WAYTRONX,
INC.





UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





QUARTERLY
REPORT UNDER SECTION 13 OR 15(D)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
quarter ended March 31, 2010





Commission
File Number 0-29195





WAYTRONX,
INC.


(Name of
Small Business Issuer in Its Charter)





Colorado
                    
                    (3990)
                    
                    84-1463284(State
      or jurisdiction of
                    
                    (Primary
      Standard Industrial
                    
                    (I.R.S.
      Employerincorporation
      or organization)
                    
                    Classification
      Code Number)
                    
                    Identification
      No.)





20050 SW
112th Avenue


Tualatin,
Oregon 97062


(503)
612-2300.


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





William
J. Clough, CEO/President


Waytronx,
Inc.


20050 SW
112th Avenue


Tualatin,
Oregon 97062


(503)
612-2300.


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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


YES x NO  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


YES  ̈ NO  ̈





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


YES  ̈ NO x





As of
March 31, 2010, there were 169,837,626 shares of the Company's common stock
outstanding, 50,543 shares of Series A Convertible Preferred Stock outstanding,
no shares of Series B and Series C Convertible Preferred Stock
outstanding.








WAYTRONX,
INC.





INDEX





PagePart
      IItem
      1
                      Financial
      Statements
                      3Condensed
      Consolidated Balance Sheets (unaudited)
                      3Condensed
      Consolidated Statements of Operations (unaudited)
                      4Condensed
      Consolidated Statements of Cash Flows (unaudited)
                      5Notes
      to the Condensed Consolidated Financial Statements
    (unaudited)
                      7Accounting
      Policies
                      8Item
      2
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      18Overview
                      19Intellectual
      Property
                      20Liquidity
      and Capital Resources
                      21Results
      of Operations
                      22Item
      3.
                      Controls
      and Procedures
                      24Part
      IIItem
      1
                      Legal
      Proceedings.
                      25Item
      1A
                      Risk
      Factors
                      25Item
      2
                      Unregistered
      Sales of Equity Securities and Use
      of Proceeds
                      25Item
      3
                      Defaults
      Upon Senior Securities
                      26Item
      4
                      Submission
      of Matters to a Vote of Security Holders
                      26Item
      5
                      Other
      Information
                      26Item
      6
                      Exhibits
      and Reports on Form 8-K
                      26Signatures
                      27Exhibits


2




PART I.
FINANCIAL INFORMATION
 Item
1.  Financial Statements
 Waytronx,
Inc.
 Condensed
Consolidated Balance Sheets
 
 March 31,
                    2010
                  
                  
                  December 31,
                    2009(unaudited)Assets:Current
      Assets:Cash
      and cash equivalents
                  
                  $
                  461,801
                  
                  
                  $
                  496,135Trade
      accounts receivable, net of allowance of $125,000 and $135,000,
      respectively
                  
                  
                  4,500,947
                  
                  
                  
                  4,673,382Other
      accounts receivable
                  
                  
                  50,322
                  
                  
                  
                  88,425Other
      accounts receivable, related party
                  
                  
                  190,951
                  
                  
                  
                  188,790Inventories,
      net of allowance of $235,000 and $100,000, respectively
                  
                  
                  3,787,402
                  
                  
                  
                  3,661,994Prepaid
      expenses and other
                  
                  
                  326,714
                  
                  
                  
                  375,085Total
      current assets
                  
                  
                  9,318,137
                  
                  
                  
                  9,483,811Property
      and equipment, net
                  
                  
                  1,422,513
                  
                  
                  
                  1,402,528Other
      assets:Investment
      - equity method
                  
                  
                  93,690
                  
                  
                  
                  79,075Investments
      - long term
                  
                  
                  102,560
                  
                  
                  
                  102,560Technology
      rights, net
                  
                  
                  4,016,561
                  
                  
                  
                  4,077,646Patent
      costs, net
                  
                  
                  425,941
                  
                  
                  
                  428,370Other
      intangible assets, net
                  
                  
                  62,867
                  
                  
                  
                  46,294Deposits
      and other
                  
                  
                  145,401
                  
                  
                  
                  113,350Notes
      receivable, net
                  
                  
                  63,749
                  
                  
                  
                  79,451Debt
      offering costs, net
                  
                  
                  766,742
                  
                  
                  
                  937,130Goodwill,
      net
                  
                  
                  22,056,092
                  
                  
                  
                  22,056,092Total
      other assets
                  
                  
                  27,733,603
                  
                  
                  
                  27,919,968Total
      assets
                  
                  $
                  38,474,253
                  
                  
                  $
                  38,806,307Liabilities
      and stockholders' equity:Current
      liabilities:Accounts
      payable
                  
                  $
                  1,831,490
                  
                  
                  $
                  2,028,201Preferred
      stock dividends payable
                  
                  
                  5,054
                  
                  
                  
                  5,054Demand
      notes payable
                  
                  
                  3,063,734
                  
                  
                  
                  2,523,152Accrued
      expenses
                  
                  
                  2,649,888
                  
                  
                  
                  2,564,403Accrued
      compensation
                  
                  
                  253,675
                  
                  
                  
                  235,137Unearned
      revenue
                  
                  
                  85,706
                  
                  
                  
                  84,438Notes
      payable, current portion due
                  
                  
                  7,001,827
                  
                  
                  
                  1,003,793Notes
      payable, related party, current portion due
                  
                  
                  129,161
                  
                  
                  
                  170,852Convertible
      notes payable, current portion due
                  
                  
                  300,000
                  
                  
                  
                  300,000Total
      current liabilities
                  
                  
                  15,320,535
                  
                  
                  
                  8,915,030Long
      term notes payable, net of current portion due of $376,827 and $71,573,
      respectively
                  
                  
                  1,514,024
                  
                  
                  
                  7,624,948Long
      term notes payable, related party, net of current portion due of $129,161
      and $170,852 and discounts of $302,331 and $369,516,
      respectively
                  
                  
                  13,206,313
                  
                  
                  
                  13,171,624Long
      term convertible notes payable, related party, net of discounts of
      $2,269,272 and $2,773,555, respectively
                  
                  
                  3,630,728
                  
                  
                  
                  3,126,445Total
      liabilities
                  
                  
                  33,671,600
                  
                  
                  
                  32,838,047Commitments
      and contingencies
                  
                  
                  -
                  
                  
                  
                  -Stockholders'
      equity:Preferred
      stock, par value $0.001; 10,000,000 shares authorized
                  
                  
                  -
                  
                  
                  
                  -Convertible
      Series A preferred stock, 5,000,000 shares authorized, 50,543 shares
      issued and outstanding liquidation preference of $50,543 at March 31, 2010
      and December 31,  2009, respectively
                  
                  
                  51
                  
                  
                  
                  51Convertible
      Series B preferred stock, 30,000 shares authorized, and no shares
      outstanding at March 31, 2010 and December 31, 2009,
      respectively
                  
                  
                  -
                  
                  
                  
                  -Convertible
      Series C preferred stock, 10,000 shares authorized, and no shares
      outstanding at March 31, 2010 and December 31, 2009,
      respectively
                  
                  
                  -
                  
                  
                  
                  -Common
      stock, par value $0.001; 325,000,000 and 325,000,000 shares authorized
      and  169,837,626 and 169,837,626 shares issued and
      outstanding at March 31, 2010  and December 31, 2009,
      respectively
                  
                  
                  169,838
                  
                  
                  
                  169,838Additional
      paid-in capital
                  
                  
                  60,543,383
                  
                  
                  
                  60,541,742Accumulated
      deficit
                  
                  
                  (55,919,517
                  )
                  
                  
                  (54,746,787
                  )Accumulated
      other comprehensive income (loss)
                  
                  
                  (26,439
                  )
                  
                  
                  (28,193
                  )Total
      stockholders' equity
                  
                  
                  4,767,316
                  
                  
                  
                  5,936,651Noncontrolling
      interest
                  
                  
                  35,337
                  
                  
                  
                  31,609Total
      liabilities and stockholders' equity
                  
                  $
                  38,474,253
                  
                  
                  $
                  38,806,307
 
 See
accompanying notes to financial statements
  3
  Waytronx,
Inc.
 Condensed
Consolidated Statement of Operations
 (unaudited)
  For
      the three months ended March 31,2010
                    
                    
                    2009Revenues:Product
      Sales
                    
                    $
                    7,648,658
                    
                    
                    $
                    6,087,403Revenue
      from freight
                    
                    
                    20,147
                    
                    
                    
                    37,647Total
      revenue
                    
                    
                    7,668,805
                    
                    
                    
                    6,125,050Cost
      of revenues
                    
                    
                    4,826,439
                    
                    
                    
                    3,656,155Gross
      profit
                    
                    
                    2,842,366
                    
                    
                    
                    2,468,895Operating
      expensesSelling,
      general and administrative
                    
                    
                    2,829,035
                    
                    
                    
                    2,371,165Research
      and development
                    
                    
                    81,158
                    
                    
                    
                    83,399Bad
      debt
                    
                    
                    10,890
                    
                    
                    
                    37,743Total
      operating expenses
                    
                    
                    2,921,083
                    
                    
                    
                    2,492,307Profit
      (loss) from operations
                    
                    
                    (78,717
                    )
                    
                    
                    (23,412
                    )Other
      income (expense)Other
      income
                    
                    
                    56,395
                    
                    
                    
                    45,485Other
      expense
                    
                    
                    (27,489
                    )
                    
                    
                    (33
                    )Investment
      income (loss)
                    
                    
                    14,615
                    
                    
                    
                    (8,058
                    )Interest
      expense - intrinsic value of convertible debt, amortization of debt
      offering costs and amortization of debt discount
                    
                    
                    (741,855
                    )
                    
                    
                    (838,771
                    )Interest
      expense
                    
                    
                    (387,533
                    )
                    
                    
                    (461,926
                    )Total
      other income (expense), net
                    
                    
                    (1,085,867
                    )
                    
                    
                    (1,263,303
                    )Income
      (loss) before taxes
                    
                    
                    (1,164,584
                    )
                    
                    
                    (1,286,715
                    )Provision
      for taxes
                    
                    
                    4,418
                    
                    
                    
                    -Consolidated
      Net profit (loss)
                    
                    
                    (1,169,002
                    )
                    
                    
                    (1,286,715
                    )Less:  Net
      profit (loss) - noncontrolling interest
                    
                    
                    3,728
                    
                    
                    
                    -Net
      profit (loss) - attributable to Waytronx Inc.
                    
