UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





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





For the
fiscal year ended December 31, 2009.





OR





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)










Commission
File Number 0-29195





Waytronx,
Inc.


(Exact
name of registrant as specified in its charter)





Colorado
                        
                        (3670)
                        
                        84-1463284(State
      or jurisdiction of
                        
                        (Primary
      Standard Industrial
                        
                        (I.R.S.
      Employerincorporation
      or organization)
                        
                        Classification
      Code Number)
                        
                        Identification
      No.)





20050 SW
112th
Avenue


Tualatin,
Oregon 97062


(503)
612-2300


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





William
J. Clough, CEO/President


Waytronx,
Inc.


20050 SW
112th
Avenue


Tualatin,
Oregon 97062


(503)
612-2300


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





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





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





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x Yes  ̈
No





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





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





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





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





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of December 31, 2009, computed by reference to the price
at which the common equity was last sold, or the average bid and asked price of
such common equity, was $10,365,597.





As of
March 31, 2010, the registrant had 169,837,626 shares of common stock
outstanding and 50,543 shares of Series A Convertible Preferred Stock
outstanding and no shares of Series B Convertible Preferred
outstanding.





PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:


Not
Applicable





DOCUMENTS
INCORPORATED BY REFERENCE


None.








IndexPart
      IItem
      1.
                                    Business
                                    5External
      Power Supplies
                                    5CUI
      – Subsidiary
                                    5Digital
      POL Modules
                                    6Digital
      Power Patent License Agreement with Power One, Inc.
                                    6Philanthropic
      Philosophy
                                    6ISO
      9001:2000 Accreditation
                                    6Comex
      – Subsidiary
                                    6CUI-GAS
      - Subsidiary
                                    6Defense
      Advanced Research Projects Agency
                                    7WayCool
                                    7Employees
                                    8Intellectual
      Property
                                    8Item
      1A.
                                    Risk
      Factors
                                    9Item
      1B.
                                    Unresolved
      Staff Comments
                                    9Item
      2.
                                    Properties
                                    9Item
      3.
                                    Legal
      Proceedings
                                    10Item
      4.
                                    Submission
      of Matters to a Vote of Security Holders
                                    10Part
      IIItem
      5.
                                    Market
      for Common Equity, Related Stockholder Matters and IssuerPurchases
      of Equity Securities
                                    10Small
      Business Issuer Purchases of Equity Securities
                                    10Recent
      Sales of Unregistered Securities
                                    14Shares
      Eligible for Sale
                                    17Item
      6.
                                    Selected
      Financial Data
                                    17Item
      7.
                                    Management's
      Discussion and Analysis of Financial Conditionand
      Results of Operations
                                    18Critical
      Accounting Policies
                                    19Liquidity
      and Capital Resources
                                    19Results
      of Operations
                                    22Item
      7A.
                                    Quantitative
      and Qualitative Disclosures about Market Risk
                                    25Item
      8.
                                    Financial
      Statements and Supplementary Data
                                    25Item
      9.
                                    Changes
      In and Disagreements with Accountants on Accountingand
      Financial Disclosure
                                    25Item
      9A.
                                    Controls
      and Procedures
                                    25Item
      9A(T)
                                    Controls
      and Procedures
                                    25Item
      9B
                                    Other
      Information
                                    26Part
      IIIItem
      10.
                                    Directors,
      Executive Officers and Corporate Governance
                                    26Business
      Experience of Executive Officers and Directors
                                    27Shareholder
      Communication
                                    29Reports
      to Shareholders
                                    30Section
      16(a) of the Exchange Act Compliance
                                    30Our
      Corporate Governance Practices
                                    30Code
      of Ethics
                                    31Audit
      Committee
                                    32Audit
      Committee Report
                                    32Nominating
      Committee
                                    32Item
      11.
                                    Executive
      Compensation
                                    33Compensation
      Discussion and Analysis
                                    33Compensation
      Philosophy
                                    34Compensation
      Setting Process
                                    35Elements
      of Executive Compensation
                                    372009
      Equity Incentive Plan (Executive)




2




Summary
      Compensation Table
                38Outstanding
      Equity Awards at Fiscal Year-End
                40Director
      Compensation
                41Employment
      Agreements
                42Compensation
      Committee Report
                42Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Managementand
      Related Stockholder Matters
                43Equity
      Incentive Plans
                45Item
      13.
                Certain
      Relationships, Related Transactions and Director
                46Independence
                46Item
      14.
                Principal
      Accounting Fees and Services
                48Part
      IVItem
      15.
                Exhibits,
      Financial Statement Schedules
                48Exhibits
                48Signatures
                49Certifications
                50




3





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





PART
I





Item
1.  Business





Corporate
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.





CUI
- Subsidiary


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.





The
consideration for the CUI asset purchase transaction included two promissory
notes in the aggregate principal amount of thirty one million five hundred
thousand dollars ($31,500,000).  In May 2009, Waytronx and the holder
of the $17,500,000 convertible promissory note, IED, Inc., agreed to amend the
convertible promissory note 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 a result, the Company recognized an
extraordinary gain on the extinguishment of this debt of $11,808,513 and a
reduction in the related discount of debt of $791,487.  As of December
31, 2009, there is a discount on debt related to this note of $2,773,555 and the
net long term balance of this note is $2,126,445.





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.


4


Digital POL
Modules


CUI’s
power division, V-Infinity, is developing a line of digital point-of-load (POL)
modules that will utilize Powervation’s digital power-conversion ICs. The new
Novum series will be focused on providing complete, easy-to-use solutions to
make digital power accessible to a wide array of users. The modules will combine
high power density in a compact footprint and offer a wide array of digital
control and power management functions. It will utilize Powervation’s patented
Auto-controlTM technology which will allow the new modules to work in real time
ensuring stability and improved transient responsiveness. A wide array of
digital power control functions will be supported including current monitoring,
temp sensing, margining and voltage sequencing.





Digital Power Patent License
Agreement with Power-One, Inc.


CUI
entered into a non-exclusive Field of Use Agreement with Power-One, Inc.
(NASDAQ: PWER) to license Power-One’s Digital Power Technology
patents.  The license provides access to Power-One’s portfolio of
Digital Power Technology patents for incorporation into CUI’s new line of
digital point of load power modules.  CUI, through its V-Infinity
power division, manufactures a range of embedded and external power electronics
devices for OEM manufacturers.





Philanthropic
Philosophy


In an
industry first, CUI has chosen that, in addition to sales commission, sales rep
firms will also receive a charity commission to be donated to charities of their
choice.  One of CUI’s core values is generosity which includes
philanthropic giving.  We give in our local community and we want to
also give in the communities in which we do business.  This program
will allow us to give more than $50,000 next year to communities outside of our
own.





ISO 9001:2008
Accreditation


CUI, Inc.
has been certified to the ISO 9001:2008 Quality Management Systems standards and
guidelines.  CUI has been assessed and registered as conforming to the
requirements of standard: ISO 9001:2008, The Quality Management System is
applicable to Design, Development and Distribution of electro-mechanical
components for OEM manufacturing.  ISO 9001 is accepted worldwide as
the inclusive international standard that defines quality.





Becoming
certified as ISO 9001:2008 compliant, CUI underwent a stringent evaluation
process that included quality management system development, documentation
review, pre-audit, initial assessment, and clearance of non-conformances, all of
which work to identify corrective actions that eliminate non-conformance to the
quality management standard.  The certification of compliance with ISO
9001:2008 recognizes that our policies, practices and procedures ensure
consistent quality in the design services, technology and products we provide
our customers.





Comex
- Subsidiary


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.





CUI-GAS
– Subsidiary


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.


5


Our GASPT2Product


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.





Defense
Advanced Research Projects Agency (DARPA) Proposal Pending


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.





WayCool


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.





Our
business strategy includes a basis of intellectual property licensing through
which the thermal management cooling technology is intended to be exploited
through the development of license and royalty agreements because it is
considerably less capital intensive than developing manufacturing and marketing
capabilities and it provides continuous long-term revenue streams and immediate
revenue through advance licensing fees.  The May 2008 union of CUI
with Waytronx makes readily available to Waytronx the existing CUI
electromechanical components and industrial controls manufacturing, distribution
and marketing network.  This synergy opens to WayCool the worldwide
CUI personal relationships, and customer base.





The Carbon Block
Technology


The goal
of all cooling technologies is to remove heat from a concentrated source (for
example a one-inch square microprocessor chip may generate 200 Watts) and
distribute it into the general ambient environment.  A copper plate
interface has traditionally been used to quickly transfer the heat away from the
source and then move it to the general environment.  Waytronx
developed carbon technology with a heat transfer rate up to four times that of
copper plates, but with the low cost and adaptable size and form factor
advantages of copper plates.  The impact of carbon block is to once
again make the cooler itself the performance limiter for removing heat, but at
much higher heat removal rates.





The U300DT and U400DT
Designs


The
WayCool U300DT and U400DT Reference Designs for CPUs provide up to 300 Watts or
400 Watts of thermal management capacity and replaces liquid or air CPU
coolers.  The U300DT and U400DT Reference Designs
provide:


6





·
            Enhanced
      performance: Beyond other high performance air-only CPU
      coolers


·
            Upgradeability:
      Supporting current dual core and future quad core
  CPUs


·
            Less
      noise: Quieter than today's air-based
  coolers


·
            Compactness: Hybrid
      liquid-air cooling in a smaller form
factor


·
            Enhanced
      thermal transfer: Improved results through WayCool Carbon technology in
      direct contact with WayCool Mesh and the
CPU





Employees


As of
December 31, 2009, the Company, together with its consolidating subsidiaries,
had seventy-six full-time and twelve part-time employees.  None of its
employees is represented by a labor union.  The Company considers its
relations with its employees to be good.  The Company plans to add
additional staff as needed to handle all phases of its business.





Intellectual
Property


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


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


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


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


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


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





Intellectual Property
Protection


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


·
            August
      26, 2002 Patent Cooperation Treaty applications were filed relating to the
      basic mesh design.


·
            November
      10, 2005 Patent Cooperation Treaty applications were filed relating to the
      cooling system incorporating heat transfer meshes
  design.


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


·
            In
      the months of June, July, September, October and November 2006 Provisional
      patent applications were filed relating to various modifications and
      enhancements for the WayCool, self contained liquid cooling apparatus and
      other mesh liquid product
designs.


7


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


·
            September
      and October 2007 utility patent applications were filed relating to
      self-contained fluid cooling device and circuit board with fluid
      containing Heatspreader-ground plate and
  methods.


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


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


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


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


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


·
            August
      25, 2009 a divisional patent was issued relating to our basic mesh
      architecture design and methods.


·
            October
      6, 2009 a utility patent was issued relating to the method of
      communicating with circuitry associated with woven mesh
      elements.





Under the
Trademark Act of 1946, as amended, the United States Patent and Trademark Office
permitted our registration of the following trademarks: RediAlert, Rapid
Dispatch Emergency Signs, RediAd, Living Window and OnScreen Technology. We are
required to disclaim the unitary expression because the individual component
words of a complete descriptive phrase are not registerable. This disclaimer
does not impair the “OnScreen” trademark or the “OnScreen technology” words when
used in conjunction with the trademark. The following trademark applications
filed with the United States Patent and Trademark Office are pending: WayCool,
WayCoolant, WayFast, Waytronx, V-Infinity, CUI INC, CUI Europe and
CUI.





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





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





Item
1A.     Risk Factors





Smaller
reporting companies are not required to provide information required by this
item.





Item
1B.     Unresolved Staff Comments





None.





Item
2.  Properties





As an
integrated part of the CUI asset acquisition, the Waytronx, Inc. corporate
offices were relocated to the CUI location at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  CUI and Waytronx occupy the 61,380 square
feet of offices and warehouse premises under a ten year non-cancelable lease
agreement beginning September 1, 2006 with Barakel, LLC, a related party, at a
base monthly rent subject to periodic base payment increases plus real property
taxes, utilities, insurance and common area maintenance
charges.  During the period January 1 through August 31, 2009, the
monthly base rent was $39,900.  For the period September 1 through
December 31, 2009, the monthly base rent was $40,000.


8





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





Additionally,
subsequent to the acquisition of CUI Japan and Comex Electronics, the Company
now has leased spaces in Tokyo, Japan, and owns a small manufacturing
facility on leased land in Nagano, Japan.  One of the leased spaces in
Tokyo, Japan expires August 31, 2011.  The monthly base rent for this
space during the year ending December 31, 2009 was $3,436.  The other
leased space in Tokyo, Japan expires in stages from May 7, 2011 to September 9,
2011.  During the year ending December 31, 2009, the monthly base rent
for this space $6,546.  In conjunction with this lease, the Company
also leases parking spaces.  This lease expires December 31, 2010 and
the base monthly rent during the year ended December 31, 2009 was
$486.  During the year ending December 31, 2009, the annual base rent
for the land lease in Nagano, Japan was $2,772.





Item
3.  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
4.  Submission of Matters to a Vote of Security Holders





No matter
was submitted to a vote of security holders during the fourth quarter of
2009.





PART
II





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





Market
Value


The
Company’s Common Stock is traded on the OTC Bulletin Board (OTC:BB) under the
trading symbol "WYNX".  The following table sets forth, the high and
low bid prices of its Common Stock for the four quarters of 2008 and 2009 as
reported by the National Quotation Bureau.  The bid prices quoted on
the OTC:BB reflect inter-dealer prices without retail mark-up, markdown or
commission and may not represent actual transactions.





Year
                      
                      Quarter
                      
                      High Bid
                      
                      
                      Low Bid2008
                      
                      First
      Quarter
                      
                      
                      .330
                      
                      
                      
                      .210Second
      Quarter
                      
                      
                      .480
                      
                      
                      
                      .170Third
      Quarter
                      
                      
                      .420
                      
                      
                      
                      .310Fourth
      Quarter
                      
                      
                      .410
                      
                      
                      
                      .2202009
                      
                      First
      Quarter
                      
                      
                      .340
                      
                      
                      
                      .160Second
      Quarter
                      
                      
                      .380
                      
                      
                      
                      .160Third
      Quarter
                      
                      
                      .250
                      
                      
                      
                      .160Fourth
      Quarter
                      
                      
                      .250
                      
                      
                      
                      .070





Description of
Securities


The
Company currently has authorized 325,000,000 common shares $0.001 par value and
10,000,000 preferred shares $0.001 par value.  Of the 10,000,000
authorized preferred shares, 5,000,000 shares have been designated as Series A
Convertible Preferred, 30,000 shares have been designated as Series B
Convertible Preferred and 10,000 shares have been designated as Series C
Convertible Preferred.  As of December 31, 2009, the Company’s
outstanding shares consisted of 169,837,626 issued and outstanding shares of
common stock, 50,543 shares of Series A Convertible Preferred Stock and no
shares of Series B and Series C Convertible Preferred Stock.  As of
December 31, 2009, the Company had in excess of 3,000 shareholders of
record.


9





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





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





Set forth
below is a summary of the current outstanding securities, transactions and
agreements, which relate to 99,531,310 shares of common stock the Company is
required to reserve for potential future issuances.





277,986 shares of our common
stock may be issued in connection with the conversion of our Series A
convertible preferred stock


As of
December 31, 2009, the Company had 50,543 shares of Series A Convertible
Preferred stock outstanding and no shares of Series B and Series C Convertible
Preferred Stock outstanding.  The Series A preferred shares convert to
common shares at a ratio of four common shares plus one common bonus share for
each share of Series A Preferred.  As of December 31, 2009, there is
$5,054 in accrued Series A Preferred dividends that convert into 25,271 shares
of the Company’s common stock at a per share price of $0.20 for certain
shareholders who elected to convert accrued dividends to common
shares.





13,602,620shares of our common stock
reserved for warrant exercise


The
following describes common shares underlying warrants:


i.
            6,040,485
      to our CEO and Senior Vice President as partial consideration for
      conveyance of the WayCool technology to the company.  These
      warrants may be exercised any time before July 5, 2011 at a price of $0.20
      per share.


ii.
            1,512,135
      to three investors as bonus shares in consideration for promissory notes
      made in 2006.  Two of these warrants representing 1,210,000
      shares may be exercised at any time before June 9, 2011 at a price of
      $0.20 per share and the third warrant representing 302,135 shares to an
      investor as bonus shares in consideration for two promissory
      notes.  These warrants may be exercised at any time before
      August 14, 2012 at a price of $0.01 per
share.


iii.
            50,000
      to a consultant for services performed in 2007.  They may be
      exercised at any time before May 17, 2010 at a price of $0.25 per
      share.


iv.
            6,000,000
      shares of our common stock underlie warrants issued as consideration for
      letter of credit guarantees.  The warrants may be exercised at
      any time within three years from the date of issuance at a price of $0.01
      per share and vest: fifty percent at the May 15, 2008 date of issuance,
      twenty five percent at the one year anniversary and twenty five percent at
      the two year anniversary.  Should the underlying debt be
      satisfied or all, or any portion, of the letter of credit released prior
      to any vesting, then any remaining warrant shares shall not
      vest.





6,200,000 shares of our
common stock reserved for contractual obligations to convert outstanding
convertible promissory notes


As of
December 31, 2009, 6,200,000 common shares are held in reserve as issuable upon
the conversion of the balance of the promissory notes.  During the
last three quarters of 2006 through 2008, the Company privately placed
approximately $3,450,000 of 12% promissory notes.  Additionally, each
investor was issued a warrant to purchase at any time within three (3) years
following the date of investment, at a per share price of one cent ($0.01), that
number of shares of Waytronx, Inc. common stock as is equal in value to one
tenth the principal investment.  Such value to be calculated by the
average per share closing bid price of Waytronx, Inc. common stock for the 10
days preceding the date of investment.


10


There
remains an unpaid balance of $1,300,000 of which $1,000,000 is convertible to
common stock at a per share price equal to eighty percent (80%) of the average
closing bid price of one share of Company common stock for 10 days preceding the
Conversion Date.  There is, however, a $0.20 per share minimum limit
on the conversion price, which means that there is a limit on the number of
shares that the company may be obligated to issue.  The remaining
$300,000 is convertible to common stock at a per share price of
$0.25.





