UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-KSB





x
      ANNUAL REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
      the
      fiscal year ended December 31, 2007.





OR





o
      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.


(Name
      of
      Small Business Issuer 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.)




2332
      LaMirada Drive


Suite 400


Vista,
      California 92081-7861


(760)
      727-1500


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





William
      J. Clough, CEO/President


Waytronx,
      Inc.


2332
      LaMirada Drive


Suite 400


Vista,
      California 92081-7861


(760)
      727-1500


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







Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, par value
      $0.001.





The
      issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
      the
      Exchange Act during the past 12 months (or for such shorter period that the
      registrant was required to file such reports) and (2) has been subject to such
      filing requirements for the past 90 days. x
      Yes
o
      No





Check
      if
      disclosure of delinquent filers in response to Item 405 of Regulation S-B is
      not
      contained in this form, and no disclosure will 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-KSB or any amendment
      to
      this Form 10-KSB. x





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





The
      issuer's revenues for its most
      recent fiscal year ended December 31, 2007 were $157,258.





The
      aggregate market value of the voting common equity held by non-affiliates as
      of
      December 31, 2007 was $30,401,945 (calculated by excluding shares owned
      beneficially by affiliates, directors and officers).





As
      of
      March 20, 2007, the registrant had 158,450,479 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.




2




**Index**Part
                IItem
                1.
            Description
                of Business
            4WayCool
                Thermal Management Technology
            4Waytronx
                Business Strategy
            5Intellectual
                Property Ownership of OnScreen Technology
            6Fusion
                Three, LLC Settlement
            6Waytronx
                Intellectual Property Protection
            6Employees
            8Risks
                Related to Our Business
            8Risks
                Related to Our Common Stock
            10Item
                2.
            Description
                of Property
            13Item
                3.
            Legal
                Proceedings
            13Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            13Part
                IIItem
                5.
            Market
                for Common Equity and Related Stockholder Matters and Small Business
                Issuer Purchases of Equity Securities
            14Recent
                Sales of Unregistered Securities
            17Shares
                Eligible for Sale
            18Item
                6.
            Management's
                Discussion and Analysis
            19Critical
                Accounting Policies
            20Liquidity
                and Capital Resources
            22Results
                of Operations
            22Item
                7.
            Financial
                Statements
            25Item
                8.
            Changes
                In and Disagreements with Accountants on Disclosure
            25Item
                8A.
            Controls
                and Procedures
            26Item
                8B
            Other
                Matters
            27Part
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control PersonsCompliance
                with Section 16(a) of the Exchange Act
            27Shareholder
                Communication
            28Business
                Experience of Executive Officers and Directors
            28Our
                Corporate Governance Practices
            30Code
                of Ethics
            31Audit
                Committee
            32Audit
                Committee Report
            32Item
                10.
            Executive
                Compensation
            32Compensation
                Discussion and Analysis
            33Compensation
                Philosophy
            33Compensation
                Setting Process
            35Elements
                of Executive Compensation
            36Compensation
                Committee Report
            37Summary
                Compensation Table
            38Outstanding
                Equity Awards at Fiscal Year-End
            39Director
                Compensation
            40Employment
                Agreements
            40Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            41Employee
                Equity Incentive Plans
            43Item
                12.
            Certain
                Relationships and Related Transactions
            44Item
                13.
            Exhibits
                and Reports
            46Exhibits
            47Item
                14.
            Principal
                Accountants Fees and Services
            49Signatures
            50Certifications
            51


3





This
      Annual Report on Form 10-KSB 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. Description of 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 2332 LaMirada Drive, Suite 400, Vista, California
      92081-7861.





The
      Company is primarily focused on commercialization of its innovative thermal
      cooling technology, WayCool TM .





**Way** **Cool**TM**Thermal Management Technology**


We
      are
      primarily focused on commercialization of our innovative thermal cooling
      technology, WayCool. The Waytronx architecture incorporates a variety of patent
      pending designs of a new scientific approach to addressing intense heat
      generated in electronic systems, including computers, home entertainment
      systems, test fixtures and medical monitoring devices.  WayCool provides
      cooling technology that transfers heat at extraordinarily high rates to promote
      superior thermal management in electronics. 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.





WayCool’s
      cooling technology involves the use of fluid
      displacement to move heat away from the source instead of traditional passive
      heat transference through solid materials. WayCool’s efficiency is not limited
      to the thermal conductivity of the material.  The technology uses a
      capillary network of microchannels to transport the fluid at a rapid rate.
      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).





WayCool TM Applications


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


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


4





WayCool TM Market Analysis


The
      Company received a report in May 2005 prepared by an independent third party
      new
      product research consulting firm that provided a comprehensive market
      compilation and analysis of the semiconductor industry shipments in the personal
      computer and server markets for major producers as well as an evaluation of
      the
      market impact of the WayCool thermal management technology in
      context with the total semiconductor industry demand .
      The
      principal focus of the report was to determine a preliminary business valuation
      for WayCool in providing a viable solution for computer processor chip thermal
      management.





The
      report of the independent third party research firm found that the semiconductor
      industry is expected to move to the use of advanced cooling solutions
      to solve an increasing need for higher processing speeds so as to better
      manage greater power requirements. It is expected that exponential increases
      in
      thermal output could limit traditional thermal management solutions over the
      next three years.





The
      potential market opportunity for WayCool  is
      very
      large. Third party analysis indicates that a market potential of over $5 billion
      exists in the vertical market of PC and server applications. The potential
      application of WayCool to other types of electronics, such as video display
      chips and other types of microprocessor-based electronics is estimated to equal
      or exceed the single market potential of PCs and servers.





**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 WayCool TM .
      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 WayCool TM (Please
      see above the section “WayCool TM 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.
      WayCool is discussed above in the section entitled WayCool Thermal Management
      Technology.


5


**Intellectual
      Property Owne** **rship
      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’sLED
                technology which agreement entitled the Company to 75% of the revenue
                generated from the direct view LED sign technology with angular dimension
                greater than 30 inches and guaranteed the inventor a minimum royalty
                of
                $50,000 the first year, $100,000 the second year and $250,000 each
                year
                thereafter.


·
            On
                January 10, 2005 and February 16, 2005, the inventor/owner of the
                Company’s LED technology patent conveyed ownership of the LED technology,
                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 director and William Clough, currently a shareholder,
                President/CEO, general counsel and
                director.


·
            On
                February 16, 2005, in consideration for the payment of two hundred
                thousand dollars ($200,000), CH Capital conveyed theLED
                technologypatent 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.





**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. Regarding all of the common shares underlying the warrants,
      the Company is obligated to file a Form SB-2 registration statement with the
      SEC
      within no more than one hundred twenty (120) days from the date of the
      agreement.





**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.


6


·
            A
                utility patent was issued September 12, 2006 on the LED technology
                that
                contains over 50 separate claims.


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


·
            A
                utility patent was issued November 21, 2006 regarding our Living
                Window
                LED sign product design.


·
            February
                10, 2005 a utility patent application was filed on behalf of the
                Company
                relating to the aerodynamic LED sign system. This application is
                pending.


·
            A
                utility patentwas
                issued May 22, 2007relating to the WayCoolThermal
                Management Technology.


·
            September
                29, 2006 a utility patent was filed on behalf of the Company relating
                to
                the RediAlert product design.


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


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


·
            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.


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





During
      2005 through 2007 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, Redi-DMS Dynamic
      Messaging Sign, 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), RediAlert, Rapid Dispatch Emergency Signs,
      and
      Living Window.





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


7


**Employees**


As
      of
      December 31, 2007, the Company had two fulltime employees and two 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.





**Risks
      Related to Our Business**


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


The
      Company has only recently begun to direct all of its efforts to
      commercialization of the WayCool thermal management cooling technology. The
      Company’s limited operating history in this industry and the unproven nature of
      the WayCool technology makes evaluation of its future prospects very difficult.
      To date the Company 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.





*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 and
      unproven 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 our innovative thermal cooling technology, WayCool.
      For
      the year ended December 31, 2007, the Company had a net loss of $5,746,667.
      The
      Company will need to begin generating significant revenues from the WayCool
      product line 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
      2006 and 2007, the Company funded its operations with net proceeds of
      approximately $12.6 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.


8


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


Because
      the Company has licensed 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 is heavily dependent on these third parties to adequately and promptly
      provide the end product. The Company is 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 for electronics is 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
      WayCool TM technology. All of these competitors have been in the electronics business
      longer than the Company has 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 perform. 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 TM ,
      WaytronxTM, WayFastTM 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.


9





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


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
      their 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 thermal
                cooling related companies;


·
            additions
                or departures of key personnel;


·
            fluctuations
                of the stock market as a whole.




10


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


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 substantially 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 would 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 sell their securities in the
      secondary market.


11


*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, 2007, the Company
      has 75,543 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, 2006 dividends payable for the Series A Convertible Preferred
      Stock
      was $5,054 and on December 31, 2007 the dividends payable for the Series A
      Convertible Preferred Stock was $27,353. 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.





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 or Series
      B 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 and Series B 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 and Series B 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 and Series B 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.





*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, 2007, the $1,650,000
      principal of outstanding promissory notes and 12% per annum simple interest
      accruing thereon are convertible at a floating per share price based on a
      substantial discount to the then-prevailing market price. 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.


12


*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
      2. Description of Property**





The
      Company owns no real estate. On October 15, 2004, the Company signed a lease
      with Safety Harbor Centre commencing December 1, 2004 for five years
      leasing an office suite at a monthly rental of $2,814 (plus a pro rata share
      of
      common area maintenance and taxes).





Effective
      November 11, 2005, the corporate home office was
      relocated to 600 NW 14th Avenue, Suite 100, Portland, Oregon 97209, and a field
      office retained at the Safety Harbor, Florida location. In October 2005, a
      lease
      was signed with Market Place I & II, LLC for 7,500 square feet of office
      space in Portland, beginning November 1, 2005 and ending December 31, 2010.
      This
      lease is renewable for an additional five years at the option of Waytronx.
      The
      initial monthly base rent is $9,062.50 for December 2005 through October 2007,
      thereafter the rent increases slightly. In February of 2008 this lease was
      terminated by mutual agreement in exchange for the release of Waytronx from
      any
      liability for future rents, with a termination payment of $22,000.





Effective February
      14, 2007, the Company relocated its corporate home office from the Oregon
      location to 2332 LaMirada Drive, Suite 400, Vista, California 92081-7861.
      The Company retains a field office in Safety Harbor, Florida.





**I** **tem
      3. Legal Proceeding****s**





The
      Company is not involved in any legal proceedings; however, the Company received
      a letter from several shareholders relating to the recently filed SB-2 not
      being
      filed within an agreed time parameter.


13


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





The
      2007
      Annual Meeting of Shareholders was held on December 10, 2007, t o
      Elect 1
      director to hold office for a two-year term and amend the Company’s Restated
      Articles of Incorporation to change the name of the corporation to Waytronx,
      Inc. The Board of Directors fixed the close of business on October 5, 2006
      as
      the record date for the determination of shareholders entitled to receive notice
      of, and to vote at, the Annual Meeting. All such stockholders of record were
      properly notified and proxies were distributed. The following votes were
      tabulated:


The
      vote
      for Corey Lambrecht, Seat 6 (two year term) of the Board of Directors was:


For
            Withhold[79,803,740]
            [211,867]





The
      vote
      to amend the Company’s Restated Articles of Incorporation to change the name of
      the corporation to Waytronx, Inc. was:


For
            Against
            Abstain[6,457,430]
            [9,005]
            [1,730,494}





Russell
      L. Wall, Director Seat #2, and Steven S. Hallock, Director Seat #4, chose to
      not
      stand for re-election.


The
      corporate name change to Waytronx, Inc. became effective December 12,
      2007 ,
      upon
      filing the documentation with the Colorado Department of State.





**PART
      II**





**Item
      5. Market for Common Equity, Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities**





Market
      Value


The
      Company’s Common Stock is traded on the OTC Bulletin Board (OTCBB) 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 2006 and 2007 and the first
      two quarters of 2007 as reported by the National Quotation Bureau. The bid
      prices quoted on the OTCBB reflect inter-dealer prices without retail mark-up,
      markdown or commission and may not represent actual transactions.





Year
            
            Quarter
            
            High
                Bid
            
            Low
                Bid2006
            
            
            First
                Quarter
            
            
            .580
            
            
            .170Second
                Quarter
            
            
            .700
            
            
            .350Third
                Quarter
            
            
            .510
            
            
            .270Fourth
                Quarter
            
            
            .480
            
            
            .2702007
            
            
            First
                Quarter
            
            
            .330
            
            
            .210Second
                  Quarter
            
            
            .480
            
            
            .170Third
                  Quarter
            
            
            .420
            
            
            .310Fourth
                  Quarter
            
            
            .410
            
            
            .220





Description
      of Securities


The
      Company currently has authorized 200,000,000 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, 2007, the Company’s outstanding shares consisted of 156,780,626
      issued and outstanding shares of common stock, 75,543 shares of Series A
      Convertible Preferred Stock and no shares of Series B and Series C Convertible
      Preferred Stock. As of December 31, 2007, the Company had in excess of 3,000
      shareholders of record.


14





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. The
      Company expects to continue to retain all earnings generated by its operations
      for the development and growth of its business and do 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 32,197,359 shares of common stock the Company is
      required to reserve for potential future issuances. As of December 31, 2007,
      there are 1,203,179 shares of the Company’s common stock available under the
      2005 Equity Incentive Stock Plan.





Convertible
      Preferred Shares


As
      of
      December 31, 2007, the Company had 75,543 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, 2007, there is $7,554 in accrued
      Series A Preferred dividends that convert into 37,772 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.





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 will be determined at the time of each monthly loan. This
      loan
      was conditioned on a sale to Central Finance, LLC, by two of our 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 corporate officer of Waytronx, is a member of the
      LLC.


15


Convertible
      Promissory Notes


During
      2005 and the first quarter of 2006, the Company privately placed $10,300,000
      of
      12% convertible promissory notes. The holders of these notes were granted
      piggyback registration rights for the Company’s common shares underlying the
      conversion feature of the notes. These notes are convertible to common stock
      at
      $.25 per share. Note holders who purchased $500,000 or more of these notes
      received 100,000 additional common shares. 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.
      These warrants have a three (3) year term. 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 are granted piggyback registration
      rights. Warrants representing 9,808,517 common shares have not yet been
      exercised as of December 31, 2007.





During
      the last three quarters of 2006 and the first three quarters of 2007, the
      Company privately placed approximately $5,108,500 of 12% convertible promissory
      notes. These notes were 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. As of December 31, 2007, 13,368,992
      common shares were issued pursuant to the conversion of these promissory notes
      and exercise of the warrants; 9,000,000 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.





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





Employees,
      Consultants and Advisors


In
      an
      effort to attract high caliber qualified employees, management committed the
      Company to issue 4,611,501 underlying common shares relating to warrants and
      options to employees, consultants and members of the scientific advisory board
      and employee stock grants. These warrants and options have exercise prices
      ranging from $.01 to $.75 with terms of one (1) to five (5) years. Additionally,
      the Company dedicated 2,000,000 common shares to the Employee Incentive Plan,
      which have been registered under cover of Form S-8. As of December 31, 2007,
      the
      Company had issued 796,821 underlying common shares related to the Employee
      Incentive Plan.


16


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





**Recent
      Sales of U** **nregistered
      Securities**


*Common
      Stock*


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
      Convertible Preferred stock was valued at $1.00 per share based on
      contemporaneous cash sales. The 500 shares of Series B Convertible Preferred
      stock was 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 Convertible A and B Preferred
      stock 1,250,000 shares of its Common Stock were issued.





During
      2007, 841,204 shares of common stock including 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.





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.





*Warrants*


The
      following unregistered warrants to purchase common stock were issued during
      2007. All other unregistered issuances of warrants are described in the 10-KSB
      filing for yearend 2006. 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.