                    
                    (1,172,730
                    )
                    
                    
                    (1,286,715
                    )Other
      comprehensive profit (loss)Foreign
      currency translation adjustment
                    
                    $
                    1,754
                    
                    
                    $
                    -Comprehensive
      profit (loss)
                    
                    $
                    (1,170,976
                    )
                    
                    $
                    (1,286,715
                    )Basic
      and diluted profit (loss) per common share
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )Basic
      weighted average common and common equivalents shares outstanding
      outstanding
                    
                    
                    169,837,626
                    
                    
                    
                    166,584,406
 
 See
accompanying notes to financial statements
  4
  Waytronx,
Inc.
 Condensed
Consolidated Statements of Cash Flows
 (unaudited)
  For
      the three months ended March 31,2010
                    
                    
                    2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      profit (loss)
                    
                    $
                    (1,172,730
                    )
                    
                    $
                    (1,286,715
                    )Adjustments
      to reconcile net profit (loss) to net cash used in operating
      activities:Stock,
      warrants, options and notes issued for compensation and
      services
                    
                    
                    1,641
                    
                    
                    
                    84,212Non-cash
      interest expense, including amortization of beneficial conversion
      value,  warrant related debt discounts and intrinsic value of
      convertible debt and amortization of debt discount and amortization of
      debt offering costs
                    
                    
                    741,855
                    
                    
                    
                    838,771Non-cash
      (profit) loss on equity method investment
                    
                    
                    (14,615
                    )
                    
                    
                    8,058Bad
      debt expense
                    
                    
                    10,890
                    
                    
                    
                    37,743Amortization
      of technology rights
                    
                    
                    61,085
                    
                    
                    
                    59,628Amortization
      of patent costs
                    
                    
                    4,354
                    
                    
                    
                    4,474Amortization
      of website development
                    
                    
                    3,578
                    
                    
                    
                    3,578Loss
      on disposal of assets
                    
                    
                    500
                    
                    
                    
                    -Net
      profit (loss) - noncontrolling interest
                    
                    
                    3,728
                    
                    
                    
                    -Depreciation
                    
                    
                    114,952
                    
                    
                    
                    93,332Amortization
                    
                    
                    500
                    
                    
                    
                    193(Increase)
      decrease in assets:Trade
      accounts receivable
                    
                    
                    161,545
                    
                    
                    
                    (18,542
                    )Other
      accounts receivable
                    
                    
                    38,103
                    
                    
                    
                    -Other
      accounts receivable, related party
                    
                    
                    (2,161
                    )
                    
                    
                    (209
                    )Inventory
                    
                    
                    (125,408
                    )
                    
                    
                    447,903Prepaid
      expenses and other current assets
                    
                    
                    48,115
                    
                    
                    
                    (192,052
                    )Deposits
      and other assets
                    
                    
                    (32,051
                    )
                    
                    
                    19,477Increase
      (decrease) in liabilities:Accounts
      payable
                    
                    
                    (196,711
                    )
                    
                    
                    (440,978
                    )Accrued
      expenses
                    
                    
                    85,485
                    
                    
                    
                    (32,210
                    )Accrued
      compensation
                    
                    
                    18,538
                    
                    
                    
                    (60,624
                    )Deferred
      revenues
                    
                    
                    1,268
                    
                    
                    
                    -NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                    
                    
                    (247,539
                    )
                    
                    
                    (433,961
                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      paid upon merger, net of cash received
                    
                    
                    -
                    
                    
                    
                    -Cash
      received from acquisition, net of cash paid
                    
                    
                    -
                    
                    
                    
                    -Investment
      in technology rights and development
                    
                    
                    (20,651
                    )
                    
                    
                    -Investment
      in patents
                    
                    
                    (1,925
                    )
                    
                    
                    (901
                    )Proceeds
      from Notes Receivable
                    
                    
                    15,958
                    
                    
                    
                    -Purchase
      of property and equipment
                    
                    
                    (135,437
                    )
                    
                    
                    (21,263
                    )NET
      CASH USED IN INVESTING ACTIVITIES
                    
                    
                    (142,055
                    )
                    
                    
                    (22,164
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from demand notes payable
                    
                    
                    540,582
                    
                    
                    
                    136,217Proceeds
      from notes and loans payable
                    
                    
                    -
                    
                    
                    
                    (11,948
                    )Proceeds
      from notes and loans payable, related party
                    
                    
                    -
                    
                    
                    
                    -Payments
      on notes and loans payable
                    
                    
                    (112,890
                    )
                    
                    
                    -Payments
      on notes and loans payable, related party
                    
                    
                    (74,186
                    )
                    
                    
                    (103,353
                    )Proceeds
      from sales of common stock and exercise of warrants and options, net of
      offering costs
                    
                    
                    -
                    
                    
                    
                    4,900NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                    
                    
                    353,506
                    
                    
                    
                    25,816EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                    
                    
                    1,754
                    
                    
                    
                    -Cash
      and cash equivalents at beginning of year
                    
                    
                    496,135
                    
                    
                    
                    599,200Cash
      and cash equivalents at end of period
                    
                    
                    461,801
                    
                    
                    
                    168,891NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                    
                    $
                    (34,334
                    )
                    
                    $
                    (430,309
                    )(continued)
  5
  Waytronx,
Inc.
 Condensed
Consolidated Statements of Cash Flows (continued)
 (unaudited)
 
 For the three months ended March
      31,2010
                  
                  
                  2009SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  -Interest
      paid
                  
                  $
                  275,221
                  
                  
                  $
                  331,304SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Discount
      on debt for intrinsic value of convertible notes payable
                  
                  $
                  571,467
                  
                  
                  $
                  668,384Amortization
      of debt offering costs
                  
                  $
                  170,388
                  
                  
                  $
                  170,387
 
 See
accompanying notes to financial statements
  6
  Waytronx,
Inc.
 Notes to
the Condensed Consolidated Financial Statements
 (Unaudited)
  1.BASIS OF PRESENTATION AND
GOING CONCERN
 
 The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information which includes condensed financial
statements.  Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position and
results of operations and should be read in conjunction with the Annual Report,
Form 10-K for the year ended December 31, 2009 as well as filings made related
to the acquisition of CUI, Inc.
 
 It is
management's opinion that all material adjustments (consisting of normal
recurring adjustments) have been made which are necessary for a fair financial
statement presentation.  The results for the interim period are not
necessarily indicative of the results to be expected for the year.
 
 Waytronx,
Inc. (formerly known as OnScreen Technologies, Inc.) has pioneered and is
commercializing innovative thermal management solutions capable of
revolutionizing the LED display, semiconductor and electronic packaging
industries. Utilizing patented and patent-pending thermal technologies and
architecture we have developed highly advanced, proprietary LED display
solutions and cooling applications.  Waytronx is primarily focused on
the commercialization of their innovative thermal cooling technology,
WayCool.
 
 Effective
May 16, 2008, Waytronx, Inc. formed a wholly owned subsidiary, Waytronx
Holdings, Inc., to acquire the assets of CUI, Inc., a Tualatin, Oregon based
provider of electronic components including power supplies, transformers,
converters, connectors and industrial controls for Original Equipment
Manufacturers (OEMs). The wholly owned subsidiary was renamed CUI, Inc.
following the close of the acquisition.
 
 Effective
July 1, 2009, Waytronx acquired CUI Japan (formerly Comex Instruments, Ltd.) and
49% of Comex Electronics Ltd. that includes an associated distribution network,
both companies are Japanese based DSP providers of digital to analog and analog
to digital test and measurement systems and electronic components for OEM
research and development. These acquisitions provide a manufacturing component
which allows Waytronx to manufacture some of its own products, such as the AMT
encoder, in Japan.
 
 The
accompanying financial statements have been prepared on the assumption that
Waytronx will continue as a going concern.  As reflected in these
financial statements, we had a consolidated net loss of $1,169,002 and cash used
in operations of $247,539 for the three months ended March 31, 2010 and an
accumulated deficit of $55,919,517 as of March 31, 2010.  The ability
to continue as a going concern is dependent upon the ability to bring additional
technologies and 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.
 