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





70,000,000 shares of our
common stock which may be issued pursuant to contractual obligations to
converta
convertible promissory note to Common Stock


The
company executed a convertible promissory note in the original principal amount
of $17,500,000 related to the acquisition of CUI, Inc.  The note
provides for 1.7% annual simple interest and a 2.3% annual success fee, permits
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) gives 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.  In May 2009, Waytronx and the debt holder of
the $17,500,000 convertible promissory note, IED, Inc., agreed to amend the
convertible promissory note 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 resulting in the Company recognizing an extraordinary
gain on the extinguishment of this debt of $11,808,513 and a reduction in the
related discount of debt of $791,487.  As of December 31, 2009, there
is a discount on debt related to this note of $2,773,555 and a net long term
balance of this note is $2,126,445.





9,450,704shares of our common stock
reserved for future issuance under our Equity Compensation
Plans


·
            Equity
      Compensation Plan Approved by Security
  Holders


On May
15, 2008 the Company’s Board of Directors adopted the Waytronx, Inc. 2008 Equity
Incentive Plan and authorized 1,500,000 shares of Common Stock to fund the
Plan.  The Company shareholders approved the Plan at the 2008 Annual
Meeting of Shareholders held on September 15, 2008.  At the 2009
Annual Meeting of Shareholders held on September 29, 2009, the shareholders
approved an amendment to the 2008 Equity Incentive Plan to increase the number
of common shares issuable under the plan from 1,500,000 to
3,000,000.  All of these shares have been registered under Form
S-8.





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





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


11





Waytronx
has granted 1,385,000 fully vested stock options to employees under the 2008
Equity Incentive Plan with an exercise price of $0.19 per share.  In
relation to these options, the Company recorded expenses of
$115,487. 80,000 of these stock options have been forfeited, leaving
1,305,000 outstanding.  Additionally, 99,296 shares of common stock
were issued as a bonus to an employee.  There are 1,595,704 shares
remaining available under the 2008 Equity Incentive Plan.





Equity Compensation Plan Not
Approved by Security Holders


During
2005, the Company issued to a former officer a five year option for the purchase
of 2,000,000 common shares at an exercise price of $0.01 per share as a
bonus.  The option is fully vested and expires during
2010.





During
2006, the Company issued to a former employee a five year option for the
purchase of 350,000 common shares at an exercise price of $0.01 per share as a
bonus.  The option is fully vested and expires during
2011.





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 Incentive Non
Statutory 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
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.





Waytronx
granted 1,458,000 stock options to directors of the Company under the 2009
Equity Incentive Plan (Executive) with an exercise price of $0.25 per
share.  Included in the directors are two employees, William Clough
and Matt McKenzie, who received 486,000 options as directors.  864,000
of the options vest over four years, 25% at year one and thereafter in equal
monthly installments, while 594,000 of the options fully vest one year after
issuance.  These shares were valued at $44,310 using the Black Scholes
Options Pricing Model.  Additionally, 2,550,273 of fully vested stock
options were granted to officers under the 2009 Equity Incentive Plan
(Executive) with an exercise price of $0.25 per share.  These stock
options were valued at $77,508 using the Black Scholes Options Pricing
Model.





Other
than as described herein, as of the date of this Form 10-K, there are currently
no plans, arrangements, commitments or understandings for the issuance of
additional shares of Common Stock.





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


12





RECENT
SALES OF UNREGISTERED SECURITIES





Following
is a list of all securities we sold within the past three years which were not
registered under the Securities Act.  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.





2007
Sales of Unregistered Securities


Common Stock Issued
      During 2007:


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





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





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





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





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





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





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





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





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





Warrants Issued During
2007


To
purchase 50,000 shares of common stock within three years as part of an
agreement with a contractor with an exercise price of $0.25.





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





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


13





Series A and Series B
Convertible Preferred Stock Issued


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





Series C Convertible
Preferred Stock Issued


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





2008
Sales of Unregistered Securities


Common Stock Issued
      During
      2008


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





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





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





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





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





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





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





The
Company entered into unsecured convertible promissory notes totaling $700,000,
with 700,000 related bonus shares of common stock.  Interest accrues
at 12% per annum, payable monthly, until a financing event takes place, at which
time the principal is due.  The note holders have the right to convert
the note to the Company’s common stock at $0.25 per share.  During the
year ended December 31, 2008, $52,033 of a promissory note principal and
related interest was converted to 208,132 shares of common stock.





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





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


14





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





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





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





Warrants and Options Issued
During 2008


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





To
purchase of 390,000 common shares within three years at a per share price of
$0.01 pursuant to a consulting agreement.





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





Series A and Series B
Convertible Preferred Stock Issued


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





Series C Convertible
Preferred Stock Issued


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





2009
Sales of Unregistered Securities


Common Stock Issued
      During 2009


48,451
shares of common stock were issued to an employee in accordance with his
employment agreement.  These shares were valued based on the fair
value of $4,537.





100,000
shares of common stock were issued to an employee as a bonus.  These
shares were valued at $15,000 as of the date of issuance,





980,769
shares of common stock were issued resulting from the exercise of warrants with
proceeds of $9,808.





2,500,000
shares of common stock were issued for services performed by
consultants.  $535,000 of consulting expense was recorded in relation
to these transactions based on the fair value of the stock on the dates of
grant.





Warrants and Options Issued
During 2009


Fully
vested options for the purchase of 15,000 shares of its 2008 Equity Incentive
Plan common stock at $0.19 per share to an employee with an expiration of
January 15, 2019.  These options were forfeited in 2009 and will not
be exercised.


15





Fully
vested options for the purchase of 350,000 shares of its 2008 Equity Incentive
Plan common stock at $0.19 per share to eight employees with an expiration of
May 18, 2019.  If all options are exercised the Company could receive
$66,500.





Under the
2009 Equity Incentive Plan (Executive) there were issued to officers and
directors options to purchase restricted common stock at $0.25 per share as
follows: 2,550,273 fully vested options; 864,000 shares that vest over four
years, 25% at year one and thereafter in equal monthly installments; 594,000
shares that fully vest after one year.





Series A and Series B
Convertible Preferred Stock Issued


There
were no shares of Series A or Series B Convertible Preferred Stock issued during
2009.  All other unregistered issuances of Series A or Series B
Convertible Preferred Stock are described in the 10-K filing for yearend
2008.





Series C Convertible
Preferred Stock Issued


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





Shares
Eligible for Future Sale


As of
December 31, 2009, we had outstanding 169,837,626 shares of Common
Stock.  Of these shares, 102,919,955 shares are freely tradable
without restriction or limitation under the Securities Act.





The
66,917,671 shares of Common Stock held by existing shareholders as of December
31, 2009 that are "restricted" within the meaning of Rule 144 adopted under the
Securities Act (the "Restricted Shares"), may not be sold unless they are
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144 promulgated under the
Securities Act.  The Restricted Shares were issued and sold by us in
private transactions in reliance upon exemptions from registration under the
Securities Act and may only be sold in accordance with the provisions of Rule
144 of the Securities Act, unless otherwise registered under the Securities
Act.





As of
December 31, 2009, we had issued and outstanding 50,543 shares of Series A
Convertible Preferred Stock, all of which are "restricted" within the meaning of
Rule 144 as noted above.  No shares of Series B or Series C
Convertible Preferred Stock were issued and outstanding as of that
date.





On
January 23, 2007, the Company filed with the Securities and Exchange Commission
a registration statement on Form SB-2 pursuant to the Securities Act of 1933, as
amended, with respect to the offer, issuance and sale of an aggregate of
100,646,995 shares of our Common Stock being registered therein to certain of
our stockholders named in the Prospectus and their transferees.  An
amendment to the Form SB-2 was filed October 9, 2007, offering an aggregate of
78,108,174 Common Shares which was made effective October 26,
2007.  On August 17, 2009 the Company filed a Pre-Effective
Post-Effective Amendment No. 1 to registration statement S-3 which was made
effective August 17, 2009 registering 9,674,886 common shares underlying
warrants included in the original SB-2 that became effective October 26,
2007.  The Company will not receive any proceeds from the sale of the
shares, but the Company may receive proceeds from the Selling Stockholders if
they exercise their warrants.  We may, however, receive up to
$1,525,618 upon exercise of the warrants by the Selling
Stockholders.





Item
6.   Selected Financial Data





Not
applicable due to status as a small reporting company.


16





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





Important Note about
Forward-Looking Statements


The
following discussion and analysis should be read in conjunction with our audited
financial statements as of December 31, 2009 and un-audited 10-Q filings for the
first three quarters of 2009 and the notes thereto, all of which are included
elsewhere in this Form 10-K.  In addition to historical information,
the following discussion and other parts of this Form 10-K contain
forward-looking information that involves risks and
uncertainties.  Our actual results could differ materially from those
anticipated by such forward-looking information due to factors discussed
elsewhere in this Form 10-K.





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





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





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





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


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





Overview


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





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


17





Effective
July 1, 2009, Waytronx acquired 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 for OEM research and
development.  The Comex acquisition provides a manufacturing component
which will allow Waytronx to manufacture some of its own products, such as the
AMT encoder, in Japan.





Critical
Accounting Policies


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





Asset
Impairment


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





Valuation of Non-Cash
Capital Stock Issuances


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





Patent
Costs


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





Revenue
Recognition


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





Liquidity
and Capital Resources


General


The
Company’s cash and cash equivalents balance at December 31, 2009 are $496,135
and a net working capital at December 31, 2009 of $568,718. During the year
ended December 31, 2009, operations and investments in equipment and the
acquisitions of CUI Japan (formerly Comex Instruments) and Comex Electronics
have been funded through cash from operations, proceeds from equity financings
and borrowings from financial institutions.


18





Cash used in
operations


The
Company’s operating requirements generated a positive cash flow from operations
of $383,658 during 2009.





During
2009 and 2008, the Company has used stock and warrants as a form of payment to
certain vendors, consultants and employees.  For 2009 and 2008,
respectively, the Company recorded a total of $686,237 and $740,785 for
compensation and services expense including amortization of deferred
compensation related to equity given or to be given to employees and consultants
for services provided.





During
2009, the Company recorded four additional significant non-cash entries -
$3,096,641 of non-cash interest expense, including amortization of the
beneficial conversion value, amortization of debt offering costs, warrant
related debt discounts and intrinsic value of convertible debt and amortization
of debt discount, $10,698,169 of non-cash loss for the impairment of goodwill,
$136,811 of non-cash loss for the impairment of patents, and $11,834,055 of
non-cash gain on the extinguishment of debt. During 2008, the Company recorded
three additional significant non-cash entries - $2,831,688 change in the fair
value of warrant liabilities, $2,153,577 of non-cash interest expense, including
amortization of the beneficial conversion value, amortization of debt offering
costs, warrant related debt discounts and intrinsic value of convertible debt
and amortization of debt discount, $247,617 of non-cash loss for the impairment
of patents.





As the
Company focuses on the 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


During
the years ended 2009 and 2008, the Company invested $265,858 and $128,922,
respectively, in fixed assets.  The Company anticipates further
investment in fixed assets during 2010 in support of its on-going business and
continued development of product lines.





The
Company invested $25,355 and $88,672, respectively, in patent costs during 2009
and 2008.  The Company expects its investment in patent costs will
continue throughout 2010 as it invests in patents to protect the rights to use
its product developments.





Effective
July 1, 2009, Waytronx acquired CUI Japan (formerly Comex Instruments Ltd.) and
49% of Comex Electronics Ltd.  The Purchase Price reflects the
acquisition of 100% of CUI Japan (formerly Comex Instruments Ltd.) and 49% of
Comex Electronics Ltd.  The total purchase price is approximately
$260,000.  Terms of the acquisition call for three equal annual
payments over three years to acquire the remaining 51% of Comex
Electronics.  The following details the initial acquisition of CUI
Japan and 49% of Comex Electronics Ltd.:


19





Purchase
      price
                                  
                                  $
                                  103,589Cash
                                  
                                  
                                  116,152Accounts
      receivable, trade
                                  
                                  
                                  1,154,278Other
      receivables
                                  
                                  
                                  203,604Inventory
                                  
                                  
                                  1,043,688Other
      current assets
                                  
                                  
                                  17,450Property
      & equipment, net
                                  
                                  
                                  302,518Deposits
      and other assets
                                  
                                  
                                  78,102Technology
      rights
                                  
                                  
                                  34,278Investments
      - long term
                                  
                                  
                                  102,541Goodwill
                                  
                                  
                                  473,692Liabilities
      assumed
                                  
                                  
                                  (3,380,314
                                  )Noncontrolling
      interest
                                  
                                  
                                  (42,400
                                  )$
                                  103,589





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





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





Financing
activities


During
2009, $284,373 of proceeds were received from bank loans, and $9,808 of proceeds
were received from the exercise of warrants.  The Company also
utilized $777,772 from bank operating lines of credit to fund daily operations
during 2009.





During
2008, $700,000 of proceeds were received from unsecured convertible notes,
$6,000,000 from a bank loan, $99,600 from the exercise of warrants, $1,160 from
the exercise of options and $500,000 from the sale of common
stock.  The Company also utilized $1,044,628 from a bank operating
line of credit to fund daily operations during 2008.





Waytronx
plans on raising the capital needed to fund the further development and
marketing of its products as well as payment of its debt
obligations.





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 December 31, 2009 the Company had an accumulated
deficit of $54,757,578.


20





The
Company may seek to raise additional capital for the commercialization of its
WayCool technology product lines and CUI product lines.  The Company
believes its operations and existing financing structure will provide sufficient
cash to meet its short-term working capital requirements for the next twelve
months.  As the Company continues to expand and develop its technology
and product lines 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.





As of
December 31, 2009 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 December 31, 2009, the
Company is out of compliance with a debt covenant related to this
loan.  The Company is actively working to resolve this
situation.  In January 2010, the working capital line of credit was
extended to May 1, 2010.





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





Off-Balance Sheet
Arrangements


As of
December 31, 2009 we have no off-balance sheet arrangements.





Results
of Operations


The
accompanying financial statements reflect the operations of the Company for the
fiscal years ended December 31, 2009 and 2008





Revenue


During
the year ended 2009, revenue was $28,851,750 and $19,555,935 for the same period
during 2008.  For the year ended December 31, 2009, revenue was
comprised of $26,145,223 from CUI products, $2,575,902 from CUI Japan and Comex
Electronics products, $103,733 from freight, and $26,892 from RediAlertTM
products.  The revenue for the year ended December 31, 2008 is
comprised of $19,218,109 from CUI products, $122,299 for freight, $10,000 for a
cancellation fee, $58,975 from Living WindowTM products and related add-ons,
$143,722 from RediAlertTM products and $2,830 from other income.





During
2009, 42% of revenues were derived from five customers at 31%, 4%, 3%, 2% and
2%. During 2008, 39% of revenues were derived from three customers at 33%,
3% and 3%.





Cost of
revenue


The cost
of revenue for the year ended December 31, 2009 and 2008 was $18,191,840 and
$11,874,250, respectively.  The significant increase during 2009
compared to the prior year is primarily the result of the acquisition of CUI,
Inc. and its related operations being included for the full year and the
acquisitions of CUI Japan and Comex Electronics and their related operations,
effective July 1, 2009.  The previous year results included a partial
year of CUI Inc. and its related operations as it was acquired in May
2008.





Selling, General and
Administrative Expenses


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


21





SG&A
expenses increased to $10,839,425for the year ended December 31, 2009 from
$7,615,737 for the same period during 2008.  This increase of
$3,223,688 is primarily the result of the full year operations of CUI, Inc. as
well as the operations of CUI Japan and Comex Electronics since acquisition in
July 2009.





The
Company anticipates its sales and marketing expenditures and general and
administrative expenses will further increase in 2010 as the Company will
experience a full year of CUI Japan and Comex Electronics
operations.





Research and
Development


The
research and development costs are related to the technology for which Waytronx
acquired the licensing rights as well as research and development expenses for
CUI products.  Research and development costs were $56,042 for the
year ended December 31, 2009 and $513,671 for the same period during
2008.  The decrease is primarily the result of a decrease in
expenditures towards the development of the WayCool technologies during
2009.  The Company expects that research and development expenses will
increase during 2010 as the Company continues to expand its product offering and
technologies.





Impairment
Loss


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.  During the year ended December 31, 2009 the company
recorded impairment charges of $10,698,169 related to goodwill and $136,811
related to patents.  During the year ended December 31, 2008 the
Company recorded impairment charges of $247,617 related to patents.





Bad Debt


Bad debt
expense decreased to $144,834 for the year ended December 31, 2009 from $148,573
for the same period ended 2008.  The bad debt expense relates to
miscellaneous customers.





Other
Income


Other
income for the year ended December 31, 2009, consisted of $103,500 for services
billed to a related party, $54,543 for foreign exchange gain, $18,012 for
interest income, $14,340 of rental income, and $3,670 in other
income. Other income for the year ended December 31, 2008, consisted of
$2,831,688 in derivative income associated with the change in value of the
derivative liability recognized for the potential conversion of warrants,
options and convertible debt into common stock, $138,477 for services billed to
a related party, $20,107 for interest income, $10,897 for foreign exchange gain,
and $7,881 in other income.





Investment
Income


The
Company recognized a loss on equity investment in an affiliate of $41,424 and
$1,620 for the years ended December 31, 2009 and 2008,
respectively.





Financing
Fees


During
2009, the Company paid financing fees of $21,000 related to the extension
received on a note payable.  During 2008, the Company paid financing
fees of $28,158 related to the $3,000,000 bank line of credit and the $6,000,000
bank loan.





Change in value of warrant
liability


During
2009, there was no change in the value of warrant liability.  During
the year ended December 31, 2008, a gain of $2,831,688 was recorded for the
change in fair value of derivative liabilities.


22





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


The
Company recorded an expense of $3,096,641 during 2009 and $2,153,577 during
2008, for non-cash interest expenses, including amortization of beneficial
conversion value, amortization of debt offering costs, warrant related debt
discounts and intrinsic value of convertible debt and amortization of debt
discount.  The increase in this expense is primarily associated with
the full year impact of the debts incurred related to the acquisition of CUI,
Inc.





Interest
Expense


The
Company incurred $1,552,419 and $1,362,416 of interest expense during 2009 and
2008, respectively.  Interest expense is for interest on the secured
convertible notes, secured and unsecured promissory notes, and the bank line of
credit.





Net Loss


The
Company had a net loss of $4,209,492 for the year ended December 31, 2009 as
compared to a net loss of $1,830,367 for the prior year ended
2008.  The increase in net loss as compared to the prior year is
primarily the result of the following items: impairment charges on goodwill and
patents increased $10,587,363, derivative income of $0 as compared to $2,831,688
in 2008, a $754,267 increase in interest expense – intrinsic value of
convertible debt, amortization of debt offering costs and amortization of debt
discounts, the $190,003 increase in interest expense, and the extraordinary gain
on debt extinguishments of $11,834,055.