The
      Company issued to an employee as a bonus a three year warrant to purchase 50,000
      shares of its common stock for an exercise price of $0.28 per
      share.


17





Pursuant
      to the terms and conditions of promissory notes, the Company issued to each
      of
      three former note holders a three year warrant to purchase an aggregate of
      72,296 common shares at per share prices ranging from $0.25 to $0.28 per
      share.





*Series
      A and Series B Convertible Preferred Stock*


There
      were no shares of Series A or Series B Convertible Preferred Stock issued during
      2007. All other unregistered issuances of Series A or Series B Convertible
      Preferred Stock are described in the 10-KSB filing for yearend
      2006.





*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, 2007, we had outstanding 156,780,626 shares of Common Stock. Of
      these shares, 63,744,409 shares are freely tradable without restriction or
      limitation under the Securities Act.





The
      93,036,217 shares of Common Stock held by existing shareholders as of December
      31, 2007 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, 2007, we had issued and outstanding 75,543 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.





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.





**Certain
      Provisions of the Articles of Incorporation and Colorado Business Corporation
      Act**


Our
      Articles of Incorporation provides that, to the fullest extent permitted by
      Colorado Business Corporation Act as the same exists or may hereafter be
      amended, a director of the corporation shall not be liable to the corporation
      or
      its shareholders for monetary damages for breach of fiduciary duty as a
      director.


18


The
      Company shall indemnify and advance expenses to a director or officer in
      connection with a proceeding to the fullest extent permitted or required by
      or
      in accordance with the indemnification sections of the Colorado Business
      Corporation Act that provides that, “The corporation shall indemnify a person
      who was wholly successful, on the merits or otherwise, in the defense of any
      proceeding to which the person was a party because the person is or was a
      director, against reasonable expenses incurred by him or her in connection
      with
      the proceeding.”





**Item
      6. Management's Discussion and Analysis**





*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, 2007 and un-audited 10-QSB filings
      for
      the first three quarters of 2007 and the notes thereto, all of which are
      included elsewhere in this Form 10-KSB. In addition to historical information,
      the following discussion and other parts of this Form 10-KSB 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-KSB.





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-KSB
      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. For the foreseeable
      future, the Company expects that its working capital will come from funding
      that
      will primarily include equity and debt placements.


19


*Overview*


Waytronx, Inc. has
      pioneered and is commercializing innovative thermal management solutions capable
      of revolutionizing the semiconductor and electronic packaging industries.
      Utilizing its patent-pending thermal technologies and architecture, the Company
      has developed highly advanced, proprietary LED display solutions under the
      names
      RediAlertTM and Living
      WindowTM and
      cooling applications through its WayCool product line. Waytronx is focusing
      its
      efforts on the WayCool cooling technology, which involves the use of fluid
      displacement to move heat away from the source instead of traditional passive
      heat transference through solid materials.





During
      the year ended December 31, 2007, the Company continued to incur significant
      losses from operations. The Company incurred a net loss of $5,746,667 for the
      year ended December 31, 2007. This net loss includes non-cash charges of
      $317,356 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, $338,362 of non-cash amortization of the
      intrinsic value of convertible debt and the warrant related debt discount,
      and
      $2,048,538 of non-cash loss for the impairment of inventory.





Management
      has continued to raise the capital needed to fund the development and marketing
      of the Company’s products during 2007. During the year ended December 31, 2007
      the Company received proceeds of $1.4 million for secured notes. These funds
      have assisted the Company in continuing to develop its products, to fund the
      Company’s operations during development of the WayCoolTM products, and the
      Company’s efforts to license the manufacture and sales of these products. The
      Company anticipates continuing to develop and expand its technology and product lines
      which will require additional funding.





**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.





*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.


20


*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 receive
      certain elements of our 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. 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, 2007 are $42,639 and
      a net working capital deficit at December 31, 2007 of $1,975,902. Operations
      and
      investments in equipment have been funded through cash from operations, equity
      financings and borrowing from private parties as well as related parties. It
      has
      also funded its operations through stock paid to vendors, consultants and
      certain employees.





*Cash
      used in operations*


The
      Company’s operating requirements generated a negative cash flow from operations
      of $2,879,173 during 2007.





During
      2007 and 2006, the Company has used stock and warrants as a form of payment
      to
      certain vendors, consultants and employees. For 2007, the Company recorded
      a
      total of $281,900 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.





During
      2007, the Company recorded two additional significant non-cash entries -
      $256,032 of non-cash amortization of the intrinsic value of convertible debt
      and
      the warrant related debt discount, and $2,048,538 of non-cash loss for the
      impairment of inventory.





As
      the
      Company focuses on the WayCool technology during 2008, it will continue to
      fund
      research and development related to these products as well as sales and
      marketing efforts related to these products. The Company does not expect to
      record significant revenue until its WayCool product line is fully developed
      and
      licensing agreements for the manufacture and sale of its products are in place
      and operational.


21


*Capital
      Expenditures and Investments*


During
      2007, the Company invested $0 in fixed assets. Since the Company will license
      and not manufacture its products, the Company anticipates its fixed asset
      expenditures for 2008 to be negligible.





The
      Company invested $85,238 in patent costs and $50,000 in technology rights during
      2007. The Company expects its investment in patent costs will continue
      throughout 2008 as it invests in patents to protect the rights to use its
      product developments.





*Financing
      activities*


During
      2007, the Company received $177,500 of proceeds from secured convertible notes,
      $1,100,000 of proceeds from secured promissory notes and $80,000 of proceeds
      from unsecured promissory notes. During 2007, the Company converted $177,500
      of
      convertible secured notes into 841,204 shares of its common stock. The Company
      plans on raising the capital needed to fund the further development and
      marketing of the Company’s products.





*Recap
      of liquidity and capital resources*


The
      Company is seeking to raise additional capital for the commercialization of
      its
      WayCool technology product lines which it believes 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 will be required. The Company will attempt to raise these
      funds through borrowing instruments or issuing additional equity.





Management
      expects the WayCool technology to be commercialized during 2008. 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. 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, 2007, we have no off-balance sheet arrangements.





**Results
      of Operations**


The
      accompanying financial statements reflect the operations of the Company for
      the
      fisc al
      years
      ended December 31, 2007 and 2006.





*Revenue*


During
      the year ended 2007, revenue was $157,258 and $256,688 for the same period
      during 2006. The revenue for year ended December 31, 2007 is comprised of
      $91,070 from RediAlert TM products, $48,823 from Living Window TM products
      and related add-ons, and $17,365 from other. For the year ended December 31
      2006, the Company recorded $100,670 from RediAlert TM products, $110,380 from Living Window TM products
      and related add-ons, and $45,638 from sale of wireless modems.





During
      2007, 86% of revenues were derived from three customers at 46%, 14% and 13%.
      During 2006, 69% of revenues were derived from four customers at 24%, 22%,
      12%
      and 11%.





*Cost
      of revenue*


The
      cost
      of revenue for the year ended December 31, 2007 and 2006 was $2,318,602 and
      $1,586,823, respectively. The significant increase of $731,779 during 2007
      compared to the prior year is primarily the result of a $2,048,538 inventory
      write-down of impaired inventory to net realizable market
      value.


22


*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 decreased
      from $6,422,006 for the year ended December 31, 2006 to $1,888,098 for the
      same
      period during 2007. This decrease of $4,533,908 or 70% is primarily the result
      of lower non-cash expenses and the reduction in staff and overhead expenditures
      versus the prior year.





The
      company anticipates its sales and marketing expenditures and general and
      administrative expenses to remain similar during 2008 compared to 2007 as the
      Company has significantly reduced its infrastructure during the fourth quarter
      of 2006.





*Research
      and Development* **


The
      research and development costs are related to the LED sign and thermal
      management technologies to which the Company acquired the patent ownership
      rights. The decrease of $1,470,111 in research and development from $1,191,854
      during the year ended December 31, 2007 compared to $2,661,965 during the same
      period in 2006 is a result of a decrease in non-cash compensation for research
      and development consulting services and reductions in headcount. The Company
      estimates that research and development expenses will remain similar during
      2008
      compared to 2007 as it continues to fund development of its WayCool thermal
      management technology.





*Restructuring
      costs*


The
      Company recorded no restructuring costs during 2007 while it incurred $13,967
      of
      restructuring costs in 2006 related to the move from Florida to
      Oregon.





*Impairment
      Loss*


The
      Company recorded a $48,711 impairment loss during 2006. During the Fourth
      Quarter of 2006, the Company wrote off the remaining balance of its LED Truck
      resulting in an impairment loss of $48,214 as the truck was no longer generating
      revenue. During 2007, there was no impairment loss recorded.





*Bad
      Debt*


Bad
      debt
      expense has increased by $16,137 during 2007 compared to 2006. The Company
      does
      not anticipate this to be a large item during 2008.





*Other
      Income*


The
      Company recorded $ 80,873
      of
      other income during 2007, primarily from the sale of the LED truck and office
      rental income. During 2006 the Company recorded $29,450 of other income,
      primarily from office rental income.





*Investment
      Income*


During
      2004, i n
      order
      for the Company to optimize its return on the equity funds it has raised, it
      invested in certain liquid marketable securities. During 2006 the Company
      recorded $40,576 of investment income net of any losses related to these
      investments, and $0 during 2007.


23


*Financing
      Fees*


During 2006,
      the
      Company engaged outside services to assist in raising capital. Based on funding
      acquired via this third party, financing fees (cash and warrants) of $1,268,100
      were incurred during 2006. During 2007, there were no financing fees recorded.





*Settlement
      Gain (Loss), Net*


The
      Company recorded a net settlement gain (loss) for the year ended December 31,
      2006 of $(2,478,325). The Company recorded a settlement gain during the fiscal
      year 2007 of $76,831.





The
      Company recorded a settlement gain for the year ended December 31, 2006 of
      $301,675. During 2005, the Company reached a settlement with Capitol City
      Trailers regarding the use of one of its trucks. For the twelve months ended
      December 31, 2006, the Company had received $20,833, which it has recorded
      as a
      settlement gain. During the first quarter of 2006, the Company reached a
      settlement with Mobile Magic where Mobile Magic agreed to pay $175,000 as
      settlement of the Company’s claim against it. Due to the financial condition of
      Mobile Magic, the Company had not recorded as of June 30, 2006 a receivable
      of
      $175,000 for the remaining amount. During August 2006, Mobile Magic paid the
      first installment of $50,000 due per the agreement. The settlement of $175,000
      with Mobile Magic was recorded during the third quarter as a settlement gain.
      The Company also had recorded approximately $150,000 as a payable to Mobile
      Magic who was constructing a truck that the Company never received. As part
      of
      the agreement the Company does not owe the $150,000 and recorded a settlement
      gain for this amount during the first quarter of 2006. This was offset by legal
      fees of $44,158.




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, 2006, a gain of $3,718,543 was recorded for the
      change in fair value of derivative liabilities. The Company no longer has any
      financial instruments with indeterminate shares and as such the value of warrant
      liability at September 28, 2006 through December 31, 2007, has been reclassified
      to equity.





*Intrinsic
      value of convertible debt and amortization of warrant related debt
      discount*


The
      Company recorded an expense of $338,362 during 2007, and $3,647,451 during
      2006,
      for the intrinsic value of convertible debt and the amortization of debt
      discount. The lower expense in 2007 of $3,309,089 for the year ended December
      31, 2007, was due to a significant reduction in convertible debt.





*Interest
      Expense*


The
      Company incurred $283,657 and $395,214 of interest expense during 2007 and
      2006,
      respectively. Interest expense in 2007 is for interest on the secured
      convertible notes payable and secured and unsecured promissory notes. Interest
      expense of $395,214 in 2006 is for interest on the secured convertible notes
      payable and secured and unsecured promissory notes.


24


*Net
      Loss*


The
      net
      loss of $5,746,668 for the year ended December 31, 2007 decreased $8,734,665
      or
      60% compared to the same period in 2006. The decrease in net loss during 2007
      compared to 2006 is mainly the result of recording a lower expense $3,309,089
      for the intrinsic value of convertible debt and amortization of debt discount
      related to the convertible notes payable, decreased net settlement loss of
      $2,401,494 primarily due to the Fusion Three, LLC transaction in 2006, and
      lower
      operating expenses of $5,198,380 resulting from decreased research and
      development costs, reduced staff and overhead expenditures and lower non-cash
      SG&A expenses.





*Preferred
      Stock Dividends*


During
      the year ended December 31, 2007 and 2006, the Company recorded Series A
      Convertible Preferred Stock dividends of $0 and $49,801, respectively. During
      2006, Series A Convertible Preferred shareholders accepted the Company’s offer
      to receive all outstanding dividends through March 2006 in either cash or common
      shares at a per share price of $0.20.





During
      the year ended December 31, 2006, the Company recorded Series B Convertible
      Preferred Stock dividend income of $17,775 as it reversed prior year accruals
      of
      $17,900 pertaining to Series B Convertible Preferred Stock dividends partially
      offset by a dividend payment of $125.





**Item
      7. Financial Statements**





The
      Financial Statements and the report of Webb
& Company, P.A. dated March 20, 2008 are attached hereto and incorporated
      herein by reference.





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





On
      May 2,
      2007, the Registrant received and accepted the letter of resignation from its
      Independent Registered Public Accounting Firm, Salberg & Company, P.A., Boca
      Raton, Florida. The Public Accounting Firm’s report on the financial statements
      for either of the past two years did not contain an adverse opinion or
      disclaimer of opinion, nor was it modified as to uncertainty, audit scope,
      or
      accounting principles except that there was an explanatory paragraph expressing
      substantial doubt about the Company’s ability to continue as a going concern.
      The decision to change accountants was by mutual consent because of the five
      years partner rotation requirement of Regulation S-X (17 CFR, Part 210). The
      Company has had no disagreements with the former accountant on any matter of
      accounting principles or practices, financial statement disclosure, or auditing
      scope or procedure. The Board of Directors and Audit Committee approved
      retaining Webb & Company, P. A., Boynton Beach, Florida as the Company’s
      Independent Registered Public Accounting Firm effective May 2,
      2007.





Prior
      to
      engaging Webb & Company, P.A., we did not consult Webb & Company, P.A.
      regarding either:


1.
            The
                application of accounting principles to any specified transaction,
                either
                completed or proposed, or the type of audit opinion that might be
                rendered
                on our financial statements, and neither a written report was provided
                to
                our company nor oral advice was provided by Webb & Company, P.A. that
                was an important factor considered by our company in reaching a decision
                as to the accounting, auditing or financial reporting issue;
                or


25


2.
            Any
                matter that was either the subject of disagreement or event, as defined
                in
                Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction
                to
                Item 304 of Regulation S-B, or a reportable event, as that term is
                explained in Item 304(a)(1)(iv)(A) of Regulation
                S-B.





Prior
      to
      engaging Webb & Company, P.A., Webb & Company, P.A. has not provided our
      company with either written or oral advice that was an important factor
      considered by our company in reaching a decision to engage Webb & Company,
      P.A. as our independent registered public accounting firm.





**Item
      8A. Controls and Pro** **cedures**





*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* *.*


In
      addition, there were no significant changes in the Company’s internal control
      over financial reporting that could significantly affect these controls during
      fiscal year ended December 31, 2007. The Company has not identified any
      significant deficiency or materials weaknesses in its 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.  There has been no change in the Company’s
      internal control over financial reporting during the year ended
      December 31, 2007, that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial
      reporting.




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.


26


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, 2007. A copy of our Audit Committee Charter can
      be
      viewed on our Website: www.waytronx.com.





**Item
      8B. Other Matters**





There
      are
      no matters to be reported under this Item.





**PART
      III**




**Item
      9. Directors, Executive Officers, Promoters and Control Persons; Compliance
      with
      Section 16(a) of the Exchange Act**





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
      five (5) 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 .





