any private capital raising transactions of Waytronx during the term of the
note.  There is a discount on debt relating to this note of
$5,711,395.  The net long term balance of this note is
$11,788,605.





The
Company has the intention and a reasonable basis to believe that it will have
the financial ability to make all payments on the Promissory Notes.





Employees, Consultants and
Advisors


In an
effort to attract high caliber qualified employees, management committed the
Company to issue up to 1,500,000 common shares to the 2008 Employee Incentive
Plan, which have been registered under Form S-8.  As of December 31,
2008, the Company had issued 1,119,296 underlying common shares related to the
2008 Employee Incentive Plan.





Other
than as described herein, as of December 31, 2008, there are currently no plans,
arrangements, commitments or understandings for the issuance of additional
shares of Common Stock.





Recent
Sales of Unregistered Securities


The
Company relied on Section 4(2) of the Securities Act of 1933 as the basis for an
exemption from registration for the following issuances.





Common
      Stock


During
calendar year 2008 the Company issued the following common stock:





95,238
shares of common stock were issued to an employee in accordance with his
employment agreement.  These shares were valued at $25,000 using a
thirty-day average price at December 31, 2007, in accordance with the
agreement.





207,237
shares of common stock were issued to an employee in accordance with his
employment agreement.  These shares were valued at $39,375 as of the
date of issuance, in accordance with the agreement.





362,173
shares of common stock were issued to an employee/officer in accordance with his
employment agreement.  These shares were valued at $65,500 as of the
date of issuance, in accordance with the agreement.





2,390,000
shares of common stock were issued in relation to the exercise of warrants with
proceeds of $98,000.


18





116,000
shares of common stock were issued in relation to the exercise of options with
proceeds of $1,160.





1,250,000
shares of common stock were issued for services performed by
consultants.  $302,500 of consulting expense was recorded in relation
to these transactions based on the fair market value of the stock on the date of
grant.





1,300,000
shares of stock were sold pursuant to a stock purchase agreement with proceeds
of $300,000. A former officer of Waytronx agreed to transfer 1,000,000
registered shares to one of the purchasing parties and accept 1,000,000
restricted shares as reimbursement.  Because of the difference in
value between the registered versus restricted sales, Waytronx agreed to issue
an additional 100,000 shares to the former officer.





The
Company entered into unsecured convertible promissory notes totaling $700,000,
with 700,000 related bonus shares of common stock.  Interest accrues
at 12% per annum, payable monthly, until a financing event takes place, at which
time the principal is due.  The note holders have the right to convert the
note to the Company’s common stock at $0.25 per share.  During the
nine months ended September 30, 2008, $52,033 of a promissory note principal and
related interest was converted to 208,132 shares of common stock.





The
Company extended 2,000,000 existing warrants an additional two years in exchange
for the rights to certain patents.  The company valued the transaction
at $91,190 using the Black Scholes Pricing Model with the following assumptions
on the date of extension; $0.20 exercise price, volatility of 75%, risk free
interest rate of 2.01% and a term of 2.833 years.





140,000
shares of common stock were issued resulting from the exercise of warrants with
proceeds of $1,400.





A
convertible note holder exercised the right to convert $500,000 of debt to
common stock at a per share price of $0.20 for 2,500,000 shares of common
stock.





39,000
shares were issued to a consultant for services provided to the
company.  The Company entered into an agreement with a consultant to
provide strategic marketing services.  For these services, the Company
paid a fee of $3,900.  In addition, the consultant was awarded 39,000
restricted shares of the Company’s common stock and a stock purchase warrant
entitling the consultant the right to purchase, at any time within three years,
390,000 restricted shares of the Company’s common stock.  $6,630 was
recorded in relation to this transaction based on the fair value of the stock on
the date of grant.





100,000
shares of common stock were issued relating to the conversion of preferred A
stock.





Warrants and Options
Issued


The
following unregistered warrants to purchase common stock were issued during 2008
and 2007.  For all stock transactions listed below, the company relied
on Section 4(2) of the Securities Act of 1933 as the basis for an exemption from
registration for these issuances.





During
2007, warrants were granted to purchase 50,000 shares of common stock within
three years as part of an agreement with a contractor with an exercise price of
$0.25.


19





During
2007, warrants to purchase 47,296 shares of common stock within three years were
granted in connection with the conversion of convertible debt.  These
warrants have an exercise price of $0.01.  As of December 31, 2007,
all 47,296 shares of common stock had been issued for the exercise of these
warrants.





During
2008, the Company issued warrants for the purchase of 6,000,000 common shares
within three years at a per share price of $0.01 to six individuals who provided
Letters of Credit relating to the CUI, Inc. asset purchase.  The
warrants vest 50% at issuance, 25% at first anniversary and 25% at the second
anniversary.





During
2008, the Company issued warrants for the purchase of 390,000 common shares
within three years at a per share price of $0.01 pursuant to a consulting
agreement.





During
2008, the Company issued fully vested options for the purchase of 1,020,000
shares of its 2008 Equity Incentive Plan common stock at $0.19 per share to
forty three CUI employees with an expiration of September 17,
2018.  If all options are exercised the Company could receive
$193,800.





Series A and Series B
Convertible Preferred Stock


There
were no shares of Series A or Series B Convertible Preferred Stock issued
during 2008.  All other unregistered issuances of Series A or
Series B Convertible Preferred Stock are described in the 10-KSB filing for
yearend 2007.





Series C Convertible
Preferred Stock


There
were no shares of Series C Convertible Preferred Stock issued.  The
ten thousand (10,000) authorized shares remain available to Central Finance, LLC
pursuant to the terms of the financing agreement as discussed in the section
above, Market for Common Equity and Related Stockholder Matters.





Shares
Eligible for Future Sale


As of
December 31, 2008, we had outstanding 166,208,406 shares of Common
Stock.  Of these shares, 85,888,396 shares are freely tradable without
restriction or limitation under the Securities Act.





The
80,320,010 shares of Common Stock held by existing shareholders as of December
31, 2008 that are "restricted" within the meaning of Rule 144 adopted under the
Securities Act (the "Restricted Shares"), may not be sold unless they are
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144 promulgated under the
Securities Act.  The Restricted Shares were issued and sold by us in
private transactions in reliance upon exemptions from registration under the
Securities Act and may only be sold in accordance with the provisions of Rule
144 of the Securities Act, unless otherwise registered under the Securities
Act.





As of
December 31, 2008, we had issued and outstanding 50,543 shares of Series A
Convertible Preferred Stock, of which all are "restricted" within the meaning of
Rule 144 as noted above.  No shares of Series B or Series C
Convertible Preferred Stock were issued and outstanding as of that
date.


20





On
January 23, 2007, the Company filed with the Securities and Exchange Commission
a registration statement on Form SB-2 pursuant to the Securities Act of 1933, as
amended, with respect to the offer, issuance and sale of an aggregate of
100,646,995 shares of our Common Stock being registered therein to certain of
our stockholders named in the Prospectus and their transferees.  An
amendment to the Form SB-2 was filed October 9, 2007, offering an aggregate of
78,108,174 Common Shares.  This amended registration statement was
made effective October 26, 2007.  The Company will not receive any
proceeds from the sale of the shares, but the Company may receive proceeds from
the Selling Stockholders if they exercise their warrants.





Item
6. Selected
Financial Data





Not
applicable due to status as a small reporting company.





Item
7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations





Important Note about
Forward-Looking Statements


The
following discussion and analysis should be read in conjunction with our audited
financial statements as of December 31, 2008 and un-audited 10-Q filings for the
first three quarters of 2008 and the notes thereto, all of which are included
elsewhere in this Form 10-K.  In addition to historical information,
the following discussion and other parts of this Form 10-K contain
forward-looking information that involves risks and
uncertainties.  Our actual results could differ materially from those
anticipated by such forward-looking information due to factors discussed under
"Risk Factors" and elsewhere in this Form 10-K.





The
statements that are not historical constitute "forward-looking
statements".  Said forward-looking statements involve risks and
uncertainties that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements, express or implied by such forward-looking
statements.  These forward-looking statements are identified by their
use of such terms and phrases as "expects", "intends", "goals", "estimates",
"projects", "plans", "anticipates", "should", "future", "believes", and
"scheduled".





The
variables which may cause differences include, but are not limited to, the
following: general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and promotional efforts; the
existence or absence of adverse publicity; changes in business strategy or
development plans; the ability to retain management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employment benefit costs;
availability and costs of raw materials and supplies; and changes in, or failure
to comply with various government regulations.  Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate;
therefore, there can be no assurance that the forward-looking statements
included in this Form 10-K will prove to be accurate.





In light
of the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any person that the objectives and expectations
of the Company will be achieved.





Losses from Operations;
Accumulated Deficit; Negative Net worth and Going Concern.


Historically,
the Company has not generated sufficient revenues from operations to self-fund
its capital and operating requirements.  These factors raise
substantial doubt concerning its ability to continue as a going
concern.  However, following the acquisition of CUI, Inc. the company
is generating significant revenues that it expects will provide the Company with
the ability to self-fund its capital and operating requirements.  If
that is not possible, the Company will seek additional working capital from
funding that will primarily include equity and debt
placements.


21





Overview


Waytronx,
Inc. has pioneered and is working to commercialize innovative thermal management
solutions capable of revolutionizing the semiconductor, solar and electronic
packaging industries, among others.  This advanced technology involves
the use of fluid displacement to move heat away from the source instead of
traditional passive heat transference through solid
materials.  Utilizing its patented WayCool hybrid mesh architecture,
Waytronx can enhance system performance and remove thermal barriers caused by
"microwarming" in today's advanced computing devices.  The Company's
proprietary cooling solutions for central and graphics processors, solar energy
devices and power supplies provide more cost effective and efficient thermal
management to the electronics industry.





In May
2008, Waytronx formed a wholly owned subsidiary that acquired the assets of CUI,
Inc., a provider of electromechanical components and industrial controls for
original equipment manufacturing (OEM).  Since its inception in 1989,
CUI has been delivering quality products, extensive application solutions, and
superior personal service.  CUI's solid customer commitment and honest
corporate message are a hallmark in the industry.





During
the year ended December 31, 2008, the Company continued to incur significant
losses from operations.  The Company incurred a net loss of $1,830,367
for the year ended December 31, 2008.  This net loss includes non-cash
charges of $740,785 for compensation and services expense including amortization
of deferred compensation related to equity given or to be given to employees and
consultants for services provided, $2,153,577 of non-cash amortization of the
intrinsic value of convertible debt, amortization of debt offering costs and the
warrant related debt discount, $247,617 of non-cash loss for the impairment of
patents, and $1,620 non-cash loss on securities available for sale.





Management
has continued to raise the capital needed to fund the development and marketing
of the Company’s products during 2008.





Critical
Accounting Policies


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that have a significant impact on the results the
Company will report in the Company's financial statements.  Some of
the Company's accounting policies require the Company to make difficult and
subjective judgments, often as a result of the need to make estimates of matters
that are inherently uncertain.  Actual results may differ from these
estimates under different assumptions or conditions.





Asset
Impairment


The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset exceeds its fair
value and may not be recoverable.  In performing the review for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposition.  If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss is recognized as
the excess of the carrying amount over the fair value.  Otherwise, an
impairment loss is not recognized.  Management estimates the fair
value and the estimated future cash flows expected.  Any changes in
these estimates could impact whether there was impairment and the amount of the
impairment.


22





Valuation of Non-Cash
Capital Stock Issuances


The
Company values its stock transactions based upon the fair value of the equity
instruments.  Various methods can be used to determine the fair value
of the equity instrument.  The Company may use the fair value of the
consideration received, the quoted market price of the stock or a
contemporaneous cash sale of the common or preferred stock.  Each of
these methods may produce a different result.  Management uses the
method it determines most appropriately reflects the stock
transaction.  If a different method was used it could impact the
expense and equity stock accounts.





Patent
Costs


The
Company estimates the patent applications it has filed will have a future
beneficial value to the Company, thus it capitalizes the costs associated with
filing for its patents.  At the time the patent is issued, the patent
costs associated with the patent are amortized over the useful life of the
patent.  If the patent is not issued, at that time the costs will be
expensed.  A change in the estimate of the patent having a future
beneficial value to the Company will impact the other assets and expense
accounts of the Company.





Revenue
Recognition


The
recognition of the Company’s revenues requires judgment, including whether a
sale includes multiple elements, and if so, whether vendor-specific objective
evidence (VSOE) of fair value exists for those elements.  Customers
may receive certain elements of our products over a period of
time.  These elements could include licensing rights to manufacture
and sell our proprietary patent protected products.  The ability to
identify VSOE for those elements and the fair value of the respective elements
could materially impact the amount of earned and unearned
revenue.  The Company does not have any history as to the costs
expected to be incurred in granting licensing rights relating to its
products.  Therefore, revenues may be recorded that are not in
proportion to the costs expected to be incurred in performing these
services.





Liquidity
and Capital Resources


General


The
Company’s cash and cash equivalents balance at December 31, 2008 are $599,200
and a net working capital at December 31, 2008 of
$165,996.  Operations and investments in equipment and the acquisition
of CUI, Inc. have been funded through cash from operations, equity financings
and borrowings from private parties as well as related parties.





Cash used in
operations


The
Company’s operating requirements generated a negative cash flow from operations
of $313,473 during 2008.





During
2008 and 2007, the Company has used stock and warrants as a form of payment to
certain vendors, consultants and employees.  For 2008 and 2007,
respectively, the Company recorded a total of $740,785 and $287,356 for
compensation and services expense including amortization of deferred
compensation related to equity given or to be given to employees and consultants
for services provided.


23





During
2008, the Company recorded three additional significant non-cash entries -
$2,831,688 change in the fair value of warrant liabilities, $2,153,577 of
non-cash interest expense, including amortization of the beneficial conversion
value,  amortization of debt offering costs, warrant related debt
discounts and intrinsic value of convertible debt and amortization of debt
discount, $247,617 of non-cash loss for the impairment of patents





As the
Company focuses on the WayCool technology and CUI product lines during 2009, it
will continue to fund research and development related to these products
together with related sales and marketing efforts for WayCool as well as its
other electromechanical products.  The Company does not expect to
record significant revenue from the WayCool technology until this product line
is fully developed and licensing agreements for the manufacture and sale of its
products are in place and operational.





Capital Expenditures and
Investments


During
2008, the Company invested $128,922 in fixed assets.  The Company
anticipates further investment in fixed assets during 2009 in support of its
on-going business and continued development of product lines.





The
Company invested $88,672 in patent costs during 2008.  The Company
expects its investment in patent costs will continue throughout 2009 as it
invests in patents to protect the rights to use its product
developments.





Effective
May 16, 2008, Waytronx acquired CUI, Inc.  The funding for this
acquisition was provided by a $6,000,000 bank note, a $14,000,000 seller’s note,
and a $17,500,000 convertible seller’s note.  The following details
the acquisition:





Purchase price
                    
                    $
                    37,500,000Cash
                    
                    
                    183,531Accounts
      receivable, trade
                    
                    
                    2,206,176Accounts
      receivable, other
                    
                    
                    1,159,851Inventory
                    
                    
                    2,654,325Other
      current assets
                    
                    
                    115,666Property
      & equipment, net
                    
                    
                    1,340,313Deposits
      and other assets
                    
                    
                    50,297Technology
      rights
                    
                    
                    51,222Equity
      investment in affiliate
                    
                    
                    122,119Goodwill
                    
                    
                    23,544,300Goodwill
      trademark and tradename CUI
                    
                    
                    4,892,856Goodwill
      trademark and tradename V-Infinity
                    
                    
                    1,373,828Goodwill
      patent pending technology
                    
                    
                    761,962Goodwill
      customer list/base
                    
                    
                    2,103,237Liabilities
      assumed
                    
                    
                    (3,059,683
                    )$
                    37,500,000





Financing
activities


During
2008, $700,000 of proceeds were received from unsecured convertible notes,
$6,000,000 from a bank loan, $99,600 from the exercise of warrants, $1,160 from
the exercise of options and $500,000 from the sale of common
stock.  The Company also utilized $1,044,628 from a bank operating
line of credit to fund daily operations during 2008.  Waytronx plans
on raising the capital needed to fund the further development and marketing of
its products as well as payment of its debt obligations.


24





Recap of liquidity and
capital resources


The
report of our independent registered public accounting firm on our financial
statements as of December 31, 2008 contains an explanatory paragraph expressing
uncertainty with respect to our ability to continue as a going
concern.  Prior to the acquisition of CUI, Inc. the Company was not
generating significant revenues to fund operations.  Subsequent to the
acquisition of CUI, Inc., management believes the Company will be able to
generate sufficient revenues to fund operations in the first full year of
operations that include CUI.  As of December 31, 2008 the Company had
an accumulated deficit of $50,548,086.





The
Company may seek to raise additional capital for the commercialization of its
WayCool technology product lines and CUI product lines.  The Company
believes its operations and existing financing structure will provide sufficient
cash to meet its short-term working capital requirements for the next twelve
months.  As the Company continues to expand and develop its technology
and product lines, additional funding sources may be required.  The
Company will attempt to raise these funds through borrowing instruments or
issuing additional equity.





As of
December 31, 2008 CUI Inc. maintained a line of credit with Key Bank granting
borrowings of up to $3,000,000 with interest payable monthly at the bank’s prime
lending rate less 0.25 percentage points.





Management
expects the WayCool technology to be commercialized during 2009.  The
Company cannot assure that it will generate material revenues by that date or
that its revenues will be sufficient to cover all operating and other
expenses.  The Company expects the revenues from CUI, Inc. to help
cover the operating and other expenses.  If revenues are not
sufficient to cover all operating and other expenses, additional funding will be
required.  There is no assurance the Company will be able to raise
such additional capital.  The failure to raise additional capital or
generate product sales in the expected time frame will have a material adverse
effect on the Company.





Off-Balance Sheet
Arrangements


As of
December 31, 2008, we have no off-balance sheet arrangements.





Results
of Operations


The
accompanying financial statements reflect the operations of the Company for the
fiscal years ended December 31, 2008 and 2007.





Revenue


During
the year ended 2008, revenue was $19,555,935 and $157,258.  The
revenue for the year ended December 31, 2008 is comprised of $19,218,109 from
CUI products, $122,299 for freight, $10,000 for a cancellation fee, $58,975 from
Living WindowTM products and related add-ons, $143,722 from RediAlertTM products
and $2,830 from other income.  For the year ended December 31, 2007,
revenue was comprised of $91,070 from RediAlertTM products, $48,823 from Living
WindowTM products and related add-ons, and $17,365 from other.





During
2008, 39% of revenues were derived from three customers at 33%, 3% and
3%.


During
2007, 70% of revenues were derived from three customers at 43%, 14% and
13%.





Cost of
revenue


The cost
of revenue for the year ended December 31, 2008 and 2007 was $11,874,250 and
$2,318,602, respectively.  The significant increase during 2008
compared to the prior year is primarily the result of the acquisition of CUI,
Inc. and its related operations.  In 2007, the Company incurred an
inventory write-down of $2,048,538 for the impairment of inventory to net
realizable market value.


25





Selling, General and
Administrative Expenses


Selling,
General and Administrative (SG&A) expenses includes such items as wages,
consulting, general office expenses, business promotion expenses and costs of
being a public company including legal and accounting fees, insurance and
investor relations.





SG&A
expenses increased to $7,615,737 for the year ended December 31, 2008 from
$1,888,098 for the same period during 2007.  This increase of
$5,727,639 is primarily the result of the acquisition of CUI, Inc. and its
related operations.





The
Company anticipates its sales and marketing expenditures and general and
administrative expenses will further increase in 2009 as the Company will
experience a full year of CUI operations.





Research and
Development


The
research and development costs are related to the technology for which Waytronx
acquired the licensing rights as well as research and development expenses for
CUI products.  Research and development costs were $513,671 for the
year ended December 31, 2008 and $1,191,854 for the same period during
2007.  The decrease is primarily the result of a decrease in
expenditures towards the development of the WayCool technologies during
2008.  The Company expects that research and development expenses will
increase during 2009 as the Company continues to expand its product offering and
continues to fund the development of its WayCool thermal management
technology.





Impairment
Loss


The
Company recorded a $247,617 impairment loss during 2008 related to
patents.





Bad Debt


Bad debt
expense increased to $163,770 for the year ended December 31, 2008 from $18,470
for the same period ended 2007.  The bad debt expense relates to a
note receivable from the settlement gain from Mobil Magic and miscellaneous
other customers as well as an addition made for the allowance for bad
debts.  Mobil Magic remains in default on the note, and Waytronx has
not received a payment on this note since January of 2008.  The
Company has reserved fully for the note and is pursuing collection of the
balance of $91,500 but the outcome of the collections process is
uncertain.





Other
Income


Other
income for the year ended December 31, 2008, consisted of $2,831,688 in
derivative income associated with the change in value of the derivative
liability recognized for the potential conversion of warrants, options and
convertible debt into common stock, $138,477 for services billed to a related
party, $20,107 for interest income, $10,897 for foreign exchange gain, and
$7,881 in income.





Investment
Income


The
company recognized a loss on equity investment in an affiliate of $1,620 for the
year ended December 31, 2008.


26





Financing
Fees


During
2008, the Company paid financing fees of $28,158 related to the $3,000,000 bank
line of credit and the $6,000,000 bank loan.  During 2007, there were
no financing fees recorded.





During
April 2006 the Company negotiated the terms of a full and final settlement with
Fusion Three, LLC whereby Fusion Three, LLC relinquishes all rights and claims
to any revenues and fees in consideration for the Company issuing to Fusion
Three, LLC a three year warrant authorizing Fusion Three, LLC to purchase up to
5,600,000 shares of common stock at a per share price of $0.20.  The
Company also agreed to issue Fusion Three, LLC a warrant to purchase up to
1,200,000 shares of common stock at per share price of $0.35 for 300,000 shares;
$0.50 for 300,000 shares; $0.75 for 300,000 shares and $1.00 for 300,000 shares
before November 15, 2007.  During the second quarter of 2006, the
Company recorded a net settlement loss of $2,780,000 associated with this
transaction.  The Company recorded a settlement gain during the fiscal
year 2007 of $76,831.





Change in value of warrant
liability


During
the year ended December 31, 2008, a gain of $2,831,688 was recorded for the
change in fair value of derivative liabilities.





Non-cash interest expense,
amortization of beneficial conversion value, amortization of debt offering
costs, warrant related debt discounts, intrinsic value of convertible debtand
amortization of warrant related debt discount


The
Company recorded an expense of $2,153,577 during 2008 and $338,361 during 2007,
for non-cash interest expenses, including amortization of beneficial conversion
value, amortization of debt offering costs, warrant related debt discounts and
intrinsic value of convertible debt and amortization of debt
discount.  The increase in this expense is primarily associated with
the debts incurred related to the acquisition of CUI, Inc.





Interest
Expense


The
Company incurred $1,362,416 and $283,657 of interest expense during 2008 and
2007, respectively.  Interest expense for 2008 is for interest on the
secured convertible notes, secured and unsecured promissory notes, and the bank
line of credit.  Interest expense of $283,657 in 2007 is for interest
on the secured convertible notes payable and secured and unsecured promissory
notes.





Net Loss


The net
loss of $1,830,367 for the year ended December 31, 2008 decreased $3,916,301
compared to the same period in 2007.  The decrease in net loss during
2008 compared to 2007 is mainly the result of the addition of CUI, Inc.
operations and the decrease in operating expenses related to
Waytronx.





Preferred Stock
Dividends


During
the year ended December 31, 2008 and 2007, the Company recorded Series A
Convertible Preferred Stock dividends of $0 and $0,
respectively.


27





Recent AccountingPronouncements


In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No.
51”.  This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, entities provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.  SFAS No. 160
affects those entities that have an outstanding noncontrolling interest in one
or more subsidiaries or that deconsolidate a subsidiary.  SFAS No. 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
bifurcated derivatives, and nonderivative instruments that are designated and
qualify as hedging instruments. Entities with instruments subject to SFAS 161
must provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS 161 is effective prospectively for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
with early application permitted. We are currently evaluating the disclosure
implications of this statement.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The adoption of FASB 163 is not
expected to have a material impact on the Company’s financial
position.


28





Item
7A. Quantitative
and Qualitative Disclosure about Market Risk





Not
applicable




Item
8. Financial
Statements and Supplementary Data





The
Financial Statements and the report of Webb & Company, P.A. dated March
26, 2009 are attached hereto and incorporated herein by reference.





Item
9. Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure





The
Company has had no disagreements with Webb & Company, P. A. as the Company’s
Independent Registered Public Accounting Firm on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.





Item
9A. Controls
and Procedures





Not
applicable.





Item
9A(T) Controls
and Procedures





Evaluation of disclosure
controls and procedures.


Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Accounting Officer (“CAO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CAO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CAO, as appropriate, to allow timely decisions regarding required
disclosure.





Changes in internal controls
over financial reporting.