Preferred Stock
Dividends


During
the year ended December 31, 2009 and 2008, the Company recorded Series A
Convertible Preferred Stock dividends of $0 and $0, respectively.





Recent AccountingPronouncements


In May
2009, the FASB issued FASB Accounting Standards Codification No. 855 “Subsequent
Events” (“FASB ASC 855”). FASB ASC 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. FASB
ASC 855 sets forth (1) The period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, (2)
The circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (3) The
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. FASB ASC 855 is effective for
interim or annual financial periods ending after June 15, 2009. The adoption of
this statement did not have a material effect on the Company’s financial
statements.





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 Company is
evaluating the impact the adoption of FASB ASC 860 will have on its
financial statements.





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 Company is evaluating the impact the adoption of FASB
ASC 810 will have on its financial statements.


23




In June
2009, the FASB issued FASB Accounting Standards Codification No. 105 “Generally
Accepted Accounting Principles” (“FASB ASC 105”). The FASB Accounting Standards
Codification (“Codification”) will be the single source of authoritative
nongovernmental U.S. generally accepted accounting principles. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. FASB ASC 105 is
effective for interim and annual periods ending after September 15, 2009. All
existing accounting standards are superseded as described in FASB ASC 105. All
other accounting literature not included in the Codification is
nonauthoritative. The adoption of FASB ASC 105 did not impact the financial
statements.
 
 Item
7A.    Quantitative and Qualitative Disclosure about Market
Risk
 
 Not
applicable
 
 Item
8.  Financial Statements and Supplementary Data
 
 The Financial Statements and the report of Webb & Company,
P.A. dated March 31, 2010 are attached hereto and incorporated herein by
reference.
 
 Item
9.  Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
 
 The
Company has had no disagreements with Webb & Company, P. A. as the Company’s
Independent Registered Public Accounting Firm on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
 
 Item
9A.  Controls and Procedures
 
 Not
applicable.
 
 Item
9A(T) Controls and Procedures
 
 Evaluation ofDisclosureControls andProcedures.
 Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Accounting Officer (“CAO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CAO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CAO, as appropriate, to allow timely decisions regarding required
disclosure.
 
 Changes inInternalControlsOverFinancialReporting.
 Immediately
following the acquisition of CUI, Inc. in 2008, Daniel N. Ford assumed the Chief
Financial Officer position for both Waytronx, Inc. and its subsidiary CUI,
Inc.  We have not identified any significant deficiency or material
weaknesses in our internal controls; therefore, there were no corrective actions
taken.
  24
  Management’s Report on
Internal ControlsOver Financial
Reporting
 Internal
control over financial reporting is a process to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.  Effective May 15, 2008, the Company
appointed Daniel N. Ford as Chief Financial Officer of Waytronx and its wholly
owned subsidiary, CUI, Inc.  There has been no change in the Company’s
internal control over financial reporting during the year ended
December 31, 2009, that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
  The
Company’s management, including the Company’s CEO and CFO, does not expect that
the Company’s disclosure controls and procedures or the Company’s internal
controls will prevent all errors and all fraud.  A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
 Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs.  Because of the inherent limitations in all
control systems, no evaluation of the controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected.
 
 Management
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in our Audit Committee Charter and
Audit Committee Policy and Procedures. Based on this evaluation, management
concluded that the company’s internal control over financial reporting was
effective as of December 31, 2009.  A copy of our Audit Committee
Charter can be viewed on our Website: www.waytronx.com.
 
 This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
 Management's report was not subject to attestation by the company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the company to provide only management's
report in this annual report.
 
 Item
9B.  Other Information
 
 There are
no matters to be reported under this Item.
 
 PART
III
 
 Item
10.  Directors, Executive Officers and Corporate
Governance
 
 Our
Bylaws permit the number of directors to be fixed by resolution of the Board of
Directors, but to be no less than one.  The Board of Directors has set
the maximum number of members to no more than eight
members.  Directors are elected by a plurality of the votes cast by
the holders of Common and Preferred Stock and serve two year terms or until
their successors have been elected and qualified or until their earlier
resignation or removal.  Currently, there are six (6) directors, four
of whom are “independent” in accordance with applicable rules promulgated by the
Securities and Exchange Commission and within the meaning of Rule 4200(a) (15)
of the Nasdaq Stock Market. The standards relied upon by the Board of
Directors in determining whether a director is “independent” are posted on our
website at www.waytronx.com.
 
 By April
24, 2007 Board of Directors resolution, the owners of Series C preferred stock
have the exclusive right to appoint three board members.  See above,
Section Convertible Preferred
Shares in Item 5, Market for Common Equity, Related Stockholder Matters
and Small Business Issuer Purchases of Equity Securities.
 
 The Board
of Directors has three standing committees: Audit Committee, Compensation
Committee and Nomination Committee.  No incumbent director attended
fewer than 100% of the total number of meetings held by all committees on which
such director served.  Our board currently appoints the members of the
committees.  Our Audit Committee, Compensation Committee and
Nomination Committee each have a written charter approved by our
board.  Copies of the current committee charters are posted on our
website at www.waytronx.com.
 
 The
following are officers and directors of the Company as of December 31,
2009.
  25
  Name
                  
                  Age
                  
                  PositionColton
      Melby*
                  
                  50
                  
                  Director,
      ChairmanWilliam
      J. Clough, Esq.
                  
                  56
                  
                  President/Chief
      Executive Officer, Director and General CounselThomas
      A. Price*
                  
                  65
                  
                  DirectorMatthew
      McKenzie
                  
                  29
                  
                  Director,
      Chief Operating OfficerSean
      P. Rooney*
                  
                  46
                  
                  DirectorCorey
      Lambrecht*
                  
                  39
                  
                  DirectorDaniel
      N. Ford
                  
                  30
                  
                  Chief
      Financial Officer
 
 Audit
Committee:
 Sean P.
Rooney*, Chairman, and Thomas A. Price*, Deputy Chairman.
 
 Compensation
Committee
 Cory
Lambrecht*, Chairman, Colton Melby*, committee member.
 
 Nominating
Committee
 The
Nominating Committee consists of the Board of Directors.
 
 *
                Independent
      in accordance with applicable rules promulgated by the Securities and
      Exchange Commission     and within the meaning of
      Rule 4200(a) (15) of the Nasdaq Stock
Market.
 
 Because
Waytronx is a small entity, the Company is dependent on the efforts of a limited
number of management personnel.  The Company believes that because of
the large amount of responsibility being placed on each member of its management
team, the loss of services of any member of this team at the present time would
harm its business.  Each member of its management team supervises the
operation and growth of one or more integral parts of its business.
 
 Business
Experience of Directors and Executive Officers
 Colton Melby, Chairman of
the Board of Directors
 Effective
June 11, 2008, Colton Melby was appointed to the Board of Directors and was
elected by the Board of Directors to serve as Chairmen of the Board of
Directors.  At the 2008 Annual Meeting of Shareholders, Mr. Melby was
elected to a two year term on the Board of Directors.
 
 Mr. Melby
has a 20 year background in aerospace manufacturing.  He spent 15
years as owner and chief executive officer of Metal Form, Inc., serving
worldwide customers, including: Boeing, Bombardier; Rockwell; Grumman; Lockheed
Martin; and others.  Under his stewardship, Metal Form was the
recipient of numerous awards of excellence including Boeing’s President Award
and three consecutive “Supplier of the Year” awards.
 
 Mr. Melby
is a founding member of Melby Brothers Performance Investments, a firm with a
strong history of financing successful start-up and turnaround
organizations.  One of Mr. Melby’s more notable investments in that
capacity was the financing and purchase of firearms-maker Smith & Wesson
from London-based Tomkins PLC in 2001.  Mr. Melby continues to invest
both his time and resources in successful business ventures.  This
includes investments in Earth 911, a recycling company dedicated to green
initiatives and green recycling.
 
 Mr. Melby
is an active philanthropist.  He and his family are members of the
Harvesters, an Orange County food bank dedicated to providing healthy meals to
under privileged kids in Southern California.  He is a member of the
Cattle Baron’s, a Texas charity providing support to the American Cancer
Society.
 
 William J. Clough, Esq.,
President/Chief Executive Officer, Director and General Counsel of Waytronx,
Inc. and Chief Executive Officer ofCUI, Inc.
 Mr.
Clough was elected at the 2006 Annual Meeting of Shareholders to serve a two
year term on the Board of Directors and was reelected at the 2008 Annual
Meeting of Shareholders to serve a second two year term.
  26
  Mr.
Clough was appointed President and Chief Executive Officer of Waytronx, Inc.
September 13, 2007 at which time Mr. Clough stepped down as Executive Vice
President of Corporate Development.  Effective May 16, 2008, Waytronx,
Inc. formed a wholly owned subsidiary, Waytronx Holdings, Inc., to acquire the
assets of CUI, Inc. along with this acquisition; Mr. Clough was appointed Chief
Executive Officer of Waytronx Holdings, Inc. (now renamed to CUI,
Inc.).  Mr. Clough was a police officer for 16 years, working at the
local, state and federal levels.  After working as a Federal Air
Marshall in Southern Europe and the Middle East, in 1987 Mr. Clough attended law
school; he received his Juris Doctorate, cum laude, from the University of
California, Hastings College of the Law in 1990.  He was in the
private practice of law with his law firm for 12 years with offices in Los
Angeles, San Francisco and Honolulu.  Mr. Clough obtained the largest
ever non-wrongful death jury verdict in Los Angeles County Superior Court in
2000 and successfully represented parties in multi-million dollar cases
throughout the United States.  He is certified to practice law in
state and federal courts in California, Illinois, Hawaii, and before the United
States Supreme Court.  Mr. Clough has represented large manufacturing
and entertainment entities, including work with MGM Studios, 20th Century Fox,
News Corp., Lions Gate Films, Artisan Pictures, Sony and Mediacopy.
 
 Thomas A. Price,
Director
 Mr. Price
was elected at the 2008 Annual Meeting of Shareholders to serve a one year term
on the Board of Directors and was reelected at the 2009 Annual Meeting of
Shareholders to serve a two year term.
 
 Mr. Price
is a business veteran with more than 30 years of business and operational
management experience.  He is the founder of Tom Price Dealership
Group, a leading auto dealership that he grew to 11 franchises at six locations
across California.  Throughout the course of his career, Mr. Price has
been involved in investor and manufacturer relations, and orchestrated the
successful acquisition of his company, FirstAmerica Automotive by Sonic
Automotive, one of the nation’s largest automotive retailers.  Mr.
Price has been credited for the successful completion of Serramonte Auto Plaza,
an advanced, large-scale campus with innovative, industry-leading design
features.  Mr. Price also developed the multi-brand San Francisco Auto
Repair Center and a conference facility in Larkspur, California.
 
 Currently,
Mr. Price is the owner of nine car dealerships in Northern
California.  He has received numerous awards for dealership excellence
from manufacturers and has served on the National Dealer Advisory Boards of
several major automobile manufacturers.  He was Chairman of the Lexus
National Dealer Advisory Board and charter member of the J.D. Power Dealer
Roundtable.  Mr. Price is also an active
philanthropist.  The Price Family Dealerships are major sponsors of
Special Olympics of Marin, Dedication to Special Education, CASA/Advocates for
Children, Marin Breast Cancer Council and the Golden Gate
Shootout.  In 2005, the Price Family Dealership raised substantial
funds for Katrina relief.
 
 The Price
Family Dealerships are very active in the community and are major sponsors of
Special Olympics of Marin, A Dedication to Special Education, CASA/Advocates for
Children, Marin Breast Cancer Council and the Golden Gate Shootout and raised
over $75,000 for Katrina relief in 2005.
 
 Matthew M. McKenzie,President and
Chief Operational Officer of CUI and Chief Operational Officer of Waytronx,
Director
 Matt
McKenzie was elected to the Board of Directors at the 2008 Annual Meeting of
Shareholders to serve a two year term.
 
 Matt
McKenzie has been working in various functions for CUI for over 10 years,
gaining him intimate knowledge of the business, its operations and its
opportunities for growth.  He established, in conjunction with CUI’s senior
engineer, one of CUI’s most successful and profitable business divisions and
brands:  V-Infinity.  As an internal power product division,
V-Infinity offers significant opportunities in the future in partnering with
WayCool technology to offer an even more extensive solution set to the
market.  Over the past several years, Mr. McKenzie has worked tirelessly to
position CUI for growth.  Among many other things he has initiated ISO
9000, a quality management system; provided structure to global logistics,
including CUI’s Chinese partners; and implemented CUI’s ERP system, which allows
for more visibility and analysis opportunities than ever in CUI’s
history.
  27
  Mr.
McKenzie brings a background in leadership from a variety of fields, giving him
valuable insight into leadership in 21st century.  He also brings an
MBA from George Fox University, a program that is diverse and well-connected to
the community.
 
 Sean P. Rooney,
Director
 Mr.
Rooney was elected at the 2008 Annual Meeting of Shareholders to serve a one
year term on the Board of Directors and was reelected at the 2009 Annual
Meeting of Shareholders to serve a two year term.
 
 Mr.
Rooney brings to the Waytronx Board nearly 15 years of financial management
experience.  Mr. Rooney currently serves as Senior Vice President of
Investments for Maxim Group LLC, a leading full service investment banking,
securities and wealth management firm.  Prior to joining Maxim Group,
he served in a similar capacity at Investec Ernst & Company, an
international specialist bank headquartered in South Africa and the
U.K.  Through his many years of experience, Mr. Rooney has built a
vast network of industry resources and contacts.
 
 Mr.
Rooney graduated from C. W. Post University in 1993 with a Bachelors of
Arts degree in Business Administration.  In addition to his Series 7
(General Securities Representative), Series 63 (Uniform Securities Law), and
Series 24 (General Securities Principal) licenses, Sean has also been designated
as Senior Vice President-Investments for Oppenheimer & Co, Inc.
 
 Mr.
Rooney currently manages a clientele of high net worth investors, institutions
and foundations.  His command of the ever-expanding universe of
financial instruments enhances his ability to provide unbiased advice in each of
his three core disciplines, money management, financial planning and estate
planning.
 
 Corey Lambrecht,
Director
 Mr.
Lambrecht was elected at the 2008 Annual Meeting of Shareholders to serve a one
year term on the Board of Directors and was reelected at the 2009 Annual
Meeting of Shareholders to serve a two year term.
 
 Corey
Lambrecht is a 10+ year public company executive with broad experience in
strategic acquisitions, new business development, pioneering consumer products,
corporate licensing and interactive technology services.  Mr.
Lambrecht most recently served as Director of Sales for Leveraged Marketing
Associates, the worldwide leader in licensed brand extension
strategies.  While Executive Vice President for Smith & Wesson
Holding Corporation he was responsible for Smith & Wesson Licensing,
Advanced Technologies and Interactive Marketing divisions.  He was the
former President of A For Effort, an interactive database marketing company
specializing in online content (advergaming) for clients such as the National
Hockey League.  Mr. Lambrecht’s prior experience also includes Pre-IPO
founder for Premium Cigars International and VP Sales/Marketing for
ProductExpress.com.  Mr. Lambrecht also has prior operational
experience for a Scottsdale, Arizona residential and commercial development
company.
 
 Daniel N. Ford,Chief Financial Officer of
Waytronx and CUI
 Daniel N.
Ford has a background in the big accounting firms, including
KPMG.  Mr. Ford brings a large company perspective to a small company
with big potential.  As CFO of CUI for in excess of five years, Mr. Ford
has consistently moved CUI into a position of profitability, efficiency and
forward thinking, transforming many of CUI’s accounting, inventory management
and vendor relations processes.  Over the past five years, Mr. Ford has
implemented advanced internal fixed asset tracking, implemented a “real time”
inventory system and participated in implementing CUI’s ERP system.  His
skills as a financier have allowed CUI to move to its current, 61,380 square
foot building, as well as provided leadership in Waytronx’s acquisition of
CUI.
  Mr. Ford
holds an MBA from George Fox University.
 
 Shareholder
Communications
 Company
shareholders who wish to communicate with the Board of Directors or an
individual director may write to Waytronx, Inc., 20050 SW 112th Avenue,
Tualatin, Oregon 97062, phone (503) 612-2300 or to the attention of an
individual director.  Your letter should indicate that you are a
shareholder and whether you own your shares in street name.  Letters
received will be retained until the next Board meeting when they will be
available to the addressed director.  Such communications may receive
an initial evaluation to determine, based on the substance and nature of the
communication, a suitable process for internal distribution, review and response
or other appropriate treatment.  There is no assurance that all
communications will receive a response.
  28
  Certain
Provisions of the Articles of Incorporation and Colorado Business Corporation
Act Relating to Indemnification of Directors and Officers
 The
Colorado General Corporation Act provides that each existing or former director
and officer of a corporation may be indemnified in certain instances against
certain liabilities which he or she may incur, inclusive of fees, costs and
other expenses incurred in connection with such defense, by virtue of his or her
relationship with the corporation or with another entity to the extent that such
latter relationship shall have been undertaken at the request of the
corporation; and may have advanced such expenses incurred in defending against
such liabilities upon undertaking to repay the same in the event an ultimate
determination is made denying entitlement to indemnification. The Company's
bylaws incorporate the statutory form of indemnification by specific
reference.
 
 Insofar
as indemnification for liabilities may be invoked to disclaim liability for
damages arising under the Securities Act of 1933, as amended, or the Securities
Act of 1934 (collectively, the "Acts"), as amended, it is the position of the
Securities and Exchange Commission that such indemnification is against public
policy as expressed in the Acts and are therefore, unenforceable.
 
 Reports
to Shareholders
 We intend
to voluntarily send annual reports to our shareholders, which will include
audited financial statements.  We are a reporting company and file
reports with the Securities and Exchange Commission (SEC), including this Form
10-K as well as quarterly reports under Form 10-Q.  The public may
read and copy any materials filed with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549.  Information
on the operation of the Public Reference Room may be obtained by calling the SEC
at 1-800-SEC-0330.  The company files its reports electronically and
the SEC maintains an Internet site that contains reports, proxy and information
statements and other information filed by the company with the SEC
electronically.  The address of that site is
http://www.sec.gov.
 
 The
company also maintains an Internet site, which contains information about the
company, news releases, governance documents and summary financial
data.  The address of that site is
http://www.waytronx.com.
 