April
      24,
      2007, the
      Board
      of Directors increased the Board of Directors from five to eight members and
      designated 10,000 preferred shares as Series C Convertible Preferred. The owners
      of the Series C preferred stock have the exclusive right to fill the three
      newly
      created board vacancies. This matter is described in more detail in this
      registration statement at the section entitled: *Market
      for Common Equity and Related Stockholder Matters*





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.





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.





Name
            
            Age
            
            PositionWilliam
                J. Clough, Esq.
            
            
            55
            
            
            President/Chief
                Executive Officer, Director and General CounselBradley
                J. Hallock
            
            
            48
            
            
            Director,
                Corporate Secretary, Compensation CommitteeJohn
                P. Rouse
            
            
            49
            
            
            DirectorTom
                Price
            
            
            50
            
            
            DirectorCorey
                Lambrecht
            
            
            38
            
            
            DirectorClifford
                L. Melby
            
            
            48
            
            
            Chief
                Operating Officer


27





Given
      that 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.





**Shareholder
      Comm** **unications**


Company
      shareholders who wish to communicate with the Board of Directors or an
      individual director may write to Waytronx, Inc., 2332 LaMirada Drive,
      Suite 400, Vista, California 92081-7861, (760) 727-1500, fax (760) 727-1505
      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.





**Business
      Experience of Directors and Executive Officers**


William
      J. Clough, Esq., President/Chief Executive Officer, Director and General
      Counsel


William
      Clough was appointed President and Chief Executive Officer September 13, 2007
      at
      which time Mr. Clough stepped down as Executive Vice President of Corporate
      Development. 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 operated
      his own law firm with offices in Los Angeles, San Francisco and Honolulu for
      12
      years. 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 was appointed to the Board of Directors, effective March 1, 2006
      and
      was reelected at the December 2006 shareholder’s meeting to serve an additional
      two year term.


28


Bradley
      J. Hallock, Director, Corporate Secretary, Compensation Committee, Audit
      Committee Chairman


Bradley
      J. Hallock was appointed to the Board of Directors in April 2004 and was
      re-elected at the December 2006 shareholders’ meeting to serve an additional two
      year term. Mr. Hallock brings to the board over 25 years of corporate
      experience. Mr. Hallock was the founder and Chief Executive Officer of C and
      R,
      Ltd., a provider of wholesale services to the automobile industry, with annual
      revenue in excess of $10,000,000. For three years, Mr. Hallock served as a
      Senior Executive for First America Automotive, Inc. (FAA), an $800,000,000
      annual revenue company that was later acquired by Sonic Automotive, Inc.
      (NYSE:SAH). As a Senior Executive at FAA, he conceived and implemented the
“Auto
      Factory” concept to vertically integrate used car operations across disparate
      retail franchises on a regional basis. He led the expansion of this concept
      into
      a $100,000,000 annual revenue division of FAA resulting with industry leading
      profitability. During his tenure at FAA, Mr. Hallock was a key member of the
      merger and acquisition team, where he was instrumental in the successful
      acquisition and integration of over 50 new car retail franchises.





John
      P. Rouse, Director


John
      P.
      Rouse brings to the board 30 years of business management experience. For the
      last 17 years Mr. Rouse has been the President/Owner/Founder of Washington
      Equipment Manufacturing Company, Inc. (WEMCO), located in the State of
      Washington. WEMCO is a multi-million dollar manufacturing company. As its
      Founder, Mr. Rouse was personally responsible for setting up the engineering,
      manufacturing and financial aspects of WEMCO and continues to run the daily
      operations. Prior to founding WEMCO, Mr. Rouse spent 12 years as equipment
      and
      operations manager for DHH Investments and its subsidiary companies, Acme
      Concrete, Acme Concrete Construction Division, Acme Concrete Asphalt Division,
      Acme Concrete Ready Mix in Richland, WA, Yakima Concrete and Asphalt Company
      and
      Cunningham Sand, Gravel and Asphalt. The Construction and Asphalt Divisions
      operated in most of the Western United States and the Concrete Division was
      one
      of the largest users of cement in the United States. As a member of DHH’s
      Executive Committee, Mr. Rouse was responsible for daily operations and
      financial/budgeting. Mr. Rouse was appointed to the Board of Directors,
      effective March 17, 2006 and was reelected at the December 2006 shareholder’s
      meeting to serve an additional two year term.





Corey
      Lambrecht, Director


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.


29


Thomas
      A Price, Director


Effective
      Dec ember
      10,
      2007, Tom Price is appointed to the Company Board of Directors. 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.





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, the Golden Gate Shootout and raised
      over
      $75,000 for Katrina relief in 2005.





Clifford
      L. Melby, Chief Operating Officer


Clifford
      Melby has in excess of 25 years of manufacturing management experience and
      more
      than 15 years of experience in investing, positioning and structuring companies
      for growth. His experience includes managing product outsourcing and new
      business development at Metal Form Inc., an aerospace manufacturing company
      specializing in computer numerical control (CNC) machining for jet aircraft
      manufacturers for customers such as Boeing, Bombardier, Air Bus and the U.S.
      Military. Mr. Melby was the CEO and President of Innovative Elegance, a
      manufacturer of CNC machined water jet and laser cut commercial products for
      casinos, retail outlets and commercial facilities. Clifford Melby was a private
      financing participant in the May 2001 purchase of Smith & Wesson by publicly
      traded Saf-T-Hammer Corp. (now Smith and Wesson Holding Corporation NASDAQ:
      SWHC) from London-based Tomkins PLC.





**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.





Adopting
      Governance Guidelines


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.


30


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 the Board 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., 2332 LaMirada Drive, Suite 400, Vista,
      California 92081-7861, (760) 727-1500, fax (760) 727-1505. 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., 2332 LaMirada Drive,
      Suite 400, Vista, California 92081-7861, (760) 727-1500, fax (760) 727-1505
      We will disclose any amendments to the Code of Business Conduct and Ethics,
      or
      waiver of a provision therefrom, on our website at the same
      address.





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.





**Code
      of E** **thics**


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., 2332 LaMirada Drive, Suite 400, Vista, California 92081-7861, (760)
      727-1500, fax (760) 727-1505 .


31


**Audit
      Com** **mittee**


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. Bradley
      J
      Hallock serves
      as
      committee Chairman. Mr. Hallock is independent in accordance with applicable
      rules promulgated by the Securities and Exchange Commission and NASDAQ listing
      standards. Mr. Hallock has an understanding of generally accepted accounting
      principles and has 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. He has 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 Mr. Hallock is an “audit committee financial
      expert” 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 Rep** **ort**


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-KSB;


2.
            Discussed
                withWebb
                & 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 fromWebb
                & Company, P.A.as
                required by Independence Standards Board Standard No. 1;
                and


4.
            Discussed
                withWebb
                & 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-KSB for the year ended December 31, 2007. 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.


32


On
      May 2,
      2007, the Registrant received and accepted the letter of resignation from its
      Independent Registered Public Accounting Firm, Salberg & Company, P.A., Boca
      Raton, Florida. The decision to change accountants was by mutual consent because
      of the five years partner rotation requirement of Regulation S-X (17 CFR, Part
      210). The Company has had no disagreements with the former accountant on any
      matter of accounting principles or practices, financial statement disclosure,
      or
      auditing scope or procedure. The Board of Directors and Audit Committee approved
      retaining Webb & Company, P. A., Boynton Beach, Florida as the Company’s
      Independent Registered Public Accounting Firm effective May 2,
      2007.





**Item
      10. 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-KSB. The
      Compensation Committee consists of one member of the board of directors, Bradley
      J. Hallock.





*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.


33


·
            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.





*Committee
      Meetings*


Our
      Compensation Committee meets as often as necessary to perform its duties and
      responsibilities.  The Compensation Committee held eight meetings during
      fiscal 2007. 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
      Ph** **ilosophy**


*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.


34


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.





*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 Pro** **cess**


*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 50 th 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 50 th 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.


35


*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 2007, 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 Compen** **sation**


*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 therefrom.


36


*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.





*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 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*


The
      Company does not maintain an employee retirement plan or a 401(k) plan nor
      do we
      provide any 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. **





*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
      Commi** **ttee
      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-KSB for the year
      ended December 31, 2007.





Submitted
                by:
            Bradley
                J Hallock, ChairmanCompensation
                Committee


37





**Summary
      Compensation Table**


The
      following table sets forth the compensation paid by the Company for the fiscal
      years 2006 and 2007 to the Company’s Chief Executive Officer and two most highly
      compensated executive officers of the Company. During fiscal year 2007, the
      Company changed Chief Executive Officers.







**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
                ($)Russell
                  L. Wall, Former CEO /
              
              
              2007
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -President/Director
                (1)
              
              
              2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Charles
                  R. Baker, Former CEO /
              
              
              2007
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -President
                (2)
              
              
              2006
              
              
              271,764
              
              
              100,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              9,000
              
              
              380,764Mark
                  R. ChandlerFormer
                  COO /
              
              
              2007
              
              
              95,628
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,000
              
              
              101,628CFO
                (3)
              
              
              2006
              
              
              180,000
              
              
              5,000
              
              
              520,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              705,000Clifford
                  Melby, COO (5)
              
              
              2007
              
              
              60,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              60,0002006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -William
                  J. Clough CEO /
              
              
              2007
              
              
              180,000
              
              
              27,000
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              13,000
              
              
              193,000General
                Counsel/Director (4)
              
              
              2006
              
              
              180,000
              
              
              50,000
              
              
              -
              
              
              16,000
              
              
              -
              
              
              -
              
              
              11,000
              
              
              257,000





1.
            Mr.
                Wall was named President/CEO effective November 9, 2006 and also
                served as
                a member of the Company’s Board of Directors. Mr. Wall did not stand for
                re-election to the Board of Directors and stepped down as CEO September
                13, 2007


2.
            Mr.
                Baker joined the Company on June 13, 2005 and stepped down as president
                August 28, 2006. During 2005, per his employment contract, Mr. Baker
                was
                issued by the Company a warrant to purchase 2,000,000 restricted
                common
                shares within three years from date of issuance at a per share price
                of
                $0.01. During 2005 as recognition for services as a Director of the
                Company, Mr. Baker was issued a warrant to purchase 100,000 restricted
                common shares within three years from date of issuance at a per share
                price of $0.75. Per the terms of his employment agreement, Mr. Baker
                was
                paid a one time sign on bonus of $100,000 which was payable upon
                the
                successful completion of an equity round of financing by the Company.


3.
            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.


38


4.
            Mr.
                Clough joined the Company on September 1, 2005. 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. Per the terms of his employment
                agreement, Mr. Clough was paid a one time sign on bonus of $50,000
                which
                was payable upon the successful completion of an equity round of
                financing
                by the Company. Effective September 13, 2007, Mr. Clough was appointed
                CEO/President.


5.
            Mr.
                Melby joined the Company September 2007 as Chief Operating Officer.
                During
                2007 Mr. Melby received restricted common stock valued at $60,000
                for
                services rendered for the months of September, October and November
                2007/





**Outstanding
      Equity Awards at Fiscal Year-end**


The
      following table sets forth the outstanding equity awards at December 31, 2007
      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
              ($)Russell
                L. Wall (1)
            
            
            600,000
            
            
            -
            
            
            -
            
            
            0.25
            
            
            10/6/2009
            
            
            -
            
            
            -
            
            
            -
            
            
            -Charles
                R. Baker (2)
            
            
            2,000,000
            
            
            -
            
            
            -
            
            
            0.01
            
            
            12/5/2010
            
            
            -
            
            
            -
            
            
            -
            
            
            -Charles
                R. Baker (2)
            
            
            100,000
            
            
            -
            
            
            -
            
            
            0.75
            
            
            3/1/2008
            
            
            -
            
            
            -
            
            
            -
            
            
            -Mark
                R. Chandler (3)
            
            
            500,000
            
            
            -
            
            
            -
            
            
            0.25
            
            
            10/6/2009
            
            
            -
            
            
            -
            
            
            -
            
            
            -William
                J. Clough (4)
            
            
            100,000
            
            
            -
            
            
            -
            
            
            0.20
            
            
            2/28/2009
            
            
            -
            
            
            -
            
            
            -
            
            
            -





1.
            In
                recognition for services as a director of the Company, the Board
                of
                Directors during 2004 authorized issuance to Mr. Wall a warrant to
                purchase 700,000 restricted common shares within five years from
                date of
                issuance at a per share price of
                $0.25


2.
            During
                2005, per his employment contract, Mr. Baker was issued by the Company
                a
                warrant to purchase 2,000,000 restricted common shares within three
                years
                from date of issuance at a per share price of $0.01. During 2005
                as
                recognition for services as a Director of the Company, Mr. Baker
                was
                issued a warrant to purchase 100,000 restricted common shares within
                three
                years from date of issuance at a per share price of
                $0.75.


39


3.
            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 issuancea
                per share price of $0.25.


4.
            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.





**Director
      Compensation**




No
      compensation was paid by the Company for fiscal year 2007 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 2007, two executive officers were employed under employment
      agreements with the Company. The following are the employment agreements in
      force during fiscal year 2007 and through the date of this registration
      statement.





President,
      Chief Executive Officer and General Counsel


The
      Company executed an employment contract with William J. Clough, Esq., the
      registrant’s President and Chief Executive Officer and General Counsel. The
      agreement has a term of three years from December 13, 2005. The agreement
      contains provisions: to terminate the employee for “Just Cause” which will
      terminate employee compensation; penalty for termination of employee without
      just cause; medical and dental insurance coverage; employee confidentiality
      and
      non-compete obligations. Mr. Clough’s contract provides for a monthly salary of
      $15,000 plus an automobile allowance of $1,000. Mr. Clough will be paid a one
      time sign on bonus of $50,000.00 upon completion of an equity round of financing
      by the Company. In addition, Clough shall be paid an annual bonus as follows:
      During the first year of employment, a guaranteed bonus equal to twenty-five
      percent (25%) of his annual base salary with the potential of earning up to
      fifty percent (50%) of his annual base salary based upon performance. During
      the
      balance of the contract term, Clough shall be paid a minimum annual bonus of
      at
      least fifteen percent (15%) of his base annual salary with the potential of
      receiving up to twenty-five percent (25%) of his annual base salary based upon
      performance.





Mr.
      Clough is a practicing attorney at law, licensed in state and federal courts
      of
      California, Illinois and Hawaii. In the capacity as General Counsel, Clough
      is
      responsible to direct, implement, control and otherwise manages all legal
      affairs and corporate governance. In the capacity as Executive Vice President
      of
      Corporate Development, Clough is responsible for advising and otherwise working
      with corporate top management relating to corporate funding, acquisitions,
      mergers, product approval and general corporate guidance and oversight of
      operations. Clough reports directly to the Board of Directors.





Chief
      Operating Officer


In
      September 2007 the Company entered into a month to month Employment Agreement
      with Clifford
      L. Melby to serve as the Chief Operating Officer. As
      compensation for services under his Employment Agreement, Mr. Melby is entitled
      to receive a salary calculated at the rate of $15,000 per month which sum shall
      be paid monthly to him by the issuance of Company restricted common stock.
      The
      number of common shares is required to be calculated at the end of each month
      using the average closing per share price for the month for which issuance
      is to
      be made. The common stock is required to be issued before the end of the
      succeeding month.


40


**Item
      11. S** **ecurity
      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-KSB 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.