 If
necessary, we will continue to raise additional capital to provide sufficient
cash to meet the funding required to commercialize our technology product
lines.   As we continue to expand and develop technology and
product lines, additional funding may be required.  There have been
negative cash flows from operations and incurred net losses in the past and
there can be no assurance as to the availability or terms upon which additional
financing and capital might be available if needed.
  7
  2.ACCOUNTING
POLICIES
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from those
estimates.  Significant estimates in 2010 and 2009 include estimates
used to review the Company’s long-lived assets for impairment, allowance for
doubtful accounts, inventory valuation, valuations of non-cash capital stock
issuances, valuations of derivatives and the valuation allowance on deferred tax
assets.
 
 Principles of
Consolidation
 The
consolidated financial statements include the accounts of Waytronx, Inc., its
wholly owned subsidiary CUI, Inc. and CUI Japan and its 49% owned subsidiary
Comex Electronics (for the period July 1, 2009 to March 31, 2010) hereafter
referred to as the “Company”.  Significant intercompany accounts and
transactions have been eliminated in consolidation.
 
 Fair Value of Financial
Instruments
 The
carrying amounts of the Company’s cash and cash equivalents, accounts
receivable, prepaid expense and other assets, accounts payable, accrued
liabilities, notes payable and deferred compensation approximate their fair
value due as of March 31, 2010.
 
 Cash
 Cash
includes deposits at financial institutions with maturities of three months or
less.  The Company at times has cash in banks in excess of FDIC
insurance limits and places its temporary cash investments with high credit
quality financial institutions.  At March 31, 2010, the Company had no
cash balances at financial institutions which were in excess of the FDIC insured
limits.  However, the Company maintained balances of $285,087 in
foreign financial institutions.
 
 Accounts
Receivable
 The
Company grants credit to its customers, with standard terms of Net 30
days.  Other credit terms are available based upon a review of the
customer’s financial strength.  The Company routinely assesses the
financial strength of its customers and, therefore, believes that its accounts
receivable credit risk exposure is limited.
 
 Inventory
 Inventories
consist of finished products and are stated at the lower of cost or market;
using the first-in, first-out (FIFO) method as a cost flow
convention.  Inventory consists of finished goods and un-finished
products.
 
 Furniture, Equipment and
Software
 Furniture,
equipment and software are recorded at cost and include major expenditures,
which increase productivity or substantially increase useful lives.
 
 Maintenance,
repairs and minor replacements are charged to expenses when
incurred.  When furniture and equipment is sold or otherwise disposed
of, the asset and related accumulated depreciation are removed from this
account, and any gain or loss is included in the statement of
operations.
 
 The cost
of furniture, equipment and software is depreciated over the estimated useful
lives of the related assets.  Depreciation is computed using the
straight-line method for financial reporting purposes.  The estimated
useful lives and accumulated depreciation for furniture, equipment and software
are as follows:
 
 Estimated
                  Useful
      LifeFurniture
      and equipment
                
                3
      to 7 yearsSoftware
                
                3
      to 5 years
  8
 
 Identifiable Intangible
Assets
 Intangible
assets are stated at cost net of accumulated amortization and
impairment.  Intangible assets other than goodwill, technology rights
and patents are amortized over an estimated useful life of 15
years.  Technology rights are amortized over a twenty year life and
are reviewed for impairment annually.  Patent costs are amortized over
the life of the patent.  Any patents not approved will be expensed at
that time.
 
 Intangible
assets consist of the following as of March 31, 2010:
 
 Technology
      Rights
                              
                              $
                              5,126,406Accumulated
      amortization
                              
                              
                              (1,109,845
                              )Net
                              
                              $
                              4,016,561Patent
      costs
                              
                              $
                              466,275Accumulated
      amortization
                              
                              
                              (40,334
                              )Net
                              
                              $
                              425,941Debt
      offering costs
                              
                              $
                              2,044,646Accumulated
      amortization
                              
                              
                              (1,277,904
                              )Net
                              
                              $
                              766,742Goodwill
                              
                              $
                              22,058,208Accumulated
      amortization
                              
                              $
                              (2,116
                              )Net
                              
                              $
                              22,056,092Other
      intangible assets
                              
                              $
                              128,375Accumulated
      amortization
                              
                              
                              (65,508
                              )Net
                              
                              $
                              62,867
 
 Investment in
Affiliate
 Through
the acquisition of CUI, Inc. the Company obtained 352,589 common shares
representing a 10.47% interest in Test Products International, Inc., hereafter
referred to as TPI.  TPI is a provider of handheld test and
measurement equipment.  The Company also has a demand receivable from
TPI of $183,474 as of March 31, 2010.  The Company enjoys a close
association with this affiliate through common Board of Director membership and
participation, that allows for a significant amount of influence over affiliate
business decisions.  Accordingly, for financial statement purposes,
the Company accounts for its investment in this affiliated entity under the
equity method.
 
 A summary
of the unaudited financial statements of the affiliate as of March 31, 2010 is
as follows:
 
 Current
      assets
                                
                                $
                                6,055,359Non-current
      assets
                                
                                
                                909,630Total
      Assets
                                
                                $
                                6,964,989Current
      liabilities
                                
                                $
                                4,428,573Non-current
      liabilities
                                
                                
                                1,593,039Stockholders'
      equity
                                
                                
                                943,377Total
      Liabilities and Stockholders' Equity
                                
                                $
                                6,964,989Revenues
                                
                                $
                                2,334,223Operating
      profit
                                
                                
                                115,138Net
      profit
                                
                                
                                139,591Company
      share of Net Profit at 10.47%
                                
                                
                                14,615Equity
      investment in affiliate
                                
                                $
                                93,690
 
 Asset
Impairment
 The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset exceeds its fair
value and may not be recoverable.  In performing the review for
recoverability, the future cash flows expected to result from the use of the
asset and its eventual disposition are estimated.  If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized as the
excess of the carrying amount over the fair value.  Otherwise, an
impairment loss is not recognized.  Management estimates the fair
value and the estimated future cash flows expected.  Any changes in
these estimates could impact whether there was impairment and the amount of the
impairment.
  9
 
 Patent
Costs
 The
Company estimates the patents it has filed have a future beneficial value;
therefore it capitalizes the costs associated with filing for its
patents.  At the time the patent is approved, the patent costs
associated with the patent are amortized over the useful life of the
patent.  If the patent is not approved, at that time the costs will be
expensed.  A change in the estimate of the patent having a future
beneficial value will impact the other assets and expense accounts.
 
 Derivative
Liabilities
 The
Company accounts for its embedded conversion features and freestanding warrants
pursuant to FASB Accounting Standards Codification No. 815 (“FASB ASC 815”),
“Derivatives and Hedging ”, which requires a periodic valuation of the fair
value of derivative instruments and a corresponding recognition of liabilities
associated with such derivatives.  The recognition of derivative
liabilities related to the issuance of shares of common stock is applied first
to the proceeds of such issuance, at the date of issuance, and the excess of
derivative liabilities over the proceeds is recognized as other expense in the
accompanying consolidated financial statements.  The recognition of
derivative liabilities related to the issuance of convertible debt is applied
first to the proceeds of such issuance as a debt discount, at the date of
issuance, and the excess of derivative liabilities over the proceeds is
recognized as other expense in the accompanying consolidated financial
statements.  Any subsequent increase or decrease in the fair value of
the derivative liabilities is recognized as other expense or other income,
respectively.  The reclassification of a contract is reassessed at
each balance sheet date.  If a contract is reclassified from permanent
equity to an asset or a liability, the change in the fair value of the contract
during the period the contract was classified as equity is accounted for as an
adjustment to equity.  If a contract is reclassified from an asset or
liability to equity, gains or losses recorded to account for the contract at
fair value during the period that contract was classified as an asset or a
liability are not reversed but instead are accounted for as an adjustment to
equity.
 
 Revenue
Recognition
 The
recognition of revenues requires judgment, including whether a sale includes
multiple elements, and if so, whether vendor-specific objective evidence (VSOE)
of fair value exists for those elements.  Customers receive certain
elements of Waytronx products over a period of time.  These elements
include licensing rights to manufacture and sell our proprietary patent
protected products.  The ability to identify VSOE for those elements
and the fair value of the respective elements could materially impact the amount
of earned and unearned revenue.  Waytronx does not have any history as
to the costs expected to be incurred in granting licensing rights relating to
its products.  Therefore, revenues may be recorded that are not in
proportion to the costs expected to be incurred in performing these
services.
 
 Revenues
in connection with electronic devices and component sales by CUI, Inc. are
recognized at the time the product is shipped to the customer.
 
 Revenues
in connection with product sales by CUI Japan and Comex Electronics are
recognized at the time the product is shipped to the customer.  VSOE
sales also exist for CUI Japan and Comex Electronics related to the development
of product for specific customers.  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.  VSOE sales are
invoiced according to the related sales agreements.
  10
  Shipping and Handling
Costs
 Amounts
billed to customers in sales transactions related to shipping and handling
represent revenues earned for the goods provided and are included in
sales.  Costs of shipping and handling are included in cost of
revenues.
 
 Stock issued for services to
other than Employees
 Common
stock, stock options and common stock warrants issued to other than employees or
directors are recorded on the basis of their fair value, as required by FASB ASC
505, which is measured as of the date required by FASB ASC 505, “Equity – Based
Payments to Non-Employees”. In accordance with FASB ASC 505, the stock options
or common stock warrants are valued using the Black-Scholes option pricing model
on the basis of the market price of the underlying common stock on the
“valuation date,” which for options and warrants related to contracts that have
substantial disincentives to non-performance is the date of the contract, and
for all other contracts is the vesting date. Expense related to the options and
warrants is recognized on a straight-line basis over the shorter of the period
over which services are to be received or the vesting period. Where expense must
be recognized prior to a valuation date, the expense is computed under the
Black-Scholes option pricing model on the basis of the market price of the
underlying common stock at the end of the period, and any subsequent changes in
the market price of the underlying common stock up through the valuation date is
reflected in the expense recorded in the subsequent period in which that change
occurs.
 