Immediately
following the acquisition of CUI, Inc., Daniel N. Ford assumed the Chief
Financial Officer position for both Waytronx, Inc. and its subsidiary CUI,
Inc.   We have note identified any significant deficiency or
material weaknesses in our internal controls, and therefore there were no
corrective actions taken.





Management’s Report on
Internal Controls over Financial Reporting


Internal
control over financial reporting is a process to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.  Effective May 15, 2008, The Company
appointed Daniel N. Ford as Chief Financial Officer of Waytronx and its wholly
owned subsidiary, CUI, Inc.  There has been no change in the Company’s
internal control over financial reporting during the year ended
December 31, 2008, that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.


29





The
Company’s management, including the Company’s CEO and CAO, does not expect that
the Company’s disclosure controls and procedures or the Company’s internal
controls will prevent all errors and all fraud.  A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
 Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs.  Because of the inherent limitations in all
control systems, no evaluation of the controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected.





Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in our Audit Committee Charter and
Audit Committee Policy and Procedures. Based on this evaluation, management
concluded that the company’s internal control over financial reporting was
effective as of December 31, 2008.  A copy of our Audit Committee
Charter can be viewed on our Website: www.waytronx.com.





This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this annual report.





Item
9B. Other
Information





There are
no matters to be reported under this Item.





PART
III





Item
10. Directors,
Executive Officers and Corporate Governance





Our
Bylaws permit the number of directors to be fixed by resolution of the Board of
Directors, but to be no less than one.  The Board of Directors has set
the maximum number of members to no more than eight
members.  Directors are elected by a plurality of the votes cast by
the holders of Common and Preferred Stock and serve two year terms or until
their successors have been elected and qualified or until their earlier
resignation or removal.  Currently, there are six (6)
directors.  The standards relied upon by the Board of Directors in
determining whether a director is “independent” are posted on our website at
www.waytronx.com.





By April
24, 2007 Board of Directors resolution, the owners of Series C preferred stock
have the exclusive right to appoint three board members.  See above,
Section Convertible Preferred
Shares in Item 5, Market for Common Equity, Related Stockholder Matters
and Small Business Issuer Purchases of Equity Securities.





Subject
to terms of their employment agreements, if any, officers of the Company hold
office until their successors are elected and qualified, subject to earlier
removal by the Board of Directors.


30





The Board
of Directors has four standing committees: Audit Committee, Compensation
Committee, Nomination Committee and Business Advisory Board.  No
incumbent director attended fewer than 100% of the total number of meetings held
by all committees on which such director served.  Our board currently
appoints the members of the committees.  Our Audit Committee and
Compensation Committee each have a written charter approved by our
board.  Copies of the current committee charters and a description of
our Nomination Committee are posted on our website at
www.waytronx.com.





The
following are officers and directors of the Company as of December 31,
2008.





Name
                        
                        Age
                        
                        PositionColton
      Melby
                        
                        49
                        
                        Director,
      ChairmanWilliam
      J. Clough, Esq.
                        
                        56
                        
                        President/Chief
      Executive Officer, Director and General CounselThomas
      A. Price
                        
                        64
                        
                        DirectorMatthew
      McKenzie
                        
                        28
                        
                        Director,
      Chief Operating OfficerSean
      P. Rooney
                        
                        45
                        
                        DirectorCorey
      Lambrecht
                        
                        38
                        
                        DirectorDaniel
      N. Ford
                        
                        29
                        
                        Chief
      Financial
Officer





Audit
Committee:


Sean P.
Rooney, Chairman, and Thomas A. Price, Deputy Chairman.





Compensation
Committee


Cory
Lambrecht, Chairman, Colton Melby, committee member.





Because
Waytronx is a small entity, the Company is dependent on the efforts of a limited
number of management personnel.  The Company believes that because of
the large amount of responsibility being placed on each member of its management
team, the loss of services of any member of this team at the present time would
harm its business.  Each member of its management team supervises the
operation and growth of one or more integral parts of its business.





Business
Experience of Directors and Executive Officers





Colton Melby, Chairman of
the Board of Directors


Effective
June 11, 2008, Colton Melby was appointed to the Board of Directors and was
elected by the Board of Directors to serve as Chairmen of the Board of
Directors.  At the September Annual Meeting of Shareholders Mr. Melby
was elected to a two year term on the Board of Directors.





Mr. Melby
has a 20 year background in aerospace manufacturing.  He spent 15
years as owner and chief executive officer of Metal Form, Inc., serving
worldwide customers, including: Boeing, Bombardier; Rockwell; Grumman; Lockheed
Martin; and others.  Under his stewardship, Metal Form was the
recipient of numerous awards of excellence including Boeing’s President Award
and three consecutive “Supplier of the Year” awards.





Mr. Melby
is a founding member of Melby Brothers Performance Investments, a firm with a
strong history of financing successful start-up and turnaround
organizations.  One of Mr. Melby’s more notable investments in that
capacity was the financing and purchase of firearms-maker Smith & Wesson
from London-based Tomkins PLC in 2001.  Mr. Melby continues to invest
both his time and resources in successful business ventures.  This
includes investments in Earth 911, a recycling company dedicated to green
initiatives and green recycling.





31


Mr. Melby
is an active philanthropist.  He and his family are members of the
Harvesters, an Orange County food bank dedicated to providing healthy meals to
under privileged kids in Southern California.  He is a member of the
Cattle Baron’s, a Texas charity providing support to the American Cancer
Society.





Mr. Melby
owns a beneficial interest of 7,885,077 shares of common stock and a warrant to
purchase 616,667 common shares at a price of $0.01 per share.





William J. Clough, Esq.,
President/Chief Executive Officer, Director and General Counsel of Waytronx,
Inc. and Chief Executive Officer of Waytronx Holdings, Inc.


Mr.
Clough was reelected at the September 2008 shareholder’s meeting to serve an
additional two year term.





Mr.
Clough was appointed President and Chief Executive Officer of Waytronx, Inc.
September 13, 2007 at which time Mr. Clough stepped down as Executive Vice
President of Corporate Development.  Effective May 16, 2008, Waytronx,
Inc. formed a wholly owned subsidiary, Waytronx Holdings, Inc., to acquire the
assets of CUI, Inc. along with this acquisition; Mr. Clough was appointed Chief
Executive Officer of Waytronx Holdings, Inc. (now renamed to CUI,
Inc.).  Mr. Clough was a police officer for 16 years, working at the
local, state, and federal levels.  After working as a Federal Air
Marshall in Southern Europe and the Middle East, in 1987 Mr. Clough attended law
school; he received his Juris Doctorate, cum laude, from the University of
California, Hastings College of the Law in 1990.  He was in the
private practice of law with his law firm for 12 years with offices in Los
Angeles, San Francisco and Honolulu.  Mr. Clough obtained the largest
ever non-wrongful death jury verdict in Los Angeles County Superior Court in
2000 and successfully represented parties in multi-million dollar cases
throughout the United States.  He is certified to practice law in
state and federal courts in California, Illinois, Hawaii, and before the United
States Supreme Court.  Mr. Clough has represented large manufacturing
and entertainment entities, including work with MGM Studios, 20th Century Fox,
News Corp., Lions Gate Films, Artisan Pictures, Sony and Mediacopy.





Mr.
Clough currently owns 781,500 common shares and, jointly with his wife, and a
warrant to purchase 3,640,485 common shares at $0.20 per share before July 5,
2011.





Thomas A. Price,
Director


Thomas A.
Price was elected at the September 2008 shareholder’s meeting to serve a one
year term.





Mr. Price
is a business veteran with more than 30 years of business and operational
management experience.  He is the founder of Tom Price Dealership
Group, a leading auto dealership that he grew to 11 franchises at six locations
across California.  Throughout the course of his career, Mr. Price has
been involved in investor and manufacturer relations, and orchestrated the
successful acquisition of his company, FirstAmerica Automotive by Sonic
Automotive, one of the nation’s largest automotive retailers.  Mr.
Price has been credited for the successful completion of Serramonte Auto Plaza,
an advanced, large-scale campus with innovative, industry-leading design
features.  Mr. Price also developed the multi-brand San Francisco Auto
Repair Center and a conference facility in Larkspur,
California.


32





Currently,
Mr. Price is the owner of nine car dealerships in Northern
California.  He has received numerous awards for dealership excellence
from manufacturers and has served on the National Dealer Advisory Boards of
several major automobile manufacturers.  He was Chairman of the Lexus
National Dealer Advisory Board and charter member of the J.D. Power Dealer
Roundtable.  Mr. Price is also an active
philanthropist.  The Price Family Dealerships are major sponsors of
Special Olympics of Marin, Dedication to Special Education, CASA/Advocates for
Children, Marin Breast Cancer Council and the Golden Gate
Shootout.  In 2005, the Price Family Dealership raised substantial
funds for Katrina relief.





The Price
Family Dealerships are very active in the community and are major sponsors of
Special Olympics of Marin, A Dedication to Special Education, CASA/Advocates for
Children, Marin Breast Cancer Council, and the Golden Gate Shootout and raised
over $75,000 for Katrina relief in 2005.





Mr. Price
owns a beneficial interest to 4,350,000 shares of common stock and a warrant to
purchase 350,000 common shares at a price of $0.01 per share through his
trust.





Matthew M. McKenzie,President and
Chief Operational Officer of CUI and Chief Operational Officer of Waytronx,
Director


Matt
McKenzie was elected at the September 2008 shareholder’s meeting to serve a two
year term.





Matt
McKenzie has been working in various functions for CUI for over 10 years,
gaining him intimate knowledge of the business, its operations, and its
opportunities for growth.  He established, in conjunction with CUI’s senior
engineer, one of CUI’s most successful and profitable business divisions and
brands:  V-Infinity.  As an internal power product division,
V-Infinity offers significant opportunities in the future in partnering with
WayCool technology to offer an even more extensive solution set to the
market.  Over the past several years, Mr. McKenzie has worked tirelessly to
position CUI for growth.  Among many other things he has initiated ISO
9000, a quality management system; provided structure to global logistics,
including CUI’s Chinese partners; and implemented CUI’s ERP system, which allows
for more visibility and analysis opportunities than ever in CUI’s
history.




Mr.
McKenzie brings a background in leadership from a variety of fields, giving him
valuable insight into leadership in 21st century.  He also brings an
MBA from George Fox University, a program that is diverse and well-connected to
the community.





Matthew
McKenzie owns no shares of stock or warrants in Waytronx, but owns an interest
in a convertible promissory note through the CUI, Inc. asset purchase that could
convert to 707,071 common shares.





Sean P. Rooney,
Director


Mr.
Rooney was elected at the September 2008 shareholder’s meeting to serve a one
year term.





Mr.
Rooney brings to the Waytronx Board nearly 15 years of financial management
experience.  Mr. Rooney currently serves as Senior Vice President of
Investments for Maxim Group LLC, a leading full service investment banking,
securities and wealth management firm.  Prior to joining Maxim Group,
he served in a similar capacity at Investec Ernst & Company, an
international specialist bank headquartered in South Africa and the
U.K.  Through his many years of experience, Mr. Rooney has built a
vast network of industry resources and contacts.


33





Mr.
Rooney graduated from C.W. Post University in 1993 with a Bachelors of Arts
degree in Business Administration.  In addition to his Series 7
(General Securities Representative), Series 63 (Uniform Securities Law), and
Series 24 (General Securities Principal) licenses, Sean has also been designated
as Senior Vice President-Investments for Oppenheimer & Co, Inc.





Mr.
Rooney currently manages a clientele of high net worth investors, institutions
and foundations.  His command of the ever-expanding universe of
financial instruments enhances his ability to provide unbiased advice in each of
his three core disciplines, money management, financial planning and estate
planning.





Mr.
Rooney owns a beneficial interest of 45,197 shares of common stock in
Waytronx.





Corey Lambrecht,
Director


Corey
Lambrecht was elected at the September 2008 shareholder’s meeting to serve a one
year term.





Corey
Lambrecht is a 10+ year public company executive with broad experience in
strategic acquisitions, new business development, pioneering consumer products,
corporate licensing and interactive technology services.  Mr.
Lambrecht most recently served as Director of Sales for Leveraged Marketing
Associates, the worldwide leader in licensed brand extension
strategies.  While Executive Vice President for Smith & Wesson
Holding Corporation he was responsible for Smith & Wesson Licensing,
Advanced Technologies and Interactive Marketing divisions.  He was the
former President of A For Effort, an interactive database marketing company
specializing in online content (advergaming) for clients such as the National
Hockey League.  Mr. Lambrecht’s prior experience also includes Pre-IPO
founder for Premium Cigars International and VP Sales/Marketing for
ProductExpress.com.  Mr. Lambrecht also has prior operational
experience for a Scottsdale, Arizona residential and commercial development
company.





Mr.
Lambrecht owns no shares of stock or warrants in Waytronx.





Daniel N. Ford,Chief Financial Officer of
Waytronx and CUI


Daniel N.
Ford has a background in the big accounting firms, including
KPMG.  Mr. Ford brings a large company perspective to a small company
with big potential.  As CFO of CUI for in excess of five years, Mr. Ford
has consistently moved CUI into a position of profitability, efficiency, and
forward thinking, transforming many of CUI’s accounting, inventory management,
and vendor relations processes.  Over the past five years, Mr. Ford has
implemented advanced internal fixed asset tracking, implemented a “real time”
inventory system, and participated in implementing CUI’s ERP system.  His
skills as a financier have allowed CUI to move to its current, 61,380 square
foot building, as well as provided leadership in Waytronx’s acquisition of
CUI.




Mr. Ford
holds an MBA from George Fox University.  He holds many awards and
leadership positions in business, including the Financial Executives Award in
2001.  He also actively provides leadership in the community.





Mr. Ford
owns no shares of stock or warrants in Waytronx, but owns an interest in a
convertible promissory note through the CUI, Inc. asset purchase that could
convert to 1,414,141 common shares.




34


Shareholder
Communications


Company
shareholders who wish to communicate with the Board of Directors or an
individual director may write to Waytronx, Inc., 20050 SW 112th Avenue,
Tualatin, Oregon 97062, phone (503) 612-2300 or to the attention of an
individual director.  Your letter should indicate that you are a
shareholder and whether you own your shares in street name.  Letters
received will be retained until the next Board meeting when they will be
available to the addressed director.  Such communications may receive
an initial evaluation to determine, based on the substance and nature of the
communication, a suitable process for internal distribution, review and response
or other appropriate treatment.  There is no assurance that all
communications will receive a response.





Certain
Provisions of the Articles of Incorporation and Colorado Business Corporation
Act Relating to Indemnification of Directors and Officers


The
Colorado General Corporation Act provides that each existing or former director
and officer of a corporation may be indemnified in certain instances against
certain liabilities which he or she may incur, inclusive of fees, costs and
other expenses incurred in connection with such defense, by virtue of his or her
relationship with the corporation or with another entity to the extent that such
latter relationship shall have been undertaken at the request of the
corporation; and may have advanced such expenses incurred in defending against
such liabilities upon undertaking to repay the same in the event an ultimate
determination is made denying entitlement to indemnification. The Company's
bylaws incorporate the statutory form of indemnification by specific
reference.





Insofar
as indemnification for liabilities may be invoked to disclaim liability for
damages arising under the Securities Act of 1933, as amended, or the Securities
Act of 1934 (collectively, the "Acts"), as amended, it is the position of the
Securities and Exchange Commission that such indemnification is against public
policy as expressed in the Acts and are therefore, unenforceable.





Reports
to Shareholders


We intend
to voluntarily send annual reports to our shareholders, which will include
audited financial statements.  We are a reporting company, and file
reports with the Securities and Exchange Commission (SEC), including this Form
10-K as well as quarterly reports under Form 10-Q.  The public may
read and copy any materials filed with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549.  Information
on the operation of the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330.  The company files its reports electronically and
the SEC maintains an Internet site that contains reports, proxy and information
statements and other information filed by the company with the SEC
electronically.  The address of that site is
http://www.sec.gov.





The
company also maintains an Internet site, which contains information about the
company, news releases and summary financial data.  The address of
that site is http://www.waytronx.com.





Section
16(a) Beneficial Ownership Reporting Compliance





Our
Corporate Governance Practices


We have
always believed in strong and effective corporate governance procedures and
practices.  In that spirit, we have summarized several of our
corporate governance practices below.


35





Adopting GovernanceGuidelines


Our board
of directors has adopted a set of corporate governance guidelines to establish a
framework within which it will conduct its business and to guide management in
its running of your Company.  The governance guidelines can be found
on our website at www.waytronx.com and are summarized below.





Monitoring Board
Effectiveness


It is
important that our board of directors and its committees are performing
effectively and in the best interest of the Company and its
stockholders.  The board of directors and each committee are
responsible for annually assessing their effectiveness in fulfilling their
obligations.





Conducting Formal
Independent Director Sessions


At the
conclusion of each regularly scheduled board meeting, the independent directors
meet without our management or any non-independent directors.





Hiring Outside
Advisors


The board
and each of its committees may retain outside advisors and consultants of their
choosing at our expense, without management's consent.





Avoiding Conflicts of
Interest


We expect
our directors, executives and employees to conduct themselves with the highest
degree of integrity, ethics and honesty.  Our credibility and
reputation depend upon the good judgment, ethical standards and personal
integrity of each director, executive and employee.  In order to
provide assurances to the Company and its stockholders, we have implemented
standards of business conduct which provide clear conflict of interest
guidelines to its employees and directors, as well as an explanation of
reporting and investigatory procedures.





Providing
Transparency


We
believe that it is important that stockholders understand our governance
practices.  In order to help ensure transparency of our practices, we
have posted information regarding our corporate governance procedures on our
website at www.waytronx.com.





Communications with theBoard of
Directors


Although
we do not have a formal policy regarding communications with the board of
directors, stockholders may communicate with the board of directors by writing
to the Company at Waytronx, Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062,
phone (503) 612-2300.  Stockholders who would like their submission
directed to a member of the board may so specify, and the communication will be
forwarded, as appropriate.





Standards of Business
Conduct


The board
of directors has adopted a Code of Business Conduct and Ethics for all of our
employees and directors, including the Company's principal executive and senior
financial officers.  You can obtain a copy of our Code of Business
Conduct and Ethics via our website at www.waytronx.com or by making a written
request to the Company at Waytronx, Inc., 20050 SW 112th Avenue, Tualatin,
Oregon 97062, phone (503) 612-2300.  We will disclose any amendments
to the Code of Business Conduct and Ethics, or waiver of a provision
there from, on our website at www.waytronx.com.





Ensuring Auditor
Independence


We have
taken a number of steps to ensure the continued independence of our independent
registered public accounting firm.  That firm reports directly to the
Audit Committee, which also has the ability to pre-approve or reject any
non-audit services proposed to be conducted by our independent registered public
accounting firm.


36





Code of Ethics


The
Company Board of Directors adopted a Code of Ethics for Principal Executives and
Financial Officers that describes the required conduct of honest and ethical
behavior in the conduct of their duties.  This code does not cover
every issue that may arise, but sets out basic principles relating to conflict
of interest, corporate opportunities, insider trading, confidentiality,
protection and proper use of company assets, compliance with laws, rules and
regulations, reporting of illegal or unethical behavior and
accountability.  The Code of Ethics is available for viewing on our
website at www.waytronx.com.  Copies of our Code of Business Conduct
and Ethics will be provided free of charge upon written request to Waytronx,
Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062, phone (503) 612-2300 or on
our website at www.waytronx.com.





Audit
Committee


The Audit
Committee is established pursuant to the Sarbanes-Oxley Act of 2002 for the
purposes of overseeing the company’s accounts and financial reporting processes
and audits of its financial statements.  The Audit Committee is
directly responsible for, among other things, the appointment, compensation,
retention and oversight of our independent Registered Public Accounting firm,
review of financial reporting, internal company processes of business/financial
risk and applicable legal, ethical and regulatory requirements.





The Audit
Committee is currently comprised of the Company Board of
Directors.  Sean P. Rooney serves as committee Chairman and
Thomas A. Price serves as Deputy Chairman.  Both Mr. Rooney and Mr.
Price are independent in accordance with applicable rules promulgated by the
Securities and Exchange Commission and NASDAQ listing standards.  Mr.
Rooney and Mr. Price have an understanding of generally accepted accounting
principles and have experience preparing, auditing, analyzing or evaluating
financial statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breath and complexity of
issues that can reasonably be expected to be raised by the financial statements
of the Company, including our balance sheet, income statement and cash flow
statement.  They have an understanding of internal controls and
procedures for financial reporting and an understanding of audit committee
functions as well as the ability to access the general application of such
accounting principles in connection with the accounting for estimates, accruals
and reserves.  The Board of Directors has determined that Messers
Rooney and Price are “audit committee financial experts” as defined in Section
401(h) of Regulation S-K promulgated by the SEC under the Exchange
Act.  Our Audit Committee acts pursuant to a written charter, a copy
of which is available from the Company and is posted on our website at
www.waytronx.com.  The Audit Committee has established a procedure to
receive complaints regarding accounts, internal controls and auditing
issues.





Audit
Committee Report


The Audit
Committee reviews the financial information that will be provided to the
shareholders and others, the systems of internal controls established by
management and the Board and the independence and performance of the Company’s
audit process.





The Audit
Committee has:


1.
            Reviewed
      and discussed with management the audited financial statements included in
      the Company’s Annual Report and Form
10-K;


37


2.
            Discussed
      with Webb & Company, P.A. the Company’s independent auditors, the
      matters required to be discussed by statement of Auditing Standards No.
      61, as amended, as adopted by the Public Company Accounting Oversight
      Board;


3.
            Received
      the written disclosures and letter from Webb & Company, P.A. as
      required by Independence Standards Board Standard No. 1;
    and


4.
            Discussed
      with Webb & Company, P.A. its
independence.





Based on
these reviews and discussions, the Audit Committee has recommended that the
audited financial statements be included in the Company’s annual report on Form
10-K for the year ended December 31, 2008.  The Audit Committee has
also considered whether the amount and nature of non-audit services provided by
Webb & Company, P.A. is compatible with the auditor’s
independence.





Nominating
Committee


The
nominating committee consists of all of the members of the Board of Directors
who are "independent directors" within the meaning of Rule 4200(a)(15) of the
Nasdaq Stock Market.  The nominating committee is responsible for the
evaluation of nominees for election as director, the nomination of director
candidates for election by the shareholders and evaluation of sitting directors.
 The Board has not developed a formal policy for the identification or
evaluation of nominees.  In general, when the Board determines that
expansion of the Board or replacement of a director is necessary or appropriate,
the nominating committee will review, through candidate interviews with members
of the Board and management, consultation with the candidate's associates and
through other means, a candidate's honesty, integrity, reputation in and
commitment to the community, judgment, personality and thinking style,
willingness to invest in the Company, residence, willingness to devote the
necessary time, potential conflicts of interest, independence, understanding of
financial statements and issues, and the willingness and ability to engage in
meaningful and constructive discussion regarding Company issues.  The
committee would review any special expertise, for example, that qualifies a
person as an audit committee financial expert, membership or influence in a
particular geographic or business target market, or other relevant business
experience.  To date the Company has not paid any fee to any third
party to identify or evaluate, or to assist it in identifying or evaluating,
potential director candidates.





The
nominating committee will consider director candidates nominated by shareholders
during such times as the Company is actively considering obtaining new
directors.  Candidates recommended by shareholders will be evaluated based
on the same criteria described above.  Shareholders desiring to suggest a
candidate for consideration should send a letter to the Company's Secretary and
include: (a) a statement that the writer is a shareholder (providing evidence if
the person's shares are held in street name) and is proposing a candidate for
consideration; (b) the name and contact information for the candidate; (c) a
statement of the candidate's business and educational experience; (d)
information regarding the candidate's qualifications to be director, including
but not limited to an evaluation of the factors discussed above which the Board
would consider in evaluating a candidate; (e) information regarding any
relationship or understanding between the proposing shareholder and the
candidate; (f) information regarding potential conflicts of interest; and (g) a
statement that the candidate is willing to be considered and willing to serve as
director if nominated and elected.  Because of the small size of the
Company and the limited need to seek additional directors, there is no assurance
that all shareholder proposed candidates will be fully considered, that all
candidates will be considered equally, or that the proponent of any candidate or
the proposed candidate will be contacted by the Company or the Board, and no
undertaking to do so is implied by the willingness to consider candidates
proposed by shareholders.


38


Item
11. Executive
Compensation





Compensation
Discussion and Analysis


Compensation Committee
Members


The
Compensation Committee of the Board of Directors is appointed by the Board of
Directors to discharge the Board's responsibilities with respect to all forms of
compensation of the Company's executive officers, to administer the Company's
equity incentive plans, and to produce an annual report on executive
compensation for use in the Company's 10-K.  The Compensation
Committee consists of two members of the board of directors, Messers Colton
Melby and Corey Lambrecht.