Common
                  Stock
              
              Series
                  A Convertible Preferred Stock
              
              Series
                  C Convertible Preferred StockName
                  and Address of Beneficial Owner (1)
              
              Number
              
              Percent of Class (2)
              
              Number
              
              Percent of Class (3)
              
              Number
              
              Percent of Class
              
              Percent
                of all
                Voting
                Securities (5)Bradley
                  J. Hallock (5)
              
              
              8,784,540
              
              
              5.49
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              5.49
              %William
                  J. Clough (6)
              
              
              5,051,089
              
              
              3.13
              %
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              3.13
              %Russell
                  L. Wall (7)
              
              
              1,561,493
              
              
              0.99
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              0.99
              %Mark
                  R. Chandler (8)
              
              
              9,405,285
              
              
              5.94
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              5.94
              %Charles
                  R. Baker (9)
              
              
              2,100,000
              
              
              1.31
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              1.31
              %John
                  P. Rouse (10)
              
              
              6,159,838
              
              
              3.90
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              3.90
              %Clifford
                  Melby
              
              
              4,393,956
              
              
              2.78
              %
              
              
              
              
              
              
              
              
              
              
              
              
              
              2.78
              %Tom
                  Price
              
              
              3,000,000
              
              
              1.90
              %
              
              
              
              
              
              
              
              
              
              
              
              
              
              1.90
              %Steven
                  S. Hallock (11)
              
              
              7,724,627
              
              
              4.89
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              4.89
              %Walter/Whitney
                  Miles (12)
              
              
              10,000,000
              
              
              6.26
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              6.26
              %Kjell
                  H. Qvale (13)
              
              
              7,500,000
              
              
              4.75
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              4.75
              %Jerry
                  Ostrin
              
              
              
              
              
              0.00
              %
              
              
              
              
              59.57
              %
              
              
              
              
              
              
              
              *Joel
                  Fedder
              
              
              
              
              
              -
              
              
              
              
              
              33.09
              %
              
              
              
              
              
              
              
              *Officers,
                  Directors, executives as group
              
              
              45,180,828
              
              
              27.15
              %
              
              -
              
              
              -
              
              
              
              
              
              
              
              
              27.14
              %


*
        Less
        than 1 percent


(1)
            Except
                as otherwise indicated, the address of each beneficial owner is c/o
                Waytronx, Inc., 2580 NW Upshur Street, Portland, OR
                97210.


(2)
            Calculated
                on the basis of 156,780,626 shares of common stock issued and outstanding
                at December 31, 2007 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.


41


(3)
              Calculated
                  on the basis of 75,543 shares of Series A Preferred Stock issued
                  and
                  outstanding at December 31,
                  2007.


(4)
            Calculated
                on the basis of an aggregate of 156,780,626 shares of common stock
                with
                one vote per share and 75,543 shares of Series A Preferred Stock
                with one
                vote per share issued and outstanding at December 31, 2007, 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 beneficial ownership of securities of the holder of
                such
                options or warrants.


(5)
            Mr.
                Bradley J. Hallock's common stock shares include 3,100,000 shares
                he has
                the right to purchase pursuant to a warrant. Mr. Hallock’s common stock
                shares include 73,500 shares owned by his IRA
                account.


(6)
            Mr.
                Clough’s common shares include 3,640,485 shares he has the right to
                purchase pursuant to a warrant.


(7)
            Mr.
                Wall’s common stock shares include 700,000 shares he has the right to
                purchase pursuant to a warrant. Mr. Wall’s common stock shares include
                781,493 shares owned by his IRA
                account.


(8)
            Mr.
                Chandler’s common stock shares include 600,000 shares he has the right to
                acquire pursuant to a warrant. Mr. Chandler’s common stock shares include
                1,445,000 shares owned by his IRA account.


(9)
            Mr.
                Baker’s common stock shares include 2,100,000 shares he has the right to
                purchase pursuant to a warrant. Mr. Baker joined the Company on June
                13,
                2005 and stepped down August 28,
                2006.


(10)
            Mr.
                Rouse’s common stock shares include 100,000 shares he has the right to
                purchase pursuant to a warrant. Mr. Rouse’s common stock shares include
                16,500 shares owned by his IRA
                account.


(11)
            Mr.
                Steven S. Hallock’s common stock shares include 100,000 shares he has the
                right to purchase pursuant to a
                warrant.


(12)
            Mr.
                and Mrs. Miles’ common stock share position of 10,000,000 shares
                (including warrants) is comprised of direct entitlement (8,750,000
                shares)
                and related party management (1,250,000 shares) shares. The related
                party
                shares are held by their four sons: Jeffrey (312,500 shares), Joseph
                (312,500 shares), Matthew (312,500 shares), and Scott (312,500 shares).
                Mr. and Mrs. Miles’ direct entitlement and related party management common
                stock shares include 2,000,000 shares they (1,750,000 shares) and
                related
                parties (250,000 shares) have the right to purchase pursuant to a
                warrant.


(13)
            All
                shares are owned by Kjell H. Qvale Survivors Trust.





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.


42




**Employee
      Equity Incentive Plans**





At
      December 31, 2007, the Company had outstanding the following equity compensation
      plan information:


Plan category
              
              Number of securities to be issued upon exercise of outstanding options, warrants and rights
              
              Weighted-average exercise price of outstanding options, warrants and rights
              
              Number of securities remaining available for future issuance under equity compensation plansEquity
                  compensation plans approved by security holders
              
              
              -
              
              
              -
              
              
              1,203,179Equity
                  compensation plans not approved by security holders
              
              
              4,839,001
              
              $
              0.12
              
              
              -Total
              
              
              4,839,001
              
              $
              0.12
              
              
              1,203,179





*Equity
      Compensation Plan Information*


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 (ISOs) 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 (NSOs) to any employee who has been
      employed by the Company for a continuous period of 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, ISOs and NSOs granted under the Plan
      have a maximum duration of 10 years.





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.





The
      Equity Incentive Plan is 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.


43


The Equity
      Incentive Plan
      provides 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 Equity
      Incentive Plan
      have
      a maximum duration of 10 years.





*Equity
      compensation plans not approved by security holders*


The
      Company has outstanding at December 31, 2007, the following options issued
      under
      equity compensation plans not approved by security holders:





During
      2003, the Company issued warrants to the Scientific Advisory Board members
      for
      the right to acquire 75,000 shares of its common stock at an exercise price
      of
      $0.25. The warrants are fully vested and expire during 2008.





During
      2004, the Company issued options to various employees and a director for the
      right to acquire 1,800,000 shares of its common stock at an exercise price
      of
      $0.25. The options are fully vested and expire during 2007 to 2009.





During
      2005, the Company issued options to various employees and a director for the
      right to acquire 2,265,000 shares of its common stock at exercise prices ranging
      from $0.01 to $0.75. The options are fully vested and expire during 2007 to
      2010.





During
      2006, the Company issued options to various employees, directors, consultants
      for the right to acquire 3,594,001 shares of its common stock at exercise prices
      ranging from $0.01 to $0.61. The options expire during 2007 to 2011 are fully
      vested except for 350,000 shares.





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.




**Item
      12. Certain Relationships and Related Transactions**




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
      200 7,
      the
      Company had employment agreements with its senior management. For description
      of
      the employment agreements, see “Executive Compensation” and “Employment
      Agreements”.


44


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. Regarding all of the common shares underlying the warrants,
      the Company was obligated to file a Form SB-2 registration statement with the
      SEC within no more than one hundred twenty (120) days from the date of the
      agreement.





On
      October 4, 2005, the Company paid $50,000 to extend a letter of intent for
      the
      sale and purchase of certain intellectual property. Two
      of
      the current Board of Directors of the Company, Bradley J. Hallock and William
      J.
      Clough, have a controlling interest in the company (CH Capital) that is selling
      the intellectual property. The letter of intent gives 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”.





During
      March 2005, the Company executed a $1.5 million unsecured six-month promissory
      note with a related party, CH Capital. The interest rate was 15% per annum.
      Interest only payments were due monthly until maturity of the note when the
      principal was due. Two of the current Company’s Board of Directors, Bradley J.
      Hallock and William J. Clough, have a controlling interest in CH Capital. The
      Company paid a $2,500 fee to extend this note to November 1, 2005. On October
      31, 2005, substitute convertible promissory notes totaling $1.5 million were
      executed with terms similar to the convertible promissory notes the Company
      had
      outstanding. One former Director of the Company, Steven S. Hallock, participated
      in the substitute notes: promissory note of $1,000,000 held by a trust
      controlled by the director. The note held by the director was converted into
      common shares during 2006.





During
      the third quarter and fourth quarters of 2005, the Company executed three-month
      convertible promissory notes totaling $3.5 million. One of the note holders
      was
      the our
      former COO/CFO, Mark R. Chandler, who had a $100,000 note and another note
      holder is a current Director of the Company, Bradley J. Hallock, who had a
      $100,000 note. The Company amended the notes to extend them for an additional
      six months. During March 2006, the bid price of the Company’s stock exceeded
      $0.35 per share for five consecutive days which was a condition precedent to
      converting the notes to common stock, thus, the $100,000 note of Mark Chandler
      was converted into 400,000 shares of common stock and the $100,000 note of
      the
      director was converted into 400,000 shares of common stock.





During
      the first quarter of 2006, the Company entered into three-month convertible
      promissory notes with several note holders including one current Director and
      one former Director of the Company. Our director, John P. Rouse, had two notes
      totaling $1,100,000 while the former director, Steven S. Hallock, had a note
      in
      the amount of $250,000. During March 2006, the bid price of the Company’s stock
      exceeded $0.35 per share for five consecutive days which was a condition
      precedent to converting the notes to common stock, thus, the notes of the
      director totaling $1,100,000 were converted into 4,400,000 shares of common
      stock and the note of the former director totaling $250,000 was converted into
      1,000,000 shares of common stock.


45


On
      August
      28, 2006 the Company entered into a one-month promissory note for $150,000
      with
      John P. Rouse who is a Director of the Company. Interest on this note accrued
      at
      the rate of 12%. On September 28, 2006 the promissory note was extended an
      additional 30 days with both principal and accrued interest for two months
      due
      October 28, 2006. On November 2, 2006 the Company paid the remaining principal
      and interest due of $153,200 on the promissory note.





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.





**Item
      13. Exhibits and Reports**





*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-KSB as
      well
      as quarterly reports under Form 10-QSB. 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.


46


**EXHIBITS**





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





Exhibit
                No.
            
            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.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, 2003.10.97
            
            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.




47




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.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,
                2007.23.48
            
            Consent
                of Webb & Company, P. A., Independent Registered Public Accounting
                Firm for incorporation by reference of their report into Form 10-KSB
                filed
                herewith.23.58
            
            Consent
                of Salberg & Company, P. A., Independent Registered Public Accounting
                Firm for incorporation by reference of their report into Form 10-KSB
                filed
                herewith.


48


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 18, 2007 announcing a licensing
                agreement with CUI, Inc.


(b)
            A
                report on Form 8-K filed on February 2, 2007 announcing a one year
                licensing and royalty agreement with Thermaltake,
                Inc.


(c)
            A
                report on Form 8-K filed on February 28, 2007 announcing a one year
                licensing and royalty agreement with OCZ,
                Inc.


(d)
            A
                report on Form 8-K filed on May 2, 2007 announcing a change in certifying
                accountant.


(e)
            A
                report on Form 8-K filed on May 15, 2007 announcing a financing agreement
                with Central Finance, LLC and authorization for Series C preferred
                stock.


(f)
            A
                report on Form 8-K filed on June 6, 2007 announcing that Mark Chandler
                is
                no longer the Company CFO.


(g)
            A
                report on Form 8-K filed on July 16, 2007 announcing the appointment
                of
                Corey Lambrecht to our Board of
                Directors.


(h)
            A
                report on Form 8-K filed on September 17, 2007 announcing the resignation
                of Russell L. Wall as CEO and the appointment of William J. Clough
                as
                CEO/President and Clifford Melby as
                COO.


(i)
            A
                report on Form 8-K filed on October 4, 2007 announcing the appointment
                of
                Bradley J. Hallock as Corporate
                Secretary.


(j)
            A
                report on Form 8-K filed on January 7, 2008 announcing the corporate
                name
                change to Waytronx, Inc.





**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, 2007, have been audited by Webb & Company, P. A., Boynton
      Beach, Florida, Independent Registered Public Accounting Firm. Webb &
Company, P. A. billed the Company an aggregate of $21,707,50 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.
      Salberg & Company, P.A. billed the Company an aggregate of $58,000 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, 2006
      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,
      2006.
      Audit related fees for 2007 were $0 and for 2006 were $9,800. The Company paid
      these sums.


49


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.





**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 by the following
      persons on behalf of the Registrant and in the capacities and on the dates
      indicated.





Waytronx,
      Inc.





Name
            
            Title
            
            Date/s/
                William J. Clough
            
            CEO/President/Director
            
            March
                20, 2008William
                J. Clough/s/
                Cynthia M. Wilson
            
            Interim
                CFO/ Principal
            
            March
                20, 2008Cynthia
                M. Wilson
            
            Accounting
                  Officer/s/
                Bradley J Hallock
            
            Audit
                Committee
            
            March
                20, 2008Bradley
                J Hallock


50










**Waytronx,
      Inc.**





**Financial
      Statements**





**December
      31, 2007 and 2006**










Waytronx,
      Inc.





Contents





PageReport
                of Independent Registered Public Accounting Firm
            F-2
                - F3Balance
                Sheet
            F-4Statements
                of Operations
            F-5Statement
                of Changes in Stockholders’ Equity (Deficit)
            F-6
                - F-7Statements
                of Cash Flows
            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 sheet of Waytronx, Inc. as of December 31,
      2007, and the related statements of operations, changes in stockholders' equity
      (deficit), and cash flows for the years ended December 31, 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 audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit 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 audit provides 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. as of December
      31,
      2007 and the results of its operations and its cash flows for the year ended
      December 31, in conformity with accounting principles generally accepted in
      the
      United States of America.





The
      accompanying financial statements have been prepared assuming the Company will
      continue as a going concern. As discussed in Note 1 to the financial statements,
      the Company has a net loss of $5,746,668 and cash used in operations of
      $2,801,937 in 2007 and an accumulated deficit of $48,717,719 at December 31,
      2007. These matters raise substantial doubt about its ability to continue as
      a
      going concern. Management's plans as to 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.


Boynton
      Beach, Florida


March
      20,
      2008




F-2





REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors and Shareholders’ of


Waytronx,
      Inc. (fka Onscreen Technologies, Inc.)





We
      have
      audited the accompanying balance sheet of Waytronx, Inc. (fka Onscreen
      Technologies, Inc.) as of December 31, 2006 and the related statements of
      operations, changes in stockholders' equity and cash flows for the year ended
      December 31, 2006. 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 audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit 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 amount 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 audit provides 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. (fka Onscreen
      Technologies, Inc.) as of December 31, 2006, and the results of its operations
      and its cash flows for the year ended December 31, 2006, in conformity with
      accounting principles generally accepted in the United States of
      America.





The
      accompanying financial statements have been prepared assuming the Company will
      continue as a going concern. As discussed in Note 1 to the financial statements,
      the Company has a net loss of $14,481,333 and cash used in operations of
      $9,398,621 in 2006 and an accumulated deficit of $42,971,052 at December 31,
      2006. These matters raise substantial doubt about its ability to continue as
      a
      going concern. Management's plans as to 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.





SALBERG
      & COMPANY, P.A.


Boca
      Raton, Florida


March
      23,
      2007





F-3


WAYTRONX,
      INC.