 Foreign Currency
Translation
 The
financial statements of the Company's foreign offices have been translated into
U.S. dollars in accordance with FASB ASC 830, “Foreign Currency Matters” (FASB
ASC 830). All balance sheet accounts have been translated using the exchange
rate in effect at the balance sheet date. Income statement amounts have been
translated using an appropriately weighted average exchange rate for the year.
The translation gains and losses resulting from the changes in exchange rates
during 2010 and 2009 have been reported in accumulated other comprehensive
income, except for gains and losses resulting from the translation of
intercompany receivables and payables, which are included in earnings for the
period.
 
 Segment
Reporting
 Upon the
acquisition of CUI, Inc., CUI Japan and Comex Electronics, Waytronx now has
operating segments to report.  The Company has identified five
operating segments based on the products offered.  The five segments
are External Power, Internal Power, Industrial Controls, Comex/CUI Japan and
Other.  The External Power segment is focused primarily on sales of
external power supplies and related components.  The Internal Power
segment is focused primarily on sales of internal power supplies and related
components.  The Industrial Controls segment is focused primarily on
sales of encoding devices and related components.  The Comex/CUI Japan
segment is focused on the sales of Comex and CUI Japan products.  The
Other category represents activity of segments that do not meet the threshold
for segment reporting and are combined.
  11
  The
following information is presented for the three months ended March 31, 2010 for
operating segment activity:
 External
                            Power
                          
                          
                          Internal
                            Power
                          
                          
                          Industrial
                            Controls
                          
                          
                          Comex
      /
                            CUI
      Japan
                          
                          
                          Other
                          
                          
                          TotalsRevenues
      from external customers
                          
                          $
                          3,746,168
                          
                          
                          $
                          1,343,189
                          
                          
                          $
                          1,166,552
                          
                          
                          $
                          1,167,562
                          
                          
                          $
                          245,334
                          
                          
                          $
                          7,668,805Intersegment
      revenues
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Derivative
      income
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Interest
      revenues
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          7,465
                          
                          
                          $
                          3,778
                          
                          
                          $
                          11,243Equity
      in profits of unconsolidated affiliate
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          14,615
                          
                          
                          $
                          14,615Interest
      expense - intrinsic value of convertibledebt
      and amortization  of debt discount
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          741,855
                          
                          
                          $
                          741,855Interest
      expense
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          23,293
                          
                          
                          $
                          364,240
                          
                          
                          $
                          387,533Depreciation
      and amortization
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          4,765
                          
                          
                          $
                          179,704
                          
                          
                          $
                          184,469Segment
      profit (loss)
                          
                          $
                          1,067,421
                          
                          
                          $
                          335,921
                          
                          
                          $
                          111,166
                          
                          
                          $
                          (698
                          )
                          
                          $
                          (2,682,812
                          )
                          
                          $
                          (1,169,002
                          )Other
      significant non-cash items:Stock,
      warrants and notes issued forcompensation
      and services
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          1,641
                          
                          
                          $
                          1,641Segment
      assets
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          4,264,314
                          
                          
                          $
                          34,209,939
                          
                          
                          $
                          38,474,253Foreign
      currency translation adjustments
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          1,754
                          
                          
                          $
                          -
                          
                          
                          $
                          1,754Expenditures
      for segment assets
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          26,052
                          
                          
                          $
                          131,961
                          
                          
                          $
                          158,013
 
 The
following information is presented for the three months ended March 31, 2009 for
operating segment activity (the Comex/CUI Japan segment did not exist as of
March 31, 2009 and as such is excluded from the following
schedule):
 
 External
                            Power
                          
                          
                          Internal
                            Power
                          
                          
                          Industrial
                            Controls
                          
                          
                          Other
                          
                          
                          TotalsRevenues
      from external customers
                          
                          $
                          3,381,718
                          
                          
                          $
                          1,515,120
                          
                          
                          $
                          847,948
                          
                          
                          $
                          380,264
                          
                          
                          $
                          6,125,050Intersegment
      revenues
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Derivative
      income
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Interest
      revenues
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          6,818
                          
                          
                          $
                          6,818Equity
      in losses of unconsolidated affiliate
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          (8,058
                          )
                          
                          $
                          (8,058
                          )Interest
      expense - intrinsic value ofconvertible
      debt and amortization  ofdebt
      discount
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          838,771
                          
                          
                          $
                          838,771Interest
      expense
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          461,926
                          
                          
                          $
                          461,926Depreciation
      and amortization
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          161,205
                          
                          
                          $
                          161,205Segment
      profit (loss)
                          
                          $
                          806,757
                          
                          
                          $
                          170,735
                          
                          
                          $
                          78,020
                          
                          
                          $
                          (2,342,227
                          )
                          
                          $
                          (1,286,715
                          )Other
      significant non-cash items:Stock,
      warrants and notes issued forcompensation
      and services
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          84,212
                          
                          
                          $
                          84,212Segment
      assets
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          47,097,636
                          
                          
                          $
                          47,097,636Expenditures
      for segment assets
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          22,164
                          
                          
                          $
                          22,164
 
 Only the
Comex/CUI Japan and Other operating segments hold assets
individually.  The External Power, Internal Power and Industrial
Controls operating segments do not hold assets individually as segment assets as
they utilize the Company assets held in the Other segment.
 
 Reclassification
 Certain
amounts from prior period have been reclassified to conform to the current
period presentation.
 
 Recent Accounting
Pronouncements
 In June
2009, the FASB issued FASB Accounting Standards Codification No. 860 “Transfers
and Servicing” (“FASB ASC 860”). FASB ASC 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. FASB ASC 860 is effective as of the beginning
of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period
and for interim and annual reporting periods thereafter. The adoption of this
statement did not have a material effect on the Company’s financial
statements.
  12
 
 In June
2009, the FASB issued FASB Accounting Standards Codification No. 810
“Consolidation” (“FASB ASC 810”). FASB ASC 810 improves financial reporting by
enterprises involved with variable interest entities and to address (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities”, as a result of the
elimination of the qualifying special-purpose entity concept in FASB ASC 860 and
(2) constituent concerns about the application of certain key provisions of
Interpretation 46(R), including those in which the accounting and disclosures
under the Interpretation do not always provide timely and useful information
about an enterprise’s involvement in a variable interest entity. FASB ASC 810 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. The adoption of this statement did not have a material effect on the
Company’s financial statements.
 
 In
October 2009, the Financial Accounting Standards Board (“FASB”) issued FASB
Accounting Standards Update 2009-13, Revenue Recognition (Topic
605)—Multiple-Deliverable Revenue Arrangements.FASB Accounting
Standards Update 2009-13 addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services
(deliverables) separately rather than as a combined unit. Specifically, this
guidance amends the criteria in Accounting Standards Codification (“ASC”)
Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, for
separating consideration in multiple-deliverable arrangements. This guidance
establishes a selling price hierarchy for determining the selling price of a
deliverable, which is based on: (a) vendor-specific objective evidence;
(b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In addition, this guidance
significantly expands required disclosures related to a vendor’s
multiple-deliverable revenue arrangements. FASB Accounting Standards Update
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The adoption of Accounting Standards Update 2009-13
is not expected to have a material impact on the condensed consolidated
financial statements.
 
 In August
2009, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting
Standards Update 2009-05, Fair Value Measurements and
Disclosures (Topic 820)—Measuring Liabilities at Fair Valueincludes amendments to
Subtopic 820-10, Fair
Value Measurements and Disclosures—Overall, for the fair value
measurement of liabilities and provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the techniques provided for in this update. The adoption of Accounting
Standards Update 2009-05 did not have a material impact on the condensed
consolidated financial statements.
 
 3.           ACQUISITION
 
 On July
1, 2009, Waytronx acquired Comex Instruments, Ltd. and 49% of Comex Electronics,
Ltd., for approximately $260,000.  Comex Instruments, Ltd. shall
become CUI Japan, Ltd.  The acquisition was secured by an initial
payment of approximately $103,589 to acquire Comex Instruments and 49% of Comex
Electronics.  The terms of the acquisition call for three equal annual
payments over the next three years to acquire the remaining 51% of Comex
Electronics.  In accordance with the Company’s charter, Waytronx
maintains two of the three Comex Electronics board positions and therefore has
effective control.
 
 The table
below summarizes the unaudited pro forma information of the results of
operations for Comex Electronics and CUI Japan for the three months ended March
31, 2009 as though the acquisition had been completed as of January 1,
2009:
  13
 
 2009Gross
      revenue
                          
                          $
                          6,863,962Total
      expenses
                          
                          
                          8,211,062Net
      profit (loss) before taxes
                          
                          $
                          (1,347,100
                          )Less:  Net
      profit (loss) - noncontrolling interest
                          
                          $
                          (16,093
                          )Net
      profit (loss) - attributable to Waytronx Inc.before
      taxes
                          
                          $
                          (1,331,007
                          )Earnings
      per share
                          
                          $
                          (0.01
                          )
 
 4.           INCOME (LOSS)PER
COMMON SHARE
 
 Common
stock equivalents in the three months ended March 31, 2010 and 2009 were
anti-dilutive, thus the diluted weighted average common shares outstanding for
this period are the same as the basic weighted average common shares
outstanding.
 