Role of
Committee


The
Compensation Committee discharges the Board’s responsibilities relating to
general compensation policies and practices and to compensation of our
executives.  In discharging its responsibilities, the Compensation
Committee establishes principles and procedures in order to ensure to the Board
and the shareholders that the compensation practices of the Company are
appropriately designed and implemented to attract, retain and reward high
quality executives, and are in accordance with all applicable legal and
regulatory requirements.  In this context, the Compensation Committee’s
authority, duties and responsibilities are:


·
            To
      annually review the Company’s philosophy regarding executive
      compensation.


·
            To
      periodically review market and industry data to assess the Company’s
      competitive position, and to retain any compensation consultant to be used
      to assist in the evaluation of directors’ and executive officers’
      compensation.


·
            To
      establish and approve the Company goals and objectives, and associated
      measurement metrics relevant to compensation of the Company’s executive
      officers.


·
            To
      establish and approve incentive levels and targets relevant to
      compensation of the executive
officers.


·
            To
      annually review and make recommendations to the Board to approve, for all
      principal executives and officers, the base and incentive compensation,
      taking into consideration the judgment and recommendation of the Chief
      Executive Officer for the compensation of the principal executives and
      officers.


·
            To
      separately review, determine and approve the Chief Executive Officer’s
      applicable compensation levels based on the Committee’s evaluation of
      the Chief Executive Officer’s performance in light of the Company’s and
      the individual goals and
objectives.


·
            To
      periodically review and make recommendations to the Board with respect to
      the compensation of directors, including board and committee retainers,
      meeting fees, equity-based compensation, and such other forms of
      compensation as the Compensation Committee may consider
      appropriate.


·
            To
      administer and annually review the Company’s incentive compensation plans
      and equity-based plans.


·
            To
      review and make recommendations to the Board regarding any executive
      employment agreements, any proposed severance arrangements or change in
      control and similar agreements/provisions, and any amendments, supplements
      or waivers to the foregoing agreements, and any perquisites, special or
      supplemental benefits.


·
            To
      review and discuss with management, the Compensation Disclosure and
      Analysis (CD&A), and determine the Committee’s recommendation for the
      CD&A’s inclusion in the Company’s annual report filed on Form 10-K
      with the SEC.


39


Committee
Meetings


Our
Compensation Committee meets as often as necessary to perform its duties and
responsibilities.  The Compensation Committee held three meetings during
fiscal 2008.  On an as requested basis, our Compensation Committee
receives and reviews materials prepared by management, consultants, or committee
members, in advance of each meeting.  Depending on the agenda for the
particular meeting, these materials may include:


·
            Minutes
      and materials from the previous
meeting(s);


·
            Reports
      on year-to-date Company and Partnership financial performance versus
      budget;


·
            Reports
      on progress and levels of performance of individual and Company
      performance objectives;


·
            Reports
      on the Company’s financial and stock performance versus a peer group of
      companies;


·
            Reports
      from the Committee’s compensation consultant regarding market and industry
      data relevant to executive officer
compensation;


·
            Reports
      and executive compensation summary worksheets, which sets forth for each
      executive officer: current total compensation and incentive compensation
      target percentages, current equity ownership holdings and general partner
      ownership interest, and current and projected value of each and all such
      compensation elements, including distributions and dividends there from,
      over a five year period.





Compensation
Philosophy


General
Philosophy


Our
compensation philosophy is based on the premise of attracting, retaining and
motivating exceptional leaders, setting high goals, working toward the common
objectives of meeting the expectations of customers and stockholders, and
rewarding outstanding performance.  Following this philosophy, in
determining executive compensation, we consider all relevant factors, such as
the competition for talent, our desire to link pay with performance, the use of
equity to align executive interests with those of our stockholders, individual
contributions, teamwork and performance, each executive’s total compensation
package, and internal pay equity.  We strive to accomplish these
objectives by compensating all employees with total compensation packages
consisting of a combination of competitive base salary and incentive
compensation.





Pay for
Performance


At the
core of our compensation philosophy is our strong belief that pay should be
directly linked to performance.  We believe in a pay for performance
culture that places a significant portion of executive officer total
compensation as contingent upon, or variable with, individual performance,
Company performance and achievement of strategic goals including increasing
shareholder value.





The
performance based compensation for our executives may be in the form of (i)
annual cash incentives to promote achievement of, and accountability for,
shorter term performance plans and strategic goals, and (ii) equity grants,
designed to align the long-term interests of our executive officers with those
of our shareholders, by creating a strong and direct link between executive
compensation and shareholder return over a multiple year performance
cycle.  Long term incentive equity awards are granted in restricted
stock.  These shares/units generally vest over a two-year
period.  This opportunity for share ownership was provided in order to
provide incentive and retain key employees and align their interests with our
long term strategic goals.


40





Base Compensation to be
Competitive within Industry


A key
component of an executive’s total compensation base salary is designed to
compensate executives commensurate with their respective level of experience,
scope of responsibilities, sustained individual performance and future
potential.  The goal has been to provide for base salaries that are
sufficiently competitive with other similar-sized companies, both regionally and
nationally, in order to attract and retain talented leaders.





Compensation
Setting Process


Management’s Role in the
Compensation Setting Process.


Management
plays a significant role in the compensation-setting process.  The most
significant aspects of management role are:


·
            Assisting
      in establishing business performance goals and
  objectives;


·
            Evaluating
      employee and company performance;


·
            CEO
      recommending compensation levels and awards for executive
      officers;


·
            Implementing
      the Board approved compensation plans;
and


·
            Assistance
      in preparing agenda and materials for the Committee
    meetings.





The Chief
Executive Officer and General Counsel generally attend the Committee
meetings.  However, the Committee also regularly meets in executive
session.  The Chief Executive Officer makes recommendations with respect to
financial and corporate goals and objectives and makes non CEO executive
compensation recommendations to the Compensation Committee based on company
performance, individual performance and the peer group compensation market
analysis.  The Compensation Committee considers and deliberates on
this information and in turn makes recommendations to the Board of Directors,
for the Board’s determination and approval of the executives’ and other members
of senior management’s compensation, including base compensation, short-term
cash incentives and long-term equity incentives.  The Chief Executive
Officer’s performance and compensation is reviewed, evaluated and established
separately by the Compensation Committee and ratified and approved by the Board
of Directors.





Setting Compensation
Levels


To
evaluate our total compensation is competitive and provides appropriate rewards
to attract and retain talented leaders, as discussed above, we may rely on
analyses of peer companies performed by independent compensation consultants and
on other industry and occupation specific survey data available to us.  Our
general benchmark is to establish both base salary and total compensation for
the executive officers at the 50th
percentile of the peer group data, recognizing that a significant portion of
executive officer total compensation should be contingent upon, or variable
with, achievement of individual and Company performance objectives and strategic
goals, as well as being variable with stockholder value.  Further, while
the objective for base salary is at the 50th
percentile of the peer group data, executives’ base salaries are designed to
reward core competencies and contributions to the Company, and may be increased
above this general benchmark based on (i) the individual’s increased
contribution over the preceding year; (ii) the individual’s increased
responsibilities over the preceding year; and (iii) any increase in median
competitive pay levels.


41


Setting Performance
Objectives


The
Company’s business plans and strategic objectives are generally presented by
management at the Company’s annual board meeting.  The board engages in an
active discussion concerning the financial targets, the appropriateness of the
strategic objectives, and the difficulty in achieving same.  In
establishing the compensation plan, our Compensation Committee then utilizes the
primary financial objectives from the adopted business plan, operating cash
flow, as the primary targets for determining the executive officers’ short-term
cash incentives and long term equity incentive compensation.  The Committee
also establishes additional non-financial performance goals and objectives, the
achievement of which is required for funding of a significant portion, twenty
five percent, of the executive officers’ incentive compensation.  In
2008, these non financial performance goals and objectives included achieving
accurate financial reporting and timely SEC filings; demonstrating full
compliance and superior performance in the Company’s environmental, health and
safety practices; performing appropriate SOX/404 remediation activities and
achieving successful testing of and compliance with SOX requirements; and
general and administrative expense management.





Annual
Evaluation


The Chief
Executive Officer recommends the actual incentive award amounts for all other
executives based on actual company performance relative to the targets as well
as on individual performance, and recommends the executives’ base salaries
levels for the coming year.  The Compensation Committee considers these
recommendations generally at the end of each fiscal year in determining its
recommendations to the Board of Directors for the final short-term cash
incentive and long-term equity award amounts for each executive and for the
executive’s base salary levels.  The actual incentive amounts awarded
to each executive are ultimately subject to the discretion of the Compensation
Committee and the Board of Directors.





Additional
equity-based awards may be also granted to executives, as well as other
employees, upon commencement of employment, for promotions or special
performance recognition, or for retention purposes, based on the recommendation
of the Chief Executive Officer.  In determining whether to recommend
additional grants to an executive, the Chief Executive Officer typically
considers the individual’s performance and any planned change in functional
responsibility.





Elements
of Executive Compensation


Total
Compensation


Total
compensation for our executives consists of three elements: (i) base salary;
(ii) incentive cash award based on achieving specific performance targets as
measured by cash flow and other objectives; and (iii) equity incentive award,
which is also performance based and paid out over a future period in the form of
restricted stock or warrants.  Base salaries are the value upon which both
the incentive compensation percentage targets are measured against.  For
evaluation and comparison of overall compensation of the executives, and to
assist it in making its compensation decisions, the Compensation Committee
reviews an executive compensation summary, which sets forth for each executive:
current compensation and current equity ownership holdings as well as the
projected value of each and all such compensation elements, including
distributions and dividends there from.





Base
Salaries


Base
salaries are designed to compensate executives commensurate with their
respective level of experience, scope of responsibilities, and to reward
sustained individual performance and future potential.  The goal has been
to provide for base salaries that are sufficiently competitive with other
similar-sized companies, both regionally and nationally, in order to attract and
retain talented leaders.


42





Incentive
Compensation


Incentive
compensation is intended to align compensation with business objectives and
performance and enable the company to attract, retain and reward high quality
executive officers whose contributions are critical to short and long-term
success of the Company.  The executives’ incentive awards are based upon
three key performance metrics: 1) the Company’s operating cash flow; 2)
achievement of agreed-upon strategic and corporate performance goals; and 3)
each executive’s departmental and individual goals and performance.  The
actual incentive amounts awarded to each executive are ultimately subject to the
discretion of the Compensation Committee and the Board of Directors





Incentive Plan
Compensation


Incentive
awards are paid out in cash, restricted common stock or warrant/option
awards.  The incentive award targets for the executives are established at
the beginning of the year as a percentage of their base salary, and the actual
awards are determined at the following year’s Annual Board of Directors meetings
based on actual company performance relative to established goals and
objectives, as well as on evaluation of the executive’s relevant departmental
and individual performance during the past year.  The award of restricted
common stock generally vests over a two year term in four equal six months
traunches.  The award of restricted common stock purchased through
warrants generally vests immediately upon issuance of the warrant which
generally has a validity of three years and a per share purchase price of the
fair market value of our common stock on the date of grant.  The
awards are intended to serve as a means of incentive compensation for
performance.





Retirement
Plans


Following
the acquisition of CUI, Inc., the Company now maintains a 401(k)
plan.  There are no other supplemental retirement benefits to our
senior executives.





Change in Control
Agreements


Our
executives are not awarded any type of protection upon a change in control
unless specifically provided in an employment contract.





Perquisites


The
Company does not provide for any perquisites or any other benefits for its
senior executives that are not generally available to all
employees.





Compensation
Committee Report


We have
reviewed and discussed the foregoing Compensation Discussion and Analysis with
management.  Based on our review and discussion with management, we have
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008.





Submitted
by:  Compensation Committee


Colton
R. Melby, Chairman


Corey
Lambrecht


43


Summary
Compensation Table


The
following table sets forth the compensation paid and accrued to be paid by the
Company for the fiscal years 2008 and 2007 to the Company’s Chief Executive
Officer and two most highly compensated executive officers of the
Company.




SUMMARY
COMPENSATION TABLE




Name
                                          and
                                          Principal
                                          Position
                                        
                                        Year
                                        
                                        Salary
                                          ($)
                                        
                                        
                                        Bonus
                                          ($)
                                        
                                        
                                        Stock
                                          Awards
                                          ($)
                                        
                                        
                                        Option
                                          Awards
                                          ($)
                                        
                                        
                                        Non-
                                          Equity
                                          Incentive
                                          Plan
                                          Compen-
                                          sation
                                          ($)
                                        
                                        
                                        Change in
                                          Pension
                                          Value and
                                          Nonquali-
                                          fied
                                          Deferred
                                          Compensa-
                                          tion
                                          Earnings
                                          ($)
                                        
                                        
                                        All
                                          Other
                                          Compen
                                          sation
                                          ($)
                                        
                                        
                                        Total
                                          ($)William
      J. Clough  CEO / President/ Counsel/Director (1)
                                        
                                        2008
                                        
                                        
                                        216,154
                                        
                                        
                                        
                                        302,250
                                        (2)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        17,866
                                        
                                        
                                        
                                        536,2702007
                                        
                                        
                                        180,000
                                        
                                        
                                        
                                        27,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        13,000
                                        
                                        
                                        
                                        220,000Daniel
      N. Ford, CFO (3)
                                        
                                        2008
                                        
                                        
                                        73,750
                                        
                                        
                                        
                                        60,000
                                        (4)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        15,554
                                        
                                        
                                        
                                        149,3042007
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Matthew
      McKenzie,
                                          Director/
      COO/ President of CUI (5)
                                        
                                        2008
                                        
                                        
                                        73,750
                                        
                                        
                                        
                                        60,000
                                        (6)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        9,934
                                        
                                        
                                        
                                        143,6842007
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Mark
      R. ChandlerFormer
      COO / CFO (7)
                                        
                                        2008
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -2007
                                        
                                        
                                        95,628
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        6,000
                                        
                                        
                                        
                                        101,628Clifford
      Melby, Former COO (8)
                                        
                                        2008
                                        
                                        
                                        67,500
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        67,5002007
                                        
                                        
                                        60,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        60,000





1.
            Mr.
      Clough joined the Company on September 1, 2005.  Effective
      September 13, 2007, Mr. Clough was appointed CEO/President of Waytronx and
      Chief Executive Officer of CUI, Inc., a wholly owned subsidiary of the
      Company.


44


2.
            Mr.
      Clough is finalizing a three year employment contract with the company,
      which provides, in part, for an annual salary of $240,000 and bonus
      provisions for each calendar year, beginning with 2008, in which the
      Waytronx yearend Statement of Operations shows the Gross Revenue equal to
      or in excess of fifteen percent (15%), but less than thirty percent (30%)
      of the immediate preceding calendar year, Mr. Clough shall be entitled to
      receive a cash bonus in an amount equal to twenty-five percent (25%) of
      his prior year base salary in addition to any other compensation to which
      he may be entitled; provided, however, that he shall be entitled to the
      bonus only if he has been employed during that entire calendar
      year.  In substitution of the bonus percentages described in the
      prior sentence, he shall be entitled to receive, in any year in which
      annual Gross Revenue exceeds by 30% of the prior calendar year gross
      revenue, a sum equal to fifty percent (50%) of his prior year base
      salary.  Additionally, Mr. Clough was awarded a $240,000 bonus
      by the Board of Directors during 2008 in relation to his facilitation of
      the CUI, Inc. acquisition.  $300,000 of Mr. Clough’s bonuses
      were accrued as of December 31, 2008 and will be paid over an eighteen
      month period beginning in January
2009.


3.
            Mr.
      Ford joined the Company May 15, 2008 as Chief Financial Officer of
      Waytronx and CUI, Inc., a wholly owned subsidiary of the
      Company.


4.
            Mr.
      Ford is finalizing a three year employment contract with the company,
      which provides, in part, for an annual salary of $120,000 and bonus
      provisions for each calendar year, beginning with 2008, in which the
      Waytronx yearend Statement of Operations shows a Net Profit and the Gross
      Revenue equal to or that exceeds fifteen percent (15%), but less than
      thirty percent (30%), of the immediate preceding calendar year, he shall
      be entitled to receive a cash bonus in an amount equal to fifty percent
      (50%) of his prior year base salary in addition to any other compensation
      to which he may be entitled; provided, however, that he shall be entitled
      to the bonus only if he has been employed by the Company during that
      entire calendar year.  In substitution of the bonus percentages
      described above, he shall be entitled to receive, in any year in which
      annual Gross Revenue exceeds by 30% of the prior calendar year gross
      revenue, a sum equal to 100% of his prior year base salary.  Mr.
      Ford’s $60,000 bonus was accrued as of December 31, 2008 and will be paid
      over an eighteen month period beginning in January
  2009.


5.
            Mr.
      McKenzie joined the Company May 15, 2008 as Chief Operating Officer of
      Waytronx and President and Chief Operating Officer of CUI, Inc., a wholly
      owned subsidiary of the Company.


6.
            Mr.
      McKenzie is finalizing a three year employment contract with the company,
      which provides, in part, for an annual salary of $120,000 and bonus
      provisions for each calendar year, beginning with 2008, in which the
      Waytronx yearend Statement of Operations shows a Net Profit and the Gross
      Revenue equal to or that exceeds fifteen percent (15%), but less than
      thirty percent (30%), of the immediate preceding calendar year, he shall
      be entitled to receive a cash bonus in an amount equal to fifty percent
      (50%) of his prior year base salary in addition to any other compensation
      to which he may be entitled; provided, however, that he shall be entitled
      to the bonus only if he has been employed by the Company during that
      entire calendar year.  In substitution of the bonus percentages
      described above, he shall be entitled to receive, in any year in which
      annual Gross Revenue exceeds by 30% of the prior calendar year gross
      revenue, a sum equal to 100% of his prior year base salary.  Mr.
      McKenzie’s $60,000 bonus was accrued as of December 31, 2008 and will be
      paid over an eighteen month period beginning in January
    2009.


7.
            Mr.
      Chandler was issued 250,000 shares of the Company’s Series A Convertible
      Preferred Stock and 1,000 shares of the Company’s Series B Convertible
      Preferred Stock during 2006.  He was issued 240,000 shares of
      the Company's Series A Convertible Preferred Stock during
      2005.  Mr. Chandler was the CFO until June 4,
    2007.


8.
            Mr.
      Melby was the COO until May 15,
2008.


45





Outstanding
Equity Awards at Fiscal Year-end


The
following table sets forth the outstanding equity awards at December 31, 2008 to
each of the named executive officers:




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END




Option Awards
                  
                  
                  Stock AwardsName
                  
                  Number
                    of
                    Securities
                    Underlying
                    Unexercised
                    Options
                    (#)
                    Exercisable
                  
                  
                  Number
                    of
                    Securities
                    Underlying
                    Unexercised
                    Options
                    (#)
                    Unexercisable
                    (c)
                  
                  
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Number
                    of
                    Securities
                    Underlying
                    Unexercised
                    Unearned
                    Options
                    (#)
                  
                  
                  Option
                    Exercise
                    Price
                    ($)
                  
                  
                  Option
                    Expiration
                    Date
                  
                  
                  Number
                    of Shares
                    or Units
                    of Stock
                    That Have
                    Not
                    Vested
                    (#)
                  
                  
                  Market
                    Value of
                    Shares or
                    Units of
                    Stock
                    That Have
                    Not
                    Vested
                    ($)
                  
                  
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Number
                    of
                    Unearned
                    Shares,
                    Units or
                    Other
                    Rights
                    That Have
                    Not
                    Vested
                    (#)
                  
                  
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Market or
                    Payout
                    Value
                    of
                    Unearned
                    Shares,
                    Units or
                    Other
                    Rights
                    That Have
                    Not
                    Vested
                    ($)William
      J. Clough (1)
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  0.20
                  
                  
                  2/28/2009
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Mark
      R. Chandler (2)
                  
                  
                  500,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  .25
                  
                  
                  10/6/2009
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Matthew
      McKenzie
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  N/A
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Daniel
      N. Ford
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  N/A
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Clifford
      Melby
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  N/A
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -





1.
            During
      2006 as recognition for services as a Director of the Company, Mr. Clough
      was issued a warrant to purchase 100,000 restricted common shares within
      three years from date of issuance at a per share price of
      $0.20.


2.
            In
      recognition for past services rendered by Mr. Chandler, by August 23,
      2004, Board of Directors resolution, the board authorized issuance to him
      a warrant to purchase 500,000 restricted common shares within five years
      from date of issuance at a per share price of
  $0.25.





Director
Compensation


The
following table sets forth the compensation of the directors, not included in
the Outstanding Equity Awards schedule noted above, for the fiscal year ending
December 31, 2008:


46





DIRECTOR
COMPENSATION





Name
                                  
                                  Fees
                                    Earned
                                    or Paid
                                    in Cash
                                    ($)
                                  
                                  Stock
                                    Awards
                                    ($)
                                  
                                  Option
                                    Awards
                                    ($)
                                  
                                  
                                  Non-Equity
                                    Incentive
                                    Plan
                                    Compensation
                                    ($)
                                  
                                  
                                  Non-Qualified
                                    Deferred
                                    Compensation
                                    Earnings
                                    ($)
                                  
                                  
                                  All
                                    Other
                                    Compensation
                                    ($)
                                  
                                  
                                  Total
                                    ($)John
      Rouse (1)
                                  
                                  
                                  
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  0





1.
            During
      2006 as recognition for services as a Director of the Company, Mr. Rouse
      was issued a warrant to purchase 100,000 restricted common shares within
      three years from date of issuance at a per share price of
      $0.61.




No
compensation was paid by the Company for fiscal year 2008 to the Company’s Board
of Directors.  No Director was compensated for the performance of
duties in that capacity or for his/her attendance at Director’s
meetings.




Employment
Agreements


During
fiscal year 2008, three executive officers were employed under employment
agreements currently being finalized with the Company.  Those
executive officers are:





President,
Chief Executive Officer and General Counsel





President/Chief
Operating Officer of CUI, Inc., a wholly owned subsidiary of Waytronx, Inc. and
Chief Operating Officer of Waytronx, Inc.





Chief
Financial Officer of Waytronx, Inc. and CUI, Inc., a wholly owned subsidiary of
Waytronx, Inc.




47




Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters





The
following table sets forth certain information regarding beneficial ownership of
our common stock as of the date of this Form 10-K by: (i) each shareholder known
by us to be the beneficial owner of 5% or more of the outstanding common stock,
(ii) each of our directors and executives and (iii) all directors and executive
officers as a group.  Except as otherwise indicated, we believe that
the beneficial owners of the common stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where
applicable.  Shares of common stock issuable upon exercise of options
and warrants that are currently exercisable or that will become exercisable
within 60 days of filing this document have been included in the
table.





WAYTRONX


BENEFICIAL
INTEREST TABLE




Series A Convertible
                          
                          
                          Series C ConvertibleCommon Stock
                          
                          
                          Preferred Stock
                          
                          
                          Preferred StockPercent ofAll VotingName and Address of
                          
                          
                          
                          
                          Percent of
                          
                          
                          
                          
                          
                          Percent of
                          
                          
                          
                          
                          
                          Percent of
                          
                          
                          SecuritiesBeneficial
      Owner
                          
                          Number
                          
                          
                          Class
      (2)
                          
                          
                          Number
                          
                          
                          Class
      (3)
                          
                          
                          Number
                          
                          
                          Class
                          
                          
                          (4)Colton
      Melby (5)
                          
                          
                          8,744,744
                          
                          
                          
                          5.23
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          5.23
                          %William
      J. Clough (6)
                          
                          
                          5,780,288
                          
                          
                          
                          3.38
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          3.38
                          %Thomas
      A. Price (7)
                          
                          
                          4,943,000
                          
                          
                          
                          2.96
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          2.96
                          %Sean
      Rooney (8)
                          
                          
                          288,197
                          
                          
                          
                          
                          *
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          
                          *Corey
      Lambrecht (9)
                          
                          
                          243,000
                          
                          
                          
                          
                          *
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          
                          *Matthew
      M. McKenzie (10)
                          
                          
                          1,403,170
                          
                          
                          
                          
                          *
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          
                          *Daniel
      N. Ford (11)
                          
                          
                          1,792,090
                          
                          
                          
                          1.07
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          1.07
                          %Bradley
      J. Hallock (12)
                          
                          
                          9,055,639
                          
                          
                          
                          5.37
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          5.37
                          %Walter/Whitney
      Miles (13)
                          
                          
                          10,000,000
                          
                          
                          
                          6.02
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          6.01
                          %Kjell
      H. Qvale (14)
                          
                          
                          15,600,000
                          
                          
                          
                          9.08
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          9.08
                          %James
      McKenzie (15)
                          
                          
                          62,929,300
                          
                          
                          
                          27.46
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          100.00
                          %
                          
                          
                          27.46
                          %Jerry
      Ostrin
                          
                          
                          -
                          
                          
                          
                          
                          *
                          
                          
                          45,000
                          
                          
                          
                          89.03
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          
                          *Barry
      Lezak
                          
                          
                          -
                          
                          
                          
                          
                          *
                          
                          
                          3,043
                          
                          
                          
                          6.02
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          
                          *Officers,
      Directors, executives as group
                          
                          
                          23,194,489
                          
                          
                          
                          13.96
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          -
                          
                          
                          
                          0.00
                          %
                          
                          
                          13.95
                          %
 
 * Less
than 1 percent





(1)
            Except
      s otherwise indicated, the address of each beneficial owner is c/o
      Waytronx, Inc., 20050 SW 112th Avenue, Tualatin, Oregon
    97062.