BALANCE
      SHEET


DECEMBER
      31, 2007





Assets:Current
                assets:Cash
                and cash equivalents
            
            $
            42,639Accounts
                receivable, net of allowance of $19,803
            
            
            7,000Inventories,
                net
            
            
            88,350Prepaid
                expenses and other
            
            
            20,160Total
                current assets
            
            
            158,149Property
                and equipment, net
            
            
            20,641Other
                assets:Note
                receivable
            
            
            91,500Technology
                rights, net
            
            
            4,321,493Patent
                costs, net
            
            
            654,861Deposits
                and other
            
            
            58,710Total
                other assets
            
            
            5,126,564Total
                assets
            
            $
            5,305,354Liabilities
                and stockholders' equityCurrent
                liabilities:Accounts
                payable
            
            $
            294,327Preferred
                stock dividends payable
            
            
            5,054Accrued
                expenses
            
            
            135,898Accrued
                compensation
            
            
            90,858Deferred
                revenue
            
            
            13,080Convertible
                notes payable, net of discounts of $55,165
            
            
            1,594,834Total
                current liabilities
            
            
            2,134,051Long
                term notes payable
            
            
            100,000Long
                term notes payable - related party
            
            
            1,000,000Total
                liabilities
            
            
            3,234,051Commitments
                and contingencies (Note 6)
            
            
            -Stockholders'
                equity:Preferred
                stock, par value $0.001; 10,000,000 shares authorized
            
            
            -Convertible
                Series A, preferred stock, 5,000,000 shares authorized, 75,543 shares
                issued and outstanding liquidation preference of $75,543 at December
                31,
                2007
            
            
            76Convertible
                Series B preferred stock, 30,000 shares authorized, and no shares
                outstanding at December 31, 2007
            
            
            -Common
                stock, par value $0.001; 200,000,000 shares authorized, 156,780,626
                shares
                issued and outstanding at December 31, 2007
            
            
            156,781Additional
                paid-in capital
            
            
            50,832,165Subscription
                receivable
            
            
            (200,000
            )Accumulated
                deficit
            
            
            (48,717,719
            )Total
                stockholders' equity
            
            
            2,071,303Total
                liabilities and stockholders' equity
            
            $
            5,305,354





See
      accompanying notes to financial statements


F-4


WAYTRONX,
      INC.


STATEMENTS
      OF OPERATIONS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007 AND 2006





2007
            
            2006Revenues:Product
                Sales
            
            $
            157,258
            
            $
            256,688Total
                Revenue
            
            
            157,258
            
            
            256,688Cost
                of revenues
            
            
            2,318,602
            
            
            1,586,823Gross
                profit
            
            
            (2,161,344
            )
            
            (1,330,135
            )Operating
                expensesSelling,
                general and administrative
            
            
            1,888,098
            
            
            6,422,006Research
                and development
            
            
            1,191,854
            
            
            2,661,965Restructuring
                costs
            
            
            -
            
            
            13,967Impairment,net
            
            
            20,971
            
            
            48,711Bad
                debt
            
            
            18,470
            
            
            2,333Total
                operating expenses
            
            
            3,119,393
            
            
            9,148,982Loss
                from operations
            
            
            (5,280,737
            )
            
            (10,479,117
            )Other
                income (expense)Other
                income
            
            
            80,873
            
            
            29,450Other
                expense
            
            
            (3,076
            )
            
            (1,695
            )Investment
                income
            
            
            1,460
            
            
            40,576Change
                in fair value of warrant liability
            
            
            -
            
            
            3,718,543Financing
                fees
            
            
            -
            
            
            (1,268,100
            )Settlement
                gain
            
            
            76,831
            
            
            301,675Settlement
                loss
            
            
            -
            
            
            (2,780,000
            )Interest
                expense - intrinsic value of convertible debt and amortization of
                debt
                discount
            
            
            (338,362
            )
            
            (3,647,451
            )Interest
                expense
            
            
            (283,657
            )
            
            (395,214
            )Total
                other income (expense), net
            
            
            (465,931
            )
            
            (4,002,216
            )Net
                loss
            
            
            (5,746,668
            )
            
            (14,481,333
            )Preferred
                stock dividends
            
            
            -
            
            
            (32,025
            )Net
                loss allocable to common stockholders
            
            $
            (5,746,668
            )
            $
            (14,513,358
            )Basic
                and diluted net loss per common share
            
            $
            (0.04
            )
            $
            (0.13
            )Basic
                and diluted net loss per common share allocable to common
                stockholders
            
            $
            (0.04
            )
            $
            (0.13
            )Weighted
                average common shares outstanding
            
            
            150,921,343
            
            
            115,579,917





See
      accompanying notes to financial statements





F-5


WAYTRONX,
      INC.


STATEMENT
      OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)


YEARS
      ENDED DECEMBER 31, 2007 AND 2006





Series
                ASeries
                B
            
            Preferred
                Stock
            
            Common
                stockPreferred
            
            and
                Preferred
            
            and
                CommonStock
            
            Stock
                Issuable
            
            Stock
                IssuableShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountBalance,
                December 31, 2005
            
            
            -
            
            $
            -
            
            
            1,885,718
            
            $
            1,886
            
            
            70,427,219
            
            $
            70,427Reclassification
                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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            9,635,858
            
            
            9,636Common
                stock issued for services and compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            213,883
            
            
            214Common
                stock issued in conjunction with the conversion of debt
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            54,561,380
            
            
            54,561Beneficial
                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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            837,023
            
            
            837Series
                B Preferred Stock dividends reversal
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Series
                A Preferred Stock issued for services of employee
            
            
            -
            
            
            -
            
            
            250,000
            
            
            250
            
            
            -
            
            
            -Series
                B Preferred Stock issued for services of employee
            
            
            1,000
            
            
            1
            
            
            -
            
            
            -
            
            
            -
            
            
            -Series
                A Preferred Stock converted to common stock
            
            
            -
            
            
            -
            
            
            (2,045,175
            )
            
            (2,045
            )
            
            10,201,875
            
            
            10,202Series
                B Preferred Stock converted to common stock
            
            
            (1,000
            )
            
            (1
            )
            
            -
            
            
            -
            
            
            1,250,000
            
            
            1,250Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss for the year ended December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unrealized
                losses on marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                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
            
            
            111Series
                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, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Unrealized
                losses on marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2007
            
            
            -
            
            $
            -
            
            
            75,543
            
            $
            76
            
            
            156,780,626
            
            $
            156,780





See
      accompanying notes to financial statements





F-6


(continued)





Accumulated
            
            TotalDeferred
            
            Other
            
            Stockholders'Additional
            
            Subscription
            
            Accumulated
            
            Compensation
            
            Comprehensive
            
            EquityPaid-in capital
            
            Receivable
            
            Deficit
            
            and Consulting
            
            Loss
            
            (Deficit)Balance,
                December 31, 2005
            
            $
            25,088,614
            
            $
            -
            
            $
            (28,457,694
            )
            $
            (142,674
            )
            $
            (4,413
            )
            $
            (3,443,854
            )Reclassification
                to equity of accrued compensation payable in stock
            
            
            469,112
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            469,112Warrants
                and options granted for service and compensation
            
            
            8,506,944
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,506,944Reclassification
                of warrant liability, net
            
            
            (3,718,543
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,718,543
            )Common
                stock issued for options and warrants exercised in exchange for cash
                and
                accrued compensation
            
            
            205,723
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            215,359Common
                stock issued for services and compensation
            
            
            8,595
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,809Common
                stock issued in conjunction with the conversion of debt
            
            
            13,040,950
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            13,095,511Beneficial
                conversion value and value of warrants issued with convertible
                debt
            
            
            4,648,065
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,648,065Series
                A Preferred Stock dividends, $0.10 per share
            
            
            -
            
            
            -
            
            
            (49,801
            )
            
            -
            
            
            -
            
            
            (49,801
            )Series
                A Preferred Stock dividends conversion to common stock
            
            
            166,568
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            167,405Series
                B Preferred Stock dividends reversal
            
            
            -
            
            
            -
            
            
            17,776
            
            
            -
            
            
            -
            
            
            17,776Series
                A Preferred Stock issued for services of employee
            
            
            249,750
            
            
            -
            
            
            -
            
            
            (55,550
            )
            
            -
            
            
            194,450Series
                B Preferred Stock issued for services of employee
            
            
            269,999
            
            
            -
            
            
            -
            
            
            (59,999
            )
            
            -
            
            
            210,001Series
                A Preferred Stock converted to common stock
            
            
            (8,157
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Series
                B Preferred Stock converted to common stock
            
            
            (1,249
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            258,223
            
            
            -
            
            
            258,223Net
                loss for the year ended December 31, 2006
            
            
            -
            
            
            -
            
            
            (14,481,333
            )
            
            -
            
            
            -
            
            
            (14,481,333
            )Unrealized
                losses on marketable securities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,413
            
            
            4,413Comprehensive
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (14,476,920
            )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
            
            
            87,786
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            87,786Series
                A Preferred Stock dividends, $0.10 per share
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            -Series
                A Preferred Stock dividends conversion to common stock
            
            
            19,700
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            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
            
            
            -
            
            
            
            
            
            (5,746,667
            )
            
            -
            
            
            -
            
            
            (5,746,667
            )Unrealized
                losses on marketable securities
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -Comprehensive
                loss
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2007
            
            $
            50,832,165
            
            $
            (200,000
            )
            $
            (48,717,719
            )
            
            -
            
            
            -
            
            
            2,071,301





See
      accompanying notes to financial statements




F-7




WAYTRONX,
      INC.


STATEMENTS
      OF CASH FLOWS


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007 AND 2006





2007
            
            2006Cash
                flows from operating activities:Net
                loss
            
            $
            (5,746,667
            )
            $
            (14,481,333
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Warrants
                and notes issued for compensation and services
            
            
            287,356
            
            
            2,220,617Stock
                based settlement loss
            
            
            -
            
            
            2,780,000Non
                cash settlement gain
            
            
            -
            
            
            (150,016
            )Non-cash
                interest expense, amortization of beneficial conversion value and
                warrant
                related debt discounts
            
            
            338,362
            
            
            3,647,450Bad
                debt
            
            
            18,470
            
            
            2,333Write
                down of inventory to lower of cost or market
            
            
            2,048,538
            
            
            1,245,431Amortization
                of technology rights
            
            
            238,408
            
            
            182,010Amortization
                of patent costs
            
            
            7,625
            
            
            -Amortization
                of website development
            
            
            3,578Amortization
                of deferred consulting and compensation
            
            
            -
            
            
            258,223Amortization
                of deferred financing fees
            
            
            -
            
            
            381,050Gain
                on disposal of assets
            
            
            (17,029
            )
            
            -Loss
                on sale of marketable securities
            
            
            -
            
            
            4,413Impairment
                of long-lived assets
            
            
            -
            
            
            48,711Compensation
                and services expense payable in common stock
            
            
            40,000
            
            
            363,680Depreciation
            
            
            49,922
            
            
            126,348Increase
                in Warrant Liability
            
            
            -
            
            
            (3,718,543
            )Other
            
            
            -
            
            
            -(Increase)
                decrease in assets:Accounts
                receivable and other receivables
            
            
            (14,175
            )
            
            (160
            )Inventory
            
            
            (11,153
            )
            
            (2,815,909
            )Note
                Receivable
            
            
            23,500
            
            
            (115,000
            )Prepaid
                expenses and other current assets
            
            
            121,314
            
            
            13,966Deposits
                and other assets
            
            
            (40,115
            )
            
            70,804Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            (186,633
            )
            
            587,725Accrued
                expenses
            
            
            2,984
            
            
            (19,031
            )Accrued
                compensation
            
            
            (9,142
            )
            
            (30,310
            )Deferred
                revenues
            
            
            4,820
            
            
            (1,080
            )Deferred
                gain on sale of future revenues
            
            
            -
            
            
            -Net
                cash used in operating activities
            
            
            (2,840,037
            )
            
            (9,398,621
            )Cash
                flows from investing activities:Investment
                in technology rights
            
            
            (50,000
            )
            
            (800,000
            )Investment
                in patents
            
            
            (79,521
            )
            
            (153,869
            )Proceeds
                from sales of marketable securities
            
            
            -
            
            
            31,291Proceeds
                from sale of property and equipment
            
            
            48,705
            
            
            -Purchase
                of property and equipment
            
            
            -
            
            
            (25,150
            )Net
                cash used in investing activities
            
            
            (80,816
            )
            
            (947,728
            )Cash
                flows from financing activities:Series
                A convertible preferred stock dividends paid
            
            
            -
            
            
            (124
            )Proceeds
                from notes and loans payable, net of expenses
            
            
            357,500
            
            
            10,499,950Proceeds
                from notes or loans payable, related party
            
            
            1,000,000
            
            
            -Payments
                on notes and loans payable
            
            
            (80,000
            )
            
            (525,475
            )Proceeds
                from sales of common stock and exercise of warrants and options,
                net of
                offering costs
            
            
            1,115,492
            
            
            215,358Net
                cash provided by financing activities
            
            
            2,392,992
            
            
            10,189,709Cash
                and cash equivalents at beginning of year
            
            $
            570,501
            
            $
            (156,640
            )Cash
                and cash equivalents at end of year
            
            
            42,639
            
            
            727,141Net
                increase in cash and cash equivalents
            
            $
            (527,862
            )
            $
            570,501


F-8


(continued)




Supplemental
                disclosure of cash flow information:Interest
                paid
            
            $
            155,642
            
            $
            386,915Income
                taxes paid
            
            $
            -
            
            $
            -Supplemental
                disclosure of non-cash investing and financing activities:Debt
                and accrued liabilities settled/paid with common stock, net of
                subscriptions receivable
            
            $
            -
            
            $
            -Discount
                on debt for intrinsic value of convertible notes payable
            
            $
            87,786
            
            $
            4,987,618Other
                comprehensive loss from unrealized loss
            
            $
            -
            
            $
            (4,413
            )Termination
                of warrant and common stock returned
            
            $
            -
            
            $
            -Common
                stock issued for conversion of Series A preferred stock and
                dividends
            
            $
            22,314
            
            $
            1,920Common
                stock issued for conversion of Series B preferred stock
            
            $
            -
            
            $
            1Common
                stock issued for accrued expense settlements
            
            $
            -
            
            $
            20,150Common
                stock issued for deferred consulting and compensation
            
            $
            25,000
            
            $
            -Common
                stock issued for services and compensation
            
            
            281,900Common
                stock issued for the conversion of debt
            
            $
            177,500
            
            $
            13,095,511Value
                of warrants paid for intangible technology rights
            
            $
            -
            
            
            3,520,243Accounts
                payable converted to note payable
            
            $
            -
            
            
            375,475Common
                stock issued to settle accrued preferred stock dividends
            
            $
            22,299
            
            
            167,405Accrual
                of preferred stock dividends
            
            $
            -
            
            
            32,025Reclassification
                of common stock payable to equity
            
            $
            -
            
            
            469,112





See
      accompanying notes to financial statements




F-9




**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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.




The
      accompanying financial statements have been prepared on the assumption that
      Waytronx will continue as a going concern. As reflected in the accompanying
      financial statements, we had a net loss of $5,746,668 and cash used in
      operations of $2,801,937 for the year ended December 31, 2007, and an
      accumulated deficit of $48,717,719 at December 31, 2007. 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. The financial statements do not include any
      adjustments that may result from the outcome of this uncertainty.





We
      are
      continuing to raise additional capital which we believe will provide sufficient
      cash to meet the funding required to commercialize our technology product lines
      during 2008. As we continue to expand and develop technology and product lines,
      additional funding will 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 and 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 2007 and 2006 include estimates used to review
      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.





Cash
      and Cash Equivalents





For
      purposes of reporting cash flows, cash and cash equivalents includes all highly
      liquid investments with maturities of three months or less at the time of
      purchase.


F-10





**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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 $19,803 at December 31, 2007 is considered adequate. Receivables
      are
      determined to be past due based on the payment terms of original
      invoices.





Inventory




Inventories
      are stated at the lower of cost (first-in, first-out basis) or market. At
      December 31, 2007 inventory is valued at $88,350. During 2007 $2,048,538 of
      inventories were written off and included in cost of revenues on the Statement
      of Operations.





Concentration
      of Credit Risk




Cash
      is
      maintained in bank deposit and financial institution deposit accounts, which,
      at
      times, exceed federally insured limits. We have not experienced any losses
      in
      such accounts through December 31, 2007.