 At March
31, 2010 and 2009, respectively, 95,559,608 and 102,536,736 potential common
stock shares are issuable upon the exercise of warrants and options and
conversion of debt to common stock.  These are excluded from computing
the diluted net income (loss) per share for the three months ended March 31,
2010 and 2009 as the effect of such shares would be anti-dilutive.
 
 The
following table sets forth the computation of basic earnings per
share:
 
 Three
      months
                                          ended
                                          March
      31, 2010
                                        
                                        
                                        Three
      months
                                          ended
                                          March
      31, 2009Net
      profit (loss) for the period attributable to Waytronx,
Inc.
                                        
                                        $
                                        (1,172,730
                                        )
                                        
                                        $
                                        (1,286,715
                                        )Weighted
      average number of shares outstanding
                                        
                                        
                                        169,837,626
                                        
                                        
                                        
                                        166,584,406Weighted
      average number of common andcommon
      equivalent shares
                                        
                                        
                                        169,837,626
                                        
                                        
                                        
                                        166,584,406Basic
      earnings (loss) per share
                                        
                                        $
                                        (0.01
                                        )
                                        
                                        $
                                        (0.01
                                        )Three
      months
                                          ended
                                          March
      31, 2010
                                        
                                        
                                        Three
      months
                                          ended
                                          March
      31, 2009Net
      profit (loss) for the period attributable to Waytronx,
Inc.
                                        
                                        $
                                        (1,172,730
                                        )
                                        
                                        $
                                        (1,286,715
                                        )Add:  
      Adjustment for interest and discountamortization
      on 4% convertible notes(previously
      computed)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -12%
      convertible notes and discount amortization
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Adjusted
      net income (loss)
                                        
                                        $
                                        (1,172,730
                                        )
                                        
                                        $
                                        (1,286,715
                                        )Weighted
      average number of shares outstanding
                                        
                                        
                                        169,837,626
                                        
                                        
                                        
                                        166,584,406Add:  
      Weighted average shares assumed to beIssued
      upon conversion of 4% convertiblenotes
      as of the date of issuance (previouslycomputed)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Warrants
      and options as of beginning of period
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Warrants
      and options as of date of issue
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -12%
      convertible notes as of beginning of period
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -12%
      convertible notes as of date of issue
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Weighted
      average number of common andcommon
      equivalent shares
                                        
                                        
                                        169,837,626
                                        
                                        
                                        
                                        166,584,406Diluted
      earnings (loss) per share
                                        
                                        $
                                        (0.01
                                        )
                                        
                                        $
                                        (0.01
                                        )
 
 5.           INCOME TAXES
 
 An income
tax benefit has not been recognized for operating losses generated in prior
periods based on uncertainties concerning the ability to generate taxable income
in future periods.  The tax benefit as of the three months ended March
31, 2010 and 2009 is offset by a valuation allowance established against
deferred tax assets arising from operating losses and other temporary
differences, the realization of which could not be considered more likely than
not.  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.
  14
 
 6.           WORKING CAPITAL LINE OF CREDIT
 
 At March
31, 2010, the Company had a $3,000,000 working capital line of credit with Key
Bank, interest payable monthly at the bank’s prime lending rate plus 1.50
percentage points (4.75% at March 31, 2010).  At March 31, 2010, the
balance outstanding on the line of credit was $1,860,285.  At March
31, 2010, the Company is out of compliance with a debt covenant related to this
loan.  The Company is actively working to resolve this
situation.  In April 2010, the working capital line of credit was
extended to July 1, 2010.
 
 7.           OPTIONS AND WARRANTS
 
 On
January 5, 2009 the Company Board of Directors received and approved a written
report and recommendations of the Compensation Committee which included a
detailed executive equity compensation report and market analysis and the
recommendations of Compensia, Inc., a management consulting firm that provides
executive compensation advisory services to compensation committees and senior
management of knowledge-based companies.  The Compensation Committee
used the report and analysis as a basis for its formal written recommendation to
the board.  Pursuant to a January 8, 2009 board resolution the 2009
Equity Incentive Plan (Executive), a Non-Qualified Stock Option Plan, was
created and funded with 4,200,000 shares of $0.001 par value common
stock.  The Compensation Committee was appointed as the Plan
Administrator to manage the plan.
 
 The 2009
Equity Incentive Plan (Executive) provides for the issuance of stock options to
attract, retain and motivate executive and management employees and directors
and to encourage these individuals to acquire an equity interest in the Company,
to make monetary payments to certain management employees and directors based
upon the value of the Company’s stock and to provide these individuals with an
incentive to maximize the success of the Company and further the interest of the
shareholders.  The 2009 Plan provides for the issuance of Incentive
Non Statutory Options.  The Administrator of the plan is authorized to
determine the exercise price per share at the time the option is granted, but
the exercise price shall not be less than the fair market value on the date the
option is granted.  Stock options granted under the 2009 Plan have a
maximum duration of 10 years.
 
 On May
15, 2008, the Board of Directors approved the Waytronx, Inc. 2008 Equity
Incentive Plan (“2008 Plan”) for 1,500,000 shares of the Company’s common
stock.  The 2008 Plan provides for the issuance of stock options to
attract, retain and motivate employees, to encourage employees, directors and
independent contractors to acquire an equity interest in the Company, to make
monetary payments to certain employees based upon the value of the Company’s
stock, and provide employees, directors and independent contractors with an
incentive to maximize the success of the Company and further the interest of the
shareholders.  The 2008 Plan provides for the issuance of Incentive
Stock Options and Non Statutory Options.  The Administrator of the
plan shall determine the exercise price per share at the time the option is
granted, but the exercise price shall not be less than the fair market value on
the date the option is granted.  Stock options granted under the 2008
Plan have a maximum duration of 10 years.
 
 On August
25, 2005, the Board of Directors approved the 2005 Equity Incentive Plan (“2005
Plan”) for 2,000,000 shares of the Company’s common stock.  The 2005
Plan provides for the issuance of stock options to attract, retain and motivate
employees, to encourage employees, directors and independent contractors to
acquire an equity interest in the Company, to make monetary payments to certain
employees based upon the value of the Company’s stock, and provide employees,
directors and independent contractors with an incentive to maximize the success
of the Company and further the interest of the shareholders.  The 2005
Plan provides for the issuance of Incentive Stock Options and Non Statutory
Options.  The Administrator of the plan shall determine the exercise
price per share at the time the option is granted, but the exercise price shall
not be less than the fair market value on the date the option is
granted.  Stock options granted under the 2005 Plan have a maximum
duration of 10 years.
  15


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





At
December 31, 2009, there were 1,458,000 non-vested stock options.  The
fair value of each stock option is estimated on the date of grant using a Black
Scholes Pricing Model.  During the three months ended March 31, 2010,
there were no stock options or warrants granted.





The
following information is presented for the stock option activity for the three
months ended March 31, 2010:





Numberof
                          Warrantsand
                          Options
                        
                        
                        WeightedAverage
                          ExercisePrice
                        
                        Weighted
                          Average
                          Remaining
                          ContractLifeOutstanding
      at December 31, 2009
                        
                        
                        7,663,273
                        
                        
                        $
                        0.17
                        
                        8.19
      yearsExercised
                        
                        
                        -
                        
                        
                        $
                        -Expired
                        
                        
                        -
                        
                        
                        $
                        -Forfeited
                        
                        
                        (65,000
                        )
                        
                        $
                        0.19Granted
                        
                        
                        -
                        
                        
                        $
                        -Outstanding
      at March 31, 2010
                        
                        
                        7,598,273
                        
                        
                        $
                        0.17
                        
                        8.43
      yearsOutstanding
      exercisable at March 31, 2010
                        
                        
                        7,004,273
                        
                        
                        $
                        0.16
                        
                        8.38
      years




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





2010
                    
                    
                    2009Exercise
      price lower than the market price
                    
                    
                    N/A
                    
                    
                    $
                    -Exercise
      price equaled the market price
                    
                    
                    N/A
                    
                    
                    $
                    -Exercise
      price exceeded the market price
                    
                    
                    N/A
                    
                    
                    $
                    0.19Exercise
      price exceeded the market price
                    
                    
                    N/A
                    
                    
                    $
                    0.25




16


The
following information is presented for the warrant activity for the three months
ended March 31, 2010:





Number of
                          Warrants
                        
                        
                        Weighted Average
                          Exercise Price
                        
                        Weighted Average
                          Remaining
                          Contract LifeOutstanding
      at December 31, 2009
                        
                        
                        13,602,620
                        
                        
                        $
                        0
      .11Exercised
                        
                        
                        -
                        
                        
                        $
                        -Expired
                        
                        
                        -
                        
                        
                        $
                        -Forfeited
                        
                        
                        -
                        
                        
                        $
                        -Granted
                        
                        
                        -
                        
                        
                        $
                        -Outstanding
      at March 31, 2010
                        
                        
                        13,602,620
                        
                        
                        $
                        0 .11
                        
                        1.09
      YearsOutstanding
      exercisable at March 31, 2010
                        
                        
                        12,102,620
                        
                        
                        $
                        0 .12
                        
                        1.09
      Years





8. NOTES
PAYABLE





At
December 31, 2007 eighteen-month secured convertible promissory notes totaling
$1,650,000 were outstanding and in default.  In August 2008, the
Company obtained extensions of twelve months on all notes in
default.  In September 2009, the Company obtained an extension to
November 2011 on the balance remaining.  At March 31, 2010, $1,000,000
was included in Long term convertible notes payable, related party.