 Section
16(a) Beneficial Ownership Reporting Compliance
 Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers,
directors and persons owning more than 10% of our common stock to file reports
of ownership and reports of changes of ownership with the Securities and
Exchange Commission.  These reporting persons are required to furnish
us with copies of all Section 16(a) forms that they file.
 Based
solely upon a review of copies of these filings received, we believe that all
filing requirements were complied with during the fiscal year ended December 31,
2009 with the exceptions noted below:
 A late
Form 4 report was filed for Colton Melby, William Clough, Thomas Price, Sean
Rooney, Matthew McKenzie and Daniel Ford on July 27, 2009 to report their
receipt of Equity Incentive Plan (Executive) 2009 options effective
1/1/2009.
 A late
Form 4 report was filed for Colton Melby and Thomas Price on July 27, 2009 to
report their receipt of warrants effective May 15, 2008.
 
 We have
made all officers and directors aware of their reporting obligations and have
appointed an employee to oversee Section 16 compliance for future
filings.
 
 Our
Corporate Governance Practices
 We have
always believed in strong and effective corporate governance procedures and
practices.  In that spirit, we have summarized several of our
corporate governance practices below.
  29







Adopting GovernanceGuidelines


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





Monitoring Board
Effectiveness


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





Conducting Formal
Independent Director Sessions


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





Hiring Outside
Advisors


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





Providing
Transparency


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





Communications with theBoard of
Directors


Stockholders
may communicate with the board of directors by writing to the Company at
Waytronx, Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062, phone (503)
612-2300.  Stockholders who would like their submission directed to a
member of the board may so specify, and the communication will be forwarded, as
appropriate.





Ensuring Auditor
Independence


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





Avoiding Conflicts of
Interest


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





Code of Ethics


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


30


Audit Committee


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





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





Audit
Committee Report


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





The Audit
Committee has:


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


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


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


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





Based on
these reviews and discussions, the Audit Committee has recommended that the
audited financial statements be included in the Company’s annual report on Form
10-K for the year ended December 31, 2009.  The Audit Committee has
also considered whether the amount and nature of non-audit services provided by
Webb & Company, P.A. is compatible with the auditor’s
independence.





Submitted
by:   Sean P. Rooney and Thomas A. Price,


Audit
Committee





Nominating Committee


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


31


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





Item
11.  Executive
Compensation





Compensation
Discussion and Analysis


Compensation Committee
Members


The
Compensation Committee of the Board of Directors is appointed by the Board of
Directors to discharge the Board's responsibilities with respect to all forms of
compensation of the Company's executive officers, to administer the Company's
equity incentive plans, and to produce an annual report on executive
compensation for use in the Company's Form 10-K.  The Compensation
Committee consists of two members of the board of directors, Messers Colton
Melby and Corey Lambrecht, both of whom are "independent directors" within the
meaning of Rule 4200(a) (15) of the Nasdaq Stock Market.





Role of
Committee


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


·
            Annually
      review the Company’s philosophy regarding executive
      compensation.


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


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


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


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


32


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


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


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


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


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





Committee
Meetings


Our
Compensation Committee meets as often as necessary to perform its duties and
responsibilities.  The Compensation Committee held three meetings during
fiscal 2009.  On an as requested basis, our Compensation Committee
receives and reviews materials prepared by management, consultants or committee
members, in advance of each meeting.  Depending on the agenda for the
particular meeting, these materials may include:


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


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


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


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


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


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





Compensation
Philosophy


General
Philosophy


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





Pay for
Performance


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





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


33


Base Compensation to be
Competitive within Industry


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





Compensation
Setting Process


Management’s Role in the
Compensation Setting Process.


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


·
            Assisting
      in establishing business performance goals and
  objectives;


·
            Evaluating
      employee and company performance;


·
            CEO
      recommending compensation levels and awards for executive
      officers;


·
            Implementing
      the Board approved compensation plans;
and


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





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





Setting Compensation
Levels


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





Setting Performance
Objectives


The
Company’s business plans and strategic objectives are generally presented by
management at the Company’s annual board meeting.  The board engages in an
active discussion concerning the financial targets, the appropriateness of the
strategic objectives and the difficulty in achieving same.  In establishing
the compensation plan, our Compensation Committee then utilizes the primary
financial objectives from the adopted business plan, operating cash flow, as the
primary targets for determining the executive officers’ short-term cash
incentives and long term equity incentive compensation.  The Committee also
establishes additional non-financial performance goals and objectives, the
achievement of which is required for funding of a significant portion, twenty
five percent, of the executive officers’ incentive compensation.  In
2009, these non financial performance goals and objectives included achieving
accurate financial reporting and timely SEC filings; demonstrating full
compliance and superior performance in the Company’s environmental, health and
safety practices; performing appropriate SOX/404 remediation activities and
achieving successful testing of and compliance with SOX requirements and general
and administrative expense management.


34


Annual
Evaluation


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





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





Elements
of Executive Compensation


Total
Compensation


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





Base
Salaries


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





Incentive
Compensation


Incentive
compensation is intended to align compensation with business objectives and
performance and enable the company to attract, retain and reward high quality
executive officers whose contributions are critical to short and long-term
success of the Company.  The executives’ incentive awards are based upon
three key performance metrics: 1) the Company’s EBIDA; 2) achievement of
agreed-upon strategic and corporate performance goals; and 3) existing
Employment Agreement.





Incentive Plan
Compensation


Incentive
awards are paid out in cash, restricted common stock or warrant/option
awards.  The incentive award targets for the executives are established at
the beginning of the year as a percentage of their base salary and the actual
awards are determined at the following year’s Annual Board of Directors meetings
based on actual company performance relative to established goals and
objectives, as well as on evaluation of the executive’s relevant departmental
and individual performance during the past year.  In many instances the
award of restricted common stock vests over a four year term in equal periodic
traunches.  The award of restricted common stock purchased through
warrants generally vests immediately upon exercise of the warrant and generally
has a validity of up to ten years and a per share purchase price, of no less
than, the fair market value of our common stock on the date of
grant.  The awards are intended to serve as a means of incentive
compensation for performance.


35


Retirement
Plans


Our
wholly owned subsidiary, CUI, Inc., maintains a 401(k) plan.  The
Company has a 401(k) retirement savings plan that allows employees to contribute
to the plan after they have completed 3 months of service and are 21 years of
age.  The Company matches the employee’s contribution up to 6% of total
compensation.  Total employer contributions, net of forfeitures, were
$153,996 and $174,534, for 2009 and 2008, respectively.





Change in Control
Agreements


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





Perquisites


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





2009 Equity Incentive Plan (Executive)


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
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 Incentive Non
Statutory 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
Administrator of the plan is authorized to determine the exercise price per
share at the time the option is granted, but under the terms of the 2009 Plan,
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.


36


Summary
Compensation Table


The
following table sets forth the compensation paid and accrued to be paid by the
Company for the fiscal years 2009 and 2008 to the Company’s Chief Executive
Officer and two most highly compensated executive officers of the
Company.





SUMMARY
COMPENSATION TABLE





Name
                                and
                                Principal
                                Position
                              
                              Year
                              
                              Salary
                                ($)
                              
                              
                              Bonus
                                ($)
                              
                              
                              Stock
                                Awards
                                ($)
                              
                              
                              Option
                                Awards
                                ($)
                              
                              
                              Non-
                                Equity
                                Incentive
                                Plan
                                Compen-
                                sation
                                ($)
                              
                              
                              Changein
                                Pension
                                Valueand
                                Nonquali-
                                fied
                                Deferred
                                Compensa-
                                tion
                                Earnings
                                ($)
                              
                              
                              All
                                Other
                                Compen
                                sation
                                ($)
                              
                              
                              Total
                                ($)William
      J. Clough  CEO / President/ Counsel/Director (1)
                              
                              2009
                              
                              
                              240,000
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              23,948
                              
                              
                              
                              263,9482008
                              
                              
                              216,154
                              
                              
                              
                              302,250
                              (2)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              17,866
                              
                              
                              
                              536,270Daniel
      N. Ford, CFO (3)
                              
                              2009
                              
                              
                              120,000
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              24,249
                              
                              
                              
                              144,2492008
                              
                              
                              73,750
                              
                              
                              
                              60,000
                              (4)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              15,554
                              
                              
                              
                              149,304Matthew
      McKenzie,
                                Director/
      COO/ President of CUI (5)
                              
                              2009
                              
                              
                              120,000
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              17,298
                              
                              
                              
                              137,2982008
                              
                              
                              73,750
                              
                              
                              
                              60,000
                              (6)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              9,934
                              
                              
                              
                              143,684Clifford
      Melby, Former COO (7)
                              
                              2009
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -2008
                              
                              
                              67,500
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              67,500





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


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


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


37


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


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


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


7.
            Mr.
      Melby was the COO until May 15,
2008.


38


Outstanding
Equity Awards at Fiscal Year-end


The
following table sets forth the outstanding equity awards at December 31, 2009 to
each of the named executive officers:




OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END




Name
                  
                  Number
                    of
                    Securities
                    Underlying
                    Unexercised
                    Options
                    Exercisable
                    (#)
                  
                  
                  Number
                    of
                    Securities
                    Underlying
                    Unexercised
                    Options
                    Unexercisable
                    (#)
                  
                  
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Number
                    of
                    Securities
                    Underlying
                    Unexercised
                    Options
                    (#)
                  
                  
                  Option
                    Exercise
                    Price
                    ($)
                  
                  Option
                    Expiration
                    Date
                  
                  Number
                    of
                    Shares
                    or Units
                    ofStock
                    That
                    Have
                    Not
                    Vested
                    (#)
                  
                  
                  Market
                    Value of
                    Shares or
                    Units of
                    Stock
                    That
                    Have
                    Not
                    Vested
                    ($)
                  
                  
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Number
                    of
                    Unearned
                    Shares,
                    Units or
                    Other
                    Rights
                    That Have
                    Not
                    Vested
                    (#)
                  
                  
                  Equity
                    Incentive
                    Plan
                    Awards:
                    Market or
                    Payout
                    Value of
                    Unearned
                    Shares,
                    Units or
                    Other
                    Rights
                    That Have
                    Not
                    Vested (1)
                    ($)William
      J. Clough (2)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,115,303
                  
                  
                  
                  0.25
                  
                  01/01/19
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Matthew
      M. McKenzie (3)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  453,009
                  
                  
                  
                  0.25
                  
                  01/01/19
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Daniel
      N. Ford (4)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  377,949
                  
                  
                  
                  0.25
                  
                  01/01/19
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -





1.
            Calculated
      using the closing market price ($0.10) as of December 31,
      2009.


2.
            Effective
      January 1, 2009, Mr. Clough received a fully vested bonus option to
      purchase 1,115,303 common shares, within ten years from date of issuance,
      at a price of $0.25 per share.


3.
            Effective
      January 1, 2009, Mr. McKenzie received a fully vested bonus option to
      purchase 453,009 common shares, within ten years from date of issuance, at
      a price of $0.25 per share.


4.
            Effective
      January 1, 2009, Mr. Ford received a fully vested bonus option to purchase
      377,949 common shares, within ten years from date of issuance, at a price
      of $0.25 per share.





DIRECTOR COMPENSATION





The
written report and recommendations of Compensia, Inc., as noted above in the
section, 2009 Equity
Incentive Plan (Executive), upon which the Compensation Committee
relied, also included a detailed director and committee compensation report and
market analysis.  The 2009 Equity Incentive Plan (Executive) provides
for the issuance of stock options to attract, retain and motivate directors as
well as other management personnel.





The
Compensation Committee concluded that, after giving consideration to the
directors’ obligation in representation of the shareholders, the high standard
of ethics and talent required, increasing workloads, greater exposure, more
stringent director independence standards and the SEC's disclosure rules,
directors and committee members should be compensated fairly for time and value
delivered and the compensation should be sufficient to attract and retain
qualified competent individuals to serve on our board.  The
Compensation Committee adopted the recommendations of Compensia and approved a
director and committee compensation plan.





The
Compensation Committee further concluded that the appropriate compensation
should be in the form of options granted in an amount equal to the 50th percentile
for similar companies, but discounted by a factor of 10% at an option strike
price of $0.25 per share.  This price reflects the true value of the
directors’ work, provides adequate incentive to each director and does not
unfairly penalize the directors for current market
conditions.  Moreover, the $0.25 strike price reflects the price at
which much of the underlying funding and CUI transaction was originally
priced.  The director compensation plan, in summary,
provides:


39


Board of
DirectorsMembers


·
            Cash
      Retainer - $20,000 annually for non-employee members, $30,000 annually for
      the non-employee chairperson


·
            Initial,
      one time only, option to purchase 144,000 common shares at a price of
      $0.25 per share.  The option vests over four years, 25% after
      the first year, thereafter equally each month for the balance of the four
      year term.


·
            Annual
      Option to purchase 99,000 common shares at a price of $0.25 per
      share.  The option vests in full after one
  year.


·
            Meeting
      fee: none.





Audit
Committee


·
            Non-employee
      member - $3,000 annually


·
            Non-employee
      chairperson - $5,500 annually





Compensation
Committee


·
            Non-employee
      member - $2,000 annually


·
            Non-employee
      chairperson - $4,500 annually





Director
Compensation Table


The
following table sets forth the compensation of the directors, included in the
Outstanding Equity Awards schedule noted above, for the fiscal year ending
December 31, 2009.





DIRECTOR
COMPENSATION - EQUITY INCENTIVEPLAN





Director
                  
                  Total
                    Underlying
                    Common
                    Shares 1
                  
                  
                  Exercise
                    Price per
                    Share
                  
                  Option Term
                    from 01/01/09
                    Grant Date
                  Vesting
                  
                  Total
                    Underlying
                    Common
                    Vested at
                    01/01/2010
                  
                  
                  Total
                    Underlying
                    Common
                    Vesting at
                    01/01/2011
                  
                  
                  Total
                    Underlying
                    Common
                    Vesting at
                    01/01/2012
                  
                  
                  Total
                    Underlying
                    Common
                    Vesting at
                    01/01/2013
                  
                  
                  Fees
                    Earned or
                    Paid in
                    Cash6Colton
      Melby, Chmn.
                  
                  
                  144,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  4
      years
                  2
                  
                  36,000
                  
                  
                  
                  72,000
                  
                  
                  
                  108,000
                  
                  
                  
                  144,000
                  
                  
                  
                  32,000Colton
      Melby, Chmn.
                  
                  
                  99,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  1 year
                  3
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  -William
      J. Clough
                  
                  
                  144,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  4 years
                  2
                  
                  36,000
                  
                  
                  
                  72,000
                  
                  
                  
                  108,000
                  
                  
                  
                  144,000
                  
                  
                  
                  -William
      J. Clough
                  
                  
                  99,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  1 year
                  3
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  -Matthew
      McKenzie
                  
                  
                  144,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  4 years
                  2
                  
                  36,000
                  
                  
                  
                  72,000
                  
                  
                  
                  108,000
                  
                  
                  
                  144,000
                  
                  
                  
                  -Matthew
      McKenzie
                  
                  
                  99,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  1 year
                  3
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  -Thomas
      A. Price
                  
                  
                  144,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  4 years
                  2
                  
                  36,000
                  
                  
                  
                  72,000
                  
                  
                  
                  108,000
                  
                  
                  
                  144,000
                  
                  
                  
                  23,000Thomas
      A. Price
                  
                  
                  99,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  1 year
                  3
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  -Sean
      P. Rooney
                  
                  
                  144,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  4 years
                  2
                  
                  36,000
                  
                  
                  
                  72,000
                  
                  
                  
                  108,000
                  
                  
                  
                  144,000
                  
                  
                  
                  25,500Sean
      P. Rooney
                  
                  
                  99,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  1 year
                  3
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  -Corey
      Lambrecht
                  
                  
                  144,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  4 years
                  2
                  
                  36,000
                  
                  
                  
                  72,000
                  
                  
                  
                  108,000
                  
                  
                  
                  144,000
                  
                  
                  
                  24,500Corey
      Lambrecht
                  
                  
                  99,000
                  
                  
                  
                  0.25
                  
                  10
      years
                  1 year
                  3
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  99,000
                  
                  
                  
                  -





Footnotes:


(1)
            Effective
      January 1, 2009, each director received an option to purchase 144,000
      common shares within ten years from date of issuance that vests over four
      years, 25% after the first year and in equal monthly installments over the
      balance of the four year term.  Additionally, effective January
      1, 2009, each director received an option to purchase 99,000 common shares
      at a price of $0.25 per share that vests one year after issuance; this
      issuance will recur annually.


(2)
            Vests
      over four years, 25% after the first year and in equal monthly
      installments over the balance of the four year
  term.


(3)
            Options
      fully vest after one year.


40


(4)
            Effective
      January 1, 2009, each director receives an annual cash retainer of
      $20,000, no meeting fee; Audit Committee members receive $3,000 annually,
      Audit Committee Chair receives $5,500 annually, Compensation Committee
      members receive $2,000 annually, Compensation Committee Chair receives
      $4,500 annually.





Employment
Agreements


During
fiscal year 2009, three executive officers and two key employees were employed
under employment agreements.





Those
executive officers are:


·
            Chief
      Executive Officer and General
Counsel


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


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





To see
the material terms of each named executive officer’s employment agreement,
please see the footnotes to the Summary Compensation Table.





Those key
employees are:


·
            Chief
      Technical Officer


·
            Senior
      Vice President





Compensation
Committee Report


We have
reviewed and discussed the foregoing Compensation Discussion and Analysis with
management.  Based on our review and discussion with management, we have
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2009.