Property
      and Equipment





Property
      and equipment are recorded at the lower of fair value or cost, less accumulated
      depreciation and amortization. Major additions are capitalized. Minor additions
      and maintenance and repairs which do not extend the useful life of an asset
      are
      charged to operations when incurred. When property and equipment are sold or
      otherwise disposed of, the asset and related accumulated depreciation accounts
      are relieved, and any gain or loss is included in operations. Depreciation
      is
      primarily accounted for using the straight-line method over the assets’
estimated useful lives of three to seven years. Estimated useful lives are
      periodically reviewed and changes made prospectively where appropriate.





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. There was no impairment recorded in 2007; see Note 3 for the
      impairment amounts that were recorded during 2006.





Identifiable
      Intangible Assets





As
      of
      December 31, 2007, $4,892,743 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, 2007, $668,204 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.


F-11


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





Accounting
      for Derivatives





Convertible
      debt, options, warrants or other contracts are evaluated to determine if those
      contracts or embedded components of those contracts qualify as derivatives
      to be
      separately accounted for under Statement of Financial Accounting Standards
      133
“Accounting for Derivative Instruments and Hedging Activities” and related
      interpretations including EITF 00-19 “Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”.





The
      result of this accounting treatment is that the fair value of the embedded
      derivative is marked-to-market at each balance sheet date and recorded as a
      liability.  In the event that the fair value is recorded as a liability,
      the change in fair value is recorded in the consolidated statement of operations
      as other income or expense.  Upon conversion or exercise of a derivative
      instrument, the instrument is marked to fair value at the conversion date and
      that fair value is reclassified to equity. Equity instruments that are initially
      classified as equity that become subject to reclassification under SFAS 133
      are
      reclassified to liability at the fair value of the instrument on the
      reclassification date.





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. During 2006, all employee
      stock compensation was 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 was recognized for that
      portion of the award for which the requisite service was rendered on or after
      January 1, 2006. The fair value for these awards is 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).





See
      Note
      7, 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.


F-12


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





Revenue
      Recognition





Revenue
      from products is recognized when persuasive evidence of an arrangement exists,
      the product(s) has been shipped, collectability is reasonably assured and the
      price is fixed or determinable. In the event that the contract provides for
      multiple elements (e.g., products, installation and training), the total amount
      invoiced is allocated to these elements based on “vendor-specific objective
      evidence” of fair value. If any portion of the revenue is subject to forfeiture,
      refund or other contractual contingencies, revenue recognition will be postponed
      until these contingencies have been removed. Installation and training services
      are generally accounted for separately from product revenue for those
      multi-element arrangements where services are a separate element and are not
      essential to the customer’s functionality requirements, and there is
“vendor-specific objective evidence” of fair value for these services.
      Installation and education services revenue, is recognized when the service
      has
      been performed.





Revenue
      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.





Any
      rental income from the LED truck is recorded pro-rata as earned over the rental
      period.





Shipping
      and Handling Costs





Amounts
      invoiced to customers for shipping and handlings are included in revenues. 
Actual shipping and handling costs to ship products to our customers are
      included in cost of revenues, and were approximately $2,000 and $15,000 for
      the
      years ended December 31, 2007 and December 31, 2006, respectively.





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,
      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,
      2007 and 2006 was $0, and $43,068, respectively.


F-13


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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 our 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 2007
      and 2006 based on uncertainties concerning the ability to generate taxable
      income in future periods. There was no income tax receivable at December 31,
      2007 and 2006. 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, 2007 and 2006, 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 2007 and 2006. The following table
      summarizes the potential common stock shares at December 31, 2007 and 2006,
      which may dilute future earning per share.




2007
            
            2006Convertible
                preferred stock
            
            
            402,986
            
            
            497,987Warrants
                and options
            
            
            23,544,373
            
            
            25,613,757Convertible
                debt
            
            
            8,250,000
            
            
            8,250,00032,197,359
            
            
            34,361,744


F-14


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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
      accounts receivable, notes payable and current liabilities reflected in the
      accompanying balance sheet approximate fair value at December 31, 2007 due
      to
      the relatively short-term nature of these instruments.





Recent
      Accounting Pronouncements








In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* ”.
      The
      objective of SFAS 157 is to increase consistency and comparability in fair
      value
      measurements and to expand disclosures about fair value measurements. SFAS
      157
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. SFAS 157 applies under other accounting pronouncements
      that
      require or permit fair value measurements and does not require any new fair
      value measurements. The provisions of SFAS No. 157 are effective for fair value
      measurements made in fiscal years beginning after November 15, 2007. The
      adoption of this statement is not expected to have a material effect on the
      Company's future reported financial position or results of
      operations.





FASB
      Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements
      (“FSP EITF 00-19-2”):  In December 2006, the FASB issued. FSP EITF 00-19-2
      which specifies that the contingent obligation to make future payments or
      otherwise transfer consideration under a registration payment arrangement,
      whether issued as a separate agreement or included as a provision of a financial
      instrument or other agreement, should be separately recognized and measured
      in
      accordance with FASB Statement No. 5, Accounting for Contingencies. A
      registration payment arrangement is defined in FSP EITF 00-19-2 as an
      arrangement with both of the following characteristics: (1) the arrangement
      specifies that the issuer will endeavor (a) to file a registration
      statement for the resale of specified financial instruments and/or for the
      resale of equity shares that are issuable upon exercise or conversion of
      specified financial instruments and for that registration statement to be
      declared effective by the US SEC within a specified grace period, and/or
      (b) to maintain the effectiveness of the registration statement for a
      specified period of time (or in perpetuity); and (2) the arrangement
      requires the issuer to transfer consideration to the counterparty if the
      registration statement for the resale of the financial instrument or instruments
      subject to the arrangement is not declared effective or if effectiveness of
      the
      registration statement is not maintained. FSP EITF 00-19-2 is effective for
      registration payment arrangements and the financial instruments subject to
      those
      arrangements that are entered into or modified subsequent to December 31,
      2006. For registration payment arrangements and financial instruments subject
      to
      those arrangements that were entered into prior to the issuance of FSP EITF
      00-19-2, this guidance is effective for financial statements issued for fiscal
      years beginning after December 15, 2006, and interim periods within those
      fiscal years. The adoption of FSP EITF 00-19-2 has not had a material impact
      on
      our financial statements.


F-15


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





In
      February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
      No.
      159, “ *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115* ”.
      This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. Most of the provisions of SFAS No. 159 apply
      only to entities that elect the fair value option. However, the amendment to
      SFAS No. 115 “ *Accounting
      for Certain Investments in Debt and Equity Securities* ”
applies
      to all entities with available-for-sale and trading securities. SFAS No. 159
      is
      effective as of the beginning of an entity’s first fiscal year that begins after
      November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
      year that begins on or before November 15, 2007, provided the entity also elects
      to apply the provision of SFAS No. 157, “ *Fair
      Value Measurements”.* The
      adoption of this statement is not expected to have a material effect on the
      Company's financial statements.





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.





Reclassifications





Certain
      amounts in the 2006 financial statements have been reclassified to conform
      to
      the 2007 presentation.





Segments





Waytronx
      operates as one segment. All internal analysis and financial reporting by
      management is performed as one segment.


F-16


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





3.  PROPERTY
      AND EQUIPMENT, NET





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





Equipment
            
            
            57,146Computers
                and software
            
            
            29,07486,220Less
                accumulated depreciation
            
            
            (65,579
            )$
            20,641





Depreciation
      expense for the years ended December 31, 2007 and 2006 was $49,922 and $126,348,
      respectively.





During
      2006, management evaluated the recovery of the recorded value of the LED Truck
      and determined that, since no revenue was received from this truck during 2006,
      and the fair value of the truck was less than the net book value of the truck,
      there was an impairment loss of $48,214 which was included in operating expenses
      on the Statements of Operations. During 2007 this truck was sold for $38,000
      and
      a gain on sale of assets was recorded.





4.  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.





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 two directors and officers
      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, 2007 were as follows:





Technology
                Rights
            
            $
            4,892,743Accumulated
                Amortization
            
            
            (571,250
            )$
                4,321,493





Amortization
      of the technology rights during 2007 and 2006 was $238,408 and $182,009,
      respectively. The estimated annual amortization expense is $239,500 for each
      for
      the next four years. Management
      has evaluated the technology rights for impairment and based upon its projected
      cash flow analysis from this technology believes there is no impairment of
      these
      technology rights at December 31, 2007.


F-17


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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





Convertible
      notes payable and debt discounts as of December 31, 2007 and activity during
      2007 are summarized as follows:





**Original**
            
            **Notes**
            
            **Notes**
            
            **Balance****Principal**
            
            **Converted**
            
            **Repaid**
            
            **12/31/07**Balance
                at 12/31/2006
            
            
            1,650,000
            
            
            -
            
            
            -
            
            
            1,650,000New
                notes in 2007
            
            
            177,500
            
            
            177,500
            
            
            -
            
            
            -Total
            
            
            1,827,500
            
            
            177,500
            
            
            -
            
            
            1,650,000





**Beneficial****Conversion**
            
            
            
            **Reclassification**
            
            **BCF Discount****Feature**
            
            **Amortization**
            
            **to
                Equity**
            
            **12/31/07**Balance
                at 12/31/2006
            
            
            204,111
            
            
            (159,717
            )
            
            -
            
            
            44,394New
                notes in 2007
            
            
            71,476
            
            
            (71,476
            )
            
            -
            
            
            -Total
            
            
            275,587
            
            
            (231,193
            )
            
            -
            
            
            44,394





**Warrant Value****Warrant**
            
            
            
            **Reclassification**
            
            **Discount****Value**
            
            **Amortization**
            
            **to
                Equity**
            
            **12/31/07**Balance
                at 12/31/2006
            
            
            101,631
            
            
            (90,860
            )
            
            -
            
            
            10,771New
                notes in 2007
            
            
            16,310
            
            
            (16,310
            )
            
            -
            
            
            -Total
            
            
            117,941
            
            
            (107,170
            )
            
            -
            
            
            10,771Unamortized
                discount at 12/31/2007
            
            
            
            
            
            
            
            
            
            
            
            (55,165
            )Convertible
                notes payable, net at 12/31/2007
            
            
            
            
            
            
            
            
            
            
            
            1,594,835





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-18


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





On
      January 30, 2006, a non-convertible promissory note was entered into with a
      vendor for $375,475. The payment terms were $50,000 every two weeks for a total
      of seven payments and an eighth payment of $25,475 on May 12, 2006. At June
      30,
      2006, this note was paid off.





During
      February 2006, three-month convertible promissory notes were entered into with
      proceeds of $200,000, and with the option to extend these notes for an
      additional three-month period. Also during the first quarter of 2006, unsecured
      six-month convertible promissory notes totaling $5.1 million were executed
      with
      an interest rate of 12% per annum. For $200,000 of notes, the note holders
      had
      the right to convert the note to common stock at the lower of the exercise
      price
      of $0.25 per share or the price set for the equity round. For the $5.1 million
      of notes, the shares will convert to common stock if the bid price reaches
      or
      exceeds $0.35 for five consecutive days, then the notes will convert at $0.25
      per share or the note holder could elect at any time to convert the note at
      $0.25 per share to common stock shares. The beneficial conversion intrinsic
      value related to the convertible feature of the debt was valued at $814,237
      and
      amortized over the three- to six-month term of the notes. For each note, the
      note holder received a warrant of one share of common stock for each $1 of
      note
      principal. The proceeds of the note were allocated to the note and warrants
      based upon the fair market value of each. This resulted in a discount on notes
      of $897,061 relating to the warrants which was amortized over the three- to
      six-month term of the notes. Interest only payments are due monthly until the
      maturity of this note at which time the principal is due. If the note is paid
      prior to the maturity date or the extended maturity date, interest is required
      to be paid for the entire three- or six-month periods. The holders of the
      convertible notes have a security interest to the extent of their principal
      and
      interest in all assets currently owned including the patent
      portfolio.





In
      February 2006 certain notes that were issued in 2005 with principal amounts
      of
      $4,950,000 were amended to extend the notes for an additional six months. The
      terms of the amended notes included automatic conversion to shares of common
      stock if the bid price reaches or exceeds $0.35 for five consecutive days.
      The
      notes would then convert at $0.25 per share. In addition a warrant for 1 share
      of common stock for every $1.00 of note principal balance was given to the
      note
      holders. These warrants were recorded as a discount to debt at their fair market
      value of $898,500 and amortized over the term of the notes.





During
      March 2006, the stock bid price exceeded $0.35 per share for five consecutive
      days and convertible debt totaling $10,050,000 was converted into 40,200,000
      shares of common stock. For those convertible debt instruments that had a
      beneficial conversion feature, interest expense of $1,362,093 was recorded
      related to the remaining intrinsic value of convertible debt and amortization
      of
      debt discount of the notes at the time the debt was converted into common stock.
      For those convertible debt instrument that did not have a beneficial conversion
      feature, the unamortized debt discount of $1,012,102 was recorded as a credit
      to
      equity at the time of conversion pursuit to EITF 98-5.





On
      April
      4, 2006, $250,000 of convertible unsecured notes was converted into 1,000,000
      shares of common stock at $0.25 per share. Interest expense of $127,500 related
      to the remaining intrinsic value of convertible debt and amortization of debt
      discount of the notes was recorded at the time the debt was
      converted.


F-19


In
      summary as of June 30, 2006 the convertible debt totaling $10,300,000 was
      converted into 41,200,000 shares of common stock.





On
      May
      19, 2006 a promissory note of $500,000 was entered into. Interest on this note
      accrues at the rate of 10% per annum and is payable at the time the note was
      paid in full. The note was payable when a proposed offering of securities,
      with
      the note holder as placement agent, closes, or, in the event that the proposed
      offering did not close on or before the close of business on October 31, 2006,
      thirty days after demand for payment from the holder. This note was not
      convertible. The note holder agreed to accept 1,828,517 shares of common stock
      at the then current stock price as payment of the principal balance and accrued
      interest of $26,613. Accordingly no gain or loss was recognized for this
      transaction. These shares were issued on December 4, 2006.





On
      May
      15, 2006 a promissory note was entered into with a shareholder for $1,000,000.
      Interest accrues at 12% per annum, payable monthly, with the first interest
      payment of $10,000 due June 5, 2006. The principal was payable in one
      installment on November 15, 2007. The note holder has the right to convert
      the
      note into common stock at the greater of a per share price equal to 80% of
      the
      average closing bid price of the stock for 10 days preceding the conversion
      date, or $0.20. These conversion terms are pursuant to an amendment as of
      September 28, 2006. Prior to the amendment, the embedded conversion option
      qualified as a derivative since the conversion rate was variable as there was
      no
      floor on the conversion price (see further discussion in Note 8). Accordingly,
      pursuant to FASB 155, this note was recorded at its fair value of $1,000,000
      as
      of the issuance date. Unamortized debt discount as of December 31, 2006 was
      $52,439. Waytronx did not repay this note on the due date and is currently
      in
      default on the note. The noteholder has verbally agreed to extend the term
      of
      the note at the same interest rate.





On
      August
      28, 2006 Waytronx entered into a one-month non-convertible promissory note
      with
      a director for $150,000. Interest on this note accrues at the rate of 12%.
      On
      September 28, 2006 the promissory note was extended an additional 30 days with
      both principal and accrued interest for two months due by October 28, 2006.
      This
      note was paid as of December 31, 2006.





During
      August 2006, unsecured eighteen-month convertible promissory notes were entered
      into totaling $486,000. Interest accrues at 12% per annum, payable monthly,
      until the maturity of these notes at which time the principal is due. The note
      holder has the right to convert the note to the common stock at the greater
      of a
      per share price equal to 80% of the average closing bid price of the stock
      for
      10 days preceding the conversion date, or $0.20. During September and October
      2006, note holders converted $486,000 of these notes into common
      stock.





During
      September 2006, unsecured eighteen-month convertible promissory notes totaling
      $240,000 were entered into. Interest accrues at 12% per annum, payable monthly,
      until the maturity of these notes at which time the principal is due. The note
      holder has the right to convert the note to the common stock at the greater
      of a
      per share price equal to 80% of the average closing bid price of the stock
      for
      10 days preceding the conversion date, or $0.20. During September and October
      2006, note holders converted $140,000 of these notes into common stock.
      Unamortized debt discount as of December 31, 2006 was $40,378.