(2)
            Calculated
      on the basis of 166,208,406 shares of common stock issued and outstanding
      at December 31, 2008 except that shares of common stock underlying options
      and warrants exercisable within 60 days of the date hereof are deemed to
      be outstanding for purposes of calculating the beneficial ownership of
      securities of the holder of such options or warrants.  This
      calculation excludes shares of common stock issuable upon the conversion
      of Series A Preferred Stock.


48





(3)
            Calculated
      on the basis of 50,543 shares of Series A Preferred Stock issued and
      outstanding at December 31, 2008.


(4)
            Calculated
      on the basis of an aggregate of 166,208,406 shares of common stock with
      one vote per share and 50,543 shares of Series A Preferred Stock with one
      vote per share issued and outstanding at December 31, 2008; shares of
      common stock underlying options and warrants do not have voting
      privileges.


(5)
            Colton
      Melby's securities are held in the name of a partnership in which he owns
      a controlling interest.  Mr. Melby's common stock include a
      warrant to purchase 616,667 common shares and options to purchase 243,000
      common shares.  Mr. Melby is Chairman of the Board of
      Directors.


(6)
            Mr.
      Clough's common stock include 3,640,485 common shares he has the right to
      purchase pursuant to a warrant, and 1,358,303 options to purchase common
      shares.  Mr. Clough is a Director and CEO/President of Waytronx,
      Inc. and CEO of CUI, Inc.


(7)
            Mr.
      Price's shares include 350,000 common shares he has the right to purchase
      pursuant to a warrant and options to purchase 243,000 common
      shares.  Mr. Price is a
Director.


(8)
            Mr.
      Rooney’s shares include options to purchase 243,000 common
      shares.


(9)
            Mr.
      Lambrecht’s shares include options to purchase 243,000 common
      shares.


(10)
            Mr.
      McKenzie's common stock ownership is through his ownership of an interest
      in a convertible promissory note that he may convert to common stock after
      May 15, 2009 representing 707,071 common shares and options to purchase
      696,099 common shares.  Mr. McKenzie is a Director and is
      President and COO of CUI, Inc.


(11)
            Mr.
      Ford's common stock ownership is through his ownership of an interest in a
      convertible promissory note that he may convert to common stock after May
      15, 2009 representing 1,414,141 common shares and options to purchase
      377,949 common shares.  Mr. Ford is CFO of Waytronx, Inc. and
      CUI, Inc.


(12)
            Mr.
      Hallock's common stock includes 2,100,000 common shares he has the right
      to purchase pursuant to a warrant, 271,099 shares he has the right to
      purchase pursuant to options, and 73,500 shares owned by his IRA
      account.  Mr. Hallock is Executive Vice President of Waytronx,
      Inc.


(13)
            Mr.
      and Mrs. Miles' 10,000,000 common stock ownership is comprised of direct
      entitlement (8,750,000 shares) and related party management (1,250,000
      shares) shares held by their four sons:  Jeffrey, Joseph,
      Matthew, and Scott, 312,500 shares
each.


(14)
            All
      common stock is owned by Kjell H. Qvale Survivors Trust.  Mr.
      Qvale's common stock includes 5,000,000 shares he has the right to
      purchase pursuant to a convertible promissory note and 600,000 shares
      pursuant to a warrant, assuming $0.20 per
share.


(15)
            James
      McKenzie’s common stock includes 62,929,300 shares related to his
      ownership in the $17,500,000 convertible note (convertible at $0.25 per
      share) related to the CUI, Inc.
acquisition.





We relied
upon Section 4(2) of the Securities Act of 1933 as the basis for an
exemption from registration for the issuance of the above
securities.


49


Employee Equity Incentive
Plans





At
December 31, 2008, the Company had outstanding the following equity compensation
plan information:





Plan Category
                      
                      Number of
                        securities to be
                        issued upon
                        exercise of
                        outstanding
                        options,warrants
                        andrights
                      
                      
                      Weighted-
                        average
                        exercise priceof
                        outstanding
                        options,warrants
                        andrights
                      
                      
                      Number ofsecurities
                        remainingavailable
                        for futureissuance
                        underequity
                        compensation plansEquity
      compensation plans approved by security holders
                      
                      
                      1,119,296
                      
                      
                      $
                      0.17
                      
                      
                      
                      380,704Equity
      compensation plans not approved by security holders
                      
                      
                      4,578,001
                      
                      
                      
                      0.13
                      
                      
                      
                      -Total
                      
                      
                      5,697,297
                      
                      
                      $
                      0.14
                      
                      
                      
                      380,704





Equity Compensation Plan
Information


On August
25, 2005 the Company’s Board of Directors adopted the OnScreen Technologies,
Inc. 2005 Equity Incentive Plan (the “Equity Incentive Plan”) and authorized
2,000,000 shares of Common Stock to fund the Plan.  At the 2005 Annual
Meeting of Shareholders held on December 13, 2005, the Equity Incentive Plan was
approved by the Company shareholders.





On May
15, 2008 the Company’s Board of Directors adopted the Waytronx, Inc. 2008 Equity
Incentive Plan (the “Equity Incentive Plan”) and authorized 1,500,000 shares of
Common Stock to fund the Plan.  At the 2008 Annual Meeting of
Shareholders held on September 15, 2005, the Equity Incentive Plan was approved
by the Company shareholders.





Both the
2005 and the 2008 Equity Incentive Plans are intended to: (a) provide incentive
to employees of the Company and its affiliates to stimulate their efforts toward
the continued success of the Company and to operate and manage the business in a
manner that will provide for the long-term growth and profitability of the
Company; (b) encourage stock ownership by employees, directors and independent
contractors by providing them with a means to acquire a proprietary interest in
the Company by acquiring shares of Stock or to receive compensation which is
based upon appreciation in the value of Stock; and (c) provide a means of
obtaining and rewarding employees, directors, independent contractors and
advisors.





Both
Equity Incentive Plans provide for the issuance of incentive stock options
(ISOs) and Non Statutory Options (NSOs) to employees, directors and independent
contractors of the Company.  The Board shall determine the exercise
price per share in the case of an ISO at the time an option is granted and such
price shall be not less than the fair market value or 110% of fair market value
in the case of a ten percent or greater stockholder.  In the case of
an NSO, the exercise price shall not be less than the fair market value of one
share of stock on the date the option is granted.  Unless otherwise
determined by the Board, ISOs and NSOs granted under the both plans have a
maximum duration of 10 years.





Equity compensation plans
not approved by security holders


The
Company has outstanding at December 31, 2008, the following options issued under
equity compensation plans not approved by security holders:


50





During
2004, the Company issued options to various employees and a director for the
right to acquire 1,700,000 shares of its common stock at an exercise price of
$0.25.  The options are fully vested and expire during
2009.





During
2006, the Company issued options to various employees, directors, consultants
for the right to acquire 2,828,001 shares of its common stock at exercise prices
ranging from $0.01 to $0.61.  The options expire during 2009 to 2011
are fully vested.





During
2007, the Company issued options to a consultant for the right to acquire 50,000
shares of its common stock at an exercise price of $0.25.  The options
are fully vested and expire during 2010.





During
2008, the Company issued to investors, directors and an employee warrants for
the right to purchase 6,000,000 shares of its common stock at an exercise price
of $0.01.  The warrants vested 50% at issuance, 25% at the first
anniversary and 25% at the second anniversary and expire during
2011.





During
2008, the Company issued warrants for the right to purchase 390,000 shares of
common stock at an exercise price of $0.01 to a consultant pursuant to a
consulting agreement.  The warrants are fully vested and expire during
2011.





Item
13.  Certain Relationships and Related Transactions and Director
Independence





Except as
set forth herein, none of the Company’s directors or officers nor any person who
beneficially owns, directly or indirectly, shares carrying more than 10% of the
voting rights attached to its outstanding shares, nor any relative or spouse of
any of the foregoing persons has any material interest, direct or indirect, in
any transaction in any presently proposed transaction which has or will
materially affect the Company.





During
fiscal year 2008, three executive officers were employed under employment
agreements currently being finalized with the Company.  For
description of the employment agreements, see “Executive Compensation” and
“Employment Agreements”.





On
October 4, 2005, the Company paid $50,000 to extend a letter of intent for the
sale and purchase of certain intellectual property.  William J.
Clough, CEO/President and Director, and Bradley J. Hallock, Senior Vice
President, have a controlling interest in the company (CH Capital) that was
named as the seller of the intellectual property.  The letter of
intent gave the Company the right to acquire the WayCool technology for $800,000
and the issuance of warrants to acquire five percent of the Company’s fully
diluted equity securities after giving effect to the Company’s fund raising
efforts.  The warrants have the same pricing and terms issued in
connection with the Company’s private equity fund raising.  On March
24, 2006, CH Capital assigned to the Company all right, title and interest to
the WayCool patent in consideration for $800,000 and a three year warrant for
7,040,485 common shares at a per share price of $0.20.  The $800,000
amount represents reimbursement for the time and money CH Capital spent
acquiring and developing the WayCool technology.  This assignment has
been recorded and is a matter of record with the United States Patent and
Trademark Office.  For a more detailed explanation, please see the
section above entitled “Intellectual Property Rights to WayCool Thermal
Management Technology”.





In April
of 2007 a three-month promissory note was entered into with a director and
proceeds received totaling $80,000.  Interest accrues at 12% per annum
until the maturity of this note, at which time the principal is
due.  In July 2007, $40,800 of principal and interest was repaid, and
the remaining principal and interest of $42,000 was repaid in August
2007.


51





In
January 2008 the Company negotiated a sale of one million registered shares of
common stock to three individuals in consideration of two hundred fifty thousand
dollars ($250,000).  The $0.25 per share price was calculated from a
ten per cent (10%) discount to the average trailing close price for the last 30
trading days of 2007.  Because the Company did not have available the
one million registered shares, a shareholder agreed to accommodate the Company
by conveying the registered shares from his personal portfolio and accepting one
million restricted shares from the Company as reimbursement.  Because
of the value differential between the registered versus restricted stock, the
Company agreed to convey to the shareholder one hundred thousand additional
restricted common shares.





In May
2008 the Company formed a wholly owned subsidiary into which CUI, Inc., an
Oregon corporation, merged all of its assets.  The consideration paid
by the Company is summarized as follows:


·
            $6,000,000
      cash loan from Commerce Bank of Oregon, term of 3 years, interest only,
      prime rate less 0.50%, secured by Letters of
  Credit.


·
            $14,000,000
      promissory note to CUI shareholders, payable monthly over three years at
      $30,000 per month including 1.7% annual simple interest with a balloon
      payment at the thirty sixth monthly payment, no prepayment penalty, annual
      success fee of 2.3% payable within three years, right of first refusal to
      the note payees relating to any private capital raising transactions of
      Waytronx during the term of the
note.


·
            $17,500,000
      convertible promissory note plus 1.7% annual simple interest and 2.3%
      annual success fee, permitting payees to convert any unpaid principal,
      interest and success fee to Waytronx common stock at a per share price of
      $0.25 and at the end of the three year term giving to Waytronx the
      singular, discretionary right to convert any unpaid principal, interest
      and success fee to Waytronx common stock at a per share price of
      $0.25.  This note also provides a right of first refusal to the
      note payees relating to any private capital raising transactions of
      Waytronx during the term of the
note.


·
            Appointment
      by note payees of three members to Board of Directors for so long as there
      remains an unpaid balance on the above described promissory
      notes.





In May
2008, in consideration for posting Letters of Credit in favor of the Commerce
Bank of Oregon, the Company issued to the individuals who supplied the Letters
of Credit warrants to purchase, within 3 years at a per share price of $0.01,
one Waytronx common share for each dollar of the Letters of
Credit.  Fifty percent (50%) of the warrants for each investor vest
upon the Date of Issuance; twenty five percent (25%) of the warrants vest at the
one year anniversary of the Date of Issuance and twenty five percent (25%) of
the warrants vest at the two year anniversary of the Date of
Issuance.  Should the underlying debt to the Commerce Bank of Oregon
be satisfied or all, or any portion, of the Holder’s Letter of Credit is
released prior to any vesting as noted above, then any remaining warrant shares
shall not vest to the Holder under the terms of the Warrant.





Following
the acquisition of CUI, Inc., the Company moved its facilities to the CUI, Inc.
facility at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  This facility is leased from a related party,
Barakel, LLC.  Barakel, LLC is majority owned by James McKenzie, a
majority holder of the $17,500,000 convertible note related to the CUI, Inc.
acquisition and Matt McKenzie, COO and Director of the Company.  For
further discussion of the lease, please see the Leases footnote to the financial
statements.


52





Item
14.  Principal Accountants Fees and Services





Compensation of
Auditors


Audit
Fees.  The financial statements of the Company, which are furnished
herein as of December 31, 2008, have been audited by Webb & Company, P. A.,
Independent Registered Public Accounting Firm.  Webb & Company, P.
A. billed the Company an aggregate of $49,551 in fees and expenses for
professional services rendered in connection with the audit of the Company’s
financial statements for the fiscal year ended December 31, 2008 and the reviews
of the financial statements included in each of the Company’s Quarterly Reports
on Form 10-QSB during the fiscal year ended December 31, 2008.  Webb
& Company, P. A. billed the Company an aggregate of $21,707 in fees and
expenses for professional services rendered in connection with the audit of the
Company’s financial statements for the fiscal year ended December 31, 2007 and
the reviews of the financial statements included in each of the Company’s
Quarterly Reports on Form 10-QSB during the fiscal year ended December 31,
2007.  Webb & Company, P. A. did not bill any audit related fees,
tax fees, or other fees during the years ended December 31, 2008 and
2007.





In
accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules
and regulations promulgated thereunder, the Audit Committee has adopted an
informal approval policy that it believes will result in an effective and
efficient procedure to pre-approve services performed by the independent
registered public accounting firm.





Part
IV





Item
15.  Exhibits, Financial Statement Schedules


53


EXHIBITS





The
following exhibits are included as part of this Form 10-K.





ExhibitNo.
              
              Description3.11
              
              Amended
      Articles of Incorporation3.21
              
              Bylaws
      of the Registrant.3.32
              
              Articles
      of Amendment to Certificate of Incorporation - Certificate of
      Designations, Preferences, Limitations and Relative Rights of the Series A
      Preferred Stock, filed July 25, 2002.3.42
              
              Articles
      of Amendment to Articles of Incorporation-Terms of Series A Convertible
      Preferred Stock, filed November 13, 2003.3.52
              
              Restated
      Articles of Incorporation to increase the authorized common stock to
      150,000,000 shares, filed December 23, 2003.3.62
              
              Restated
      Articles of Incorporation - Certificate of Designations of the Series B
      Convertible Preferred Stock, filed April 1, 2004.3.74
              
              Restated
      Articles of Incorporation, Officers’ Certificate and Colorado Secretary of
      State Certificate filed June 30, 2004 showing corporate name change to
      OnScreen Technologies, Inc.3.87
              
              Restated
      Articles of Incorporation and Colorado Secretary of State Certificate
      filed January 7, 2008 showing corporate name change to Waytronx,
      Inc.3.98
              
              Restated
      Articles of incorporation to increase the authorized common shares to
      325,000,000 shares.4.11
              
              Investment
      Agreement dated May 19, 2000 by and between the Registrant and Swartz
      Private Equity, LLC.4.21
              
              Form
      of "Commitment Warrant" to Swartz Private Equity, LLC for the purchase of
      1,000,000 shares common stock in connection with the offering of
      securities.4.31
              
              Form
      of "Purchase Warrant" to purchase common stock issued to Swartz Private
      Equity, LLC from time to time in connection with the offering of
      securities.4.41
              
              Warrant
      Side-Agreement by and between the Registrant and Swartz Private Equity,
      LLC.4.51
              
              Registration
      Rights Agreement between the Registrant and Swartz Private Equity, LLC
      related to the registration of the common stock to be sold pursuant to the
      Swartz Investment Agreement.10.12
              
              Employment
      Agreement between the Registrant and John Thatch dated November 2,
      1999.10.22
              
              Contract
      and License Agreement between the Registrant and John Popovich, dated July
      23, 2001.10.32
              
              Agreement
      by and among the Registrant, John Popovich and Fusion Three, LLC, dated
      January 14, 2004.10.42
              
              Letter
      Agreement between the Registrant and John Popovich, dated January 15,
      2004.10.52
              
              Master
      Settlement and Release Agreement by and among the Registrant, Fusion
      Three, LLC, Ryan Family Partners, LLC, and Capital Management Group, Inc.,
      dated February 3, 2004.10.62
              
              First
      Amendment to Contract and License Agreement, dated February 3,
      2004.10.72
              
              Employment
      Agreement between the Registrant and Mark R. Chandler, COO/CFO, dated
      December 16, 2003.10.82
              
              Employment
      Agreement between the Registrant and Stephen K. Velte, CTO dated November
      7, 2003.


54





10.95
              
              Letter
      of Intent for Sale and Purchase of Certain Intellectual Property dated
      June 10, 2005 with Extension of Letter of Intent dated October 12,
      2005.10.103
              
              Consulting
      Services Agreement by and among the Registrant, David Coloris, Excipio
      Group, S.A., dated November 22, 2003.10.112
              
              Commission
      Agreement between the Registrant and Gestibroker dated September 12,
      2003.10.122
              
              Addendum
      to Safety Harbor office, Suite 210, Lease Agreement dated February 1,
      2004.10.134
              
              Safety
      Harbor, Florida office, Suite 130, Lease Agreement dated October 15,
      2004.10.144
              
              Second
      Addendum to the Employment Agreement of John “JT” Thatch dated February 3,
      2004.10.152
              
              Lockup
      Agreement between the Registrant and Excipio Group, S.A., dated December
      22, 2003.10.162
              
              Agreement
      between the Registrant and Visual Response Media Group, Inc., dated
      February 3, 2004.10.174
              
              Assignment,
      dated February 16, 2005, of Registrant’s technology patents ownership from
      inventor to CH Capital10.184
              
              Assignment,
      dated February 16, 2005, of Registrant’s technology patents ownership from
      CH Capital to Company.10.194
              
              Contract
      between SMTC Manufacturing Corporation and Registrant dated November 9,
      200410.204
              
              Technology
      Reseller Agreement between eLutions, Inc. and Company dated January 31,
      200510.214
              
              Third
      Addendum to the Employment Agreement of John “JT” Thatch dated March 28,
      2005.10.224
              
              Promissory
      Note dated March 25, 2005 evidencing $1,500,000 unsecured short term loan
      to Registrant.10.235
              
              OnScreen
      Technologies, Inc. 2005 Equity Incentive Plan10.246
              
              Employment
      Agreement between the Registrant and Charles R. Baker dated November 21,
      2005.10.256
              
              Employment
      Agreement between the Registrant and William J. Clough, Esq. dated
      November 21, 2005.13.1
              
              Annual
      Report on Form 10-KSB for the fiscal year ended December 31, 2005 filed
      February 24, 2006.13.2
              
              Annual
      Report on Form 10-KSB for the fiscal year ended December 31, 2006 filed
      April 2, 2007.14.15
              
              Registrant’s
      Code of Ethics for Principal Executive and Financial Officers and Code of
      Ethics and Business Conduct Statement of General
Policy.21.1
              
              8-KA
      designating and describing CUI, Inc. as a wholly owned subsidiary of the
      Registrant filed with the Commission May 21, 2008.22.1
              
              Proxy
      Statement and Notice of 2006 Annual Shareholder Meeting filed September
      29, 2006.22.2
              
              Proxy
      Statement and Notice of Special Meeting of Shareholders to increase the
      number of authorized common shares from 150,000,000 to 200,000,000 filed
      May 19, 200622.3
              
              Proxy
      Statement and Notice of 2007 Annual Shareholder Meeting filed November 6,
      2007.22.4
              
              Proxy
      Statement and Notice of 2008 Annual Shareholder Meeting filed July 8,
      2008.


55





23.48
              
              Consent
      of Webb & Company, P. A., Independent Registered Public Accounting
      Firm for incorporation by reference of their report into Form 10-K filed
      herewith.





Footnotes
to Exhibits:





1
            Incorporated
      by reference to our Registration Statement on Form SB-2/A filed with the
      Commission on October 26, 2001.


2
            Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on
      April 14, 2004.


3
            Incorporated
      by reference to our Report on Form S-8 filed with the Commission on
      January 15, 2004.


4
            Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on
      March 31, 2005.


5
            Incorporated
      by reference to our Proxy Statement pursuant to Section 14(a) filed
      October 7, 2005.


6
            Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on
      February 24, 2006.


7
            Incorporated
      by reference to our Registration Statement on Form S-8 filed March 12,
      2008


8
            Filed
      herewith.





Reports
on Form 8-K.





The
following documents that we filed with the SEC are incorporated herein by
reference:





(a)
              A
      report on Form 8-K filed on January 7, 2008 announcing that effective
      December 12, 2007, the OnScreen Technologies, Inc. corporate name was
      changed to Waytronx, Inc.  and effective January 7, 2008, the
      new OTC:BB trading symbol for Waytronx, Inc. is
  WYNX.


(b)
              A
      report on Form 8-K filed May 19, 2008 announcing and summarizing the CUI,
      Inc. asset acquisition.


(c)
              A
      report on Form 8-K/A filed May 21, 2008 restating the terms of the CUI,
      Inc. asset acquisition.


(d)
              A
      report on Form 8-K/2A filed June 12, 2008 and July 3, 2008 publishing the
      financial statements of CUI, Inc. and related pro forma financial
      information.


(e)
              A
      report on Form 8-K filed June 18, 2008 announcing that two directors
      declined to stand for reelection and the appointment of Colton Melby to
      the Board of Directors and election of Mr. Melby as Chairman of the
      Board.


(f)
            A
      report on Form 8-K filed July 24, 2008 announcing the appointment of two
      new board members, Messrs Sean Rooney and Matthew
  McKenzie.


56





Signatures





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.





Waytronx,
Inc.





Name
              
              Title
              
              Date/s/ William J. Clough
              
              CEO/President/Director
              
              March
      27, 2009William
      J. Clough/s/ Daniel N. Ford
              
              CFO/
      Principal
              
              March
      27, 2009Daniel
      N. Ford
              
              Accounting
      Officer/s/ Sean P. Rooney
              
              Audit
      Committee
              
              March
      27, 2009Sean
      P. Rooney


57


Waytronx,
Inc.


Financial
Statements


December
31, 2008 and 2007


58


Waytronx,
Inc.





Contents





PageReport
      of Independent Registered Public Accounting Firm
                  
                  F-2Balance
      Sheets
                  
                  F-3Statement
      of Operations
                  
                  F-4Statement
      of Changes in Stockholders’ Equity (Deficit)
                  
                  F-5
      – F-6Statements
      of Cash Flows
                  
                  F-7
      – F-8Notes
      to Financial Statements
                  
                  F-9


F-1


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders of:


Waytronx,
Inc.





We have
audited the accompanying balance sheets of Waytronx, Inc. and subsidiaries (the
“Company”) as of December 31, 2008 (consolidated) and 2007, and the
related statements of operations, changes in stockholders’ equity
(deficit), and cash flows for the years then ended December 31, 2008
(consolidated) and 2007. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Waytronx, Inc. and subsidiaries as
of December 31, 2008 (consolidated) and 2007 and the results of its operations
and its cash flows for the years ended December 31, 2008 (consolidated) and 2007
in conformity with accounting principles generally accepted in the United States
of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has a net loss of $1,830,367 and cash used in
operations of $313,473 and an accumulated deficit of $50,548,086 at December 31,
2008. These matters raise substantial doubt about the Company's ability to
continue as a going concern.  Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.





WEBB
& COMPANY, P.A.