At
December 31, 2007, twenty-four month secured promissory notes totaling
$1,100,000 were outstanding. $1,000,000 of these promissory notes were from an
entity controlled by a related party.  During the year ended December
31, 2009 the related party portion of $125,000 was
extinguished.   As of March 31, 2010, there was $625,000
remaining outstanding.  This is included in Notes payable, current
portion due.  Interest accrues at 12% per annum, payable monthly,
until the maturity of these notes at which time principal is due. In December
2009, the Company obtained an extension to June 30, 2010 on the balance
remaining.





During
the nine months ended September 30, 2008, 24-month unsecured convertible
promissory notes totaling $700,000 were entered into that had bonus shares
attached totaling 700,000 shares of common stock.  These shares had a
fair value of $125,653 using a Black Scholes Pricing Model.  Interest
accrues at 12% per annum, payable monthly, until the maturity of these notes at
which time the principal is due. The note holders have the right to convert the
note to common stock at $0.25 per share at any time during the term of the note,
and we recognized $188,795 in Additional Paid-in Capital related to the
beneficial conversion feature of these notes due to their immediate
vesting.  The balance outstanding as of March 31, 2010 was
$300,000.  This balance is included in Convertible notes payable,
current portion due.





Additionally,
the Company utilized three separate notes to fund the acquisition of CUI,
Inc.  A $6,000,000 cash loan from Commerce Bank of Oregon, with a term
of 3 years, paying interest only at the prime rate less 0.50%  with a
5.50% minimum rate (5.50% at March 31, 2010), and is secured by personal Letters
of Credit from related parties.  At March 31, 2010, the Company is out
of compliance with a debt covenant related to this loan.  As a result
of the default, the Company has recorded this debt under current
liabilities.  The Company is actively working to resolve this
situation.





A
$14,000,000 promissory note to International Electronic Device, Inc. (formerly
CUI, Inc.), payable monthly over three years at $30,000 per month including 1.7%
annual simple interest with a balloon payment at the thirty sixth monthly
payment (May 15, 2011), with no prepayment penalty, an annual success fee of
2.3%, and the right of first refusal to the note payee, International Electronic
Device, Inc., relating to any private capital raising transactions of Waytronx
during the term of the note.  There is a discount on debt related to
this note of $302,331.  The current portion of this note is $129,161
and is included in Notes payable, related party, current portion
due.  The net long term balance of this note is $13,206,313 and is
included in Long term notes payable, related party.


17





A
$17,500,000 convertible promissory note with 1.7% annual simple interest and a
2.3% annual success fee, permitting payee to convert any unpaid principal,
interest and success fee to Waytronx common stock at a per share price of $0.25
and at the end of the three year term (May 15, 2011) giving to Waytronx the
singular, discretionary right to convert any unpaid principal, interest and
success fee to Waytronx common stock at a per share price of
$0.25.  This note also provides a right of first refusal to the note
payee, International Electronic Device, Inc., relating to any private capital
raising transactions of Waytronx during the term of the note.  In May
2009, Waytronx and the debt holder of the $17,500,000 convertible promissory
note, IED, Inc., agreed to amend the $17,500,000 convertible promissory note
related to the acquisition of CUI, Inc. by reducing the conversion rate from
$0.25 to $0.07 per share to reflect the stock price for the ten day trailing
average preceding April 24, 2009, the date of the agreement.  The agreement
specifically retains the total maximum convertible shares at 70,000,000 as
stated in the original Note.  This amendment effectively reduced the Note
principal from $17,500,000 to $4,900,000. As of March 31, 2010, there is a
discount on debt related to this note of $2,269,272.  The net long
term balance of this note is $2,630,728 and is included in Long term convertible
notes payable, related party.





Through
the acquisition of CUI, Inc., the Company has a capital lease note payable of
$82,838 as of March 31, 2010.  The current portion of the capital
lease note is $54,158 as of March 31, 2010.  The capital lease note is
related to office equipment and furniture and is secured by the same office
equipment and furniture.  The capital lease expires September 1,
2011.





Through
the acquisition of Comex Electronics and CUI Japan, the Company has current
notes payable of $306,167 and long term notes payable of
$1,452,345.  These notes have interest rates as of March 31, 2010
ranging from 1.975%.00% to 3.85% and term dates from April 2010 to March
2019.  Through Comex Electronics, the Company also has capital leases
payable of $49,501 related to equipment and vehicles and is secured by the
same.  The current portion of the capital leases is $16,502 as of
March 31, 2010.  The capital leases have various expiration dates
through December 2014.





9.           SUBSEQUENT
EVENTS





On April
1, 2010, the Company settled the $4,900,000 convertible promissory note and
$850,500 in accrued interest on this note related to the acquisition of CUI Inc.
for a one-time payment of $50,000 and the conversion of $70,000 of the principal
into 1,000,000 shares of the company’s common stock at the stated conversion
rate of $0.07 per share.  The Company will recognize a gain on the
settlement of debt of $5,630,500 for the second quarter of 2010.





On April
1, 2010, two convertible note holders converted a total of $1,250,000 in
principal and $242,559 in accrued interest on their notes into 14,134,085 shares
of the company’s common stock.





On April
20, 2010, Key Bank National Association extended the $3,000,000 line of credit
to mature July 1, 2010.





Item
2.  Management’s Discussion and Analysis of Financial
Condition and Results of Operations.





General





Management’s
discussion and analysis contains various “forward looking
statements.”  Such statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate,”
or “continue” or use of negative or other variations or comparable
terminology.





Waytronx
cautions that these forward-looking statements are further qualified by
important factors that could cause actual results to differ materially, are
necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements.


18





Overview





Waytronx,
Inc., formerly known as OnScreen Technologies, Inc., is a Colorado corporation
organized on April 21, 1998.  The Company’s principal place of
business is located at 20050 SW 112th Avenue,
Tualatin, Oregon 97062, phone (503) 612-2300.





Effective
May 16, 2008, Waytronx, Inc. formed a wholly owned subsidiary, Waytronx
Holdings, Inc., to acquire the assets of CUI, Inc., a Tualatin, Oregon based
provider of electronic components including power supplies, transformers,
converters, connectors and industrial controls for Original Equipment
Manufacturers (OEMs).  Through the acquisition of CUI, Inc., the
Company obtained 352,589 common shares representing a 10.47% interest in Test
Products International, Inc., a provider of handheld test and measurement
equipment.  Since its inception in 1989, CUI has been delivering
quality products, extensive application solutions and superior personal
service.  CUI's solid customer commitment and honest corporate message
are a hallmark in the industry.  The Company does not expect any
organizational changes to CUI’s operations in the U.S., China or
Sweden.





Through
CUI’s capabilities and extensive contacts throughout Asia, this acquisition
allows Waytronx to continue to identify, acquire, and commercialize new
proprietary technologies, including its proprietary thermal management
technology.  Waytronx will use CUI’s market partners and global
distribution capabilities to bring other products to market, including the
Digital Power Modules, GASPT2, and other proprietary devices, described
below.  CUI’s testing and R&D capabilities allow Waytronx to
commercialize and prototype its products more efficiently and
economically.





CUI
defines its product into three categories:  components including
connectors, speakers and buzzers; control solutions including encoders and
sensors; and power solutions known as V-Infinity.  These offerings,
combined with the Waytronx portfolio of cooling solutions, provide a technology
architecture that addresses cooling and power to industries ranging from
consumer electronics to defense and alternative energy.





Effective
July 1, 2009, Waytronx acquired CUI Japan (formerly Comex Instruments, Ltd.) and
49% of Comex Electronics Ltd. that includes an associated distribution network,
both companies are Japanese based DSP providers of digital to analog and analog
to digital test and measurement systems and electronic components for OEM
research and development. These acquisitions provide a manufacturing component
which allows Waytronx to manufacture some of its own products, such as the AMT
encoder, in Japan.





Through
an exclusive licensing contract with GL Industrial Services UK, Ltd. (GL),
formerly British-based Advantica, Ltd., Waytronx owns exclusive rights to
manufacture, sell and distribute a Gas Quality Inferential Measurement Device
(GASPT2) designed by GL on a worldwide basis.  Waytronx, Inc. intends to
form a wholly owned subsidiary, CUI-GAS, Inc. to acquire from Waytronx the
GASPT2 licensing contract.  That subsidiary should be created and
fully functioning in Fourth Quarter 2010.