F-20


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      October 2006, unsecured eighteen-month convertible promissory notes totaling
      $3,205,000 were entered into. Interest accrues at 12% per annum, payable
      monthly, until the maturity of these notes, at which time the principal is
      due.
      The note holder has the right to convert the note to common stock at the greater
      of a per share price equal to 80% of the average closing bid price of the stock
      for 10 days preceding the conversion date, or $0.20. During October 2006, note
      holders converted $2,655,000 of these notes into common stock. Unamortized
      debt
      discount as of December 31, 2007 is $55,165.





During
      2007, eighteen-month secured convertible promissory notes were entered into
      totaling $177,500. Interest accrues at 12% per annum, payable monthly, until
      the
      maturity of these notes at which time the principal is due. The note holder
      has
      the right to convert the note to the Company’s common stock at the greater of a
      per share price equal to 80% of the average closing bid price of the stock
      for
      10 days preceding the conversion date or $0.20. During 2007, note holders
      converted $177,500 of the notes into common stock.





During
      2007, twenty-four month secured promissory notes were entered into and proceeds
      received totaling $1,100,000. $1,000,000 of the proceeds was from a related
      party. (See Note 9) Interest accrues at 12% per annum, payable monthly,
      until the maturity of these notes at which time the principal is due.





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.





Later2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            YearsNote
                Payable Maturities:
            
            $
            1,650,000
            
            $
            1,100,000
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -





6.  COMMITMENTS
      AND CONTINGENCIES





Legal
      Matters





Waytronx
      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.


F-21





**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





Royalty
      and License Fee Agreements





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




Employment
      Agreements





*Corporate
      Secretary, General Counsel and Executive Vice President of Corporate
      Development*


On
      December 12, 2005, Waytronx executed an agreement with the Corporate Secretary,
      General Counsel and Executive Vice President of Corporate Development
      (“Corporate Secretary”) that expires November 21, 2008. The Corporate
      Secretary’s annual salary is $180,000. The Corporate Secretary is eligible to
      receive a one-time sign-on bonus of $50,000 upon completion of an equity round
      of financing. The Corporate Secretary is also eligible for annual bonuses with
      a
      minimum 25% bonus of his salary and the potential to receive up to 50% bonus
      of
      his salary.





*Director
      of Administration*


In
      accordance with the Director of Administration’s employment agreement, he is
      paid an annual salary of $75,000 and a stock bonus of common stock equal in
      value to $25,000 within two and one-half months after the end of each year
      he is
      employed. The employment agreement expires May 21, 2008. At December 31, 2007,
      $25,000 was accrued related to the common stock bonus that is to be issued
      per
      his agreement for his 2007 service period.





Leases





On
      October 15, 2004 a five year lease was signed with Safety Harbor Centre,
      commencing December 1, 2004 and ending on November 30, 2009, for an office
      suite
      at a monthly rental of $2,814 (plus a pro rata share of common area maintenance
      and taxes).





Effective
      November 11, 2005, the corporate home office was relocated to 600 NW 14th
      Avenue, Suite 100, Portland, Oregon 97209, and a field office retained in Safety
      Harbor, Florida. In October 2005, a lease was signed with Market Place I &
II, LLC for 7,500 square feet of office space in Portland, beginning November
      1,
      2005 and ending December 31, 2010. This lease is renewable for an additional
      five years at Waytronx’s option. The initial monthly base rent is $9,062.50 for
      December 2005 through October 2007, thereafter the rent increases
      slightly.





In
      February of 2008 this lease was terminated by mutual agreement in exchange
      for
      the release of Waytronx from any liability for future rents, with a termination
      payment of $22,000.





Rental
      expense was $220,290 and $295,863 in 2007 and 2006, respectively, and is
      included in selling, general and administrative on the statement of operations.





Later2008
            
            2009
            
            2010
            
            2011
            
            2012
            
            YearsOperating
                Leases:
            
            $
            33,768
            
            $
            30,954
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -


F-22


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





Consulting
      Agreements





In
      February 2006, an agreement was entered into with a consultant to provide
      research and development services with a monthly fee of $50,000 over a one-year
      period. In October 2006 this agreement was modified to change the monthly fee
      to
      $15,000 and extend the term of the agreement for a period of one year from
      the
      date of modification.





In
      April
      2006, an agreement was entered into with a consultant to provide research and
      development services with a monthly fee of $15,000 over a one-year period.
      In
      October 2006 this agreement was modified to change the monthly fee to $25,000
      and extend the term of the agreement for a period of one year from the date
      of
      modification.





In
      June
      2006, an agreement was entered into with a consultant to provide sales and
      marketing services for a monthly fee of $15,000. This agreement was terminated
      in December 2006.





In
      July
      2006, an investor relations agreement was entered into for monthly fees of
      $10,000 plus expenses and to grant options for the purchase of up to 200,000
      shares of common stock at exercise prices ranging from $0.60 to $1.05 per
      share.





On
      January 1, 2007, an agreement was entered into with a consultant to provide
      research and development services. For these services, the consultant is 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
      is
      paid a fee of $120,000 in quarterly installments. In addition, the consultant
      has the ability to earn up to 1,500,000 shares of common stock for goals
      achieved per the agreement.





7.  STOCKHOLDERS’
      EQUITY





**** Convertible
      Preferred Stock 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.


F-23




**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      2006, 250,000 shares of Series A convertible preferred stock were issued to
      the
      CFO in accordance with his employment agreement. The 250,000 shares of Series
      A
      convertible preferred stock were valued at $1.00 per share based on
      contemporaneous cash sales around the grant date. The value of these shares
      of
      $250,000 was expensed over the requisite service period through December 2006.
      During July 2006, 125,000 shares of the Series A convertible preferred were
      converted into 625,000 shares of common stock at the conversion ratio of four
      common plus one bonus share for each share of Series A Preferred. The balance
      of
      125,000 shares due was issued and immediately converted into 625,000 shares
      of
      common stock using the same conversion ratio and included in the statement
      of
      changes in stockholders equity in “series A Preferred stock issued for service
      of employees”.





During
      2006, 24,000 shares of Series A convertible preferred stock were converted
      into
      96,000 shares of common stock at the request of certain Series A convertible
      preferred stock holders.





During
      2006, 1,896,175 shares of the Company’s Series A convertible preferred stock
      were converted into 9,480,875 shares of common stock at the request of certain
      Series A convertible preferred stock holders. The conversion ratio was four
      common plus one common bonus share for each share of Series A Preferred. Accrued
      dividends of approximately $167,405 were also converted into 837,023 shares
      of
      common stock at a per share price of $0.20 for those shareholders who elected
      to
      convert accrued dividends to common shares.





During
      2006, Series A convertible preferred stock dividends of $49,801 were
      recorded.





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.





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. On the Balance Sheet, the shares
      issued are higher than the shares outstanding due to the conversion of the
      Series B to common stock.





During
      2006, 1,000 shares of Series B convertible preferred stock were issued to the
      CFO in accordance with his employment agreement. The 1,000 shares of Series
      B
      convertible preferred stock were valued at $270 per share based on
      contemporaneous cash sales around the grant date. The value of these shares
      of
      $270,000 was expensed over the requisite service period. During 2006, 500 shares
      of Series B convertible preferred were converted into 625,000 shares of common
      stock at the conversion ratio of 1,000 common plus 250 common bonus shares
      for
      each share of Series B Preferred. The balance of 500 shares due was issued
      and
      immediately converted into 625,000 shares of common stock using the same
      conversion ratio and included in the statement of changes in stockholders equity
      in “Series B Preferred stock issued for services of employee”.


F-24


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      2006, Series B convertible preferred stock dividends of $125 were recorded
      and
      paid and reversed prior accrued dividends payable of $17,900 per agreement
      with
      the Series B stockholders due to the conversion of the preferred stock for
      a net
      effect of $17,776.





Convertible
      Preferred Stock Series C





The
      Company authorized for issuance 10,000 shares of Preferred stock, designated
      as
      Series C Preferred Stock, 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 Preferred stock at any time, up to the number of
      Series C Preferred 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
      2006, 100,000 shares of common stock were issued for investor relations
      services. These shares were valued at $20,000 based upon the $ 0.20 per share
      quoted market price of the stock on the date of grant and this was recorded
      as
      and administrative expense during 2006





During
      2006, 113,883 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 of $0.2195 per share at December 31, 2005, in
      accordance with the employee’s employment agreement.





During
      2006, $10,300,000 of convertible unsecured notes was converted into 41,200,000
      shares of common stock at $0.25 per share. Related debt discounts of $1,012,102
      for convertible debt with no beneficial conversion feature at the issuance
      date
      were charged to additional paid in capital.





During
      2006, warrants were exercised and issued for 7,775,000 shares of common stock
      at
      a price of $0.01.





During
      2006, $3,281,000 of convertible unsecured notes was converted into 11,532,863
      shares of common stock at prices ranging from $0.27 to $0.30 per
      share.





During
      2006, warrants were exercised and issued for 220,858 shares of common stock
      at a
      price of $0.01.


F-25


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      2006 warrants for 940,000 shares common stock issued to former employees were
      exercised at a price of $0.01 per share.





During
      2006 the Chief Financial Officer exercised a warrant for 100,000 shares common
      stock at a price of $0.25 per share.





During
      2006, 500,000 shares of common stock were issued at $0.20 per share under
      Employee Equity Ownership agreements.





During
      2006 1,828,517 shares of common stock were issued as payment of $526,613 in
      principal and interest due to a noteholder.





During
      2006, 100,000 shares of common stock were issued for sales and marketing
      services. These shares were valued at $20,000 based on the quoted market price
      of the stock on the date of grant and were recorded as consulting expenses
      during 2006.





Based
      upon employment agreements for which requisite services had been performed
      by
      January 1, 2006 when SFAS 123(R) was implemented, $469,112 was reclassified
      from
      a liability account. It had previously been recorded as accrued expense payable
      with common stock recorded on the balance sheet. An additional $222,563 of
      compensation expense was also recorded for stock that is to be issued based
      upon
      employment agreements for which requisite services had been performed as of
      December 31, 2006. The total amount is included in the statement of changes
      in
      stockholders’ equity in “common stock issued for services, compensation and
      accrued settlement”.





During
      the year ended December 31, 2006, $340,840 of consulting expense was recorded
      for stock warrants for non-employees to acquire 698,001 shares of common stock
      for services provided. The value was based upon fair market value of the options
      using the Black-Scholes option model.





On
      June
      29, 2006, shareholder approval was obtained to increase the number of authorized
      common stock shares from 150,000,000 to 200,000,000.





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
      Convertible Preferred stock was valued at $1.00 per share based on
      contemporaneous cash sales. The 500 shares of Series B Convertible Preferred
      stock was 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 Convertible A and B Preferred
      stock 1,250,000 shares of its Common Stock were issued.


F-26


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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.





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 of common shares 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
      Preferred.





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% to 2.03%. At December 31, 2006, 75,000 of these warrants were
      outstanding.





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% to 4.70%.


F-27


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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. As of December 31, 2006 7,995,858 shares of common
      stock have 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 $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% to 5.00%.





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% to 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% to 5.05%. Warrant expense was recognized at date of grant. As
      of
      December 31, 2006 100,000 shares of common stock has been issued for the
      exercise of these warrants.





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 is $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
      the
      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 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 have 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% to 4.90%.


F-28


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





A
      summary
      of the warrants issued to non-employees for services as of December 31, 2007
      and
      2006 and changes during the years is presented below:








2007
            
            2006Number
                of
              Warrants
            
            Weighted
              Average
              Exercise
              Price
            
            Number
                of
              Warrants
            
            Weighted
              Average
              Exercise
              PriceBalance
                at beginning of period
            
            
            20,150,257
            
            $
            0.19
            
            
            75,000
            
            $
            0.25Granted
            
            
            97,296
            
            $
            0.01
            
            
            28,171,115
            
            $
            0.14Exercised
            
            
            (1,889,180
            )
            $
            0.11
            
            
            (8,095,858
            )
            $
            0.01Forfeited
            
            
            (1,300,000
            )
            $
            0.60
            
            
            -
            
            $
            -Balance
                at end of period
            
            
            17,058,373
            
            $
            0.16
            
            
            20,150,257
            
            $
            0.19Warrants
                exercisable at end of period
            
            
            17,058,373
            
            $
            0.16
            
            
            20,150,257
            
            $
            0.19Weighted
                average fair value of warrants granted during the period
            
            
            
            
            $
            0.27
            
            
            
            
            $
            0.37





During
      2007, warrants to purchase 1.3 million 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 that were issued for services at December 31, 2007:








Warrants
                Outstanding and ExercisableRangeof
              Exercise
              Price
            
            Number
              Outstanding
              at
                December 31,
              2007
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            Weighted
              Average
              Exercise
              Price$
            0.01
            
            
            3,414,887
            
            
            0.27
                Years
            
            $
            0.010.20
            
            
            13,340,485
            
            
            1.19
                Years
            
            
            0.200.25
            
            
            123,001
            
            
            0.01
                Years
            
            
            0.250.33
                - 0.35
            
            
            30,000
            
            
            0.01
                Years
            
            
            0.350.50
                - 1.00
            
            
            100,000
            
            
            0.01
                Years
            
            
            0.74


F-29


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





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 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. 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 is 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 of 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.





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 to 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 an option is granted but the exercise price shall not be less than
      the
      fair market value on the date the options is granted. Stock options granted
      under the 2005 Plan have a maximum duration of 10 years. At December 31, 2007
      there are 1,203,179 shares of common stock available under the 2005 Equity
      Incentive Stock Plan..


F-30


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      2006 two directors of the Company were granted a total of 200,000 options at
      an
      exercise price of $0.20. The Company expensed the fair market value of $32,000
      related to these stock options. These warrants were valued at $32,000 using
      the
      Black-Scholes Options Pricing Model using the following assumptions: expected
      life of 3 years, volatility of 136.7%, zero expected dividends and a discount
      rate of 4.69%. Warrant expense was recognized at date of grant.





During
      2006, the Chief Executive Officer was granted a five-year warrant to purchase
      5,040,485 shares of the Company’s common stock with an exercise price of $0.01
      for services provided. These shares were not vested at the time the Chief
      Executive Officer left the Company and have been forfeited. No value was
      recorded for these shares





During
      2006 the Company granted stock options from the 2005 Plan to various employees
      to purchase 455,000 shares of its common stock with vesting periods that range
      from 18 months to two years. The exercise prices range from $0.35 to $0.63
      based
      on the quoted market value of the Company’s common stock on the dates of grant.
      The fair market value of these stock options is being amortized over the life
      of
      the option. Amortization expense of $47,661 was recognized in 2006. These
      warrants were valued using the Black-Scholes Options Pricing Model using the
      following assumptions: expected life of 3 - 5 years, volatility of 138.8% -
      185.2%, zero expected dividends and a discount rate of 4.71% to
      5.12%.





During
      2006 six employees were granted a total of 3,062,000 options with an exercise
      price of $0.01 and various vesting dates. As of December 31, 2006 1,056,000
      of
      these options had been forfeited and 940,000 had been exercised. As of December
      716,000 of these options are fully vested. The remaining 350,000 options are
      unvested as of December 31, 2006. The Company expensed the fair market value
      of
      $1,010,400 related to the remaining vested stock options. These warrants were
      valued using the Black-Scholes Options Pricing Model using the following
      assumptions: expected life of 1 - 3 years, volatility of 130.3% - 163.1%, zero
      expected dividends and a discount rate of 4.79% to 5.22%.





During
      the years ended 2007 and 2006, the Company recorded compensation expense of
      $5,456 and$1,090,061, 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 (I) - Employee Stock Options and Warrants.