Certified
Public Accountants





Boynton
Beach, Florida


March 26,
2009




F-2




Waytronx,
Inc.
 Balance
Sheet
 For
the Years Ended december 31, 2008 and 2007
 
 2008
                    (Consolidated)
                  
                  
                  2007Assets:Current
      Assets:Cash
      and cash equivalents
                  
                  $
                  599,200
                  
                  
                  $
                  42,639Trade
      accounts receivable, net of allowance of $135,000
                  
                  
                  2,762,416
                  
                  
                  
                  7,000Other
      accounts receivable
                  
                  
                  110,952
                  
                  
                  
                  -Other
      accounts receivable, related party
                  
                  
                  194,984
                  
                  
                  
                  -Inventories,
      net
                  
                  
                  4,077,367
                  
                  
                  
                  88,350Prepaid
      expenses and other
                  
                  
                  186,520
                  
                  
                  
                  20,160Total
      current assets
                  
                  
                  7,931,439
                  
                  
                  
                  158,149Property
      and equipment, net
                  
                  
                  1,245,203
                  
                  
                  
                  20,641Other
      assets:Investment
      - equity method
                  
                  
                  120,499
                  
                  
                  
                  -Technology
      rights, net
                  
                  
                  4,134,202
                  
                  
                  
                  4,321,493Patent
      costs, net
                  
                  
                  558,269
                  
                  
                  
                  654,861Other
      intangible assets, net
                  
                  
                  27,878
                  
                  
                  
                  39,355Deposits
      and other
                  
                  
                  40,411
                  
                  
                  
                  19,355Notes
      receivable, net
                  
                  
                  182,025
                  
                  
                  
                  91,500Debt
      offering costs, net
                  
                  
                  1,618,678
                  
                  
                  
                  -Goodwill,
      net
                  
                  
                  32,281,148
                  
                  
                  
                  -Total
      other assets
                  
                  
                  38,963,110
                  
                  
                  
                  5,126,564Total
      assets
                  
                  $
                  48,139,752
                  
                  
                  $
                  5,305,354Liabilities
      and stockholders' equity:Current
      liabilities:Accounts
      payable
                  
                  $
                  1,106,114
                  
                  
                  $
                  294,327Preferred
      stock dividends payable
                  
                  
                  5,054
                  
                  
                  
                  5,054Demand
      notes payable
                  
                  
                  1,373,993
                  
                  
                  
                  -Accrued
      expenses
                  
                  
                  1,912,592
                  
                  
                  
                  135,898Accrued
      compensation
                  
                  
                  770,625
                  
                  
                  
                  90,858Deferred
      revenue
                  
                  
                  -
                  
                  
                  
                  13,080Notes
      payable, current portion due
                  
                  
                  49,200
                  
                  
                  
                  -Notes
      payable, related party, current portion due
                  
                  
                  1,197,865
                  
                  
                  
                  -Convertible
      notes payable, net of discounts of $0 and $55,165,
      respectively
                  
                  
                  1,350,000
                  
                  
                  
                  1,594,834Total
      current liabilities
                  
                  
                  7,765,443
                  
                  
                  
                  2,134,051Long
      term notes payable, net of current portion due of $49,200
                  
                  
                  6,095,740
                  
                  
                  
                  100,000Long
      term notes payable, related party, net of current portion due of $197,865
      and discounts of $638,255
                  
                  
                  13,022,465
                  
                  
                  
                  1,000,000Long
      term convertible notes payable, related party, net of discounts of
      $5,711,395
                  
                  
                  11,788,605
                  
                  
                  
                  -Total
      liabilities
                  
                  
                  38,672,253
                  
                  
                  
                  3,234,051Commitments
      and contingencies
                  
                  
                  -
                  
                  
                  
                  -Stockholders'
      equity:Preferred
      stock, par value $0.001; 10,000,000 shares authorized
                  
                  
                  
                  
                  
                  
                  -Convertible
      Series A preferred stock, 5,000,000 shares authorized, 50,543 and 75,543
      shares issued and outstanding liquidation preference of $50,543 and
      $75,543 at December 31, 2008 and 2007, respectively
                  
                  
                  51
                  
                  
                  
                  76Convertible
      Series B preferred stock, 30,000 shares authorized, and no shares
      outstanding at December 31, 2008 and 2007, respectively
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, par value $0.001; 325,000,000 and 200,000,000 shares authorized and
      166,208,406 and 156,780,626 shares issued and outstanding at December
      31, 2008 and 2007, respectively
                  
                  
                  166,208
                  
                  
                  
                  156,780Additional
      paid-in capital
                  
                  
                  59,849,326
                  
                  
                  
                  50,832,167Subscription
      receivable
                  
                  
                  -
                  
                  
                  
                  (200,000
                  )Accumulated
      deficit
                  
                  
                  (50,548,086
                  )
                  
                  
                  (48,717,720
                  )Total
      stockholders' equity
                  
                  
                  9,467,499
                  
                  
                  
                  2,071,303Total
      liabilities and stockholders' equity
                  
                  $
                  48,139,752
                  
                  
                  $
                  5,305,354
 
 See
accompanying notes to financial statements
  F-3
 
 Waytronx,
Inc.
 Statement
of Operations
 For
the Years Ended December 31, 2008 and 2007
 
 2008
                      (Consolidated)
                    
                    
                    2007Revenues:Product
      Sales
                    
                    $
                    19,433,636
                    
                    
                    $
                    157,258Revenue
      from freight
                    
                    
                    122,299
                    
                    
                    
                    -Total
      revenue
                    
                    
                    19,555,935
                    
                    
                    
                    157,258Cost
      of revenues
                    
                    
                    11,874,250
                    
                    
                    
                    2,318,602Gross
      profit (loss)
                    
                    
                    7,681,685
                    
                    
                    
                    (2,161,344
                    )Operating
      expensesSelling,
      general and administrative
                    
                    
                    7,615,737
                    
                    
                    
                    1,888,098Research
      and development
                    
                    
                    513,671
                    
                    
                    
                    1,191,854Impairment
                    
                    
                    247,617
                    
                    
                    
                    20,971Bad
      debt
                    
                    
                    148,573
                    
                    
                    
                    18,470Total
      operating expenses
                    
                    
                    8,525,598
                    
                    
                    
                    3,119,393Profit
      (loss) from operations
                    
                    
                    (843,913
                    )
                    
                    
                    (5,280,737
                    )Other
      income (expense)Other
      income
                    
                    
                    177,362
                    
                    
                    
                    80,873Other
      expense
                    
                    
                    (289,094
                    )
                    
                    
                    (3,076
                    )Derivative
      income
                    
                    
                    2,831,688
                    
                    
                    
                    -Investment
      income (loss)
                    
                    
                    (1,620
                    )
                    
                    
                    1,460Settlement
      gain
                    
                    
                    -
                    
                    
                    
                    76,831Interest
      expense - intrinsic value of convertible debt and amortization of debt
      discount
                    
                    
                    (2,342,374
                    )
                    
                    
                    (338,362
                    )Interest
      expense
                    
                    
                    (1,362,416
                    )
                    
                    
                    (283,657
                    )Total
      other income (expense), net
                    
                    
                    (986,454
                    )
                    
                    
                    (465,931
                    )Net
      profit (loss)
                    
                    
                    (1,830,367
                    )
                    
                    
                    (5,746,668
                    )Basic
      and diluted profit (loss) per common share
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.04
                    )Basic
      and diluted net profit (loss) per common share available to common
      stockholders
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.04
                    )Weighted
      average common shares outstanding - Basic and diluted
                    
                    
                    161,888,206
                    
                    
                    
                    150,921,343
 
 See
accompanying notes to financial statements
  F-4





Waytronx,
Inc.


Statement
of Changes in Stockholders' Equity (Deficit)


Years
Ended December 31, 2008 and 2007





Series
      ASeries
      B
                                                                          
                                                                          
                                                                          Preferred
      Stock
                                                                          
                                                                          
                                                                          Common
      stockPreferred
                                                                          
                                                                          
                                                                          and
      Preferred
                                                                          
                                                                          
                                                                          and
      CommonStock
                                                                          
                                                                          
                                                                          Stock
      Issuable
                                                                          
                                                                          
                                                                          Stock
      IssuableShares
                                                                          
                                                                          
                                                                          Amount
                                                                          
                                                                          
                                                                          Shares
                                                                          
                                                                          
                                                                          Amount
                                                                          
                                                                          
                                                                          Shares
                                                                          
                                                                          
                                                                          AmountBalance,
      December 31, 2006
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          90,543
                                                                          
                                                                          
                                                                          $
                                                                          91
                                                                          
                                                                          
                                                                          
                                                                          147,127,238
                                                                          
                                                                          
                                                                          $
                                                                          147,127Reclassification
      to equity of accrued compensation payable in stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Warrants
      and options granted for service and compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Reclassification
      of warrant liability, net
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Common
      stock issued for options and warrants exercised in exchange for cash and
      accrued compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          3,472,118
                                                                          
                                                                          
                                                                          
                                                                          3,472Common
      stock issued for services and compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          907,418
                                                                          
                                                                          
                                                                          
                                                                          907Common
      stock issued in conjunction with the conversion of debt
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          841,204
                                                                          
                                                                          
                                                                          
                                                                          841Issuance
      of common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          4,246,154
                                                                          
                                                                          
                                                                          
                                                                          4,246Beneficial
      conversion value and value of warrants issued with convertible
      debt
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock dividends, $0.10 per share
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock dividends conversion to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          111,494
                                                                          
                                                                          
                                                                          
                                                                          112Series
      B Preferred Stock dividends reversal
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      B Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (15,000
                                                                          )
                                                                          
                                                                          
                                                                          (15
                                                                          )
                                                                          
                                                                          
                                                                          75,000
                                                                          
                                                                          
                                                                          
                                                                          75Series
      B Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Amortization
      of deferred compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Net
      loss for the year ended December 31, 2007
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Unrealized
      losses on marketable securities
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Comprehensive
      loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Balance,
      December 31, 2007
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          75,543
                                                                          
                                                                          
                                                                          $
                                                                          76
                                                                          
                                                                          
                                                                          
                                                                          156,780,626
                                                                          
                                                                          
                                                                          $
                                                                          156,780Reclassification
      to equity of accrued compensation payable in stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Warrants
      and options granted for service and compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Reclassification
      of warrant liability, net
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Common
      stock issued for options and warrants exercised in exchange for cash and
      accrued compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          3,353,090
                                                                          
                                                                          
                                                                          
                                                                          3,353Common
      stock issued for services and compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,289,000
                                                                          
                                                                          
                                                                          
                                                                          1,289Common
      stock issued in conjunction with the conversion of debt
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          2,708,132
                                                                          
                                                                          
                                                                          
                                                                          2,708Issuance
      of common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          1,977,558
                                                                          
                                                                          
                                                                          
                                                                          1,978Beneficial
      conversion value and value of warrants issued with financing
      guarantees
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Beneficial
      conversion value and value of warrants issued with convertible
      debt
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock dividends, $0.10 per share
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock dividends conversion to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      B Preferred Stock dividends reversal
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      B Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (25,000
                                                                          )
                                                                          
                                                                          
                                                                          (25
                                                                          )
                                                                          
                                                                          
                                                                          100,000
                                                                          
                                                                          
                                                                          
                                                                          100Series
      B Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Amortization
      of deferred compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Net
      loss for the year ended December 31, 2008
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Unrealized
      losses on marketable securities
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Comprehensive
      loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Balance,
      December 31, 2008
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          50,543
                                                                          
                                                                          
                                                                          $
                                                                          51
                                                                          
                                                                          
                                                                          
                                                                          166,208,406
                                                                          
                                                                          
                                                                          $
                                                                          166,208


F-5





(continued)Accumulated
                                                                          
                                                                          
                                                                          TotalDeferred
                                                                          
                                                                          
                                                                          Other
                                                                          
                                                                          
                                                                          Stockholders'Additional
                                                                          
                                                                          
                                                                          Subscription
                                                                          
                                                                          
                                                                          Accumulated
                                                                          
                                                                          
                                                                          Compensation
                                                                          
                                                                          
                                                                          Comprehensive
                                                                          
                                                                          
                                                                          EquityPaid-in
      capital
                                                                          
                                                                          
                                                                          Receivable
                                                                          
                                                                          
                                                                          Deficit
                                                                          
                                                                          
                                                                          and
      Consulting
                                                                          
                                                                          
                                                                          Loss
                                                                          
                                                                          
                                                                          (Deficit)Balance,
      December 31, 2006
                                                                          
                                                                          $
                                                                          48,926,371
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          (42,971,052
                                                                          )
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          6,102,537Reclassification
      to equity of accrued compensation payable in stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Warrants
      and options granted for service and compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Reclassification
      of warrant liability, net
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Common
      stock issued for options and warrants exercised in exchange for cash and
      accrued compensation
                                                                          
                                                                          
                                                                          238,475
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          241,947Common
      stock issued for services and compensation
                                                                          
                                                                          
                                                                          280,993
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          281,900Common
      stock issued in conjunction with the conversion of debt
                                                                          
                                                                          
                                                                          176,659
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          177,500Issuance
      of common stock
                                                                          
                                                                          
                                                                          1,099,754
                                                                          
                                                                          
                                                                          
                                                                          (200,000
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          904,000Beneficial
      conversion value and value of warrants issued with convertible
      debt
                                                                          
                                                                          
                                                                          87,788
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          87,788Series
      A Preferred Stock dividends, $0.10 per share
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock dividends conversion to common stock
                                                                          
                                                                          
                                                                          19,699
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          19,811Series
      B Preferred Stock dividends reversal
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      B Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          2,428
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          2,488Series
      B Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Amortization
      of deferred compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Net
      loss for the year ended December 31, 2007
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (5,746,668
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (5,746,668
                                                                          )Unrealized
      losses on marketable securities
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Comprehensive
      loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Balance,
      December 31, 2007
                                                                          
                                                                          $
                                                                          50,832,167
                                                                          
                                                                          
                                                                          $
                                                                          (200,000
                                                                          )
                                                                          
                                                                          $
                                                                          (48,717,720
                                                                          )
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          2,071,303Reclassification
      to equity of accrued compensation payable in stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Warrants
      and options granted for service and compensation
                                                                          
                                                                          
                                                                          233,292
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          233,292Reclassification
      of warrant liability, net
                                                                          
                                                                          
                                                                          5,164,603
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          5,164,603Common
      stock issued for options and warrants exercised in exchange for cash and
      accrued compensation
                                                                          
                                                                          
                                                                          216,962
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          220,315Common
      stock issued for services and compensation
                                                                          
                                                                          
                                                                          307,841
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          309,130Common
      stock issued in conjunction with the conversion of debt
                                                                          
                                                                          
                                                                          549,325
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          552,033Issuance
      of common stock
                                                                          
                                                                          
                                                                          318,514
                                                                          
                                                                          
                                                                          
                                                                          200,000
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          520,492Beneficial
      conversion value and value of warrants issued with financing
      guarantees
                                                                          
                                                                          
                                                                          2,044,646
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          2,044,646Beneficial
      conversion value and value of warrants issued with convertible
      debt
                                                                          
                                                                          
                                                                          182,053
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          182,053Series
      A Preferred Stock dividends, $0.10 per share
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock dividends conversion to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      B Preferred Stock dividends reversal
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      B Preferred Stock issued for services of employee
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      A Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          (75
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Series
      B Preferred Stock converted to common stock
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Amortization
      of deferred compensation
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Net
      loss for the year ended December 31, 2008
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,830,367
                                                                          )
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (1,830,367
                                                                          )Unrealized
      losses on marketable securities
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Comprehensive
      loss
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -Balance,
      December 31, 2008 (Consolidated)
                                                                          
                                                                          $
                                                                          59,849,326
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          (50,548,086
                                                                          )
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          9,467,499





See
accompanying notes to financial statements


F-6





Waytronx,
Inc.


Statements
of Cash Flows


For
the Years Ended December 31, 2008 and 2007





2008
                  (Consolidated)
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      profit (loss)
                
                $
                (1,830,367
                )
                
                $
                (5,746,668
                )Adjustments
      to reconcile net profit (loss) to net cash used in operating
      activities:Stock,
      warrants, options and notes issued for compensation and
      services
                
                
                740,785
                
                
                
                287,356Change
      in fair value of warrant liability
                
                
                (2,831,688
                )
                
                
                -Non-cash
      interest expense, including amortization of beneficial conversion value,
      warrant related debt discounts and intrinsic value of convertible debt and
      amortization of debt discount
                
                
                2,153,577
                
                
                
                338,362Non-cash
      loss on equity method investment
                
                
                1,620
                
                
                
                -Bad
      debt expense
                
                
                148,573
                
                
                
                18,470Amortization
      of technology rights
                
                
                238,513
                
                
                
                238,408Amortization
      of patent costs
                
                
                28,837
                
                
                
                7,625Amortization
      of website development
                
                
                14,311
                
                
                
                3,578(Gain)
      Loss on disposal of assets
                
                
                4,165
                
                
                
                (17,029
                )Impairment
      of inventory
                
                
                -
                
                
                
                2,048,538Impairment
      of patents
                
                
                247,617
                
                
                
                -Compensation
      and services expense payable in common stock
                
                
                -
                
                
                
                40,000Depreciation
                
                
                240,507
                
                
                
                49,922Amortization
      of goodwill
                
                
                1,538
                
                
                
                -(Increase)
      decrease in assets:Trade
      accounts receivable
                
                
                (717,265
                )
                
                
                (14,175
                )Other
      accounts receivable
                
                
                964,867
                
                
                
                -Notes
      receivable
                
                
                (182,025
                )
                
                
                23,500Inventory
                
                
                (1,334,692
                )
                
                
                (11,153
                )Prepaid
      expenses and other current assets
                
                
                (50,694
                )
                
                
                121,314Deposits
      and other assets
                
                
                26,408
                
                
                
                (40,115
                )Increase
      (decrease) in liabilities:Accounts
      payable
                
                
                (549,743
                )
                
                
                (186,633
                )Accrued
      expenses
                
                
                1,789,859
                
                
                
                2,984Accrued
      compensation
                
                
                594,904
                
                
                
                (9,142
                )Deferred
      revenues
                
                
                (13,080
                )
                
                
                4,820NET
      CASH USED IN OPERATING ACTIVITIES
                
                
                (313,473
                )
                
                
                (2,840,038
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      received from merger, net
                
                
                (5,816,468
                )
                
                
                -Investment
      in technology rights
                
                
                -
                
                
                
                (50,000
                )Investment
      in patents
                
                
                (88,672
                )
                
                
                (79,521
                )Proceeds
      from sales of property and equipment
                
                
                -
                
                
                
                48,705Proceeds
      from sale of discontinued product line
                
                
                393,497Purchase
      of property and equipment
                
                
                (128,922
                )
                
                
                -NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (5,640,565
                )
                
                
                (80,816
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from demand notes payable
                
                
                1,044,628
                
                
                
                -Proceeds
      from notes and loans payable
                
                
                6,600,000
                
                
                
                357,500Proceeds
      from notes and loans payable, related party
                
                
                100,000
                
                
                
                1,000,000Payments
      on notes and loans payable
                
                
                (1,470,116
                )
                
                
                (80,000
                )Payments
      on notes and loans payable, related party
                
                
                (364,673
                )
                
                
                -Proceeds
      from sales of common stock and exercise of warrants and options, net of
      offering costs
                
                
                600,760
                
                
                
                1,115,492NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                6,510,599
                
                
                
                2,392,992Cash
      and cash equivalents at beginning of year
                
                
                42,639
                
                
                
                570,501Cash
      and cash equivalents at end of year
                
                
                599,200
                
                
                
                42,639Net
      increase (decrease) in cash and cash equivalents
                
                $
                556,561
                
                
                $
                (527,862
                )







F-7





(continued)For the year ended December
    31,2008
                  (Consolidated)
                
                
                2007SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Income
      taxes paid
                
                $
                -
                
                
                $
                -Interest
      paid
                
                $
                331,695
                
                
                $
                155,642SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Conversion
      of Series A convertible preferred stock to common stock
                
                $
                25
                
                
                $
                -Discount
      on debt for intrinsic value of notes payable
                
                $
                1,861,241
                
                
                $
                87,786Notes
      payable issued for purchase of CUI, Inc.
                
                $
                31,500,000
                
                
                $
                -Issuance
      of warrants for patents
                
                $
                91,190
                
                
                $
                -Conversion
      of debt to common stock
                
                $
                550,000
                
                
                $
                177,500Common
      stock issued for conversion of Series A preferred stock and
      dividends
                
                $
                -
                
                
                $
                22,314Common
      stock issued for deferred consulting and compensation
                
                $
                -
                
                
                $
                25,000Common
      stock issued for consulting services and compensation and accrued
      liabilities payable in common stock
                
                $
                408,179
                
                
                $
                281,900Common
      stock issued to settle accrued preferred stock dividends
                
                $
                -
                
                
                $
                22,299Reclassification
      of Derivative liability to Equity
                
                $
                10,841,928
                
                
                $
                -





See
accompanying notes to financial statements


F-8


Waytronx,
Inc.


Notes
to Financial Statements


December
31, 2008 and 2007





1.
            NATURE
      OF OPERATIONS AND BASIS OF
PRESENTATION


Waytronx,
Inc. (formerly known as OnScreen Technologies, Inc.) has pioneered and is
commercializing innovative thermal management solutions capable of
revolutionizing the LED display, semiconductor and electronic packaging
industries. Utilizing patented and patent-pending thermal technologies and
architecture we have developed highly advanced, proprietary LED display
solutions and cooling applications.  Waytronx is primarily focused on
the commercialization of their innovative thermal cooling technology,
WayCool.





Effective
May 16, 2008, Waytronx, Inc. formed a wholly owned subsidiary, Waytronx
Holdings, Inc., to acquire the assets of CUI, Inc., a Tualatin, Oregon based
provider of electronic components including power supplies, transformers,
converters, connectors and industrial controls for Original Equipment
Manufacturers (OEMs). The wholly owned subsidiary was renamed CUI, Inc.
following the close of the acquisition.





The
accompanying financial statements have been prepared on the assumption that
Waytronx will continue as a going concern.  As reflected in these
financial statements, we had a net loss of $1,830,367 and cash used in
operations of $313,473 and an accumulated deficit of $50,548,086 for the year
ended December 31, 2008.  The ability to continue as a going concern
is dependent upon the ability to bring the WayCool products to market, generate
increased sales, obtain positive cash flow from operations and raise additional
capital as well as grow CUI sales. The financial statements do not include any
adjustments that may result from the outcome of this uncertainty.





If
necessary, we will continue to raise additional capital to provide sufficient
cash to meet the funding required to commercialize our technology product
lines.   As we continue to expand and develop technology and
product lines, additional funding may be required.  There have been
negative cash flows from operations and incurred net losses in the past and
there can be no assurance as to the availability or terms upon which additional
financing and capital might be available if needed.





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES


Use of
Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from those
estimates.  Significant estimates in 2008 and 2007 include estimates
used to review the Company’s long-lived assets for impairment, inventory
valuation, valuations of non-cash capital stock issuances, valuations of
derivatives and the valuation allowance on deferred tax assets.





Principles of
Consolidation


The
consolidated financial statements for 2008 include the accounts of Waytronx,
Inc. and its wholly owned subsidiary CUI, Inc. (for the period May 16, 2008 to
December 31, 2008), the financial statements for 2007 include the accounts of
Waytronx, Inc.,  hereafter referred to as the
“Company”.  Significant intercompany accounts and transactions have
been eliminated in consolidation.


F-9





Fair Value of Financial
Instruments


Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments,” requires disclosures of information about the fair value
of certain financial instruments for which it is practicable to estimate that
value.  For purposes of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation.





Management
believes the carrying amounts of the short-term financial instruments, including
cash and cash equivalents, accounts receivable, restricted cash, prepaid expense
and other assets, accounts payable, accrued liabilities, notes payable, deferred
compensation and other liabilities reflected in the accompanying balance sheet
approximate fair value at December 31, 2008 due to the relatively short-term
nature of these instruments.





Cash and Cash
Equivalents


Cash
includes deposits at financial institutions with maturities of three months or
less.  The Company at times has cash in banks in excess of FDIC
insurance limits and places its temporary cash investments with high credit
quality financial institutions.  At December 31, 2008, the Company had
no cash balances at financial institutions which were in excess of the FDIC
insured limits.  However, at December 31, 2008, the Company held
$100,458 in the CUI Europe foreign bank account.





Accounts Receivable and
Allowance for Uncollectible Accounts


Accounts
receivable consist of the receivables associated with the revenue derived from
product sales.  An allowance for uncollectible accounts is recorded to
allow for any amounts that may not be recoverable, based on an analysis of prior
collection experience, customer credit worthiness and current economic
trends.  Based on management’s review of accounts receivable, an
allowance for doubtful accounts of $135,000 at December 31, 2008 is considered
adequate.  Receivables are determined to be past due based on the
payment terms of original invoices.  The Company grants credit to its
customers, with standard terms of Net 30 days.  The Company routinely
assesses the financial strength of its customers and, therefore, believes that
its accounts receivable credit risk exposure is limited.





Inventory


Inventories
consist of finished products and are stated at the lower of cost or market;
using the first-in, first-out (FIFO) method as a cost flow
convention.  At December 31, 2008 inventory is valued at
$4,077,367.





Concentration of Credit
Risk


Cash is
maintained in bank deposit and financial institution deposit accounts, which, at
times, exceed federally insured limits.  These accounts may also be
held in foreign bank accounts.  We have not experienced any losses in
such accounts through December 31, 2008.




F-10




Furniture, Equipment and
Software





Furniture,
equipment and software are recorded at cost and include major expenditures,
which increase productivity or substantially increase useful lives.





Maintenance,
repairs and minor replacements are charged to expenses when
incurred.  When furniture and equipment is sold or otherwise disposed
of, the asset and related accumulated depreciation are removed from this
account, and any gain or loss is included in the statement of
operations.