The
GASPT2, designed by GL, is a low cost solution to measuring gas quality. 
It can be connected to a natural gas system to provide a fast, accurate, close
to real time measurement of the gas physical properties, such as thermal
conductivity, speed of sound and carbon dioxide content.  From these
measurements it infers an effective gas mixture comprising four components:
methane, propane, nitrogen, and measured carbon dioxide and then uses ISO6976 to
calculate the gas quality characteristics of calorific value (CV), Wobbe index
(WI), relative density (RD), and compression factor (Z).  Through
Bluetooth Technology, this information can be provided to a remote, centralized
monitoring facility.  This licensing contract anticipates a minimum of
between $35,000,000 and $40,000,000 in sales during the first four years of the
agreement.  According to our review, the market studies commissioned
by GL and GL's experience in the natural gas industry all demonstrate that these
contract numbers are conservative and achievable.  We expect to
deliver product during the third quarter of 2010.  On January 1, 2010,
the Company entered into a consulting agreement with Terry Williams, former GL
Industrial Services Project Director, to serve as the Company’s Project Director
and Lead Engineer for the GASPT2 device.  The consultant will be
compensated a base monthly fee and will receive commissions on sales of the
GASPT2 device.


19





We continue our efforts to develop and commercialize our relationship
with BAE Systems and have submitted a joint Seedling Proposal with BAE to the
Defense Advanced Research Projects Agency ("DARPA").  That Seedling
Proposal is under review by the new Director of DARPA, recently appointed by the
Obama Administration.  BAE Systems is a British defense, security and
aerospace company headquartered in England that has global interests,
particularly in North America through its subsidiary BAE Systems Inc.  BAE
is the world's second-largest defense contractor and the largest in
Europe.





Waytronx,
Inc. continues to commercialize thermal management technology of particular use
to the semiconductor, solar and electronic packaging industries
that involve the use of fluid displacement to move heat away from the
source instead of traditional passive heat transference through solid
materials. This technology can enhance system performance and remove
thermal barriers caused by "microwarming" in today's advanced computing
devices.  This proprietary hybrid mesh architecture solutions for
central and graphics processors, solar energy devices and power supplies provide
more cost effective and efficient thermal management to the electronics
industry.





The
thermal management technology can be universally adapted to any device with
cooling requirements.  Applications Waytronx has currently identified
for WayCool include graphics processing units, central processing units, power
supply units, solar energy, medical monitors, test appliances and home
electronics displays.





During
the three months ended March 31, 2010, Waytronx continued to incur losses from
operations.  A net loss attributable to Waytronx Inc. of $1,172,730
was incurred for the three months ended March 31, 2010.  The net loss
is primarily the result of interest expenses (both cash and non-cash) associated
with debt.





The
Company is in default of a debt covenant on its $3,000,000 working capital line
of credit with Key Bank.  In April 2010, the working capital line of
credit was extended to July 1, 2010.  Management is actively working
to resolve this default.





The
Company is in default of its debt service coverage ratio debt covenant related
to the $6,000,000 Commerce Bank of Oregon cash loan.  The Company is
actively working to resolve this situation.  As of this date, the Bank
has not called the loan.





Management
has continued to raise the capital needed to fund the development and marketing
of its products as well as the acquisitions of CUI Japan and Comex Electronics
during 2009 and the first three months of 2010.  During the three
months ended March 31, 2010, the Company has utilized the bank line of credit to
fund operations.  It is anticipated that Waytronx, CUI, CUI Japan and
Comex Electronics will continue to develop and expand the technology and product
lines which may require additional funding.





Intellectual Property





The
Company relies on various intellectual property laws and contractual
restrictions to protect its proprietary rights in products, logos and
services.  These include confidentiality, invention assignment, and
nondisclosure agreements with 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.





Waytronx
continues to file and protect its intellectual property rights, trademarks and
products through filings with the US Patent and Trademark Office and, as
applicable, internationally.


20


Liquidity and Capital
Resources




General


Cash and
cash equivalents at March 31, 2010 are $461,801, and there is net working
capital deficit of $6,002,398.  Operations and investments in patents
and equipment have been funded through cash from operations, and the bank line
of credit during the three month period.





Cash used in
operations


Operating
requirements generated a negative cash flow from operations of $247,539 for the
three months ended March 31, 2010, versus a negative cash flow from operations
of $433,961 for the same period last year.  The improvementin cash used in
operations is primarily the result of a decrease in stock, warrants, options and
notes issued for compensation and services, a decrease in non-cash interest
expense, a net profit on securities available for sale, a decrease in bad debt
expense, increase in depreciation, a decrease in trade accounts receivable, a
decrease in other accounts receivable, a increase in inventory levels, decreased
prepaid expenses, increase in deposits and other current assets, decreases in
accounts payable, increases in accrued expenses, and an increase in accrued
compensation.





During
the first three months of 2010 and 2009 stock options have been used as a form
of payment to certain consultants, note holders, employees and
directors.  For the first three months of 2010 and 2009, a total of
$1,641 and $84,212, respectively, was recorded for compensation and services
expense including amortization of deferred compensation related to equity given,
or to be given, to employees, directors and consultants for services
provided.





As the
Company focuses on technology development and product line additions during
2010, it will continue to fund research and development together with related
sales and marketing efforts for WayCool, GASPT2, digital power and its other
electromechanical products.  The Company does not expect to record
significant revenue from the WayCool technology until this product line is fully
developed and licensing agreements for the manufacture and sale of its products
are in place and operational.





Capital Expenditures and
Investments


The
Company invested $20,651 in other intangible assets related to products during
the first three months of 2010 as compared to $0 for the same period last
year.





Waytronx
invested $1,925 in patent costs during the first three months of 2010 as
compared to $901 for the same period last year.  It is expected that
investment in patent costs will continue throughout 2010 as patents are pursued
in order to protect the rights to use its product developments.





During
the first three months of 2010 and 2009, there was $135,437 and $21,263
investment in property and equipment, respectively.





Financing
activities


During
the first three months of 2010, the Company received proceeds of $540,582 from
the bank working line of credit, and the Company issued payments of $112,890 of
payments were made against notes and loans payable, and $74,186 of payments were
made against notes and loans payable, related party.  Waytronx plans
on raising the capital needed to fund the further development and marketing of
its products as well as payment of its debt obligations.





Recap of liquidity and
capital resources


The
report of our independent registered public accounting firm on our financial
statements as of December 31, 2009 contains an explanatory paragraph expressing
uncertainty with respect to our ability to continue as a going
concern.  Prior to the acquisition of CUI, Inc. the Company was not
generating significant revenues to fund operations.  Management
believes the Company to be generating sufficient revenues to fund
operations.  As of March 31, 2010 the Company had an accumulated
deficit of $55,919,517.





The
Company may seek to raise additional capital for the commercialization of its
WayCool, GASPT2, digital power and its other electromechanical
products.  The Company believes its operations and existing financing
structure will provide sufficient cash to meet its short-term working capital
requirements for the next twelve months.  As the Company continues to
expand and develop its technology and product lines as well as retire debt,
additional funding sources may be required.  The Company will attempt
to raise these funds through borrowing instruments or issuing additional
equity.


21





As of
March 31, 2010 CUI Inc. maintained a line of credit with Key Bank granting
borrowings of up to $3,000,000 with interest payable monthly at the bank’s prime
lending rate plus 1.50 percentage points.  At March 31, 2010, the
Company is out of compliance with a debt covenant related to this
loan.  The Company is actively working to resolve this
situation.  In April 2010, the working capital line of credit was
extended to July 1, 2010.





The
Company is in default of its debt service coverage ratio debt covenant related
to the $6,000,000 Commerce Bank of Oregon cash loan.  The Company is
actively working to resolve this situation.  As of this date, the Bank
has not called the loan.





The
Company expects the revenues from CUI, Inc., CUI Japan and Comex Electronics to
help cover operating and other expenses for the next twelve months of
operations.  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.





Results of Operations





Revenue


During
the three months ended March 31, 2010 and 2009, revenue was $7,668,805 and
$6,125,050, respectively.  The revenue for the three months ended
March 31, 2010 is comprised of $6,481,001 from CUI products, $1,167,562 from CUI
Japan and Comex Electronics products, $20,147 for freight, and $95 from
RediAlertTM products.  The revenue for the three months ended March 31,
2009 is comprised of $6,060,901 from CUI products, $37,647 for freight, $26,502
from RediAlertTM products.





Cost of
revenue


The cost
of revenue for the three months ended March 31, 2010 and 2009, was 4,826,439 and
3,656,155, respectively.





Selling, General and
Administrative Expenses


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





For the
three months ended March 31, 2010 compared to the same period in 2009, SG&A
expenses increased $457,870.  The increase is primarily associated
with the SG&A expenses associated with the operations of CUI Japan and Comex
Electronics and their operations and increased expenses associated with the
increase in overall business.





Research and
Development


The
research and development costs are related to the development of technology and
products.  Research and development costs were $81,158 and $83,399,
for the three months ended March 31, 2010 and 2009, respectively.





Bad Debt


The bad
debt expense for the three months ended March 31, 2010 and 2009 was $10,890 and
$37,743, respectively.  The bad debt expense for both periods relates
to miscellaneous customers.


22


Other
Income


Other
income for the three months ended March 31, 2010, consisted of $19,579 gain on
foreign exchange, $16,712 recovery of bad debts, $11,243 interest income, $6,090
of rental income, and $2,771 of miscellaneous income.  Other income
for the three months ended March 31, 2009, consisted of $29,200 for services
billed to a related party, $6,818 for interest income, $8,883 gain on foreign
exchange, and $584 in other income.





Investment
Income


The
Company recognized income of $14,615 on equity investment in an affiliate for
the three months ended March 31, 2010.  For the same period ended
2009, the Company recognized a loss of $8,058.