Submitted
by:  Compensation Committee


Colton R.
Melby, Chairman


Corey
Lambrecht


41


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





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





BENEFICIAL
INTEREST TABLE





Common Stock
                  
                  
                  Series A
                    Convertible
                  
                  
                  Series C
                    ConvertiblePreferred Stock
                  
                  
                  Preferred StockName and Address of
                    Beneficial Owner
                  
                  Number
                  
                  
                  Percent
                    of Class
                    (2)
                  
                  
                  Number
                  
                  
                  Percent
                    of Class
                    (3)
                  
                  
                  Number
                  
                  
                  Percent
                    of Class
                  
                  
                  Percent of
                    All Voting
                    Securities
                    (4)Colton Melby
      (5)
                  
                  
                  8,742,744
                  
                  
                  
                  5.13
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  5.13
                  %William
      J. Clough (6)
                  
                  
                  5,678,288
                  
                  
                  
                  3.25
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  3.25
                  %Thomas
      A. Price (7)
                  
                  
                  5,016,000
                  
                  
                  
                  2.94
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  2.94
                  %Sean
      P. Rooney (8)
                  
                  
                  290,877
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  *Corey
      Lambrechy (9)
                  
                  
                  141,000
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  *Matthew
      M McKenzie (10)
                  
                  
                  1,301,080
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  *Daniel
      N. Ford (11)
                  
                  
                  1,792,090
                  
                  
                  
                  1.04
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  1.04
                  %Bradley
      J. Hallock (12)
                  
                  
                  9,055,639
                  
                  
                  
                  5.26
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  5.26
                  %Walter/Whitney
      Miles (13)
                  
                  
                  10,000,000
                  
                  
                  
                  5.89
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  5.89
                  %Kjell
      Qvale (14)
                  
                  
                  18,302,135
                  
                  
                  
                  10.27
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  10.27
                  %James
      McKenzie (15)
                  
                  
                  62,929,300
                  
                  
                  
                  27.04
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  27.03
                  %Jerry
      Ostrin
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  45,000
                  
                  
                  
                  89.03
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  *Barry
      Lezak
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  3,043
                  
                  
                  
                  6.02
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  *Officers,
      Directors, Executives as Group
                  
                  
                  22,962,079
                  
                  
                  
                  12.66
                  %
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  -
                  
                  
                  
                  *
                  
                  
                  
                  12.65
                  %





* Less
than 1 percent





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


(2)
            (2)
      Calculated on the basis of 169,837,626 shares of common stock issued and
      outstanding at December 31, 2009 except that shares of common stock
      underlying options and warrants exercisable within 60 days of the date
      hereof are deemed to be outstanding for purposes of calculating the
      beneficial ownership of securities of the holder of such options or
      warrants.  This calculation excludes shares of common stock
      issuable upon the conversion of Series A Preferred
  Stock.


(3)
            Calculated
      on the basis of 50,543 shares of Series A Preferred Stock issued and
      outstanding at December 31, 2009.


(4)
            Calculated
      on the basis of an aggregate of 169,837,626 shares of common stock with
      one vote per share and 50,543 shares of Series A Preferred Stock with one
      vote per share issued and outstanding at December 31, 2009; shares of
      common stock underlying convertible debt, options and warrants do not have
      voting privileges.


(5)
            Colton
      Melby's securities are held in the name of a partnership in which he owns
      a controlling interest.  Mr. Melby's common stock includes an
      vested option to purchase 141,000 common shares and 300,000 vested
      shares underlying a warrant for 400,000 shares of common stock issued as
      consideration for a letter of credit guarantee which warrant vests: fifty
      percent at the May 15, 2008 date of issuance, twenty five percent at the
      one year anniversary and twenty five percent at the two year
      anniversary.  Should the underlying debt be satisfied or all, or
      any portion, of the letter of credit be released prior to any vesting,
      then any remaining warrant shares shall not vest.  Mr. Melby is
      Chairman of the Board of
Directors.


42


(6)
            Mr.
      Clough's common stock includes 3,640,485 common shares he has the right to
      purchase pursuant to a warrant and 1,256,303 vested options to
      purchase common shares.  Mr. Clough is a Director and
      CEO/President of Waytronx, Inc. and CEO of CUI,
  Inc.


(7)
            Mr.
      Price's shares include an vested option to purchase 141,000 common
      shares and 525,000 vested shares underlying a warrant for 700,000
      shares of common stock issued as consideration for a letter of credit
      guarantee which warrant vests: fifty percent at the May 15, 2008 date of
      issuance, twenty five percent at the one year anniversary and twenty five
      percent at the two year anniversary.  Should the underlying debt
      be satisfied or all, or any portion, of the letter of credit be released
      prior to any vesting, then any remaining warrant shares shall not
      vest.  Mr. Price is a
Director.


(8)
            Mr.
      Rooney’s shares include vested options to purchase 141,000 common
      shares.  Mr. Rooney is a
Director.


(9)
            Mr.
      Lambrecht’s shares include vested options to purchase 141,000 common
      shares.  Mr. Lambrecht is a
Director.


(10)
            Mr.
      McKenzie's common stock ownership is through his ownership of an interest
      in a convertible promissory note that he may convert to common stock after
      May 15, 2009 representing 707,071 common shares and vested options to
      purchase 594,009 common shares.  Mr. McKenzie is a Director and
      is President and COO of CUI, Inc.


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


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


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


(14)
            All
      common stock is owned by Kjell H. Qvale Survivors Trust.  Mr.
      Qvale's common stock includes 5,000,000 shares he has the right to
      purchase pursuant to a convertible promissory note, 302,135 shares
      underlying two warrants and 3,000,000 vested warrants underlying a
      warrant for 4,000,000 common shares issued as consideration for a letter
      of credit guarantee which warrant vests: fifty percent at the May 15, 2008
      date of issuance, twenty five percent at the one year anniversary and
      twenty five percent at the two year anniversary.  Should the
      underlying debt be satisfied or all, or any portion, of the letter of
      credit be released prior to any vesting, then any remaining warrant shares
      shall not vest.


(15)
            James
      McKenzie’s common stock includes 62,929,300 shares related to his
      ownership in the $4,900,000 convertible note (convertible at $0.07 per
      share) related to the CUI, Inc.
acquisition.





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


43


Employee Equity Incentive
Plans





At
December 31, 2009, the Company had outstanding the following equity compensation
plan information:





Plan Category
                  
                  Number of
                    securities to be
                    issued upon
                    exercise of
                    outstanding
                    options, warrants
                    and rights
                  
                  
                  Weighter-average
                    exercise price of
                    outstanding
                    options, warrants
                    and rights
                  
                  
                  Number of securities
                    remaining available for
                    future issuances under
                    equity compensation plans
                    (excluding securities
                    reflected in column (a))(a)
                  
                  
                  (b)
                  
                  
                  (c)Equity
      compensation plans approved by security holders
                  
                  
                  1,305,000
                  
                  
                  $
                  0.19
                  
                  
                  
                  1,595,704Equity
      compensation plans not approved by security holders
                  
                  
                  6,358,273
                  
                  
                  $
                  0.16
                  
                  
                  
                  191,727Total
                  
                  
                  7,663,273
                  
                  
                  $
                  0.17
                  
                  
                  
                  1,787,431





Equity Compensation Plans
Approved by Shareholders


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





On May
15, 2008 the Company’s Board of Directors adopted the Waytronx, Inc. 2008 Equity
Incentive Plan and authorized 1,500,000 shares of Common Stock to fund the
Plan.  At the 2008 Annual Meeting of Shareholders held on September
15, 2008, the Equity Incentive Plan was approved by the Company
shareholders.  At the 2009 Annual Meeting of Shareholders held on
September 29, 2009, the shareholders approved an amendment to the 2008 Equity
Incentive Plan to increase the number of common shares issuable under the plan
from 1,500,000 to 3,000,000.  All of these shares have been registered
under Form S-8.





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





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





EquityCompensationPlansNotApproved byShareholders


In
January 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 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.


44


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.





The
Company has outstanding at December 31, 2009, the following options issued under
equity compensation plans not approved by security holders:





During
2005, the Company issued to a former officer a five year option for the purchase
of 2,000,000 common shares at the price of $0.01 per share as a
bonus.  The option is fully vested and expires during
2010.





During
2006, the Company issued options to a former employee a five year option for the
purchase of 350,000 common shares at an exercise price of $0.01 per share as a
bonus.  The options expire during 2011 and are fully
vested.





During
2009, the Company issued under the 2009 Equity Incentive Plan (Executive) to
officers and directors options to purchase restricted common stock at $0.25 per
share as follows: 2,550,273 fully vested shares; 864,000 shares that vest over
four years, 25% at year one and thereafter in equal monthly installments; and
594,000 shares that fully vest after one year.





Item
13.  Certain Relationships and Related
Transactions and Director Independence





Except as
set forth herein, none of the Company’s directors or officers nor any person who
beneficially owns, directly or indirectly, shares carrying more than 10% of the
voting rights attached to its outstanding shares, nor any relative or spouse of
any of the foregoing persons, since the beginning of fiscal year 2009, has
any material interest, direct or indirect, in any transaction or in any
presently proposed transaction where the amount involved exceeds $120,000 which
has or will materially affect the Company.





In May
2006, the Company obtained an eighteen month convertible promissory note from a
related party totaling $1,000,000 that accrues interest at 12% per annum,
payable monthly, until the maturity of the note at which time the principal is
due.  This note was extended through November 2011.





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 calendar
year 2009 the related party portion in the amount of $125,000 was
extinguished.  The Company paid the related party $100,000 and
recognized a gain on the extinguishment of $25,542 related to the remaining
principal and accrued interest.  During calendar year 2009 the Company
paid $250,000 in principal.  There is $625,000 remaining
outstanding.  Interest accrues at 12% per annum, payable monthly,
until the maturity of these notes at which time the principal is
due.  In December 2009, the Company obtained an extension to June 30,
2010 on the balance remaining.





Effective
May 16, 2008 the Company formed a wholly owned subsidiary into which CUI, Inc.,
an Oregon corporation, merged all of its assets.  The funding for this
acquisition was provided by a bank note, a seller’s note and a convertible
seller’s note.  Matthew McKenzie, COO and Daniel Ford, CFO each were
partial owners in CUI, Inc. prior to the acquisition.  The
consideration paid by the Company is summarized as follows:


45


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


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


·
            $17,500,000
      convertible promissory note plus 1.7% annual simple interest and 2.3%
      annual success fee, permitting payees to convert any unpaid principal,
      interest and success fee to Waytronx common stock at a per share price of
      $0.25 and at the end of the three year term giving to Waytronx the
      singular, discretionary right to convert any unpaid principal, interest
      and success fee to Waytronx common stock at a per share price of
      $0.25.  This note also provides a right of first refusal to the
      note payees relating to any private capital raising transactions of
      Waytronx during the term of the note. In May 2009, Waytronx and the
      debt holder of the $17,500,000 convertible promissory note, IED, Inc.,
      agreed to amend the 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 a result, the
      Company recognized an extraordinary gain on the extinguishment of this
      debt of $11,808,513 and a reduction in the related discount of debt of
      $791,487.  As of December 31, 2009, there is a discount on debt
      related to this note of $2,773,555 and a net long term balance of this
      note is $2,126,445.


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





During
2009, $450,000 in principal and interest payments were made in relation to the
promissory notes issued to CUI shareholders.





The
$6,000,000 bank note as noted above was secured by personal guarantees in the
form of Letters of Credit in favor of the Commerce Bank of Oregon.  In
consideration for posting the Letters of Credit, the Company issued to each
individual who supplied the Letters of Credit, warrants to purchase, within 3
years at a per share price of $0.01, one Waytronx common share for each dollar
of the Letters of Credit.  The warrants vest 50% at date of issuance
and 25% at the first anniversary and 25% at the second anniversary
date.  Should the underlying debt to the Commerce Bank of Oregon be
satisfied or all, or any portion, of the Holder’s Letter of Credit is released
prior to any vesting as noted above, then any remaining warrant shares shall not
vest to the Holder under the terms of the Warrant. A former officer of the
Company, Clifford Melby received 300,000 warrants (225,000 fully vested), John
Rouse, a former director, received 300,000 warrants (225,000 fully vested),
Colton Melby, Chairman of the Board of Directors, received  400,000
warrants (300,000 fully vested), and Thomas A. Price, a member of the Board of
Directors received 700,000 warrants (525,000 fully vested).





As a part
of the CUI asset acquisition, the Waytronx, Inc. corporate offices were
relocated to the CUI location at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  CUI and Waytronx occupy the 61,380 square
feet of offices and warehouse premises under a ten year non-cancelable lease
agreement beginning September 1, 2006 with Barakel, LLC at a base monthly rent
subject to periodic base payment increases plus real property taxes, utilities,
insurance and common area maintenance charges.  During the period
January 1 through August 31, 2009, the monthly base rent was
$39,900.  For the period September 1 through December 31, 2009, the
monthly base rent was $40,000.  Barakel, LLC is controlled by James
McKenzie, majority owner of CUI, Inc. prior to acquisition and Matt McKenzie,
COO and Director of the Company.





During
2009, the Company provided services and billed for those services to a related
party controlled by James McKenzie.  During 2009, the revenue for
those services is reported as other income totaling $103,500.


46


Item14.  Principal Accountants Fees and
Services


Compensation of
Auditors


The
financial statements of the Company, which are furnished herein as of December
31, 2009, have been audited by Webb & Company, P. A., Independent
Registered Public Accounting Firm.  Webb & Company, P. A. billed the
Company an aggregate of $77,799 in fees and expenses for
professional services rendered in connection with the audit of the
Company’s financial statements for the fiscal year ended December 31, 2009 and
the reviews of the financial statements included in each of the Company’s
Quarterly Reports on Form 10-Q during the fiscal year ended December 31,
2009.  Webb & Company, P. A. billed the Company an aggregate
of $49,551 in fees and expenses for professional services rendered in connection
with the audit of the Company’s financial statements for the fiscal year
ended December 31, 2008 and the reviews of the financial statements included in
each of the Company’s Quarterly Reports on Form 10-Q during the fiscal year
ended December 31, 2008.  Webb & Company, P.A. did not bill any
audit related fees, tax fees, or other fees during the years ended December 31,
2009 and 2008.





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





Part
IV





Item
15.  Exhibits, Financial Statement
Schedules





EXHIBITS





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





Exhibit No.
                    
                    Description3.11
                    Amended
      Articles of Incorporation of the Company.3.21
                    Bylaws
      of the Company.3.32
                    Articles
      of Amendment to Articles 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
                    Articles
      of Amendment to Articles of Incorporation increasing the authorized common
      shares from 15,000,000 to 150,000,000, filed December 23,
      2003.3.62
                    Articles
      of Amendment to Articles of Incorporation - Certificate of Designations of
      the Series B Convertible Preferred Stock, filed April 1,
    2004.3.73
                    Articles
      of Amendment to Articles of Incorporation showing corporate name change to
      Onscreen Technologies, Inc., filed June 30, 20043.84
                    Articles
      of Amendment to Articles of Incorporation showing corporate name change to
      Waytronx, Inc., filed January 7, 20083.98
                    Articles
      of Amendment to Articles of Incorporation increasing the authorized common
      shares from 200,000,000 to 325,000,000, filed September 17,
      2009.4.19
                    Form
      of common stock purchase warrant template.5.110
                    Opinion
      and consent of Johnson, Pope, Bokor, Ruppel & Burns, LLP, filed
      herewith.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 WayCool technology patents ownership from
      inventor to CH Capital10.185
                    Assignment,
      dated February 16, 2005, of WayCool technology patents ownership from CH
      Capital to
Company.


47





10.225
              Promissory
      Note dated March 25, 2005 evidencing $1,500,000 unsecured short term
      loan.10.236
              Waytronx,
      Inc. 2005 Equity Incentive Plan and Equity Ownership Agreement
      template.10.257
              Employment
      Agreement between the Registrant and William J. Clough, Esq. dated
      November 21, 2005.10.26
              A
      Form 8-K was filed with the Commission on May 1, 2009 reporting the
      amendment to a promissory note.10.27
              A
      Form 8-K was filed with the Commission on July 6, 2009 reporting the
      acquisition of a privately held Japanese electronics/distribution
      conglomerate.10.288
              Waytronx,
      Inc. 2008 Equity Incentive Plan.13.310
              Annual
      Report on Form 10-K for the fiscal year ended December 31, 2009 filed
      herewith14.16
              Waytronx,
      Inc. Code of Ethics for Principal Executive and Financial Officers and
      Waytronx, Inc. Code of Ethics and Business Conduct Statement of General
      Policy.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 August 10,
      2009.23.410
              Consent
      of Webb & Company, P. A., Independent Registered Public Accounting
      Firm for incorporation by reference of their report into Form 10-K filed
      herewith.





Footnotes
to Exhibits:


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


2
            Incorporated
      by reference to our 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 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 and Notice of 2005 Annual Shareholder
      Meeting filed with the Commission 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 the Form S-3 filed with the Commission on August 17,
      2009


10
            Filed
      herewith.





Reports
on Form 8-K.





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





(a)
            A
      report on Form 8-K filed on May 1, 2009 announcing the negotiated
      reduction of a promissory note principle from $17,500,000 to
      $4,900,000.


(b)
            A
      report on Form 8-K filed July 6, 2009 announcing the acquisition of Comex
      Instruments, Ltd. and 49% of Comex Electronics,
  Ltd.





Signatures





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





Waytronx,
Inc.





Name
                    
                    Title
                    
                    Date/s/ William J. Clough
                    
                    CEO/President/Director
                    
                    March
      31, 2010William J. Clough/s/ Daniel N. Ford
                    
                    CFO/
      Principal
                    
                    March
      31, 2010Daniel N. Ford
                    
                    Accounting
      Officer/s/ Sean P. Rooney
                    
                    Audit
      Committee
                    
                    March
      31, 2010Sean P. Rooney


48


Waytronx,
Inc.


Financial
Statements


December
31, 2009 and 2008





Waytronx,
Inc.





Contents





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


F-1


REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors and Shareholders of:


Waytronx,
Inc.





We have
audited the accompanying consolidated balance sheets of Waytronx, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the
related statements of operations and comprehensive loss, changes in
stockholders’ equity, and cash flows for the two years ended December 31, 2009
and 2008. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.





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





In our
opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Waytronx, Inc. and
subsidiaries as of December 31, 2009 and 2008 and the results of its operations
and its cash flows for the two years ended December 31, 2009 and 2008 in
conformity with accounting principles generally accepted in the United States of
America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note 1
to the financial statements, the Company has a net loss of $4,198,701 and an
accumulated deficit of $54,757,578 at December 31, 2009. These matters raise
substantial doubt about the Company's ability to continue as a going
concern.  Management's plans concerning these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





WEBB
& COMPANY, P.A.


Certified
Public Accountants





Boynton
Beach, Florida


March 31,
2010


F-2


Waytronx,
Inc.