The cost
of furniture, equipment and software is depreciated over the estimated useful
lives of the related assets.  Depreciation is computed using the
straight-line method for financial reporting purposes.  The estimated
useful lives and accumulated depreciation for furniture, equipment and software
are as follows:





Estimated
                        Useful
      LifeFurniture and equipment
                      5 to 7 yearsSoftware
                      3 to 5 years





Long-Lived Assets


Long-lived
assets and certain identifiable assets related to those assets are periodically
reviewed for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be
recoverable.  If the non-discounted future cash flows of the
enterprise are less than their carrying amount, their carrying amounts are
reduced to fair value and an impairment loss is recognized.  The
Company recorded an impairment expense of $247,617 related to capitalized
patents during 2008.





Identifiable Intangible
Assets


Intangible
assets are stated at cost net of accumulated amortization and
impairment.  Intangible assets other than goodwill, technology rights
and patents are amortized over an estimated useful life of 15
years.  Technology rights are amortized over a twenty year life and
are reviewed for impairment annually.  Patent costs are amortized over
the life of the patent.  Any patents not approved will be expensed at
that time.





Intangible
assets consist of the following as of December 31, 2008 and
2007:


F-11





2008
                      
                      
                      2007Technology
      rights
                      
                      $
                      4,943,965
                      
                      
                      $
                      4,892,743Accumulated
      amortization
                      
                      
                      (809,763
                      )
                      
                      
                      (571,250
                      )Net
                      
                      $
                      4,134,202
                      
                      
                      $
                      4,321,493Patent
      costs
                      
                      $
                      584,344
                      
                      
                      $
                      668,204Accumulated
      amortization
                      
                      
                      (26,075
                      )Net
                      
                      $
                      558,269
                      
                      
                      $
                      668,204Debt
      offering costs
                      
                      $
                      2,044,646
                      
                      
                      $
                      -Accumulated
      amortization
                      
                      
                      (425,968
                      )
                      
                      
                      -Net
                      
                      $
                      1,618,678
                      
                      
                      $
                      -Goodwill
                      
                      $
                      32,282,686
                      
                      
                      $
                      -Accumulated
      amortization
                      
                      
                      (1,538
                      )
                      
                      
                      -Net
                      
                      $
                      32,281,148
                      
                      
                      $
                      -Other
      intangible assets
                      
                      $
                      72,933
                      
                      
                      $
                      42,933Accumulated
      amortization
                      
                      
                      (45,055
                      )
                      
                      
                      (3,578
                      )Net
                      
                      $
                      27,878
                      
                      
                      $
                      39,355





As of
December 31, 2008, $4,943,965 of costs related to technology rights acquired
since 2003 have been capitalized.  Technology rights are amortized
over a twenty year life.





As of
December 31, 2008, $584,344 of costs related to filing patent applications have
been capitalized.  When patents are approved, the costs are amortized
over the life of the patent.  Any patents not approved will be
expensed at that time.





As of
December 31, 2008, $2,044,646 of debt offering costs related to the warrants
issued for the personal guarantees provided on behalf of the Company to secure
the $6,000,000 bank loan.  The debt offering costs are amortized over
the life of the loan.





As of
December 31, 2008, $32,282,686 of costs related to Goodwill have been
capitalized.  Goodwill is reviewed regularly for impairment by
management.





As of
December 31, 2008, $72,933 of costs related to other intangible assets have been
capitalized and are being amortized over their useful lives.





Investment – Equity
Method


Through
the acquisition of CUI, Inc. the Company obtained 352,589 common shares
representing a 10.47% interest in Test Products International, Inc., hereafter
referred to as TPI.  TPI is a provider of handheld test and
measurement equipment.  The Company also has a demand receivable from
TPI of $187,569 as of December 31, 2008.  The Company enjoys a close
association with this affiliate through common Board of Director membership and
participation, that allows for a significant amount of influence over affiliate
business decisions.  Accordingly, for financial statement purposes,
the Company accounts for its investment in this affiliated entity under the
equity method.





A summary
of the unaudited financial statements of the affiliate for the year ended
December 31, 2008 is as follows:


F-12





Current
      assets
                  
                  $
                  7,363,289Non-current
      assets
                  
                  
                  750,102Total
      Assets
                  
                  $
                  8,113,391Current
      liabilities
                  
                  $
                  5,324,614Non-current
      liabilities
                  
                  
                  1,144,221Stockholders'
      equity
                  
                  
                  1,644,556Total
      Liabilities and Stockholders' Equity
                  
                  $
                  8,113,391Revenues
                  
                  $
                  8,606,050Operating
      Loss
                  
                  
                  (37,125
                  )Net
      Loss
                  
                  
                  (101,008
                  )Company
      share of Net Loss at 10.47% (since acquisition)
                  
                  
                  (1,620
                  )Equity
      investment in affiliate
                  
                  $
                  120,499





Asset
Impairment


The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset exceeds its fair
value and may not be recoverable.  In performing the review for
recoverability, the future cash flows expected to result from the use of the
asset and its eventual disposition are estimated.  If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized as the
excess of the carrying amount over the fair value.  Otherwise, an
impairment loss is not recognized.  Management estimates the fair
value and the estimated future cash flows expected.  Any changes in
these estimates could impact whether there was impairment and the amount of the
impairment.





Patent
Costs


The
Company estimates the patents it has filed have a future beneficial value;
therefore it capitalizes the costs associated with filing for its
patents.  At the time the patent is approved, the patent costs
associated with the patent are amortized over the useful life of the
patent.  If the patent is not approved, at that time the costs will be
expensed.  A change in the estimate of the patent having a future
beneficial value will impact the other assets and expense accounts.





Derivative
Liabilities


The
Company accounts for its embedded conversion features and freestanding warrants
pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”, which requires a periodic valuation of the fair value of derivative
instruments and a corresponding recognition of liabilities associated with such
derivatives. The recognition of derivative liabilities related to the issuance
of shares of common stock is applied first to the proceeds of such issuance, at
the date of issuance, and the excess of derivative liabilities over the proceeds
is recognized as other expense in the accompanying consolidated financial
statements. The recognition of derivative liabilities related to the issuance of
convertible debt is applied first to the proceeds of such issuance as a debt
discount, at the date of issuance, and the excess of derivative liabilities over
the proceeds is recognized as other expense in the accompanying consolidated
financial statements. Any subsequent increase or decrease in the fair value of
the derivative liabilities is recognized as other expense or other income,
respectively. The reclassification of a contract is reassessed at each balance
sheet date. If a contract is reclassified from permanent equity to an asset or a
liability, the change in the fair value of the contract during the period the
contract was classified as equity is accounted for as an adjustment to equity.
If a contract is reclassified from an asset or liability to equity, gains or
losses recorded to account for the contract at fair value during the period that
contract was classified as an asset or a liability are not reversed but instead
are accounted for as an adjustment to equity.


F-13





Stock-Based
Compensation


On
January 1, 2006, Statement of Financial Accounting Standard 123 (revised 2004)
(“SFAS 123(R)”), “Share-Based Payment” was implemented, which replaced SFAS 123
“Accounting for Stock-Based Compensation” and superseded APB Opinion No. 25,
“Accounting for Stock Issued to Employees.”  SFAS 123(R) requires the
fair value of all stock-based employee compensation awarded to employees to be
recorded as an expense over the related vesting period.  The statement
also requires the recognition of compensation expense for the fair value of any
unvested stock option awards outstanding at the date of
adoption.  Employee stock compensation is recorded at fair value using
the Black Scholes Pricing Model.  In adopting SFAS 123(R), the
modified prospective application (“MPA”) was used.  MPA requires all
new stock compensation to employees to be accounted for using fair
value.





See Note
14, for additional disclosure and discussion of the employee stock plan and
activity.





Equity
instruments (“instruments”) issued to other than employees are recorded on the
basis of the fair value of the instruments, as required by SFAS No.
123(R).  EITF Issue 96-18, “Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services,” defines the measurement date and recognition
period for such instruments.  In general, the measurement date is when
either a (a) performance commitment, as defined, is reached or (b) the earlier
of (i) the non-employee performance is complete or (ii) the instruments are
vested.  The measured value related to the instruments is recognized
over a period based on the facts and circumstances of each particular grant as
defined in the EITF.





Revenue
Recognition


The
recognition of revenues requires judgment, including whether a sale includes
multiple elements, and if so, whether vendor-specific objective evidence (VSOE)
of fair value exists for those elements.  Customers receive certain
elements of Waytronx products over a period of time.  These elements
include licensing rights to manufacture and sell our proprietary patent
protected products.  The ability to identify VSOE for those elements
and the fair value of the respective elements could materially impact the amount
of earned and unearned revenue.  Waytronx does not have any history as
to the costs expected to be incurred in granting licensing rights relating to
its products.  Therefore, revenues may be recorded that are not in
proportion to the costs expected to be incurred in performing these
services.





Revenues
from warranty and maintenance activities is recognized ratably over the term of
the warranty and maintenance period and the unrecognized portion is recorded as
deferred revenue.


F-14





Revenues
in connection with electronic devices and component sales by CUI, Inc. are
recognized at the time the product is shipped to the customer, collectability is
reasonably assumed, the price is fixed and determinable and persuasive evidence
of arrangement exists.





Shipping and Handling
Costs


Amounts
billed to customers in sales transactions related to shipping and handling
represent revenues earned for the goods provided and are included in sales, and
were $169,079 and $2,000 for the years ended December 31, 2008 and 2007,
respectively.  The Company expenses inbound shipping and handling
costs as cost of revenues.





Warranty
Reserves


A
warranty reserve liability is recorded based on estimates of future costs on
sales recognized.  There was no warranty reserve recorded at December
31, 2008 or 2007.





Advertising


In
accordance with Accounting Standards Executive Committee Statement of Position
93-7, costs incurred for producing and communicating advertising are charged to
operations as incurred.  Advertising expense for the years ended
December 31, 2008 and 2007 was $421,096 and $0, respectively.





Income
Taxes


Income
taxes are accounted for under the asset and liability method of Statement of
Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS
109”).  Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income in the period that includes the
enactment date.





Valuation
allowances have been established against deferred tax assets due to
uncertainties in the Company’s ability to generate sufficient taxable income in
future periods to make realization of such assets more likely than
not.  An income tax benefit has not been recognized for its operating
losses generated during 2008 and 2007 based on uncertainties concerning the
ability to generate taxable income in future periods.  There was no
income tax receivable at December 31, 2008 and 2007.  In future
periods, tax benefits and related deferred tax assets will be recognized when
management considers realization of such amounts to be more likely than
not.





Net Loss Per
Share


In
accordance with Statement of Financial Accounting Standards No. 128, “Earnings
per Share”, basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average number
of common shares outstanding during the period.  Diluted net loss per
share is computed by dividing net loss available to common stockholders by the
weighted average number of common and common equivalent shares outstanding
during the period.  Common equivalent shares outstanding as of
December 31, 2008 and 2007, which consist of options, warrants, convertible
notes and convertible preferred stock, have been excluded from the diluted net
loss per common share calculations because they are
anti-dilutive.  Accordingly, diluted net loss per share is the same as
basic net loss per share for 2008 and 2007.  The following table
summarizes the potential common stock shares at December 31, 2008 and 2007,
which may dilute future earnings per share.


F-15





2008
                        
                        
                        2007Convertible
      preferred stock
                        
                        
                        252,715
                        
                        
                        
                        402,986Warrants
      and options
                        
                        
                        22,703,373
                        
                        
                        
                        23,544,373Convertible
      debt
                        
                        
                        76,400,000
                        
                        
                        
                        8,250,00099,356,088
                        
                        
                        
                        32,197,359





Foreign Currency
Translation


The
financial statements of the Company's foreign offices have been translated into
U.S. dollars in accordance with SFAS No. 52, Foreign Currency Translation (SFAS
52). All balance sheet accounts have been translated using the exchange rate in
effect at the balance sheet date. Income statement amounts have been translated
using an appropriately weighted average exchange rate for the year. The
translation gains and losses resulting from the changes in exchange rates during
2008 have been reported in accumulated other comprehensive income, except for
gains and losses resulting from the translation of intercompany receivables and
payables, which are included in earnings for the period.





Segment
Reporting


Upon the
acquisition of CUI, Inc. in 2008, the Company has identified four operating
segments based on the products offered.  The four segments are
External Power, Internal Power, Industrial Controls and Other.  The
External Power segment is focused primarily on sales of external power supplies
and related components.  The Internal Power segment is focused
primarily on sales of internal power supplies and related
components.  The Industrial Controls segment is focused primarily on
sales of encoding devices and related components.  The Other category
represents activity of segments that do not meet the threshold for segment
reporting and are combined.  The Company did not have any segment at
December 31, 2007.





The
following information is presented for the year ended December 31, 2008 for
operating segment activity:


F-16





External
                        Power
                      
                      
                      Internal
                        Power
                      
                      
                      Industrial
                        Controls
                      
                      
                      Other
                      
                      
                      TotalsRevenues
      from external customers
                      
                      $
                      11,973,552
                      
                      
                      $
                      4,594,882
                      
                      
                      $
                      2,171,699
                      
                      
                      $
                      815,802
                      
                      
                      $
                      19,555,935Intersegment
      revenues
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Derivative
      income
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      2,831,688
                      
                      
                      $
                      2,831,688Interest
      revenues
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      20,119
                      
                      
                      $
                      20,119Equity
      in losses of unconsolidated affiliate
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (1,620
                      )
                      
                      $
                      (1,620
                      )Interest
      expense - intrinsic value of convertible debt and amortization of debt
      discount
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      2,404,931
                      
                      
                      $
                      2,404,931Interest
      expense
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      1,362,416
                      
                      
                      $
                      1,362,416Depreciation
      and amortization
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      523,706
                      
                      
                      $
                      523,706Segment
      profit (loss)
                      
                      $
                      3,239,790
                      
                      
                      $
                      559,380
                      
                      
                      $
                      181,480
                      
                      
                      $
                      (5,811,017
                      )
                      
                      $
                      (1,830,367
                      )Other
      significant non-cash items:Stock,
      warrants and notes issued for compensation and services
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      678,228
                      
                      
                      $
                      678,228Segment
      assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      46,521,074
                      
                      
                      $
                      46,521,074Acquisition
      of CUI, Inc.
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      37,500,000
                      
                      
                      $
                      37,500,000Expenditures
      for segment assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      217,594
                      
                      
                      $
                      217,594





The
operating segments do not hold assets individually as segment assets as all
Company assets are utilized for each segment.





Recent Accounting
Pronouncements


In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No.
51”.  This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, entities provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.  SFAS No. 160
affects those entities that have an outstanding noncontrolling interest in one
or more subsidiaries or that deconsolidate a subsidiary.  SFAS No. 160
is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Early adoption is prohibited. The
adoption of this statement is not expected to have a material effect on the
Company's financial statements.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
bifurcated derivatives, and nonderivative instruments that are designated and
qualify as hedging instruments. Entities with instruments subject to SFAS 161
must provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS 161 is effective prospectively for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
with early application permitted. We are currently evaluating the disclosure
implications of this statement.


F-17





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The adoption of FASB 163 is not
expected to have a material impact on the Company’s financial
position.





3.    ACQUISITION
AND DISPOSAL





Effective
May 16, 2008, Waytronx acquired CUI, Inc.  The funding for this
acquisition was provided by a $6,000,000 bank note, a $14,000,000 seller’s note,
and a $17,500,000 convertible seller’s note.  The following details
the acquisition:


F-18





Purchase
      price
                      
                      $
                      37,500,000Cash
                      
                      
                      183,531Accounts
      receivable, trade
                      
                      
                      2,206,176Accounts
      receivable, other
                      
                      
                      1,159,851Inventory
                      
                      
                      2,654,325Other
      current assets
                      
                      
                      115,666Property
      & equipment, net
                      
                      
                      1,340,313Deposits
      and other assets
                      
                      
                      50,297Technology
      rights
                      
                      
                      51,222Equity
      investment in affiliate
                      
                      
                      122,119Goodwill
                      
                      
                      23,544,300Goodwill
      trademark and tradename CUI
                      
                      
                      4,892,856Goodwill
      trademark and tradename V-Infinity
                      
                      
                      1,373,828Goodwill
      patent pending technology
                      
                      
                      761,962Goodwill
      customer list/base
                      
                      
                      2,103,237Liabilities
      assumed
                      
                      
                      (3,059,683
                      )$
                      37,500,000





The table
below summarizes the unaudited pro forma information of the results of
operations as though the acquisition had been completed as of January 1, 2008
and January 1, 2007, respectively:





2008
                          
                          
                          2007Gross
      revenue
                          
                          $
                          29,269,987
                          
                          
                          $
                          25,172,406Total
      expenses
                          
                          
                          30,554,684
                          
                          
                          
                          29,203,258Net
      profit (loss) before taxes
                          
                          $
                          (1,284,697
                          )
                          
                          $
                          (4,030,852
                          )Earnings
      (loss) per share
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.03
                          )





During
2008, the Company sold its cable parts line at its book value of
$393,497.  The Company did not record a gain or loss on the disposal
of this line.





4.
            PROPERTY
      AND EQUIPMENT, NET


Property and equipment is summarized as
follows at December 31, 2008 and 2007:





2008
                      
                      
                      2007Equipment
                      
                      $
                      1,451,099
                      
                      
                      $
                      57,146Computers
      and software
                      
                      
                      873,861
                      
                      
                      
                      29,0742,324,960
                      
                      
                      
                      86,220Less
      accumulated depreciation
                      
                      
                      (1,079,757
                      )
                      
                      
                      (65,579
                      )$
                      1,245,203
                      
                      
                      $
                      20,641





Depreciation
      expense for the years ended December 31, 2008 and 2007 was $240,507 and
      $49,922, respectively.





5.
            TECHNOLOGY
      RIGHTS AND LICENSE AND ROYALTY
AGREEMENTS


Under
      a license agreement, an exclusive license was obtained in a patent for the
      manufacture, sale, and marketing of direct view video displays with an
      angular dimension of greater than 30 inches.  Prior to 2006, a
      technology right intangible asset was recorded for the $522,500 paid for
      these rights.




F-19




Effective
      March 24, 2006, all right, title and interest in and to the WayCool
      technology, patent application and Letters Patent was purchased from CH
      Capital, Inc. (CH Capital).  CH Capital is a related party
      controlled by a director and officer of Waytronx.  To acquire
      this technology, CH Capital was paid $800,000 and issued a three year
      warrant to acquire up to 7,040,485 shares of common stock at $0.20 per
      share, valued at $3,520,243 using the Black Scholes option pricing
      model.  The technology rights are amortized over the twenty-year
      estimated life of the technology, and at December 31, 2008 and 2007 were
      as follows:





2008
                        
                        
                        2007Technology
      rights
                        
                        $
                        4,943,965
                        
                        
                        $
                        4,892,743Accumulated
      amortization
                        
                        
                        (809,763
                        )
                        
                        
                        (571,250
                        )Net
                        
                        $
                        4,134,202
                        
                        
                        $
                        4,321,493





Amortization
of technology rights during 2008 and 2007 was $238,513 and $238,408,
respectively.  The estimated annual amortization expense is $238,513
for each of the next four years.  Management has evaluated the
technology rights for impairment and believes there is no impairment of these
technology rights at December 31, 2008.





6.
            NOTES
      PAYABLE, CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE, RELATED
      PARTIES





Original
                    Principal
                  
                  
                  Notes
                    Converted
                  
                  
                  Notes
      Repaid
                  
                  
                  Balance
                    12/31/2008Balance
      at 12/31/2007
                  
                  $
                  1,650,000
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,650,000New
      notes in 2008
                  
                  
                  18,200,000
                  
                  
                  
                  (550,000
                  )
                  
                  
                  (450,000
                  )
                  
                  
                  17,200,000Total
                  
                  $
                  19,850,000
                  
                  
                  $
                  (550,000
                  )
                  
                  $
                  (450,000
                  )
                  
                  $
                  18,850,000





Beneficial
                    Conversion
                    Feature
                  
                  
                  Amortization
                  
                  
                  Reclassification
                    to
      Equity
                  
                  
                  BCF
                    Discount
                    12/31/2008Balance
      at 12/31/2007
                  
                  $
                  275,587
                  
                  
                  $
                  (231,193
                  )
                  
                  $
                  -
                  
                  
                  $
                  44,394New
      notes in 2008
                  
                  
                  63,142
                  
                  
                  
                  (107,536
                  )
                  
                  
                  
                  
                  
                  
                  (44,394
                  )Total
                  
                  $
                  338,729
                  
                  
                  $
                  (338,729
                  )
                  
                  $
                  -
                  
                  
                  $
                  -





Warrant
                    Value
                  
                  
                  Amortization
                  
                  
                  Reclassification
                    to
      Equity
                  
                  
                  Warrant
                    Value
                    Discount
                    12/31/2008Balance
      at 12/31/2007
                  
                  $
                  117,941
                  
                  
                  $
                  (107,170
                  )
                  
                  $
                  -
                  
                  
                  $
                  10,771New
      notes in 2008
                  
                  
                  7,340,047
                  
                  
                  
                  (1,639,423
                  )
                  
                  
                  
                  
                  
                  
                  5,700,624Total
                  
                  $
                  7,457,988
                  
                  
                  $
                  (1,746,593
                  )
                  
                  $
                  -
                  
                  
                  $
                  5,711,395Unamortized
      discount at 12/31/2008
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (5,711,395
                  )Convertible
      notes payable, net at 12/31/2008
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  13,138,605





The
holders of the convertible notes have a security interest to the extent of their
principal and interest in all assets currently owned by Waytronx, including the
patent portfolio.




F-20




During
the last three quarters of 2006 through 2008, the Company privately placed
approximately $3,450,000 of 12% promissory notes.  $1,650,000
($650,000 of this amount has been repaid) of these notes are convertible to
common stock at a per share price equal to eighty percent (80%) of the average
closing bid price of one share of Company common stock for 10 days preceding the
Conversion Date.  There is, however, a $0.20 per share minimum limit
on the conversion price, which means that there is a limit on the number of
shares that the company may be obligated to issue.  Additionally, each
investor was issued a warrant to purchase at any time within three (3) years
following the date of investment, at a per share price of one cent ($0.01), that
number of shares of Waytronx, Inc. common stock as is equal in value to one
tenth the principal investment.  Such value to be determined by the
average per share closing bid price of Waytronx, Inc. common stock for the 10
days preceding the date of investment.  Of the remaining $1,800,000
notes, $700,000 ($350,000 of this amount has been repaid) of these notes are
convertible to common stock at a per share price of $0.25 and $1,100,000
($100,000 of this amount has been repaid) are not convertible.  As of
December 31, 2008, 13,368,992 common shares were issued pursuant to the
conversion of these promissory notes and exercise of the warrants; 6,400,000
common shares are held in reserve as issuable upon the conversion of the balance
of the promissory notes and the shares of common stock underlying the common
stock purchase warrants and common share underlying the warrants.





Additionally,
the Company also utilized three separate notes to fund the acquisition of CUI,
Inc.  A $6,000,000 cash loan from Commerce Bank of Oregon, with a term
of 3 years, paying interest only at the prime rate less 0.50% (4.50% at December
31, 2008), and is secured by personal Letters of Credit from related
parties.





A
$14,000,000 promissory note to International Electronic Devices, Inc. (formerly
CUI, Inc.), payable monthly over three years at $30,000 per month including 1.7%
annual simple interest with a balloon payment at the thirty sixth monthly
payment (May 15, 2011), with no prepayment penalty, an annual success fee of
2.3%, and the right of first refusal to the note payee, International Electronic
Devices, Inc., relating to any private capital raising transactions of Waytronx
during the term of the note.  There is a discount on debt related to
this note of $638,255.  The current portion of this note is
$197,865.  The net long term balance of this note is
$13,022,465.





A
$17,500,000 convertible promissory note with 1.7% annual simple interest and a
2.3% annual success fee, permitting payee to convert any unpaid principal,
interest and success fee to Waytronx common stock at a per share price of $0.25
and at the end of the three year term (May 15, 2011) giving to Waytronx the
singular, discretionary right to convert any unpaid principal, interest and
success fee to Waytronx common stock at a per share price of
$0.25.  This note also provides a right of first refusal to the note
payee, International Electronic Devices, Inc., relating to any private capital
raising transactions of Waytronx during the term of the note.  There
is a discount on debt relating to this note of $5,711,395.  The net
long term balance of this note is $11,788,605.





Through
the acquisition of CUI, Inc., the Company has a capital lease note payable of
$144,940 as of December 31, 2008.  The current portion of the capital
lease is $49,200 as of December 31, 2008.  The capital lease note is
related to office equipment and furniture and is secured by the same office
equipment and furniture.  The capital lease expires September 1,
2011.