A
      summary
      of the warrants and options issued to employees as of December 31, 2007 and
      2006
      and changes during the year are presented below:


F-31


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**








2007
            
            2006Number
                of
              Warrants
              and
                Options
            
            Weighted
              Average
              Exercise
              Price
            
            Number
                of
              Warrants
              and
              Options
            
            Weighted
              Average
              Exercise
              PriceBalance
                at beginning of period
            
            
            5,463,500
            
            $
            0.14
            
            
            6,112,500
            
            $
            0.19Granted
            
            
            -
            
            
            -
            
            
            8,757,485
            
            
            0.04Exercised
            
            
            (250,000
            )
            
            0.01
            
            
            (1,540,000
            )
            
            0.08Expired
            
            
            (225,000
            )
            
            0.34
            
            
            (1,433,750
            )
            
            0.31Forfeited
            
            
            (457,500
            )
            
            0.13
            
            
            (6,432,735
            )
            
            0.03Balance
                at end of period
            
            
            4,531,000
            
            $
            0.13
            
            
            5,463,500
            
            $
            0.14Warrants
                and options exercisable at end of period
            
            
            4,531,000
            
            $
            0.13
            
            
            4,978,500
            
            $
            0.14





A
      summary
      of non-vested warrants and options issued to employees as of December 31, 2007
      is presented below.





**Weighted****Average****Grant****Date****Non-vested
                Shares**
            
            **Shares**
            
            **Fair
                Value**Non-vested
                at January 1, 2007
            
            
            485,000
            
            
            0.45Granted
            
            
            -
            
            
            -Vested
            
            
            27,500
            
            
            0.33Forfeited
            
            
            457,500
            
            
            0.13Non-vested
                at December 31, 2007
            
            
            -
            
            
            -








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




2007
            
            2006Exercise
                price lower than the market price
            
            
            N/A
            
            $
            0.36Exercise
                price equaled the market price
            
            
            N/A
            
            $
            0.52Exercise
                price exceeded the market price
            
            
            N/A
            
            $
            0.16








The
      fair
      value of warrants granted during 2006 was estimated on the dates of the grants
      using the following approximate assumptions: dividend yield of 0%, expected
      volatilities of 130% - 202%, risk-free interest rates of 4.41% - 5.52%, and
      expected lives of 3 months to - 5 years.


F-32


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





The
      following tables summarize information about employee stock warrants and options
      outstanding at December 31, 2007 and December 31, 2006:





Warrants
                and Options Outstanding December 31, 2007
            
            Warrants
                and Options
              Exercisable
                December 31,
              2007Range
                of
              Exercise
              Price
            
            Number
              Outstanding
              at
              December
                31,
              2007
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            Weighted
              Average
              Exercise
              Price
            
            Number
              Exercisable
              at
              December
                31,
              2007
            
            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








Warrants
                and Options Outstanding December 31, 2006
            
            Warrants
                and Options
              ExercisableDecember
                31,
              2006Range
                of
              Exercise
              Price
            
            Number
              Outstanding
              at
              December
                31,
              2006
            
            Weighted
              Average
              Remaining
              Contractual
              Life
            
            Weighted
              Average
              Exercise
              Price
            
            Number
              Exercisable
              at
              December
                31,
              2006
            
            Weighted
              Average
              Exercise
              Price$
            0.01
            
            
            3,066,000
            
            
            2.65
                Years
            
            $
            0.01
            
            
            2,716,000
            
            $
            0.010.20
                - 0.25
            
            
            2,060,000
            
            
            1.02
                Years
            
            
            0.25
            
            
            2,035,000
            
            
            0.240.35
                - 0.50
            
            
            55,000
            
            
            0.06
                Years
            
            
            0.42
            
            
            35,000
            
            
            0.440.55
                - 0.75
            
            
            282,500
            
            
            0.24
                Years
            
            
            0.66
            
            
            192,500
            
            
            0.615,463,500
            
            
            3.98
                Years
            
            $
            0.14
            
            
            4,978,500
            
            $
            0.14




8.  DERIVATIVE
      AND OTHER FINANCIAL INSTRUMENTS





On
      January 1, 2006, the Company implemented SFAS No. 155, “Accounting for Certain
      Hybrid Financial Instruments”. This statement allows the Company to elect fair
      value measurement of hybrid financial instruments on an instrument-by instrument
      basis in cases in which a derivative would otherwise have to be bifurcated.


F-33


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





The
      Company does not use derivative financial instruments to hedge exposures to
      cash
      flow or market risks. However the promissory note entered into during the second
      quarter with a shareholder had an embedded conversion option to purchase the
      Company’s stock, with the number of shares indexed to the Company’s future stock
      price. Accordingly, the embedded conversion option qualified during the second
      quarter of 2006 as a derivative. This promissory note was amended on September
      28, 2006 to include a conversion to equity floor price per share of $0.20
      resulting in the promissory note no longer qualifying as a derivative financial
      instrument.





If
      any of
      the derivatives could potentially result in the Company’s having indeterminable
      shares (i.e. from a conversion price that is indexed to the Company’s stock
      price), then, per the Emerging Issues Task Force (“EITF”) 00-19 Accounting for
      Derivative Financial Instruments Indexed to and Potentially Settled in, a
      Company’s own Stock the Company is required to classify all outstanding
      non-employee warrants or options at fair value as a derivative liability. The
      initial entry to record the derivative liability for these outstanding warrants
      is a reclassification from additional paid-in-capital of the fair value of
      the
      warrants as of the reclassification date (May 15, 2006). The reclassification
      value was $9,442,121 at May 15, 2006. During the period of derivative
      classification certain warrants were exercised resulting in a reclassification
      of $55,000 from liability to equity. At each subsequent reporting period, the
      Company continues to record these instruments at fair value as a derivative
      liability with any difference recorded as a change in the fair value of warrant
      liability under other income or expense in the Statement of Operations until
      such time as the Company no longer has an instrument with indeterminate shares.
      As of the nine months ended September 30, 2006, the Company no longer had any
      instruments with indeterminate shares. For the year ended December 31, 2006,
      a
      change in the fair value of warrant liability under other income and expense
      of
      $3,718,543 was recorded for derivative liabilities. As of September 28, 2006
      the
      balance of the warrant liability of $5,668,578 was reclassified to equity.
      The
      fair value was computed at June 30 2006 and at September 28, 2006 using the
      Black-Scholes option pricing model with the following assumptions:





June
                30,
              2006
            
            September
                28,
              2006Expected
                Volatility (based on historical volatility)
            
            
            120.7%
            
            
            122.7%Expected
                Term (based on weighted average contractual term of
                warrants)
            
            
            2.5
                years
            
            
            2.5
                yearsExpected
                Dividends
            
            
            0
            
            
            0Discount
                Rate
            
            
            5.130%
            
            
            4.600%








9.  RELATED
      PARTY TRANSACTIONS





On
      February 3, 2004, an agreement was reached with Fusion Three, LLC (“F3”) in a
      Master Settlement and Release Agreement whereby, in consideration for the
      exchange of mutual releases and F3 relinquishing any claim to any benefits
      of
      the Waytronx technology (including license payments), $150,000 was paid to
      F3
      plus an annually declining percentage of Waytronx revenue of 5% in 2005
      declining to 2% in 2008 and thereafter. In the event of a change of control
      of
      the Company, the percentage of revenue shall terminate and a single payment
      shall be made to F3 ranging from 10% of the appraised value of Waytronx if
      such
      appraised value is $100,000,000 or less, 71⁄2% of the appraised value between
      $100,000,001 and $200,000,000, 5% of the appraised value between $200,000,001
      and $300,000,000, 4% of the appraised value between $300,000,001 and
      $400,000,000, 3% of the appraised value between $400,000,001 and $500,000,000,
      and 2% of any appraised value between $500,000,001 and $600,000,000. At the
      time
      the Company entered into this agreement, the former President of the OnScreen
      Products Division, Stephen K. Velte, was the manager of F3. In May 2006, F3
      relinquished all of its revenue rights. For a more detailed explanation, please
      see the section above entitled “Fusion Three, LLC Settlement” in Item 1, part 1
      of the 10-KSB.





F-34


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





On
      January 10, 2005 and February 16, 2005, the inventor/owner of the OnScreenTM LED
      technology patent conveyed ownership of the OnScreenTM, WayCool and WayFast
      patents to CH Capital. Two of the current members of the Board of Directors,
      Bradley J. Hallock and William J. Clough, have a controlling interest in CH
      Capital. On February 16, 2005, in consideration for the payment of two hundred
      thousand dollars ($200,000), CH Capital conveyed to the Company the OnScreenTM
patent rights. This conveyance now vests in the Company the ownership of the
      OnScreenTM LED technology patent.





On
      October 4, 2005, the Company paid $50,000 to extend a letter of intent for
      the
      sale and purchase of certain intellectual property from CH Capital. The letter
      of intent gives 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”.





During
      March 2005 a $1.5 million unsecured six-month promissory note was executed
      with
      a related party, CH Capital. The interest rate was 15% per annum. Interest
      only
      payments were due monthly until maturity of the note when the principal was
      due.
      A $2,500 fee was paid to extend this note to November 1, 2005. On October 31,
      2005, substitute convertible promissory notes totaling $1.5 million were
      executed with terms similar to the convertible promissory notes outstanding.
      One
      member of the Board of Directors, Steven S. Hallock, participated in the
      substitute notes: promissory note of $1,000,000 held by a trust controlled
      by
      the director. The note held by the director was converted into common shares
      during 2006.





During
      the third quarter and fourth quarters of 2005, three-month convertible
      promissory notes were totaling $3.5 million. One of the note holders was the
      COO/CFO, Mark R. Chandler, who had a $100,000 note, and another $100,000 note
      holder, Bradley J. Hallock, is a current Board of Director of the Company.
      The
      notes were amended to extend them for an additional six months. During March
      2006, the bid price of the stock exceeded $0.35 per share for five consecutive
      days and both the $100,000 note of the COO/CFO and the $100,000 note of the
      director were converted into 400,000 shares of common stock.


F-35


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      the first quarter of 2006, three-month convertible promissory notes were entered
      into with several note holders including two current members of the Board of
      Directors. One director, John P. Rouse, had two notes totaling $1,100,000 while
      the other director, Steven S. Hallock, had a note in the amount of $250,000.
      During March 2006, the bid price of the stock exceeded $0.35 per share for
      five
      consecutive days and the notes of the director totaling $1,100,000 were
      converted into 4,400,000 shares of common stock and the note of the director
      totaling $250,000 was converted into 1,000,000 shares of common
      stock.





Effective
      March 24, 2006, the Company purchased all right, title and interest in and
      to
      the WayCool technology, patent application and Letters Patent from CH Capital,
      Inc.   To acquire this technology, $800,000 was paid to CH Capital,
      Inc. and a three year warrant was issued CH Capital, Inc. to acquire up to
      7,040,485 shares of common stock at $0.20 per share.  The warrant is valued
      at $3,520,243   (see Note 4)





On
      August
      28, 2006 a one-month promissory note for $150,000 was entered into with John
      P.
      Rouse who is a member of the Board of Directors. Interest on this note accrued
      at the rate of 12%. On September 28, 2006 the promissory note was extended
      an
      additional 30 days with both principal and accrued interest for two months
      due
      October 28, 2006. On November 2, 2006 the Company paid the remaining principal
      and interest due of $153,200 on the promissory note.





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 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 is a member of the Board of Director’s. 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.





10. 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.





At
      December 31, 2007, the Company has available net operating loss carry forwards
      of approximately $34 million. These net operating loss carry forwards expire
      in
      various years through the year ending December 31, **** 2027;
      however, because the Company has incurred significant operating losses,
      utilization of the income tax loss carry forwards are not assured. **** 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 we established a valuation
      allowance to fully reserve such assets due to the uncertainty of the Company’s
      realization of this benefit.


F-36


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.





The
      Company’s tax expense differs from the “expected” tax expense for the periods
      ended December 31, 2007 and 2006, computed by applying the Federal Corporate
      tax
      rate of 34% to loss before taxes, as follows:











**2007**
            
            **2006**Computed
                “expected” tax benefit
            
            $
            (1,953,000
            )
            
            (4,912,000
            )State
                tax benefit, net of federal effect
            
            
            (175,000
            )
            
            (629,000
            )Change
                in valuation allowance
            
            
            2,128,000
            
            
            4,855,000Equity
                instruments for services
            
            
            
            
            
            686,000$
            -
            
            $
            -





At
      December 31, 2007, the tax effects of temporary differences that gave rise
      to
      significant portions of deferred tax assets and liabilities are as
      follows:





**2007**Deferred
                tax assets:Net
                operating loss carry forwards
            
            $
            11,794,000Warrants
                issued to employees
            
            
            635,000Accrued
                expenses payable with common stock
            
            
            71,000Impairment
                of assets
            
            
            336,000Other
            
            
            21,000Valuation
                allowance for deferred tax asset
            
            
            (12,857,000
            )Deferred
                tax liabilities:Property
                and equipment depreciation
            
            
            (77,000
            )Valuation
              allowance for deferred tax asset
            
            
            77,000$





11.  OTHER
      SETTLEMENTS





During
      2005, a settlement was reached with Capitol City Trailers regarding the use
      of
      one of its trucks. The settlement resulted in Capitol City Trailers paying
      $37,500 over time. At December 31, 2006 and 2005, the $20,833 and $16,667 had
      been received, respectively, which has been recorded as a settlement gain in
      the
      year received. Due to the financial condition of Capitol City Trailers, a
      receivable was not recorded for the settlement amount, but recorded as a
      settlement gain when received.


F-37


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      2006, a settlement was reached with Mobil Magic Superscreen regarding the
      construction of a truck. The settlement resulted in the Company recording a
      net
      settlement gain of approximately $280,840. The settlement gain includes
      approximately $150,000 of expenses previously accrued which were forgiven,
      a
      payment of $50,000, and promissory note of $125,000, less attorney fees of
      approximately $44,160. The promissory note is for 50 monthly payments of $2,500
      beginning September 2006. At December 31, 2007 the balance of the note is
      $91,500. Mobil Magic is currently in default on this promissory. Waytronx is
      currently pursuing collection and expects the note to be
      collectible.





During
      2004 a settlement of $76,000 was accrued in regard to AMS Controls, a company
      that designed and built the EyeCatcher backlit advertising signs that Waytronx
      sold.  There were design and manufacture with the products.  The
      matter was dropped by both sides and the accrual reversed in 2007.





12.  CONCENTRATIONS








During
      2007, 86% of revenues were derived from three customers at 46%, 14% and
      13%.


During
      2006, 69% of revenues were derived from four customers at 24%, 22%, 12% and
      11%.





The
      Company’s major products in 2007 and 2006 are reliant upon the
      OnScreen (TM) technology which the Company has purchased the rights to and has applied for
      several patents related to this technology.





At
      December 31, 2007, of the gross accounts receivable totaling $26,803, 80% was
      due from two customers at 54% and 26%.





13.  SUBSEQUENT
      EVENTS





During
      January 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
      based on the fair value at date of issuance. This expense was recognized in
      2007
      as accrued compensation.





During
      January 2008 500,000 shares of common stock were issued in relation to a
      consulting agreement.





During
      January 2008 a shareholder converted 25,000 shares of Preferred A Stock to
      100,000 shares of common stock.





During
      January 2008, 200,000 shares of common stock were issued according to a stock
      purchase agreement with proceeds of $50,000.


F-38


**Waytronx,
      Inc.**


**Notes
      to Financial Statements**


**December
      31, 2007 and 2006**





During
      January 2008 384,615 shares of common stock were issued as part of a stock
      purchase agreement with proceeds of $250,000.





During
      February 2008, 390,000 shares of common stock were issued upon exercise of
      warrants with proceeds of $78,000.





During
      January 2008, $200,000 in subscriptions receivable were collected.





F-39