Consolidated
Balance Sheets


For
the Years Ended December 31, 2009 and 2008





2009
                        
                        
                        2008Assets:Current
      Assets:Cash
      and cash equivalents
                        
                        $
                        496,135
                        
                        
                        $
                        599,200Trade
      accounts receivable, net of allowance of $135,000 and $135,000,
      respectively
                        
                        
                        4,673,382
                        
                        
                        
                        2,762,416Other
      accounts receivable
                        
                        
                        88,425
                        
                        
                        
                        110,952Other
      accounts receivable, related party
                        
                        
                        188,790
                        
                        
                        
                        194,984Inventories,
      net of allowance of $100,000 and $100,000, respectively
                        
                        
                        3,661,994
                        
                        
                        
                        4,077,367Prepaid
      expenses and other
                        
                        
                        375,085
                        
                        
                        
                        186,520Total
      current assets
                        
                        
                        9,483,811
                        
                        
                        
                        7,931,439Property
      and equipment, net
                        
                        
                        1,402,528
                        
                        
                        
                        1,245,203Other
      assets:Investment
      - equity method
                        
                        
                        79,075
                        
                        
                        
                        120,499Investments
      - long term
                        
                        
                        102,560
                        
                        
                        
                        -Technology
      rights, net
                        
                        
                        4,077,646
                        
                        
                        
                        4,134,202Patent
      costs, net
                        
                        
                        428,370
                        
                        
                        
                        558,269Other
      intangible assets, net
                        
                        
                        46,294
                        
                        
                        
                        27,878Deposits
      and other
                        
                        
                        113,350
                        
                        
                        
                        40,411Notes
      receivable, net
                        
                        
                        79,451
                        
                        
                        
                        182,025Debt
      offering costs, net
                        
                        
                        937,130
                        
                        
                        
                        1,618,678Goodwill,
      net
                        
                        
                        22,056,092
                        
                        
                        
                        32,281,148Total
      other assets
                        
                        
                        27,919,968
                        
                        
                        
                        38,963,110Total
      assets
                        
                        $
                        38,806,307
                        
                        
                        $
                        48,139,752Liabilities
      and stockholders' equity:Current
      liabilities:Accounts
      payable
                        
                        $
                        2,028,201
                        
                        
                        $
                        1,106,114Preferred
      stock dividends payable
                        
                        
                        5,054
                        
                        
                        
                        5,054Demand
      notes payable
                        
                        
                        2,523,152
                        
                        
                        
                        1,373,993Accrued
      expenses
                        
                        
                        2,564,403
                        
                        
                        
                        1,912,592Accrued
      compensation
                        
                        
                        235,137
                        
                        
                        
                        770,625Unearned
      revenue
                        
                        
                        84,438
                        
                        
                        
                        -Notes
      payable, current portion due
                        
                        
                        1,003,793
                        
                        
                        
                        49,200Notes
      payable, related party, current portion due
                        
                        
                        170,852
                        
                        
                        
                        1,197,865Convertible
      notes payable, current portion due
                        
                        
                        300,000
                        
                        
                        
                        350,000Convertible
      notes payable, related party, current portion due
                        
                        
                        -
                        
                        
                        
                        1,000,000Total
      current liabilities
                        
                        
                        8,915,030
                        
                        
                        
                        7,765,443Long
      term notes payable, net of current portion due of $71,573 and $49,200,
      respectively
                        
                        
                        7,624,948
                        
                        
                        
                        6,095,740Long
      term notes payable, related party, net of current portion due of $170,852
      and $197,865 and discounts of $369,516 and $638,255,
      respectively
                        
                        
                        13,171,624
                        
                        
                        
                        13,022,465Long
      term convertible notes payable, related party, net of discounts of
      $2,773,555 and $5,711,395, respectively
                        
                        
                        3,126,445
                        
                        
                        
                        11,788,605Total
      liabilities
                        
                        
                        32,838,047
                        
                        
                        
                        38,672,253Commitments
      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 December 31,
      2009 and December 31, 2008, respectively
                        
                        
                        51
                        
                        
                        
                        51Convertible
      Series B preferred stock, 30,000 shares authorized, and no shares
      outstanding at December 31, 2009 and December 31, 2008,
      respectively
                        
                        
                        -
                        
                        
                        
                        -Common
      stock, par value $0.001; 325,000,000 and 325,000,000 shares authorized and
      169,837,626 and 166,208,406 shares issued and outstanding at December 31,
      2009 and December 31, 2008, respectively
                        
                        
                        169,838
                        
                        
                        
                        166,208Additional
      paid-in capital
                        
                        
                        60,541,742
                        
                        
                        
                        59,849,326Accumulated
      deficit
                        
                        
                        (54,746,787
                        )
                        
                        
                        (50,548,086
                        )Accumulated
      other comprehensive income (loss)
                        
                        
                        (28,193
                        )
                        
                        
                        -Total
      stockholders' equity
                        
                        
                        5,936,651
                        
                        
                        
                        9,467,499Noncontrolling
      interest
                        
                        
                        31,609
                        
                        
                        
                        -Total
      liabilities and stockholders' equity
                        
                        $
                        38,806,307
                        
                        
                        $
                        48,139,752





See
accompanying notes to financial statements


F-3


Waytronx,
Inc.


Consolidated
Statement of Operations and Comprehensive Loss


For
the Years Ended December 31, 2009 and 2008





2009
                        
                        
                        2008Revenues:Product
      Sales
                        
                        $
                        28,748,017
                        
                        
                        $
                        19,433,636Revenue
      from freight
                        
                        
                        103,733
                        
                        
                        
                        122,299Total
      revenue
                        
                        
                        28,851,750
                        
                        
                        
                        19,555,935Cost
      of revenues
                        
                        
                        18,191,840
                        
                        
                        
                        11,874,250Gross
      profit (loss)
                        
                        
                        10,659,910
                        
                        
                        
                        7,681,685Operating
      expensesSelling,
      general and administrative
                        
                        
                        10,839,425
                        
                        
                        
                        7,615,737Research
      and development
                        
                        
                        56,042
                        
                        
                        
                        513,671Bad
      debt
                        
                        
                        144,834
                        
                        
                        
                        148,573Impairment
                        
                        
                        10,834,980
                        
                        
                        
                        247,617Total
      operating expenses
                        
                        
                        21,875,281
                        
                        
                        
                        8,525,598Loss from
      operations
                        
                        
                        (11,215,371
                        )
                        
                        
                        (843,913
                        )Other
      income (expense)Other
      income
                        
                        
                        194,065
                        
                        
                        
                        177,362Other
      expense
                        
                        
                        (331,757
                        )
                        
                        
                        (289,094
                        )Derivative
      income
                        
                        
                        -
                        
                        
                        
                        2,831,688Investment
      income (loss)
                        
                        
                        (41,424
                        )
                        
                        
                        (1,620
                        )Gain
      on debt extinguishments
                        
                        
                        11,834,055
                        
                        
                        
                        -Interest
      expense - intrinsic value of convertible debt, amortization of debt
      offering costs and amortization of debt discount
                        
                        
                        (3,096,641
                        )
                        
                        
                        (2,342,374
                        )Interest
      expense
                        
                        
                        (1,552,419
                        )
                        
                        
                        (1,362,416
                        )Total
      other income (expense), net
                        
                        
                        7,005,879
                        
                        
                        
                        (986,454
                        )Income
      (loss) before income taxes
                        
                        
                        (4,209,492
                        )
                        
                        
                        (1,830,367
                        )Provision
      for income taxes
                        
                        
                        -
                        
                        
                        
                        -Consolidated
      Net profit (loss)
                        
                        
                        (4,209,492
                        )
                        
                        
                        (1,830,367
                        )Less: Net
      profit (loss) - noncontrolling interest
                        
                        
                        (10,791
                        )
                        
                        
                        -Net
      profit (loss) - attributable to Waytronx Inc.
                        
                        
                        (4,198,701
                        )
                        
                        
                        (1,830,367
                        )Other
      comprehensive profit (loss)Foreign
      currency translation adjustment
                        
                        $
                        (28,193
                        )
                        
                        $
                        -Comprehensive
      profit (loss)
                        
                        $
                        (4,226,894
                        )
                        
                        $
                        (1,830,367
                        )Basic
      and diluted profit (loss) per common share
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.01
                        )Diluted
      profit (loss) per common share available to common
      stockholders
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.01
                        )Basic
      weighted average common and common equivalents shares outstanding
      outstanding
                        
                        
                        168,531,862
                        
                        
                        
                        161,888,206





See
accompanying notes to financial statements


F-4


Waytronx,
Inc.


Consolidated
Statement of Changes in Stockholders’ Equity


For
the Years Ended December 31, 2009 and 2008





Series A Preferred Stock and
                  
                  
                  Common Stock andSeries B Preferred Stock
                  
                  
                  Preferred Stock Issuable
                  
                  
                  Common Stock IssuableShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  AmountBalance,
      December 31, 2007
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  75,543
                  
                  
                  $
                  76
                  
                  
                  
                  156,780,626
                  
                  
                  $
                  156,780Reclassification
      to equity of accrued compensation payable in stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      and options granted for service and compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Reclassification
      of warrant liability, net
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Common
      stock issued for options and warrants exercised in exchange for cash
      and accrued compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,353,090
                  
                  
                  
                  3,353Common
      stock issued for services and compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,289,000
                  
                  
                  
                  1,289Common
      stock issued in conjunction with the conversion of debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,708,132
                  
                  
                  
                  2,708Issuance
      of common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,977,558
                  
                  
                  
                  1,978Beneficial
      conversion value and value of warrants issued with financing
      guaranteesBeneficial
      conversion value and value of warrants issued with convertible
      debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Series
      A Preferred Stock dividends, $0.10 per share
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Series
      A Preferred Stock dividends conversion to common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Series
      B Preferred Stock dividends reversal
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Series
      A Preferred Stock issued for services of employee
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Series
      B Preferred Stock issued for services of employee
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Series
      A Preferred Stock converted to common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (25,000
                  )
                  
                  
                  (25
                  )
                  
                  
                  100,000
                  
                  
                  
                  100Series
      B Preferred Stock converted to common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Amortization
      of deferred compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss for the year ended December 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Unrealized
      losses on marketable securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Comprehensive
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance,
      December 31, 2008
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  
                  50,543
                  
                  
                  
                  51
                  
                  
                  
                  166,208,406
                  
                  
                  $
                  166,208Reclassification
      to equity of accrued compensation payable in stockWarrants
      and options granted for service and compensationReclassification
      of warrant liability, netCommon
      stock issued for options and warrants exercised in exchange for cash and
      accrued compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,129,220
                  
                  
                  
                  1,130Common
      stock issued for services and compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,500,000
                  
                  
                  
                  2,500Common
      stock issued in conjunction with the conversion of debtIssuance
      of common stockBeneficial
      conversion value and value of warrants issued with convertible
      debtSeries
      A Preferred Stock dividends, $0.10 per shareSeries
      A Preferred Stock dividends conversion to common stockSeries
      B Preferred Stock dividends reversalSeries
      A Preferred Stock issued for services of employeeSeries
      B Preferred Stock issued for services of employeeSeries
      A Preferred Stock converted to common stockSeries
      B Preferred Stock converted to common stockAmortization
      of deferred compensationNet
      loss for the year ended December 31, 2008Less
      Non-controlling interestUnrealized
      losses on marketable securitiesAccumulated
      foreign currency translation adjustmentBalance,
      December 31, 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,543
                  
                  
                  
                  51
                  
                  
                  
                  169,837,626
                  
                  
                  
                  169,838





F-5




(continued)
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                TotalAdditional
                                
                                
                                Subscription
                                
                                
                                Accumulated
                                
                                
                                Noncontrolling
                                
                                
                                Accumulated Other
                                
                                
                                Stockholders'Paid-in capital
                                
                                
                                Receivable
                                
                                
                                Deficit
                                
                                
                                Interest
                                
                                
                                Comprehensive Loss
                                
                                
                                EquityBalance,
      December 31, 2007
                                
                                $
                                50,832,165
                                
                                
                                $
                                (200,000
                                )
                                
                                $
                                (48,717,719
                                )
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                2,071,302Reclassification
      to equity of accrued compensation payable in stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Warrants
      and options granted for service and compensation
                                
                                
                                233,292
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                233,292Reclassification
      of warrant liability, net
                                
                                
                                5,164,603
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                5,164,603Common
      stock issued for options and warrants exercised in exchange for cash and
      accrued compensation
                                
                                
                                216,962
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                220,315Common
      stock issued for services and compensation
                                
                                
                                307,841
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                309,130Common
      stock issued in conjunction with the conversion of debt
                                
                                
                                549,325
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                552,033Issuance
      of common stock
                                
                                
                                318,514
                                
                                
                                
                                200,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                520,492Beneficial
      conversion value and value of warrants issued with financing
      guarantees
                                
                                
                                2,044,646
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,044,646Beneficial
      conversion value and value of warrants issued with convertible
      debt
                                
                                
                                182,053
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                182,053Series
      A Preferred Stock dividends, $0.10 per share
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Series
      A Preferred Stock dividends conversion to common stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Series
      B Preferred Stock dividends reversal
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Series
      A Preferred Stock issued for services of employee
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Series
      B Preferred Stock issued for services of employee
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Series
      A Preferred Stock converted to common stock
                                
                                
                                (75
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Series
      B Preferred Stock converted to common stock
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Amortization
      of deferred compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Net
      loss for the year ended December 31, 2008
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (1,830,367
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (1,830,367
                                )Unrealized
      losses on marketable securities
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Comprehensive
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Balance,
      December 31, 2008
                                
                                $
                                59,849,326
                                
                                
                                $
                                -
                                
                                
                                $
                                (50,548,086
                                )
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                9,467,499Reclassification
      to equity of accrued compensation payable in stock
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Warrants
      and options granted for service and compensation
                                
                                
                                138,067
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                138,067Reclassification
      of warrant liability, net
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Common
      stock issued for options and warrants exercised in exchange for cash and
      accrued compensation
                                
                                
                                21,849
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                22,979Common
      stock issued for services and compensation
                                
                                
                                532,500
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                535,000Common
      stock issued in conjunction with the conversion of debt
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Issuance
      of common stock
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Beneficial
      conversion value and value of warrants issued with convertible
      debt
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Series
      A Preferred Stock dividends, $0.10 per share
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Series
      A Preferred Stock dividends conversion to common stock
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Noncontrolling
      interest subsequent to acquisition of Comex Electronics
    Ltd.
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                31,609
                                
                                
                                
                                
                                
                                
                                
                                31,609Series
      A Preferred Stock issued for services of employee
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Series
      B Preferred Stock issued for services of employee
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Series
      A Preferred Stock converted to common stock
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Series
      B Preferred Stock converted to common stock
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Amortization
      of deferred compensation
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Net
      loss for the year ended December 31, 2009
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (4,198,701
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (4,198,701
                                )Less
      Non-controlling interest
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Unrealized
      losses on marketable securities
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                -Accumulated
      foreign currency translation adjustment
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (28,193
                                )
                                
                                
                                (28,193
                                )Balance,
      December 31, 2009
                                
                                
                                60,541,742
                                
                                
                                
                                -
                                
                                
                                
                                (54,746,787
                                )
                                
                                
                                31,609
                                
                                
                                
                                (28,193
                                )
                                
                                
                                5,968,260





See
accompanying notes to financial statements


F-6


Waytronx,
Inc.


Consolidated
Statement of Cash Flows


For
the Years Ended December 31, 2009 and 2008





2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (4,198,701
                )
                
                $
                (1,830,367
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock,
      warrants, options and notes issued for compensation and
      services
                
                
                686,237
                
                
                
                740,785Change
      in fair value of warrant liability
                
                
                -
                
                
                
                (2,831,688
                )Non-cash
      interest expense, including amortization of beneficial conversion value,
      warrant related debt discounts and intrinsic value of convertible debt and
      amortization of debt discount and amortization of debt offering
      costs
                
                
                3,096,641
                
                
                
                2,153,577Non-cash
      loss on equity method investment
                
                
                41,424
                
                
                
                1,620Bad
      debt expense
                
                
                144,834
                
                
                
                148,573Amortization
      of technology rights
                
                
                238,998
                
                
                
                238,513Amortization
      of patent costs
                
                
                18,443
                
                
                
                28,837Amortization
      of website development
                
                
                14,311
                
                
                
                14,311Loss
      on disposal of assets
                
                
                -
                
                
                
                4,165Net
      loss - noncontrolling interest
                
                
                (10,791
                )
                
                
                -Impairment
      of goodwill
                
                
                10,698,169
                
                
                
                -Impairment
      of patents
                
                
                136,811
                
                
                
                247,617Extraordinary
      gain on extinguishment of debt
                
                
                (11,834,055
                )
                
                
                -Depreciation
                
                
                413,117
                
                
                
                240,507Amortization
                
                
                578
                
                
                
                1,538(Increase)
      decrease in assets:Trade
      accounts receivable
                
                
                (901,522
                )
                
                
                (717,265
                )Other
      accounts receivable
                
                
                22,527
                
                
                
                964,867Other
      accounts receivable, related party
                
                
                6,194
                
                
                
                -Notes
      receivable
                
                
                (275,000
                )
                
                
                (182,025
                )Inventory
                
                
                1,459,061
                
                
                
                (1,334,692
                )Prepaid
      expenses and other current assets
                
                
                (110,853
                )
                
                
                (50,694
                )Deposits
      and other assets
                
                
                5,163
                
                
                
                26,408Investments
      - long term
                
                
                (19
                )
                
                
                -Increase
      (decrease) in liabilities:Accounts
      payable
                
                
                616,772
                
                
                
                (549,743
                )Accrued
      expenses
                
                
                566,369
                
                
                
                1,789,859Accrued
      compensation
                
                
                (535,488
                )
                
                
                594,904Deferred
      revenues
                
                
                84,438
                
                
                
                (13,080
                )NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                
                
                383,658
                
                
                
                (313,473
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      received from merger, net
                
                
                -
                
                
                
                (5,816,468
                )Cash
      received from acquisition, net of cash paid
                
                
                12,563
                
                
                
                -Investment
      in technology rights and development
                
                
                (182,955
                )
                
                
                -Investment
      in patents
                
                
                (25,355
                )
                
                
                (88,672
                )Proceeds
      from Notes Receivable
                
                
                317,313
                
                
                
                -Proceeds
      from sale of discontinued product line
                
                
                -
                
                
                
                393,497Purchase
      of property and equipment
                
                
                (265,858
                )
                
                
                (128,922
                )NET
      CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                
                
                (144,292
                )
                
                
                (5,640,565
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from demand notes payable
                
                
                777,772
                
                
                
                1,044,628Proceeds
      from notes and loans payable
                
                
                284,373
                
                
                
                6,600,000Proceeds
      from notes and loans payable, related party
                
                
                -
                
                
                
                100,000Payments
      on notes and loans payable
                
                
                (1,139,595
                )
                
                
                (1,470,116
                )Payments
      on notes and loans payable, related party
                
                
                (246,596
                )
                
                
                (364,673
                )Proceeds
      from sales of common stock and exercise of warrants and options, net of
      offering costs
                
                
                9,808
                
                
                
                600,760NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                
                
                (314,238
                )
                
                
                6,510,599EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                
                
                (28,193
                )
                
                
                -Cash
      and cash equivalents at beginning of year
                
                
                599,200
                
                
                
                42,639Cash
      and cash equivalents at end of period
                
                
                496,135
                
                
                
                599,200NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                
                $
                (103,065
                )
                
                $
                556,561


F-7


(continued)





For
      the year ended December 31,2009
                      (Consolidated)
                    
                    
                    2008
                      (Consolidated)SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Income
      taxes paid
                    
                    $
                    -
                    
                    
                    $
                    -Interest
      paid
                    
                    $
                    899,569
                    
                    
                    $
                    331,695SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Conversion
      of Series A convertible preferred stock to common stock
                    
                    $
                    -
                    
                    
                    $
                    25Discount
      on debt for intrinsic value of notes payable
                    
                    $
                    2,415,093
                    
                    
                    $
                    1,861,241Notes
      Payable issued for purchase of CUI, Inc.
                    