F-21




2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  Later
      YearsNotes
      Payable Maturities:
                  
                  $
                  2,597,065
                  
                  
                  $
                  181,896
                  
                  
                  $
                  37,074,564
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -




7.
            WORKING
      CAPITAL LINE OF CREDIT


At
      December 31, 2008, CUI, Inc. had a $3,000,000 working capital line of
      credit with Key Bank, interest payable monthly at the bank’s prime rate
      less 0.25 percentage points, maturing July 1, 2009.  At December
      31, 2008, the balance outstanding on the line of credit was
      $1,373,993.





8.
            COMMITMENTS
      AND CONTINGENCIES


Legal
Matters


The
Company may be involved in certain legal actions arising from the ordinary
course of business.  While it is not feasible to predict or determine
the outcome of these matters, we do not anticipate that any of these matters, or
these matters in the aggregate, will have a material adverse effect on the
financial position or results of operations.





Royalty and License Fee
Agreements


There are
no commitments owed under royalty and license fee agreements.





Employment
Agreements


As of the
year ended December 31, 2008, no employment agreements were in
place.  The Company expects that it will have employment agreements
completed in 2009 for several key executives.





Leases


Effective
September 1, 2008 the Company mutually agreed with Safety Harbor Centre to
terminate the December 1, 2004 Safety Harbor, Florida five year lease in
consideration of a $40,000 termination payment.





In
October 2005, a lease was signed with Market Place I & II, LLC for office
space in Portland, Oregon beginning November 1, 2005 and ending December
31, 2010.  This lease was terminated by mutual agreement February of
2008 in consideration of a termination payment of $22,000.





As an
integrated part of the CUI asset acquisition, the Waytronx, Inc. corporate
offices were relocated to the CUI location at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  CUI and Waytronx occupy the 61,380 square
feet of offices and warehouse premises under a ten year non-cancelable lease
agreement beginning September 1, 2006 with Barakel, LLC (a related party) at a
base monthly rent subject to periodic base payment increases plus real property
taxes, utilities, insurance and common area maintenance
charges.  During the fiscal year ending December 31, 2008, the monthly
base rent was $39,900.





The
Company also leases office space in Malmo, Sweden pursuant to a renewable lease
that expires May 31, 2010.  In addition to the base rent of $1,845
(subject to periodic base lease payment increases), the Company is responsible
for property taxes, maintenance and related VAT taxes.




F-22




Rental
expense was $433,705 and $220,290 in 2008 and 2007, respectively, and is
included in selling, general and administrative on the statement of
operations.





2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  Later
      YearsOperating
      Leases:
                  
                  $
                  501,340
                  
                  
                  $
                  489,225
                  
                  
                  $
                  481,000
                  
                  
                  $
                  483,000
                  
                  
                  $
                  484,000
                  
                  
                  $
                  1,299,000




Consulting
Agreements


On
January 1, 2007, an agreement was entered into with a consultant to provide
research and development services.  For these services, the consultant
was paid a monthly fee of $5,000 over a one-year period.





In August
of 2007 an agreement was entered into with a consultant to provide strategic
marketing services.  For these services, through March of 2008, the
consultant was paid a fee of $120,000 in quarterly installments.  In
addition, the consultant could earn up to 1,500,000 shares of common stock for
goals achieved per the agreement.





In May of
2008, 250,000 shares were issued to a consultant for services provided to the
company.  The Company entered into an agreement with the consultant to
provide strategic marketing services.  For these services, the
consultant was awarded 250,000 shares of the Company’s common
stock.





In
October 2008, 39,000 shares were issued to a consultant for services provided to
the company.  The Company entered into an agreement with a consultant
to provide strategic marketing services.  For these services, the
Company paid a fee of $3,900.  In addition, the consultant was awarded
39,000 restricted shares of the Company’s common stock and a stock purchase
warrant entitling the consultant the right to purchase, at any time within three
years, 390,000 restricted shares of the Company’s common
stock.  $6,630 was recorded in relation to this transaction based on
the fair value of the stock on the date of grant.





9.
            STOCKHOLDERS’
      EQUITY


Convertible Preferred Series
A


5,000,000
      shares of preferred stock were designated as new Series A Convertible
      Preferred Stock (“Series A”).  The Series A is convertible to
      common shares on a four-for-one basis, is due dividends at $0.10 per share
      as authorized by the Board, has a liquidation value of $1.00 per share and
      has equivalent voting rights as common shares on a share for share
      basis.  Once the Series A shares have been issued, they cannot
      be reissued.





During
      2007, the Company converted 15,000 shares of the Company’s Series A
      convertible preferred stock into 75,000 shares of the Company’s common
      stock at the request of certain Series A convertible preferred stock
      holders.





During
      2008, there were no shares of Series A convertible preferred stock
      issued.  Also during 2008, 100,000 shares of common stock were
      issued relating to the conversion of 25,000 shares of Series A convertible
      preferred stock.  All other unregistered issuances of Series A
      Convertible Preferred Stock are described in the 10-KSB filing for the
      year-ended 2007.




F-23




Convertible Preferred Stock
Series B


On
      February 3, 2004, the board of directors designated 30,000 shares of
      preferred stock as Series B Convertible Preferred Stock (“Series
      B”).  The Series B is convertible to common shares on a one
      thousand-for-one ratio, is due dividends at $1 per share payable quarterly
      as authorized by the Board, and the dividends are
      cumulative.  Series B has a liquidation value of $240 per share
      and has voting rights of one thousand votes per Series B
      share.  Once the Series B shares have been issued, they cannot
      be reissued.





During
      2008 and 2007, there were no shares of Series B convertible preferred
      stock issued and no shares were outstanding.  All other
      unregistered issuances of Series B Convertible Preferred Stock are
      described in the 10-KSB filing for the year-ended
  2007.





Convertible Preferred Stock
Series C


The
      Company authorized for issuance 10,000 shares of preferred stock,
      designated as Series C Preferred Stock (“Series C”), as the result of a
      negotiated investment plan with a specific investment
      group.  Ownership of the stock is limited to this investment
      group.  The owners and holders of the Series C Preferred Stock
      have the rights to appoint three board seats, and have the right to
      exchange any Common Shares they own into shares of Series C at any time,
      up to the number of Series C shares authorized, at a one-for-one
      ratio.





Common Stock Dividend
Restrictions


There
      is a restriction on the common stock dividends as any cumulative preferred
      stock dividends are required to be paid prior to any common stock
      dividends being paid.  Also, retained earnings would be
      restricted upon an involuntary liquidation by the cumulative unpaid
      preferred dividends to the preferred stockholders and for the $1 per share
      Series A and $240 per share Series B liquidation
    preferences.





Common Stock
Issuances


During
2007, 82,938 shares of common stock were issued to an employee in accordance
with his employment agreement.  These shares were valued at $25,000
using a thirty-day average price at December 31, 2006, in accordance with the
agreement.





During
2007, 500 shares of Series B convertible preferred stock and 125,000 shares of
Series A convertible preferred stock were to be issued to an employee in
accordance with his employment agreement.  The 125,000 shares of
Series A were valued at $1.00 per share based on contemporaneous cash
sales.  The 500 shares of Series B were valued at $270 per share based
on contemporaneous cash sales.  The total value of these shares of
$260,000 was expensed over the term of the employee’s employment
agreement.  In lieu of the Series A and Series B stock, 1,250,000
shares of the Company’s common stock were issued.





During
2007, 841,204 shares of common stock, and warrants for 72,296 shares of common
stock were issued, in relation to the conversion of promissory
notes.





During
2007, 2,139,180 shares of common stock were issued in relation to the exercise
of warrants.





During
2007, 4,246,154 shares of common stock were sold as part of stock purchase
agreements and proceeds of $1,104,000 were received.




F-24




During
2007, 192,308 shares of common stock were issued as part of a funding finder’s
fee agreement.





During
2007, 600,000 shares of common stock were issued for services performed by
consultants.  $230,000 of consulting expense was recorded in relation
to these transactions based on the fair market value of the common stock on the
date the agreement was signed.





During
2007, accrued dividends of approximately $22,300 were converted into 111,494
shares of common stock at a per share price of $0.20, for shareholders electing
to convert accrued dividends to common shares.





During
2007, $60,000 of compensation expense was also recorded for stock to be issued
based upon employment agreements for which the requisite service had been
performed.  115,110 of these shares were issued during
2007.





During
2007, 175,000 shares of common stock were issued to a shareholder for the
conversion of 40,000 shares of Series A convertible preferred stock, at a ratio
of four common plus one common bonus share for each share of Series A
convertible preferred stock.





During
      2008,95,238
      shares of common stock were issued to an employee in accordance with his
      employment agreement.  These shares were valued at $25,000 using
      a thirty-day average price at December 31, 2007, in accordance with the
      agreement.





During
2008, 207,237 shares of common stock were issued to an employee in accordance
with his employment agreement.  These shares were valued at $39,375 as
of the date of issuance, in accordance with the agreement.





During
2008, 362,173 shares of common stock were issued to an employee/officer in
accordance with his employment agreement.  These shares were valued at
$65,500 as of the date of issuance, in accordance with the
agreement.





During
2008, 2,390,000 shares of common stock were issued in relation to the exercise
of warrants with proceeds of $98,000.





During
2008, 116,000 shares of common stock were issued in relation to the exercise of
options with proceeds of $1,160.





During
2008, 1,250,000 shares of common stock were issued for services performed by
consultants.  $302,500 of consulting expense was recorded in relation
to these transactions based on the fair market value of the stock on the date of
grant.





During
2008, 1,300,000 shares of stock were sold pursuant to a stock purchase agreement
with proceeds of $300,000. A former officer of Waytronx agreed to transfer
1,000,000 registered shares to one of the purchasing parties and accept
1,000,000 restricted shares as reimbursement.  Because of the
difference in value between the registered versus restricted sales, Waytronx
agreed to issue an additional 100,000 shares to the former officer.




F-25




During
2008, 140,000 shares of common stock were issued resulting from the exercise of
warrants with proceeds of $1,400.





During
2008, two holders of  convertible notes exercised the right to convert
their notes to common stock.  $500,000  of debt was
converted to common stock at a per share price of $0.20 for 2,500,000 shares of
common stock.  $50,000 of debt and $2,033 of interest was converted to
common stock at a per share price of $0.25 for 208,132 shares of common
stock.





During
2008, 39,000 shares were issued to a consultant for services provided to the
company.  The Company entered into an agreement with a consultant to
provide strategic marketing services.  For these services, the Company
paid a fee of $3,900.  In addition, the consultant was awarded 39,000
restricted shares of the Company’s common stock and a stock purchase warrant
entitling the consultant the right to purchase, at any time within three years,
390,000 restricted shares of the Company’s common stock.  $6,630 was
recorded in relation to this transaction based on the fair value of the stock on
the date of grant and $62,557 was recorded for the issuance of the warrants
using the Black Scholes Options Pricing Model with the following
assumptions:  expected life of 2 years, volatility of 85%, zero
expected dividends and a discount rate of 1.43%.





During
2008, The Company entered into unsecured convertible promissory notes totaling
$700,000, with 700,000 related bonus shares of common stock.  Interest
accrues at 12% per annum, payable monthly, until a financing event takes place,
at which time the principal is due.  The note holders have the right to
convert the note to the Company’s common stock at $0.25 per
share.  During 2008, $52,033 of a promissory note principal and
related interest was converted to 208,132 shares of common stock.





Non-Employee Stock
Warrants


During
2004, warrants were granted to certain service providers to purchase 1,395,736
shares of common stock at exercise prices ranging from $0.25 to $0.50 and are
recognized as consulting expense over the period of each consultant’s
agreement.  These warrants were valued at an aggregate of $707,352
using the Black Scholes Options Pricing Model with the following
assumptions:  expected life of 90 days - 3 years, volatility of 79% -
309%, zero expected dividends and a discount rate of 0.85% - 2.03%.





During
2006, two directors were granted a total of 200,000 options.  The
exercise prices are $0.20 for 100,000 of the options and $0.61 for the other
100,000 options.  An intrinsic value of $62,000 was recorded related
to these stock options.  They were valued using the Black Scholes
Options Pricing Model with the following assumptions:  expected life
of 3 years, volatility of 131% - 137%, zero expected dividends and a discount
rate of 4.69% - 4.70%.





During
2006, warrants to purchase 11,222,629 shares of common stock were granted in
connection with the conversion of convertible debt.  These warrants
have an exercise price of $0.01.  These warrants were valued and
expensed at $2,117,256 using the Black Scholes Options Pricing Model with the
following assumptions:  expected life of 3 years, volatility of 99.7%
- 151.0%, zero expected dividends and a discount rate of 4.70% -
5.00%.




F-26




During
2006, warrants were granted to purchase 6,800.000 shares of common stock as part
of a settlement agreement with Fusion Three, LLC with exercise prices of $0.20
for 5,600,000 shares, $0.35 for 300,000 shares, $0.50 for 300,000 shares, $0.75
for 300,000 shares, and $1.00 for 300,000 shares.  These warrants were
valued at $2,780,000 using the Black Scholes Options Pricing Model with the
following assumptions:  expected life of 1.58 – 3 years, volatility of
130.0% - 151.4%, zero expected dividends and a discount rate of 4.86% -
4.88%.  A settlement loss of $2,780,000 was recognized.





During
2006, warrants were granted for 628,001 shares of common stock to various
consultants in exchange for services provided with exercise prices ranging from
$0.01 to $0.33, and were valued and expensed at $286,640 using the Black Scholes
Options Pricing Model with the following assumptions:  expected life
of 1 - 3 years, volatility of 124.2% - 159.5%, zero expected dividends and a
discount rate of 4.58% - 5.05%.  Warrant expense was recognized at
date of grant.





During
2006, warrants were granted for 1,600,000 shares of common stock for payment of
financing fees with an exercise price of $0.20.  These warrants were
valued and expensed at $768,000 using the Black Scholes Options Pricing Model
with the following assumptions:  expected life of 5 years, volatility
of 152.2%, zero expected dividends, and a discount rate of
4.95%.  Warrant expense was recognized at date of grant.





During
2006, warrants were granted to purchase 7,040,485 shares of common stock as part
of the purchase of the WayCool patent rights with an exercise price of
$0.20.  These warrants were valued at $3,520,243 using the Black
Scholes Options Pricing Model with the following
assumptions:  expected life of 3 years, volatility of 131.4%, zero
expected dividends and a discount rate of 4.69%.  The value of
warrants is included in Technology Rights.





During
2007, warrants were granted to purchase 50,000 shares of common stock as part of
an agreement with a contractor with an exercise price of $0.25.  These
warrants were valued at $7,000 using the Black Scholes Options Pricing Model
with the following assumptions:  expected life of 3 years, volatility
of 118.7%, zero expected dividends and a discount rate of 4.56%.  The
value of the warrants is included in general and administrative
expenses.





During
2007, warrants to purchase 47,296 shares of common stock warrants were granted
in connection with the conversion of convertible debt.  These warrants
have an exercise price of $0.01.  As of December 31, 2007, all 47,296
shares of common stock had been issued for the exercise of these warrants and
included in the statement of stockholders’ equity in “Common stock issued for
options and warrants exercised in exchange for cash and accrued
compensation”.  These warrants were valued and expensed at $13,140
using the Black Scholes Options Pricing Model with the following
assumptions:  expected life of 3 years, volatility of 101.1% - 104.5%,
zero expected dividends and a discount rate of 4.76% - 4.90%.




F-27




During
2008, the Company issued 6,000,000 warrants with an exercise price of $0.01,
vesting 50% at issuance, 25% and first anniversary and 25% at second anniversary
in exchange for personal guarantees of the $6,000,000 bank loan used to acquire
CUI, Inc.  These warrants were valued at $2,044,646 and capitalized as
Debt offering costs amortized over the life of the bank loan as of May 15, 2008
using the Black Scholes Options Pricing Model with the following
assumptions:  expected life of 3 years, volatility of 57%, zero
expected dividends and a discount rate of 2.70%.





During
2008, the Company extended 2,000,000 existing warrants to CH Capital an
additional two years in exchange for the rights to certain
patents.  The company valued the transaction at $91,190 using the
Black Scholes Pricing Model with the following assumptions on the date of
extension; $0.20 exercise price, volatility of 75%, risk free interest rate of
2.01% and a term of 2.833 years.





During
2008, the Company entered into an agreement with a consultant to provide
strategic marketing services.  For these services, the Company paid a
fee of $3,900.  In addition, the consultant was awarded 39,000
restricted shares of the Company’s common stock and a stock purchase warrant
entitling the consultant the right to purchase, at any time within three years,
390,000 restricted shares of the Company’s common stock.  $6,630 was
recorded in relation to the 39,000 restricted shares of common stock based on
the fair value of the stock on the date of grant and $62,557 was recorded for
the issuance of the warrants using the Black Scholes Options Pricing Model with
the following assumptions:  expected life of 2 years, volatility of
85%, zero expected dividends and a discount rate of 1.43%.





A summary
of the warrants issued to non-employees for services as of December 31, 2008 and
2007 and changes during the years is presented below:





2008
                    
                    
                    2007Number
      of
                      Warrants
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Number
      of
                      Warrants
                    
                    
                    Weighted
                      Average
                      Exercise
                      PriceBalance
      at beginning of period
                    
                    
                    17,058,373
                    
                    
                    $
                    0.16
                    
                    
                    
                    20,150,257
                    
                    
                    $
                    0.19Granted
                    
                    
                    6,390,000
                    
                    
                    $
                    0.01
                    
                    
                    
                    97,296
                    
                    
                    $
                    0.13Exercised
                    
                    
                    (2,550,000
                    )
                    
                    $
                    0.04
                    
                    
                    
                    (1,889,180
                    )
                    
                    $
                    0.11Forfeited
                    
                    
                    (75,000
                    )
                    
                    $
                    0.25
                    
                    
                    
                    (1,300,000
                    )
                    
                    $
                    0.60Balance
      at end of period
                    
                    
                    20,823,373
                    
                    
                    $
                    0.13
                    
                    
                    
                    17,058,373
                    
                    
                    $
                    0.16Warrants
      exercisable at end of period
                    
                    
                    20,823,373
                    
                    
                    $
                    0.13
                    
                    
                    
                    17,058,373
                    
                    
                    $
                    0.16Weighted
      average fair value of warrants granted during the period
                    
                    
                    
                    
                    
                    $
                    0.33
                    
                    
                    
                    
                    
                    
                    $
                    0.27





During
2008, warrants to purchase 75,000 shares of common stock expired during the year
and are recorded as forfeited in the table above.  During 2007,
warrants to purchase 1,300,000 shares of common stock expired during the year
and are recorded as forfeited in the table above.





The
following table summarizes information about non-employee stock warrants
outstanding and exercisable that were issued for services at December 31,
2008:




F-28




Warrants
      Outstanding
                                        
                                        
                                        Warrants
      ExercisableRange
      of
                                          ExercisePrice
                                        
                                        Number
                                          Outstandingat
                                          December31,
                                          2008
                                        
                                        Weighted
                                          Average
                                          Remaining
                                          Contractual
                                          Life
                                        
                                        Weighted
                                          Average
                                          ExercisePrice
                                        
                                        
                                        Number
                                          Exercisableat
                                          December31,
                                          2008
                                        
                                        
                                        Weighted
                                          Average
                                          Exercise
                                          Price$
                                        0.01
                                        
                                        
                                        7,644,887
                                        
                                        0.77
      Years
                                        
                                        $
                                        0.01
                                        
                                        
                                        
                                        4,644,887
                                        
                                        
                                        $
                                        0.010.2
                                        
                                        
                                        12,950,485
                                        
                                        0.28
      Years
                                        
                                        
                                        0.20
                                        
                                        
                                        
                                        12,950,485
                                        
                                        
                                        
                                        0.200.25
                                        
                                        
                                        98,001
                                        
                                        0Years
                                        
                                        
                                        0.25
                                        
                                        
                                        
                                        98,001
                                        
                                        
                                        
                                        0.250.33
                                        
                                        
                                        30,000
                                        
                                        0Years
                                        
                                        $
                                        0.33
                                        
                                        
                                        
                                        30,000
                                        
                                        
                                        $
                                        0.330.61
                                        
                                        
                                        100,000
                                        
                                        0Years
                                        
                                        
                                        0.61
                                        
                                        
                                        
                                        100,000
                                        
                                        
                                        
                                        0.6120,823,373
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        17,823,373





3,000,000
warrants outstanding with an exercise price of $0.01 had not vested as of
December 31, 2008 and were therefore not included as exercisable.





Employee Stock Options and
Warrants


On
January 1, 2006, the Statement of Financial Accounting Standard 123 (revised
2004) (“SFAS 123(R)”), “Share-Based Payment” was implemented, which replaced
SFAS 123 “Accounting for Stock-Based Compensation” and superseded APB Opinion
No. 25, “Accounting for Stock Issued to Employees.”  SFAS 123(R)
requires the fair value of all stock-based employee compensation awarded to
employees be recorded as an expense over the related vesting
period.  The statement also requires the recognition of compensation
expense for the fair value of any unvested stock option awards outstanding at
the date of adoption.  During 2006, all employee stock compensation is
recorded at fair value using the Black Scholes Pricing Model.  In
adopting SFAS 123(R), the modified prospective application (“MPA”) was
used.  MPA requires all new stock compensation to employees to be
accounted for using fair value.  For any portion of awards made prior
to January 1, 2006 for which the requisite service has not been rendered and the
options remain outstanding as of January 1, 2006, compensation cost for that
portion of the award the requisite service was rendered on or after January 1,
2006 was recognized.  The fair value for these awards was determined
based on the grant-date.  As of January 1, 2006, accrued compensation
payable in common stock of $469,112 previously classified as a liability was
reclassified as equity due to the implementation of SFAS 123(R).





On June
26, 2000, the Company’s Board of Directors adopted the OnScreen Technologies,
Inc. 2000 Stock Option Plan (the “Plan”).  The Plan provides for the
issuance of incentive stock options (ISO’s) to any individual who has been
employed by the Company for a continuous period of at least six
months.  The Plan also provides for the issuance of Non Statutory
Options (NSO’s) to any employee who has been employed by the Company for a
continuous period for at least six months, any director, or consultant to the
Company.  The Company may also issue reload options as defined in the
Plan.  The total number of common shares of common stock authorized
and reserved for issuance under the Plan is 600,000 shares.  The Board
shall determine the exercise price per share in the case of an ISO at the time
an option is granted and such price shall be not less than the fair market value
or 110% of fair market value in the case of a ten percent or greater
stockholder.  In the case of an NSO, the exercise price shall not be
less than the fair market value of one share of stock on the date the option is
granted.  Unless otherwise determined by the Board, ISO’s and NSO’s
granted under the Plan have a maximum duration of 10 years.




F-29




On August
25, 2005 the Company’s Board of Directors adopted the OnScreen Technologies,
Inc. 2005 Equity Incentive Plan (the “Equity Incentive Plan”) and authorized
2,000,000 shares of Common Stock to fund the Plan.  At the 2005 Annual
Meeting of Shareholders held on December 13, 2005, the Equity Incentive Plan was
approved by the Company shareholders.





On May
15, 2008 the Company’s Board of Directors adopted the Waytronx, Inc. 2008 Equity
Incentive Plan (the “Equity Incentive Plan”) and authorized 1,500,000 shares of
Common Stock to fund the Plan.  At the 2008 Annual Meeting of
Shareholders held on September 15, 2005, the Equity Incentive Plan was approved
by the Company shareholders.





Both the
2005 and the 2008 Equity Incentive Plans are intended to: (a) provide incentive
to employees of the Company and its affiliates to stimulate their efforts toward
the continued success of the Company and to operate and manage the business in a
manner that will provide for the long-term growth and profitability of the
Company; (b) encourage stock ownership by employees, directors and independent
contractors by providing them with a means to acquire a proprietary interest in
the Company by acquiring shares of Stock or to receive compensation which is
based upon appreciation in the value of Stock; and (c) provide a means of
obtaining and rewarding employees, directors, independent contractors and
advisors.





Both
Equity Incentive Plans provide for the issuance of incentive stock options
(ISOs) and Non Statutory Options (NSOs) to employees, directors and independent
contractors of the Company.  The Board shall determine the exercise
price per share in the case of an ISO at the time an option is granted and such
price shall be not less than the fair market value or 110% of fair market value
in the case of a ten percent or greater stockholder.  In the case of
an NSO, the exercise price shall not be less than the fair market value of one
share of stock on the date the option is granted.  Unless otherwise
determined by the Board, ISOs and NSOs granted under the both plans have a
maximum duration of 10 years.





At
December 31, 2008 there are no shares of common stock available under the 2005
Equity Incentive Stock Plan.  At December 31, 2008, there are 380,704
shares of common stock available under the 2008 Equity Incentive Stock
Plan.





During
      the years ended 2008 and 2007, the Company recorded compensation expense
      of $79,545 and $5,456, respectively, for stock options that the requisite
      service was performed during the year.  The compensation expense
      is recorded over the vesting period based upon fair market value of the
      options using the Black-Scholes option model in accordance with SFAS
      123(R) as discussed in section Employee Stock Options
      and Warrants.