Convertible debt and
amortization of debt discount and debt offering costs


The
Company recorded an expense of $741,855 and $838,771, for the three months ended
March 31, 2010 and 2009, respectively, for the amortization of debt discount and
debt offering costs.  The decrease in expense in 2010 is related to
the reduction in the debt discount related to the 2009 reduction of debt and
related debt discount associated with the convertible note used to fund the
acquisition of CUI, Inc.





Interest
Expense


The
interest expense of $387,533 and $461,926 for the three months ended March 31,
2010 and 2009, respectively is for interest on the secured convertible notes
payable, bank operating line of credit, bank loans, and secured and unsecured
promissory notes.  The decrease is primarily due to the reduction of
debt in 2009 through debt settlements and principal payments.





Preferred Stock
Dividends


No
preferred dividend expense was recorded by the Company during the three months
ended March 31, 2010 and 2009, as during 2006 all Series A and B 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.





Critical
Accounting Policies





Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported.  These
estimates can also affect supplemental information contained in our external
disclosures including information regarding contingencies, risk and financial
condition. We believe our use if estimates and underlying accounting assumptions
adhere to GAAP and are consistently and conservatively applied. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. We
continue to monitor significant estimates made during the preparation of our
financial statements.




Our
significant accounting policies are summarized in Note 2 of our financial
statements. While all these significant accounting policies impact its financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ from
those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our results of operations,
financial position or liquidity for the periods presented in this
report.





Recent
Accounting Pronouncements





In June
2009, the FASB issued FASB Accounting Standards Codification No. 860 “Transfers
and Servicing” (“FASB ASC 860”). FASB ASC 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any,
in transferred financial assets. FASB ASC 860 is effective as of the beginning
of each reporting entity’s first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual reporting period
and for interim and annual reporting periods thereafter. The adoption of this
statement did not have a material effect on the Company’s financial
statements.


23





In June
2009, the FASB issued FASB Accounting Standards Codification No. 810
“Consolidation” (“FASB ASC 810”). FASB ASC 810 improves financial reporting by
enterprises involved with variable interest entities and to address (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities”, as a result of the
elimination of the qualifying special-purpose entity concept in FASB ASC 860 and
(2) constituent concerns about the application of certain key provisions of
Interpretation 46(R), including those in which the accounting and disclosures
under the Interpretation do not always provide timely and useful information
about an enterprise’s involvement in a variable interest entity. FASB ASC 810 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. The adoption of this statement did not have a material effect on the
Company’s financial statements.





In
October 2009, the Financial Accounting Standards Board (“FASB”) issued FASB
Accounting Standards Update 2009-13, Revenue Recognition (Topic
605)—Multiple-Deliverable Revenue Arrangements.FASB Accounting
Standards Update 2009-13 addresses the accounting for multiple-deliverable
arrangements to enable vendors to account for products or services
(deliverables) separately rather than as a combined unit. Specifically, this
guidance amends the criteria in Accounting Standards Codification (“ASC”)
Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, for
separating consideration in multiple-deliverable arrangements. This guidance
establishes a selling price hierarchy for determining the selling price of a
deliverable, which is based on: (a) vendor-specific objective evidence;
(b) third-party evidence; or (c) estimates. This guidance also
eliminates the residual method of allocation and requires that arrangement
consideration be allocated at the inception of the arrangement to all
deliverables using the relative selling price method. In addition, this guidance
significantly expands required disclosures related to a vendor’s
multiple-deliverable revenue arrangements. FASB Accounting Standards Update
2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. The adoption of Accounting Standards Update 2009-13
is not expected to have a material impact on the condensed consolidated
financial statements.





In August
2009, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting
Standards Update 2009-05, Fair Value Measurements and
Disclosures (Topic 820)—Measuring Liabilities at Fair Valueincludes amendments to
Subtopic 820-10, Fair
Value Measurements and Disclosures—Overall, for the fair value
measurement of liabilities and provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the techniques provided for in this update. The adoption of Accounting
Standards Update 2009-05 did not have a material impact on the condensed
consolidated financial statements.





Off-Balance
Sheet Arrangements




None.





Item 3.  Quantitative and Qualitative Disclosure about
Market Risk





A smaller
reporting company, as defined by Rule 229.10(f)(1), is not required to provide
the information required by this Item.


24


Item
4T.  Controls and Procedures





Within 90
days prior to the filing of this report, the Company carried out an evaluation,
under the supervision and with the participation of its management, including
the Chief Executive Officer and Chief Financial Officer, of the design and
operation of its disclosure controls and procedures.  Based on this
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are effective
for the gathering, analyzing and disclosing the information the Company is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the SEC’s rules and
forms.  There have been no significant changes in the Company’s
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of this evaluation.





(a) Our
management, including the principal executive officer and principal financial
officer, do not expect that our disclosure controls and procedures will prevent
all error and fraud.  A control system, no matter how well conceived
and operated, can only provide 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 controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our Company have been
detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake.  Additionally, controls can be
circumvented by the individual acts of some persons, collusion of two or more
people, or by management override of the control.  The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.




(b)  Changes
in internal controls over financial reporting.





We have
not identified any significant deficiency or material weaknesses in our internal
controls, and therefore there were no corrective actions taken.





PART II – OTHER INFORMATION





Item
1.  Legal Proceedings.





The
Company and its subsidiaries are not a party in any legal
proceedings.  No director, officer or affiliate of the Company, any
owner of record or beneficially of more than five percent of any class of voting
securities of the Company or any associate of any such director, officer,
affiliate of the Company or security holder is a party adverse to the Company or
any of its subsidiaries or has a material interest adverse to the Company or any
of its subsidiaries.





Item
1A:  Risk Factors.





A smaller
reporting company is not required to provide the information required by this
Item.





Item
2.  Unregistered Sales
of Equity Securities and Use of Proceeds.





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





Common
Stock Issued





During
the three months ended March 31, 2010, the Company issued no common
stock.





Common
Stock Issuable





During
the three months ended March 31, 2010, the Company recorded no shares of common
stock issuable.


25


Item
3.  Defaults upon Senior Securities.





The
Company is in default of its debt service coverage ratio debt covenant related
to the $6,000,000 Commerce Bank of Oregon cash loan.  The Company is
actively working to resolve this situation.  As of this date, the Bank
has not called the loan.





Item
4.  (Removed and Reserved).





Item
5.  Other Information.





No
reports on Form 8-K were filed during the three months ended March 31,
2010.





Item
6.  Exhibits





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





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, 2004.3.73
            
            Restated
      Articles of Incorporation, Officers’ Certificate and Colorado Secretary of
      State Certificate filed June 30, 2004 showing corporate name change to
      OnScreen Technologies, Inc.3.84
            
            Restated
      Articles of Incorporation and Colorado Secretary of State Certificate
      filed January 7, 2008 showing corporate name change to Waytronx,
      Inc.3.98
            
            Restated
      Articles of incorporation to increase the authorized common shares to
      325,000,000 shares.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,
      2004.10.175
            
            Assignment,
      dated February 16, 2005, of Registrant’s technology patents ownership from
      inventor to CH Capital.10.185
            
            Assignment,
      dated February 16, 2005, of Registrant’s technology patents ownership from
      CH Capital to Company.10.225
            
            Promissory
      Note dated March 25, 2005 evidencing $1,500,000 unsecured short term loan
      to Registrant.10.236
            
            OnScreen
      Technologies, Inc. 2005 Equity Incentive Plan10.257
            
            Employment
      Agreement between the Registrant and William J. Clough, Esq. dated
      November 21, 2005.10.289
            
            Waytronx,
      Inc. 2008 Equity Incentive Plan.15.211
            
            Letter
      re unaudited interim financial information.21.110
            
            List
      of all subsidiaries, state of incorporation and name under which the
      subsidiary does business.22.5
            
            Proxy
      Statement and Notice of 2009 Annual Shareholder Meeting filed with the
      Commission on August 10, 2009.31.111
            
            Certification
      of Chief Executive Officer pursuant to Exchange Act Rules 13a-15(e) and
      15d-15(e), as adopted pursuant to Section 203 of the Sarbanes-Oxley Act of
      2002.




26





31.211
            
            Certification
      of Chief Financial Officer pursuant to Exchange Act Rules 13a-15(e) and
      15d-15(e), as adopted pursuant to Section 203 of the Sarbanes-Oxley Act of
      2002.32.111
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.32.211
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.





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 10-KSB filed with the Commission on
      March 31, 2005.


4
            Incorporated
      by reference to our Registration Statement on Form S-8 filed with the
      Commission on March 12, 2008.


5
            Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on May
      4, 2005.


6
            Incorporated
      by reference to our Proxy Statement pursuant to Section 14(a) filed with
      the Commission on October 7, 2005.


7
            Incorporated
      by reference to our Report on Form 10-KSB filed with the Commission on
      February 24, 2006.


8
            Incorporated
      by reference to the Proxy Statement and Notice of 2008 Annual Shareholder
      Meeting filed with the Commission July 3,
2008.


9
              Incorporated
      by reference to our Registration Statement on Form S-8 filed with the
      Commission on March 12, 2008.10
              Incorporated
      by reference to our Annual Report on Form 10-K filed with the Commission
      on April 1, 2010.11
              Filed
      herewith.











SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





Signed
and submitted this 7th day of May 2010.





Waytronx,
      Inc.By:
              /s/ William J. CloughWilliam
      J. Clough,Chief
      Executive Officer/Presidentby:
              /s/ Daniel N. FordDaniel
      N. Ford,Chief
      Financial Officer




27