                    $
                    -
                    
                    
                    $
                    31,500,000Issuance
      of warrants for patents
                    
                    $
                    -
                    
                    
                    $
                    91,190Conversion
      of debt to common stock
                    
                    $
                    -
                    
                    
                    $
                    550,000Amortization
      of debt offering costs
                    
                    $
                    681,548
                    
                    
                    $
                    425,968Common
      stock issued for consulting services and compensation and accrued
      liabilities payable in common stock
                    
                    $
                    548,170
                    
                    
                    $
                    408,179Reclassification
      of Derivative liability to Equity
                    
                    $
                    -
                    
                    
                    $
                    10,841,928





See
accompanying notes to financial statements


F-8





Waytronx,
Inc.


Notes
to Consolidated Financial Statements


December
31, 2009 and 2008





1.
            NATURE
      OF OPERATIONS AND BASIS OF
PRESENTATION


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





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





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 $4,198,701 and an
accumulated deficit of $54,757,578 for the year ended December 31,
2009.  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.





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES


Use of
Estimates


The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period.  Actual results could differ from those
estimates.  Significant estimates in 2009 and 2008 include estimates
used to review the Company’s long-lived assets for impairment, inventory
valuation, valuations of non-cash capital stock issuances, valuations of
derivatives and the valuation allowance on deferred tax assets.





Principles of
Consolidation


The
consolidated financial statements for 2009 include the accounts of Waytronx,
Inc. and its wholly owned subsidiary CUI, Inc. for the full year, and the
partial year results of its wholly owned subsidiary CUI Japan and 49% owned
Comex Electronics since acquisition on July 1, 2009. The consolidated financial
statements for 2008 include the accounts of Waytronx, Inc. and its wholly owned
subsidiary CUI, Inc. (for the period May 16, 2008 to December 31,
2008.  Waytronx, Inc., is hereafter referred to as the
“Company”.  Significant intercompany accounts and transactions have
been eliminated in consolidation.


F-9





Fair Value of Financial
Instruments


FASB
Accounting Standards Codification No. 825 (“FASB ASC 825”), “Financial
Instruments”, requires disclosures of information about the fair value of
certain financial instruments for which it is practicable to estimate that
value.  For purposes of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or
liquidation.





Management
believes the carrying amounts of the short-term financial instruments, including
cash and cash equivalents, accounts receivable, restricted cash, prepaid expense
and other assets, accounts payable, accrued liabilities, notes payable, deferred
compensation and other liabilities reflected in the accompanying balance sheet
approximate fair value at December 31, 2009 due to the relatively short-term
nature of these instruments.





Cash and Cash
Equivalents


Cash
includes deposits at financial institutions with maturities of three months or
less.  The Company at times has cash in banks in excess of FDIC
insurance limits and places its temporary cash investments with high credit
quality financial institutions.  At December 31, 2009 and 2008, the
Company had no cash balances at financial institutions which were in excess of
the FDIC insured limits.  However, at December 31, 2009, the Company
held $26,166 in European foreign bank accounts and $112,223 in Japanese foreign
bank accounts.  At December 31, 2008, the Company held $100,458 in
European foreign bank accounts.





Accounts Receivable and
Allowance for Uncollectible Accounts


Accounts
receivable consist of the receivables associated with the revenue derived from
product sales.  An allowance for uncollectible accounts is recorded to
allow for any amounts that may not be recoverable, based on an analysis of prior
collection experience, customer credit worthiness and current economic
trends.  Based on management’s review of accounts receivable, an
allowance for doubtful accounts of $135,000 at December 31, 2009 and 2008 is
considered adequate.  Receivables are determined to be past due based
on the payment terms of original invoices.  The Company grants credit
to its customers, with standard terms of Net 30 days.  The Company
routinely assesses the financial strength of its customers and, therefore,
believes that its accounts receivable credit risk exposure is
limited.





Inventory


Inventories
consist of finished and un-finished products and are stated at the lower of cost
or market; using the first-in, first-out (FIFO) method as a cost flow
convention.  At December 31, 2009 and 2008 inventory is valued at
$3,661,994 and $4,077,367, respectively.





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:


F-10





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




Long-Lived
Assets


Long-lived
assets and certain identifiable assets related to those assets are periodically
reviewed for impairment whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be
recoverable.  If the non-discounted future cash flows of the
enterprise are less than their carrying amount, their carrying amounts are
reduced to fair value and an impairment loss is recognized.  The
Company recorded an impairment expense of $10,698,169 related to goodwill and
$136,811 related to capitalized patents during 2009.  During 2008, an
impairment expense of $247,617 related to capitalized patents was
recorded.





Identifiable Intangible
Assets


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





Intangible
assets consist of the following as of December 31, 2009 and 2008:





2009
                  
                  
                  2008Technology
      rights
                  
                  $
                  5,126,406
                  
                  
                  $
                  4,943,965Accumulated
      amortization
                  
                  
                  (1,048,760
                  )
                  
                  
                  (809,763
                  )Net
                  
                  $
                  4,077,646
                  
                  
                  $
                  4,134,202Patent
      costs
                  
                  $
                  464,350
                  
                  
                  $
                  584,344Accumulated
      amortization
                  
                  
                  (35,980
                  )
                  
                  
                  (26,075
                  )Net
                  
                  $
                  428,370
                  
                  
                  $
                  558,269Debt
      offering costs
                  
                  $
                  2,044,646
                  
                  
                  $
                  2,044,646Accumulated
      amortization
                  
                  
                  (1,107,516
                  )
                  
                  
                  (425,968
                  )Net
                  
                  $
                  937,130
                  
                  
                  $
                  1,618,678Goodwill
                  
                  $
                  22,058,208
                  
                  
                  $
                  32,282,686Accumulated
      amortization
                  
                  
                  (2,116
                  )
                  
                  
                  (1,538
                  )Net
                  
                  $
                  22,056,092
                  
                  
                  $
                  32,281,148Other
      intangible assets
                  
                  $
                  107,724
                  
                  
                  $
                  72,933Accumulated
      amortization
                  
                  
                  (61,430
                  )
                  
                  
                  (45,055
                  )Net
                  
                  $
                  46,294
                  
                  
                  $
                  27,878




As of
December 31, 2009, $5,126,406 of costs related to technology rights acquired
since 2003 have been capitalized.  Technology rights are amortized
over a twenty year life.





As of
December 31, 2009, $464,350 of costs related to filing patent applications have
been capitalized.  When patents are approved, the costs are amortized
over the life of the patent.  Any patents not approved will be
expensed at that time. During 2009, the Company recognized an impairment on
patents of $136,811.





As of
December 31, 2009, $2,044,646 of debt offering costs related to the warrants
issued for the personal guarantees provided on behalf of the Company to secure
the $6,000,000 bank loan have been capitalized.  The debt offering
costs are amortized over the life of the loan.


F-11





As of
December 31, 2009, $22,058,208 of costs related to Goodwill have been
capitalized.  Goodwill is reviewed regularly for impairment by
management. During 2009, the Company recognized an impairment on Goodwill of
$10,698,169.





As of
December 31, 2009, $107,724 of costs related to other intangible assets have
been capitalized and are being amortized over their useful lives.





Investment – Equity
Method


Through
the acquisition of CUI, Inc. the Company obtained 352,589 common shares
representing a 10.47% interest in Test Products International, Inc., hereafter
referred to as TPI.  TPI is a provider of handheld test and
measurement equipment.  The Company also has a demand receivable from
TPI of $181,313 as of December 31, 2009.  The Company enjoys a close
association with this affiliate through common Board of Director membership and
participation, that allows for a significant amount of influence over affiliate
business decisions.  Accordingly, for financial statement purposes,
the Company accounts for its investment in this affiliated entity under the
equity method.





A summary
of the unaudited financial statements of the affiliate for the years ended
December 31, 2009 and 2008 are as follows:





2009
                  
                  
                  2008Current
      assets
                  
                  $
                  5,660,329
                  
                  
                  $
                  7,363,289Non-current
      assets
                  
                  
                  934,900
                  
                  
                  
                  750,102Total
      Assets
                  
                  $
                  6,595,229
                  
                  
                  $
                  8,113,391Current
      liabilities
                  
                  $
                  4,130,172
                  
                  
                  $
                  5,324,614Non-current
      liabilities
                  
                  
                  1,661,271
                  
                  
                  
                  1,144,221Stockholders'
      equity
                  
                  
                  803,786
                  
                  
                  
                  1,644,556Total
      Liabilities and Stockholders' Equity
                  
                  $
                  6,595,229
                  
                  
                  $
                  8,113,391Revenues
                  
                  $
                  8,340,256
                  
                  
                  $
                  8,606,050Operating
      Loss
                  
                  
                  (379,286
                  )
                  
                  
                  (37,125
                  )Net
      Loss
                  
                  
                  (395,644
                  )
                  
                  
                  (101,008
                  )Company
      share of Net Loss at 10.47% (since acquisition)
                  
                  
                  (41,424
                  )
                  
                  
                  (1,620
                  )Equity
      investment in affiliate
                  
                  $
                  79,075
                  
                  
                  $
                  120,499





Asset
Impairment


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





Patent
Costs


The
Company estimates the patents it has filed have a future beneficial value;
therefore it capitalizes the costs associated with filing for its
patents.  At the time the patent is approved, the patent costs
associated with the patent are amortized over the useful life of the
patent.  If the patent is not approved, at that time the costs will be
expensed.  A change in the estimate of the patent having a future
beneficial value will impact the other assets and expense
accounts.  During the years ended 2009 and 2008, the Company recorded
impairment charges of $136,811 and $247,617 related to capitalized
patents.


F-12





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.





Stock-Based
Compensation


The
Company accounts for stock based compensation using FASB Accounting Standards
Codification No. 718 (“FASB ASC 718”), “Compensation – Stock
Compensation”.  FASB Codification No. 718 requires the fair value of
all stock-based employee compensation awarded to employees to be recorded as an
expense over the related vesting period.  The statement also requires
the recognition of compensation expense for the fair value of any unvested stock
option awards outstanding at the date of adoption.  Employee stock
compensation is recorded at fair value using the Black Scholes Pricing
Model.





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





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.





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.


F-13





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





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





Shipping and Handling
Costs


Amounts
billed to customers in sales transactions related to shipping and handling
represent revenues earned for the goods provided and are included in sales, and
were $103,733 and $122,299 for the years ended December 31, 2009 and 2008,
respectively.  The Company expenses inbound shipping and handling
costs as cost of revenues.





Warranty
Reserves


A
warranty reserve liability is recorded based on estimates of future costs on
sales recognized.  There was no warranty reserve recorded at December
31, 2009 or 2008.





Advertising


The costs
incurred for producing and communicating advertising are charged to operations
as incurred.  Advertising expense for the years ended December 31,
2009 and 2008 was $544,146 and $421,096, respectively.





Income
Taxes


Income
taxes are accounted for under the asset and liability method of FASB Accounting
Standards Codification No. 740 (“FASB ASC 740”), “Income Taxes”,
..  Under FASB ASC 740, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income in the period that includes the
enactment date.





Valuation
allowances have been established against deferred tax assets due to
uncertainties in the Company’s ability to generate sufficient taxable income in
future periods to make realization of such assets more likely than
not.  An income tax benefit has not been recognized for its operating
losses generated during 2009 and 2008 based on uncertainties concerning the
ability to generate taxable income in future periods.  There was no
income tax receivable at December 31, 2009 and 2008.  In future
periods, tax benefits and related deferred tax assets will be recognized when
management considers realization of such amounts to be more likely than
not.





Net Loss Per
Share


In
accordance with FASB Accounting Standards Codification No. 260 (“FASB ASC 260”),
“Earnings Per Share”, basic net loss per share is computed by dividing the net
loss available to common stockholders for the period by the weighted average
number of common shares outstanding during the period.  Diluted net
loss per share is computed by dividing net loss available to common stockholders
by the weighted average number of common and common equivalent shares
outstanding during the period.  Common equivalent shares outstanding
as of December 31, 2009 and 2008, which consist of options, warrants,
convertible notes and convertible preferred stock, have been excluded from the
diluted net loss per common share calculations because they are
anti-dilutive.  Accordingly, diluted net loss per share is the same as
basic net loss per share for 2009 and 2008.  The following table
summarizes the potential common stock shares at December 31, 2009 and 2008,
which may dilute future earnings per share.


F-14





2009
                    
                    
                    2008Convertible
      preferred stock
                    
                    
                    252,715
                    
                    
                    
                    252,715Warrants
      and options
                    
                    
                    18,307,893
                    
                    
                    
                    23,093,373Convertible
      debt
                    
                    
                    76,200,000
                    
                    
                    
                    76,400,00094,760,608
                    
                    
                    
                    99,746,088





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 2009  and 2008 have been reported in accumulated other comprehensive
income, except for gains and losses resulting from the translation of
intercompany receivables and payables, which are included in earnings for the
period.





Segment
Reporting


Upon the
acquisition of CUI, Inc., 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.





The
following information is presented for the year ended December 31, 2009 for
operating segment activity:





External
                        Power
                      
                      
                      Internal
                        Power
                      
                      
                      Industrial
                        Controls
                      
                      
                      Comex
      /
                        CUI
      Japan
                      
                      
                      Other
                      
                      
                      TotalsRevenues
      from external customers
                      
                      $
                      15,466,992
                      
                      
                      $
                      6,695,220
                      
                      
                      $
                      2,976,799
                      
                      
                      $
                      2,575,902
                      
                      
                      $
                      1,136,837
                      
                      
                      $
                      28,851,750Intersegment
      revenues
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Derivative
      income
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Interest
      revenues
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      31
                      
                      
                      $
                      17,981
                      
                      
                      $
                      18,012Equity
      in losses of unconsolidated affiliate
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (41,424
                      )
                      
                      $
                      (41,424
                      )Interest
      expense - intrinsic value of convertible debt and amortization of debt
      discount
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      3,096,641
                      
                      
                      $
                      3,096,641Interest
      expense
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      31,815
                      
                      
                      $
                      1,520,604
                      
                      
                      $
                      1,552,419Depreciation
      and amortization
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      16,815
                      
                      
                      $
                      668,632
                      
                      
                      $
                      685,447Segment
      profit (loss)
                      
                      $
                      3,883,478
                      
                      
                      $
                      1,023,816
                      
                      
                      $
                      178,870
                      
                      
                      $
                      (26,316
                      )
                      
                      $
                      (9,269,340
                      )
                      
                      $
                      (4,209,492
                      )Other
      significant non-cash items:Stock,
      warrants and notes issued for compensation and services
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      686,237
                      
                      
                      $
                      686,237Impairment
      of goodwill
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      10,698,169
                      
                      
                      $
                      10,698,169Impairment
      of patents
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      136,811
                      
                      
                      $
                      136,811Gain
      on debt extinguishments
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      11,834,055
                      
                      
                      $
                      11,834,055Segment
      assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      3,672,366
                      
                      
                      $
                      35,133,941
                      
                      
                      $
                      38,806,307Foreign
      currency translation adjustments
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (28,193
                      )
                      
                      $
                      -
                      
                      
                      $
                      (28,193
                      )Acquisition
      of Comex Electronics and CUI Japan
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      103,589
                      
                      
                      $
                      103,589Expenditures
      for segment assets
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      25,403
                      
                      
                      $
                      448,765
                      
                      
                      $
                      474,168




F-15





The
following information is presented for the year ended December 31, 2008 for
operating segment activity (the Comex / CUI Japan segment did not exist in 2008
and as such is excluded from the following schedule):





External
                      Power
                    
                    
                    Internal
                      Power
                    
                    
                    Industrial
                      Controls
                    
                    
                    Other
                    
                    
                    TotalsRevenues
      from external customers
                    
                    $
                    11,973,552
                    
                    
                    $
                    4,594,882
                    
                    
                    $
                    2,171,699
                    
                    
                    $
                    815,802
                    
                    
                    $
                    19,555,935Intersegment
      revenues
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Derivative
      income
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    2,831,688
                    
                    
                    $
                    2,831,688Interest
      revenues
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    20,119
                    
                    
                    $
                    20,119Equity
      in losses of unconsolidatedaffiliate
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    (1,620
                    )
                    
                    $
                    (1,620
                    )Interest
      expense - intrinsic value ofconvertible
      debt and amortizationof
      debt discount
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,916,406
                    
                    
                    $
                    1,916,406Interest
      expense
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    1,362,416
                    
                    
                    $
                    1,362,416Depreciation
      and amortization
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    523,706
                    
                    
                    $
                    523,706Segment
      profit (loss)
                    
                    $
                    3,239,790
                    
                    
                    $
                    559,380
                    
                    
                    $
                    181,480
                    
                    
                    $
                    (5,322,492
                    )
                    
                    $
                    (1,341,842
                    )Other
      significant non-cash items:Stock,
      warrants and notes issuedfor
      compensation and services
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    678,228
                    
                    
                    $
                    678,228Segment
      assets
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    46,521,074
                    
                    
                    $
                    46,521,074Acquisition
      of CUI, Inc.
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    37,500,000
                    
                    
                    $
                    37,500,000Expenditures
      for segment assets
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    217,594
                    
                    
                    $
                    217,594




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 May
2009, the FASB issued FASB Accounting Standards Codification No. 855 “Subsequent
Events” (“FASB ASC 855”). FASB ASC 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. FASB
ASC 855 sets forth (1) The period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, (2)
The circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (3) The
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. FASB ASC 855 is effective for
interim or annual financial periods ending after June 15, 2009. The adoption of
this statement did not have a material effect on the Company’s financial
statements.