A summary
of the warrants and options issued to employees as of December 31, 2008 and 2007
and changes during the year are presented below:




F-30




2008
                                
                                
                                2007Number
      of
                                  Warrants
                                  and
      Options
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  Price
                                
                                
                                Number
      of
                                  Warrants
                                  and
      Options
                                
                                
                                Weighted
                                  Average
                                  Exercise
                                  PriceBalance
      at beginning of period
                                
                                
                                4,531,000
                                
                                
                                
                                
                                
                                
                                5,463,500
                                
                                
                                $
                                0.14Exercised
                                
                                
                                (116,000
                                )
                                
                                $
                                0.01
                                
                                
                                
                                (250,000
                                )
                                
                                $
                                0.01Expired
                                
                                
                                (165,000
                                )
                                
                                $
                                0.73
                                
                                
                                
                                (225,000
                                )
                                
                                $
                                0.34Forfeited
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                
                                (457,500
                                )
                                
                                $
                                0.13Granted
                                
                                
                                1,020,000
                                
                                
                                $
                                0.19Balance
      at end of period
                                
                                
                                5,270,000
                                
                                
                                $
                                0.13
                                
                                
                                
                                4,531,000
                                
                                
                                $
                                0.13Exercised
                                
                                
                                5,270,000
                                
                                
                                $
                                0.13
                                
                                
                                
                                4,531,000
                                
                                
                                $
                                0.13





There
      were no non-vested warrants and options issued to employees as of December
      31, 2008 or 2007.





The
      weighted average fair value of warrants and options granted during the
      periods are as follows:





2008
                        
                        
                        2007Exercise
      price lower than the market price
                        
                        $
                        -
                        
                        
                        
                        N/AExercise
      price equaled the market price
                        
                        $
                        0.19
                        
                        
                        
                        N/AExercise
      price exceeded the market price
                        
                        $
                        0.19
                        
                        
                        
                        N/A





The fair
value of warrants and options granted during 2008 was estimated on the dates of
the grants using the following approximate assumptions:  dividend
yield of 0%, expected volatilities of 78% - 99%, risk-free interest rates of
0.03% - 1.64%, and expected lives of 0.25 - 2 years.


The
following tables summarize information about employee stock warrants and options
outstanding at December 31, 2008 and December 31, 2007:





Warrants
      and Options Outstanding December 31, 2008
                                            
                                            
                                            Warrants
      and Options
                                              Exercisable
      December 31,
                                              2008Range
      of
                                              Exercise
                                              Price
                                            
                                            Number
                                              Outstanding
      at
                                              December
      31,
                                              2008
                                            
                                            Weighted
                                              Average
                                              Remaining
                                              Contractual
                                              Life
                                            
                                            Weighted
                                              Average
                                              Exercise
                                              Price
                                            
                                            
                                            Number
                                              Exercisable
      at
                                              December
      31,
                                              2008
                                            
                                            
                                            Weighted
                                              Average
                                              Exercise
                                              Price$
                                            0.01
                                            
                                            
                                            2,350,000
                                            
                                            0.65
      Years
                                            
                                            $
                                            0.01
                                            
                                            
                                            
                                            2,350,000
                                            
                                            
                                            $
                                            0.010.19
                                            
                                            
                                            1,020,000
                                            
                                            5.84
      Years
                                            
                                            
                                            0.19
                                            
                                            
                                            
                                            1,020,000
                                            
                                            
                                            
                                            0.190
      .20 - 0.25
                                            
                                            
                                            1,900,000
                                            
                                            0.06
      Years
                                            
                                            
                                            0.24
                                            
                                            
                                            
                                            1,900,000
                                            
                                            
                                            
                                            0.245,270,000
                                            
                                            6.55
      Years
                                            
                                            $
                                            0.13
                                            
                                            
                                            
                                            5,270,000
                                            
                                            
                                            $
                                            0.13




F-31




Warrants
      and Options Outstanding December 31, 2007
                                          
                                          
                                          Warrants
      and Options
                                            Exercisable
      December 31,
                                            2007Range
      of
                                            Exercise
                                            Price
                                          
                                          Number
                                            Outstanding
      at
                                            December
      31,
                                            2008
                                          
                                          Weighted
                                            Average
                                            Remaining
                                            Contractual
                                            Life
                                          
                                          Weighted
                                            Average
                                            Exercise
                                            Price
                                          
                                          
                                          Number
                                            Exercisable
      at
                                            December
      31,
                                            2008
                                          
                                          
                                          Weighted
                                            Average
                                            Exercise
                                            Price$
                                          0.01
                                          
                                          
                                          2,466,000
                                          
                                          2.07
      Years
                                          
                                          $
                                          0.01
                                          
                                          
                                          
                                          2,466,000
                                          
                                          
                                          $
                                          0.010.20
      - 0.25
                                          
                                          
                                          1,900,000
                                          
                                          1.03
      Years
                                          
                                          
                                          0.24
                                          
                                          
                                          
                                          1,900,000
                                          
                                          
                                          
                                          0.240.35
      - 0.50
                                          
                                          
                                          15,000
                                          
                                          0.01
      Years
                                          
                                          
                                          0.50
                                          
                                          
                                          
                                          15,000
                                          
                                          
                                          
                                          0.500.55
      - 0.75
                                          
                                          
                                          150,000
                                          
                                          0.03
      Years
                                          
                                          
                                          0.75
                                          
                                          
                                          
                                          150,000
                                          
                                          
                                          
                                          0.754,531,000
                                          
                                          3.13
      Years
                                          
                                          $
                                          0.13
                                          
                                          
                                          
                                          4,531,000
                                          
                                          
                                          $
                                          0.13





10.
            RELATED
      PARTY TRANSACTIONS


During
2007, the Company entered into twenty-four month secured promissory notes and
received proceeds totaling $1,000,000 with Central Finance,
LLC.  Clifford Melby, a former corporate officer of Waytronx, is a
member of the LLC.  Interest accrues at 12% per annum, payable
monthly, until the maturity of these notes at which time the principal is
due.





In April
2007, a three-month promissory note for $80,000 was entered into with John P.
Rouse who was a member of the Board of Directors.  Interest on this
note accrued at the rate of 12%.  In July 2007, $40,800 of principal
and interest was repaid, and the remaining principal and interest of $42,000 was
repaid in August 2007.





During
2008, the Company entered into $700,000 in convertible promissory notes that had
bonus shares attached totaling 700,000 shares of common stock.  Those
shares had a fair value of $125,653 using a Black Scholes Pricing
Model.  Interest accrues at 12% per annum, payable monthly, until the
maturity of these notes at which time the principal is due.  The note
holders have the right to convert the notes to common stock at $0.25 per share
at any time during the term of the note, and we recognized $188,795 in
Additional Paid-In Capital related to the beneficial conversion feature of these
notes due to their immediate vesting.  Of the $700,000, a $50,000 and
a $25,000 promissory note were with Thomas A. Price who is a member of the Board
of Directors for which he received 75,000 bonus shares of common stock, and a
$25,000 promissory note with Prestamo En Pantalla, LLC, an entity controlled by
Colton Melby who is Chairman of the Board of Directors, with 25,000 bonus shares
of common stock issued.   The $75,000 promissory notes principal
and related interest to Mr. Price and the $25,000 promissory note principal and
related interest to Prestamo En Pantalla, LLC were repaid in August
2008.





Effective
May 16, 2008, Waytronx acquired CUI, Inc.  The funding for this
acquisition was provided by a $6,000,000 bank note, a $14,000,000 seller’s note,
and a $17,500,000 convertible seller’s note.  Matthew McKenzie, COO
and Daniel Ford, CFO each were partial owners in CUI, Inc. prior to the
acquisition.  For further discussion related to the acquisition of
CUI, Inc. please see Note 3 above.




F-32




In May
2008, the Company obtained a $6,000,000 bank note was utilized to acquire CUI,
Inc. which was secured by personal guarantees.  In exchange for the
personal guarantees, the company issued 6,000,000 warrants.  The
warrants vest 50% at date of issuance and 25% at the first anniversary and 25%
at the second anniversary date.  A former officer of the Company,
Clifford Melby received 300,000 warrants (150,000 fully vested), John Rouse, a
former director, received 300,000 warrants (150,000 fully vested), Colton Melby,
Chairman of the Board of Directors, received  400,000 warrants
(200,000 fully vested), and Thomas A. Price, a member of the Board of Directors
received 700,000 warrants (350,000 fully vested).





As an
integrated part of the CUI asset acquisition, the Waytronx, Inc. corporate
offices were relocated to the CUI location at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  CUI and Waytronx occupy the 61,380 square
feet of offices and warehouse premises under a ten year non-cancelable lease
agreement beginning September 1, 2006 with Barakel, LLC at a base monthly rent
subject to periodic base payment increases plus real property taxes, utilities,
insurance and common area maintenance charges.  During the fiscal year
ending December 31, 2008, the monthly base rent was $39,900.  Barakel,
LLC is controlled by James McKenzie, majority owner of CUI, Inc. prior to
acquisition and Matt McKenzie, COO.





During
2008, the Company provided services and billed for those services to a related
party controlled by James McKenzie.  During 2008, the revenue for
those services is reported as other income totaling $138,477.





During
2008, the Company recorded an investment loss of $1,620 related to its 10.47%
interest in Test Products International (“TPI”).  For further details
regarding TPI, please see Note 2 discussion Investment in
Affiliate.





During
2008, 1,300,000 shares of stock were sold pursuant to a stock purchase agreement
with proceeds of $300,000.  Clifford Melby, a former officer of
Waytronx, agreed to transfer 1,000,000 registered shares to one of the
purchasing parties and accept 1,000,000 restricted shares as
reimbursement.  Because of the difference in value between the
registered versus restricted sales, Waytronx agreed to issue an additional
100,000 shares to the former officer.





During
2008, the Company extended 2,000,000 existing warrants with CH Capital an
additional two years in exchange for the rights to certain
patents.  The company valued the transaction at $91,190 using the
Black Scholes Pricing Model with the following assumptions on the date of
extension; $0.20 exercise price, volatility of 75%, risk free interest rate of
2.01% and a term of 2.833 years.





11.
            INCOME
      (LOSS) PER COMMON SHARE


In
      accordance with Statement of Financial Accounting Standards No. 128,
      “Earnings per Share”, basic net loss per share is computed by dividing the
      net loss available to common stockholders for the period by the weighted
      average number of common shares outstanding during the
      period.  Diluted net loss per share is computed by dividing net
      loss available to common stockholders by the weighted average number of
      common and common equivalent shares outstanding during the
      period.  Common equivalent shares outstanding as of December 31,
      2008 and 2007, which consist of options, warrants, convertible notes and
      convertible preferred stock, have been excluded from the diluted net loss
      per common share calculations because they are
      anti-dilutive.  Accordingly, diluted net loss per share is the
      same as basic net loss per share for 2008 and 2007.  The
      following table summarizes the potential common stock shares at December
      31, 2008 and 2007, which may dilute future earnings per
    share.




F-33




2008
                        
                        
                        2007Convertible
      preferred stock
                        
                        
                        252,715
                        
                        
                        
                        402,986Warrants
      and options
                        
                        
                        22,703,373
                        
                        
                        
                        23,544,373Convertible
      debt
                        
                        
                        76,400,000
                        
                        
                        
                        8,250,00099,356,088
                        
                        
                        
                        32,197,359





The
following table sets forth the computation of basic earnings per share for the
years ended December 31, 2008 and 2007:





2008
                  
                  
                  2007Net
      income (loss) for the period
                  
                  $
                  (1,830,367
                  )
                  
                  $
                  (5,746,668
                  )Weighted
      average number of shares outstanding
                  
                  
                  161,888,206
                  
                  
                  
                  150,921,343Weighted
      average number of common and common equivalent shares
                  
                  
                  161,888,206
                  
                  
                  
                  150,921,343Basic
      earnings (loss) per share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.04
                  )





The
following table sets forth the computation of diluted earnings per share for the
years ended December 31, 2008 and 2007:





2008
                        
                        
                        2007Net
      income (loss) for the period
                        
                        $
                        (1,830,367
                        )
                        
                        $
                        (5,746,668
                        )Add:  Adjustment
      for interest and discount
                          amortization on 4% convertible
      notes
                          (previously computed)12% convertible notes and discount
      amortizationAdjusted
      net income (loss)
                        
                        $
                        (1,830,367
                        )
                        
                        $
                        (5,746,668
                        )Weighted
      average number of shares outstanding
                        
                        
                        161,888,206
                        
                        
                        
                        150,921,343Add:  Weighted
      average shares assumed to be issued
                          upon conversion of 4% convertible notes as
      of
                          the date of issuance (previously computed)Warrants
      and options as of beginning of periodWarrants
      and options as of date of issue12%
      convertible notes as of beginning of period12%
      convertible notes as of date of issueWeighted
      average number of common and common equivalent shares
                        
                        
                        161,888,206
                        
                        
                        
                        150,921,343Diluted
      earnings (loss) per share
                        
                        $
                        (0.01
                        )
                        
                        $
                        (0.04
                        )





12.
            INCOME
      TAXES


The
Company recognized losses for both financial and tax reporting purposes during
each of the periods in the accompanying statements of
operations.  Accordingly, no provision for income taxes and/or
deferred income taxes payable has been provided for in the accompanying
financial statements.




F-34




An income
tax benefit has not been recognized for operating losses generated in prior
periods based on uncertainties concerning the ability to generate taxable income
in future periods.  At December 31, 2008, the Company has available
net operating loss carry-forwards of approximately $36,190,000.  These
operating loss carry-forwards expire in various years through the year ending
December 31, 2028; however, because the Company has incurred significant
operating losses, utilization of the tax loss carry-forwards are not
assured.  The increase in the valuation allowance for the year ended
December 31, 2008 was approximately $1,390,000.  As a result, the
non-current deferred income tax asset arising from these net operating loss
carry-forwards and from other temporary differences are not recorded in the
accompanying balance sheets because a valuation allowance was established
to fully reserve such assets due to the uncertainty of the Company’s realization
of this benefit.





After
consideration of all the evidence management has determined that a full
valuation allowance is necessary to reduce the deferred tax assets to the amount
that will more likely than not be realized.





In future
periods, tax benefits and related deferred tax assets will be recognized when
management considers realization of such amounts to be more likely than
not.





The
Company’s tax expense differs from the “expected” tax expense for the periods
ended December 31, 2008 and 2007, computed by applying the Federal Corporate tax
rate of 34% to loss before taxes, as follows:





2008
                    
                    
                    2007Computed
      "expected" tax benefit
                    
                    $
                    (622,000
                    )
                    
                    $
                    (1,953,000
                    )State
      tax benefit, net of federal effect
                    
                    
                    (80,000
                    )
                    
                    
                    (175,000
                    )Change
      in valuation allowance
                    
                    
                    963,000
                    
                    
                    
                    2,128,000Equity
      instruments for services
                    
                    
                    (261,000
                    )
                    
                    
                    -$
                    -
                    
                    
                    $
                    -





At
December 31, 2008, the tax effects of temporary differences that gave rise to
significant portions of deferred tax assets and liabilities are as
follows:





2008Deferred
      tax assets:Net
      operating loss carryforwards
                      
                      $
                      13,190,000Warrants
      issued to employees
                      
                      
                      605,000Accrued
      expenses payable with common stock
                      
                      
                      (86,000
                      )Impairment
      of assets
                      
                      
                      241,000Other
                      
                      
                      (65,000
                      )Valuation
      allowance for deferred tax asset
                      
                      
                      (13,885,000
                      )Deferred
      tax liabilities:
                      
                      
                      -Valuation
      allowance for deferred tax liability
                      
                      
                      -$
                      -




F-35




13.
            CONCENTRATIONS


During
2008, 39% of revenues were derived from three customers at 33%, 3% and
3%.


During
2007, 70% of revenues were derived from three customers at 43%, 14% and
13%.





The
Company’s major product lines in 2008 are external power, internal power, and
electro-mechanical.  The Company continues to work on the development
of the WayCool technologies.  The Company’s major product lines in
2007 were reliant upon the OnScreen technology which the Company has purchased
the rights to and has applied for several patents related to this
technology.





At
December 31, 2008, of the gross trade accounts receivable totaling $2,897,416,
25% was due from two customers at 13% and 12%.





14.
            STOCK-BASED
      EMPLOYEE COMPENSATION


On May
16, 2008, the Board of Directors approved the Waytronx, Inc. 2008 Equity
Incentive Plan (“2008 Plan”) for 1,500,000 shares of the Company’s common
stock.  The 2008 Plan provides for the issuance of stock options to
attract, retain and motivate employees, to encourage employees, directors and
independent contractors to acquire an equity interest in the Company, to make
monetary payments to certain employees based upon the value of the Company’s
stock, and provide employees, directors and independent contractors with an
incentive to maximize the success of the Company and further the interest of the
shareholders.  The 2008 Plan provides for the issuance of Incentive
Stock Options and Non Statutory Options.  The Administrator of the
plan shall determine the exercise price per share at the time the option is
granted, but the exercise price shall not be less than the fair market value on
the date the option is granted.  Stock options granted under the 2008
Plan have a maximum duration of 10 years.





On August
25, 2005, the Board of Directors approved the 2005 Equity Incentive Plan (“2005
Plan”) for 2,000,000 shares of the Company’s common stock.  The 2005
Plan provides for the issuance of stock options to attract, retain and motivate
employees, to encourage employees, directors and independent contractors to
acquire an equity interest in the Company, to make monetary payments to certain
employees based upon the value of the Company’s stock, and provide employees,
directors and independent contractors with an incentive to maximize the success
of the Company and further the interest of the shareholders.  The 2005
Plan provides for the issuance of Incentive Stock Options and Non Statutory
Options.  The Administrator of the plan shall determine the exercise
price per share at the time the option is granted, but the exercise price shall
not be less than the fair market value on the date the option is
granted.  Stock options granted under the 2005 Plan have a maximum
duration of 10 years.




F-36




On June
26, 2000, the Company’s Board of Directors adopted the OnScreen Technologies,
Inc. 2000 Stock Option Plan (the “Plan”).  The Plan provides for the
issuance of incentive stock options (ISO’s) to any individual who has been
employed by the Company for a continuous period of at least six
months.  The Plan also provides for the issuance of Non Statutory
Options (NSO’s) to any employee who has been employed by the Company for a
continuous period of at least six months, and any director or consultant to the
Company.  The Company may also issue reload options as defined in the
plan.  The total number of common shares of common stock authorized
and reserved for issuance under the Plan is 600,000 shares.  The Board
shall determine the exercise price per share in the case of an ISO at the time
an option is granted and such price shall be not less than the fair market value
or 110% of fair market value in the case of a ten percent or greater
stockholder.  In the case of a NSO, the exercise price shall not be
less than the fair market value of one share of stock on the date the option is
granted.  Unless otherwise determined by the Board, ISO’s and NSO’s
granted under the Plan have a maximum duration of 10 years.





There
were no non-vested stock options at December 31, 2007.  The fair value
of each stock option is estimated on the date of grant using a Black Scholes
Pricing Model.  During the year ended December 31, 2008, the company
granted 1,020,000 stock options to employees under the 2008 Plan with the
following assumptions; exercise price of $0.19, volatility of 78%-99%, risk free
interest rate of 0.03% - 1.64% and a term of 0.25 - 2 years.





The
following information is presented for the stock option activity for the year
ended December 31, 2008:





#
      of Shares
                                                
                                                
                                                Weighted
                                                  Average
                                                  Exercise
                                                  Price
                                                
                                                
                                                Weighted
                                                  Average
                                                  Remaining
                                                  Contract
                                                  Life
                                                
                                                
                                                Aggregate
                                                  Intrinsic
                                                  ValueOutstanding
      at December 31, 2006
                                                
                                                
                                                5,463,500
                                                
                                                
                                                $
                                                0.14Exercised
                                                
                                                
                                                (250,000
                                                )
                                                
                                                $
                                                0.01Expired
                                                
                                                
                                                (225,000
                                                )
                                                
                                                $
                                                0.34Forfeited
                                                
                                                
                                                (457,500
                                                )
                                                
                                                $
                                                0.13GrantedOutstanding
      at December 31, 2007
                                                
                                                
                                                4,531,000
                                                
                                                
                                                $
                                                0.13
                                                
                                                
                                                
                                                3.13
                                                
                                                
                                                $
                                                16,165Exercised
                                                
                                                
                                                (116,000
                                                )
                                                
                                                $
                                                0.01Expired
                                                
                                                
                                                (165,000
                                                )
                                                
                                                $
                                                0.73Forfeited
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -Granted
                                                
                                                
                                                1,020,000
                                                
                                                
                                                $
                                                0.19
                                                
                                                
                                                
                                                9.11Outstanding
      at December 31, 2008
                                                
                                                
                                                5,270,000
                                                
                                                
                                                $
                                                0.13
                                                
                                                
                                                
                                                6.55
                                                
                                                
                                                $
                                                2,350Outstanding
      exercisable at December 31, 2008
                                                
                                                
                                                5,270,000
                                                
                                                
                                                $
                                                0.13
                                                
                                                
                                                
                                                6.55
                                                
                                                
                                                $
                                                2,350





The
      weighted average fair value of warrants and options granted during the
      periods are as follows:





2008
                  
                  
                  2007Exercise
      price lower than the market price
                  
                  $
                  -
                  
                  
                  
                  N/AExercise
      price equaled the market price
                  
                  $
                  0.19
                  
                  
                  
                  N/AExercise
      price exceeded the market price
                  
                  $
                  0.19
                  
                  
                  
                  N/A




F-37




15.
            DERIVATIVE
      LIABILITY


On May
15, 2008, the Company acquired CUI, Inc. and entered into a convertible seller’s
note payable of $17,500,000 convertible at $0.25 per common share, totaling
70,000,000 shares.  This caused an insufficient amount of authorized
shares to be available for the exercise of outstanding options, warrants and
convertible debt.  Accordingly, on May 15, 2008, the Company was not
able to assert that it had a sufficient number of authorized but un-issued
shares to satisfy its obligations under outstanding options and warrant
agreements and convertible debt.  Therefore, the Company accounted for
all of its outstanding options, warrants and the convertible features of debt as
derivative contracts and recorded a corresponding liability based on the fair
value of such derivatives at the measurement dates.  The Company
recognized a derivative liability on the seller’s notes payable of
$8,028,838.





The
Company computed fair value of the outstanding freestanding options, warrants
and convertible debt and embedded conversion features, at their measurement
date, using the Black Scholes valuation model with the following
assumptions:





Freestanding
options, warrants and convertible notes





At
      issuance
                  
                  At
      September 15, 2008Market
      price:
                  
                  $0.35
                  
                  $0.23Exercise
      price:
                  
                  $0.01
      - $0.75
                  
                  $0.01
      - $0.75Term:
                  
                  0 -
      3 years
                  
                  0 -
      3 yearsVolatility:
                  
                  57%
                  
                  75%Risk-free
      interest rate
                  
                  1.83%
      - 2.9%
                  
                  0.36%
      - 2.01%Number
      of shares attributable to  options, warrants and convertible
      notes
                  
                  30,270,093
                  
                  31,173,373





The
aggregate fair value of the warrants, options and convertible notes embedded
conversion features reclassified during the year ended December 31, 2008
amounted to approximately $6,121,526 at the date of their issuance or
reclassification and were revalued using the above model assumptions to
$3,257,291 at September 15, 2008 when additional shares were authorized to
sufficiently satisfy existing obligations under outstanding options and warrant
agreements and convertible debt.  Upon authorization of the additional
shares, the company closed the related derivative liability based on the fair
value of such derivatives at the measurement dates.  During the year
ended December 31, 2008, the company reclassified $10,841,928 of derivative
liabilities to equity.





16.
            SUBSEQUENT
      EVENTS


On
January 1, 2009, the Company issued 2,550,363 options at an exercise price of
$0.25 per share to employees, including 1,946,351 to officers of the
Company.  The options issued to employees and officers were valued at
$77,508 using the Black Scholes Options Pricing Model under the following
assumptions:  exercise price of $0.25, volatility of 99%, risk free
interest rate of 0.76% and a term of 2 years.




On
January 1, 2009, the Company issued 1,458,000 options at an exercise price of
$0.25 per share to directors of the Company.  Included in the
directors are two employees, William Clough and Matt McKenzie, who received
486,000 options as directors.  The options issued to directors were
valued at $44,310 using the Black Scholes Options Pricing Model under the
following assumptions:  exercise price of $0.25, volatility of 99%,
risk free interest rate of 0.76% and a term of 2 years.




On
January 5, 2009, 390,000 shares of common stock were issued upon exercise of
warrants with proceeds of $3,900.





On
January 15, 2009, the Company issued 15,000 options at an exercise price of
$0.19 per share to an employee.  These options were valued at $549
using the Black Scholes Options Pricing Model under the following
assumptions:  exercise price of $0.19, volatility of 99%, risk free
interest rate of 0.73% and a term of 2 years.




F-38