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 Company is
evaluating the impact the adoption of FASB ASC 860 will have on its
financial statements.


F-16





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 Company is evaluating the impact the adoption of FASB
ASC 810 will have on its financial statements.





In June
2009, the FASB issued FASB Accounting Standards Codification No. 105 “Generally
Accepted Accounting Principless” (“FASB ASC 105”). The FASB Accounting Standards
Codification (“Codification”) will be the single source of authoritative
nongovernmental U.S. generally accepted accounting principles. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. FASB ASC 105 is
effective for interim and annual periods ending after September 15, 2009. All
existing accounting standards are superseded as described in FASB ASC 105. All
other accounting literature not included in the Codification is
nonauthoritative. The adoption of FASB ASC 105 did not impact the financial
statements.





3.
            ACQUISITION





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





The
following details the CUI Inc. acquisition:





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





In May
2009, Waytronx and the debt holder of the $17,500,000 convertible seller’s note,
IED, Inc., agreed to amend the $17,500,000 convertible seller’s 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 reduces the Note principal from
$17,500,000 to $4,900,000. As a result, the Company recognized a gain on
the extinguishment of this debt of $11,808,513 and a reduction in the related
discount of debt of $791,487.


F-17





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
following table details the CUI Japan and Comex Electronics
acquisitions:





Purchase
      price
                  
                  $
                  103,589Cash
                  
                  
                  116,152Accounts
      receivable, trade
                  
                  
                  1,154,278Other
      receivables
                  
                  
                  203,604Inventory
                  
                  
                  1,043,688Other
      current assets
                  
                  
                  17,450Property
      & equipment, net
                  
                  
                  302,518Deposits
      and other assets
                  
                  
                  78,102Technology
      rights
                  
                  
                  34,278Investments
      - long term
                  
                  
                  102,541Goodwill
                  
                  
                  473,692Liabilities
      assumed
                  
                  
                  (3,380,314
                  )Noncontrolling
      interest
                  
                  
                  (42,400
                  )$
                  103,589





The table
below summarizes the unaudited pro forma information of the results of
operations as though the acquisitions had both been completed as of January 1,
2009 and January 1, 2008, respectively:





2009
                              
                              
                              2008Gross
      revenue
                              
                              $
                              30,354,596
                              
                              
                              $
                              32,866,123Total
      expenses
                              
                              
                              35,134,466
                              
                              
                              
                              34,029,710Net
      profit (loss) before taxes
                              
                              $
                              (4,779,870
                              )
                              
                              $
                              (1,163,587
                              )Less:  Net
      profit (loss) - noncontrolling interest
                              
                              $
                              (287,629
                              )
                              
                              $
                              61,158Net
      profit (loss) - attributable to Waytronx Inc.before
      taxes
                              
                              $
                              (4,492,241
                              )
                              
                              $
                              (1,224,745
                              )Earnings
      (loss) per share
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.01
                              )





4.
            PROPERTY
      AND EQUIPMENT, NET


Property and equipment is summarized as
follows at December 31, 2009 and 2008:





2009
                  
                  
                  2008Building
                  
                  $
                  390,008
                  
                  
                  $
                  -Equipment
                  
                  
                  1,888,711
                  
                  
                  
                  1,451,099Computer
      software
                  
                  
                  738,540
                  
                  
                  
                  873,8613,017,259
                  
                  
                  
                  2,324,960Less
      accumulated depreciation
                  
                  
                  (1,614,731
                  )
                  
                  
                  (1,079,757
                  )$
                  1,402,528
                  
                  
                  $
                  1,245,203





Depreciation
      expense for the years ended December 31, 2009 and 2008 was $413,117 and
      $240,507, respectively.


F-18





5.
            TECHNOLOGY
      RIGHTS AND LICENSE AND ROYALTY
AGREEMENTS


Upon
      the acquisition of CUI Inc., the Company obtained $51,222 in technology
      rights related to a proprietary internal power supply produce
      line.





The
      Company capitalized $182,441 of technology rights related to encoding and
      power technologies acquired during the year ended
  2009.





The
      technology rights are amortized over the twenty-year estimated life of the
      technology, and at December 31, 2009 and 2008 were as
    follows:





2009
                  
                  
                  2008Technology
      rights
                  
                  $
                  5,126,406
                  
                  
                  $
                  4,943,965Accumulated
      amortization
                  
                  
                  (1,048,760
                  )
                  
                  
                  (809,763
                  )Net
                  
                  $
                  4,077,646
                  
                  
                  $
                  4,134,202





Amortization
of technology rights during 2009 and 2008 was $238,998 and $238,513,
respectively.  The estimated annual amortization expense is $256,320
for each of the next four years.  Management has evaluated the
technology rights for impairment and believes there is no impairment of these
technology rights at December 31, 2009.





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





Original
                    Principal
                  
                  
                  Notes
                    Converted
                  
                  
                  Notes Repaid
                  
                  
                  Notes Amended
                  
                  
                  Balance
                    12/31/2009Balance
      at 12/31/2008
                  
                  $
                  18,850,000
                  
                  
                  $
                  -
                  
                  
                  $
                  (50,000
                  )
                  
                  $
                  (12,600,000
                  )
                  
                  $
                  6,200,000New
      notes in 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  18,850,000
                  
                  
                  $
                  -
                  
                  
                  $
                  (50,000
                  )
                  
                  $
                  (12,600,000
                  )
                  
                  $
                  6,200,000





Warrant Value
                  
                  
                  Amortization
                  
                  
                  Warrant Value
                    Amended
                  
                  
                  Warrant Value
                    Discount
                    12/31/2009Balance
      at 12/31/2008
                  
                  $
                  5,711,395
                  
                  
                  $
                  (2,146,353
                  )
                  
                  $
                  (791,487
                  )
                  
                  $
                  2,773,555New
      notes in 2009
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  5,711,395
                  
                  
                  $
                  (2,146,353
                  )
                  
                  $
                  (791,487
                  )
                  
                  $
                  2,773,555Unamortized
      discount at 12/31/2009
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (2,773,555
                  )Convertible
      notes payable, net at 12/31/2009
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  3,426,445




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


F-19





During
the last three quarters of 2006 through 2008, the Company privately placed
approximately $3,450,000 of 12% promissory notes.  $1,650,000
($650,000 of this amount has been repaid) of these notes are convertible to
common stock at a per share price equal to eighty percent (80%) of the average
closing bid price of one share of Company common stock for 10 days preceding the
Conversion Date.  There is, however, a $0.20 per share minimum limit
on the conversion price, which means that there is a limit on the number of
shares that the company may be obligated to issue.  Additionally, each
investor in the convertible promissory notes were issued a warrant to purchase
at any time within three (3) years following the date of investment, at a per
share price of one cent ($0.01), that number of shares of Waytronx, Inc. common
stock as is equal in value to one tenth the principal
investment.  Such value to be determined by the average per share
closing bid price of Waytronx, Inc. common stock for the 10 days preceding the
date of investment.  Of the remaining $1,800,000 notes, $700,000
($400,000 of this amount has been repaid) of these notes are convertible to
common stock at a per share price of $0.25 and $1,100,000 ($450,000 of this
amount has been repaid and $25,000 extraordinary gain was recorded related to
the settlement of $25,000 of the promissory note) are not
convertible.  As of December 31, 2009, 3,468,132 common shares were
issued pursuant to the conversion of these promissory notes and exercise of the
warrants; 6,502,135 common shares are held in reserve as issuable upon the
conversion of the balance of the convertible promissory notes and the shares of
common stock underlying the common stock purchase warrants and common shares
underlying the warrants.





Additionally,
the Company also utilized three separate notes to fund the acquisition of CUI,
Inc.  A $6,000,000 cash loan from Commerce Bank of Oregon, with a term
of 3 years, paying interest only at the prime rate less 0.50%, with a minimum
interest rate of 4.50%, (4.50% at December 31, 2009), and is secured by personal
Letters of Credit from related parties.  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.





A
$14,000,000 promissory note to International Electronic Devices, Inc. (formerly
CUI, Inc.), payable monthly over three years at $30,000 per month including 1.7%
annual simple interest with a balloon payment at the thirty sixth monthly
payment (May 15, 2011), with no prepayment penalty, an annual success fee of
2.3%, and the right of first refusal to the note payee, International Electronic
Devices, Inc., relating to any private capital raising transactions of Waytronx
during the term of the note.  There is a discount on debt related to
this note of $369,516.  The current portion of this note is
$170,852.  The net long term balance of this note is
$13,342,476.





A
$17,500,000 convertible promissory note with 1.7% annual simple interest and a
2.3% annual success fee, permitting payee to convert any unpaid principal,
interest and success fee to Waytronx common stock at a per share price of $0.25
and at the end of the three year term (May 15, 2011) giving to Waytronx the
singular, discretionary right to convert any unpaid principal, interest and
success fee to Waytronx common stock at a per share price of
$0.25.  This note also provides a right of first refusal to the note
payee, International Electronic Devices, Inc., relating to any private capital
raising transactions of Waytronx during the term of the note.  In May
2009, Waytronx and the holder of the $17,500,000 convertible promissory note,
IED, Inc., agreed to amend the convertible promissory note 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 a result, the Company recognized an extraordinary gain
on the extinguishment of this debt of $11,808,513 and a reduction in the related
discount of debt of $791,487.  There is a discount on debt relating to
this note of $2,773,555.  The net long term balance of this note is
$2,126,445.





Through
the acquisition of CUI, Inc., the Company has a capital lease note payable of
$95,740 as of December 31, 2009.  The current portion of the capital
lease is $53,128 as of December 31, 2009.  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 CUI Japan and Comex Electronics, the Company has several
notes payable.  Comex Electronics has a $397,540 with Seibu Shinyo
Kinko Bank bearing interest at 3.075% and due March 18, 2019; $397,540 with 82
Bank bearing interest at 2.40% and due March 18, 2019; $280,941 with 82 Bank
bearing interest at 2.90% and due August 19, 2015; $170,251 note with The Bank
of Tokyo-Mitsubishi bearing interest at 1.975% and due June 28, 2011; $111,119
with The Bank of Tokyo-Mitsubishi bearing interest at 2.00% and due June 28,
2012; and $73,550 with The Bank of Tokyo-Mitsubishi bearing interest at 2.70%
and due May 30, 2013; and $422,948 long term note payable with a
vendor.  The current portion of these notes payable is $307,220 with a
net long term portion of $1,546,669.


F-20





Comex
Electronics has short term notes payable with 82 Bank of $214,869 bearing
interest at 2.975% and due March 29, 2010, $42,974 bearing interest at 2.70% and
due February 16, 2010, $42,974 bearing interest at 2.70% and due April 16, 2010;
$53,717 with Seibu Shinyo Kinko Bank bearing interest at 2.85% and due February
28, 2010; $39,167 with a shareholder in the noncontrolled interest bearing 0%
interest, and a $36,805 note payable with a vendor bearing 3.50%
interest.  CUI Japan has short term notes payable with 82 Bank of
$25,900 bearing interest of 2.85% and due March 1, 2010; and $107,091 with a
shareholder in the noncontrolled interest bearing 0% interest.  The
Comex Electronics and CUI Japan short term notes payable are included in the
Demand notes payable balance on the balance sheet.





Comex
Electronics has capital leases of $54,113 as of December 31,
2009.  The current portion of the capital leases is $18,445 as of
December 31, 2009.  The capital leases are related to office equipment
and vehicles.  The leases have various expiration dates through
December 2014.





2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
                  
                  
                  Later YearsNotes
      Payable Maturities:
                  
                  $
                  3,997,024
                  
                  
                  $
                  26,181,570
                  
                  
                  $
                  192,247
                  
                  
                  $
                  154,228
                  
                  
                  $
                  140,281
                  
                  
                  $
                  398,535





7.
            WORKING
      CAPITAL LINE OF CREDIT


At
December 31, 2009, CUI, Inc. had a $3,000,000 working capital line of credit
with Key Bank, interest payable monthly at the bank’s prime rate plus 1.50
percentage points.  At December 31, 2009, the balance outstanding on
the line of credit was $1,959,655.  At December 31, 2008, CUI, Inc.
had a $3,000,000 working capital line of credit with Key Bank, interest payable
monthly at the bank’s prime rate less 0.25 percentage points, maturing July 1,
2009.  At December 31, 2008, the balance outstanding on the line of
credit was $1,373,993. The Company is in default of a debt covenant on its
$3,000,000 working capital line of credit with Key Bank.  The Company
has received temporary forbearance of this default and management is actively
working to resolve this default.





8.
            COMMITMENTS
      AND CONTINGENCIES


Legal
Matters


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





Royalty and License Fee
Agreements


There are
no commitments owed under royalty and license fee agreements.  All
royalty and license fees are paid in the month following the related sales
transaction.





Employment
Agreements


As of the
year ended December 31, 2009, the following employment agreements were in
place:





Chief
Executive Officer, General Counsel, Director:  This employment
agreement expires May 15, 2011.  The CEO’s annual salary is
$240,000.  The CEO is eligible for annual bonuses and stock option
grants.





President, Chief Operating Officer,
Director:  This employment agreement expires May 15,
2011.  The President’s annual salary is $120,000.  The
President is eligible for annual bonuses and stock option grants.





Chief Financial
Officer:  This employment agreement expires May 15,
2011.  The CFO’s annual salary is $120,000.  The CFO is
eligible for annual bonuses and stock option grants.


F-21





Chief Technical
Officer:  This employment agreement expires May 15,
2011.  The CTO’s annual salary is $120,000.  The CTO is
eligible for annual bonuses and stock option grants.





Senior Vice
President:  This employment agreement expires May 15,
2011.  The SVP’s annual salary is $120,000.  The SVP is
eligible for annual bonuses and stock option grants.





Leases


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





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





As an
integrated part of the CUI asset acquisition, the Waytronx, Inc. corporate
offices were relocated to the CUI location at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  CUI and Waytronx occupy the 61,380 square
feet of offices and warehouse premises under a ten year non-cancelable lease
agreement beginning September 1, 2006 with Barakel, LLC (a related party) at a
base monthly rent subject to periodic base payment increases plus real property
taxes, utilities, insurance and common area maintenance charges.  During
the period January 1 through August 31, 2009, the monthly base rent was
$39,900.  For the period September 1 through December 31, 2009, the
monthly base rent was $40,000. During the fiscal year ending December 31,
2008, the monthly base rent was $39,900.





The
Company also leases office space in Malmo, Sweden pursuant to a renewable lease
that expires May 31, 2010.  The base rent is subject to periodic base
lease payment increases, the Company is responsible for property taxes,
maintenance and related VAT taxes.  During the year ended December 31,
2009, the monthly base rent was approximately $1,825.





Additionally,
subsequent to the acquisition of CUI Japan and Comex Electronics, the Company
now has leased spaces in Tokyo, Japan, and owns a small manufacturing
facility on leased land in Nagano, Japan.  One of the leased spaces in
Tokyo, Japan expires August 31, 2011.  The monthly base rent for this
space during the year ending December 31, 2009 was $3,436.  The other
leased space in Tokyo, Japan expires in stages from May 7, 2011 to September 9,
2011.  During the year ending December 31, 2009, the monthly base rent
for this space $6,546.  In conjunction with this lease, the Company
also leases parking spaces.  This lease expires December 31, 2010 and
the base monthly rent during the year ended December 31, 2009 was
$486.  During the year ending December 31, 2009, the annual base rent
for the land lease in Nagano, Japan was $2,772.





Rental
expense was $623,156 and $433,705 in 2009 and 2008, respectively, and is
included in selling, general and administrative on the statement of
operations.





2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2014
                  
                  
                  Later YearsOperating
      Leases:
                  
                  $
                  613,935
                  
                  
                  $
                  550,375
                  
                  
                  $
                  483,000
                  
                  
                  $
                  484,000
                  
                  
                  $
                  486,000
                  
                  
                  $
                  813,000





Consulting
Agreements


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





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


F-22





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





During
2009, 2,500,000 shares of common stock were issued for services performed by
consultants.  $535,000 of consulting expense was recorded in relation
to the stock issuance transactions based on the fair market value of the stock
on the date of grant.  In addition, the consultants were paid fees of
$162,500.





In
September 2009, the Company engaged a consultant to provide services to the
Company for a period of one year.  For these services, the consultant
was paid a fee of $30,000 for the full term of the agreement.





In
September 2009, the Company engaged a consultant to provide services to the
Company.  For these services, the consultant was paid a fee of
$7,500.





In
October 2009, the Company engaged a consultant to provide strategic marketing
services.  For these services, the consultant was paid a fee of $5,000
per month.





9.
            STOCKHOLDERS’
      EQUITY


Convertible Preferred Series
A


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





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





During
      2008, there were no shares of Series A convertible preferred stock
      issued.  Also during 2008, 100,000 shares of common stock were
      issued relating to the conversion of 25,000 shares of Series A convertible
      preferred stock.





During
      2009, there were no shares of Series A convertible preferred stock
      issued.


All other
unregistered issuances of Series A Convertible Preferred Stock are described in
the 10-KSB filing for the year-ended 2007.





Convertible Preferred Stock
Series B


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





During
      2009 and 2008, there were no shares of Series B convertible preferred
      stock issued and no shares were outstanding.  All other
      unregistered issuances of Series B Convertible Preferred Stock are
      described in the 10-KSB filing for the year-ended
  2007.


F-23





Convertible Preferred Stock
Series C


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





Common Stock Dividend
Restrictions


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





Common Stock
Issuances


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





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





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





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





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





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





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





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





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


F-24





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





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





During
2009, 1,129,220 shares of common stock were issued resulting from the exercise
of warrants and options with proceeds of $22,979.





During
2009, 2,500,000 shares of common stock were issued for services performed by
consultants.  $535,000 of consulting expense was recorded in relation
to these transactions based on the fair market value of the stock on the date of
grant.





Non-Employee Stock
Warrants


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





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





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





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





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


F-25





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





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





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





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





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





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





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


F-26





A summary
of the warrants issued to non-employees for services as of December 31, 2009 and
2008 and changes during the years is presented below:





2009
                                                  
                                                  
                                                  2008Number of
                                                    Warrants
                                                  
                                                  
                                                  Weighted
                                                    Average
                                                    Exercise
                                                    Price
                                                  
                                                  
                                                  Number of
                                                    Warrants
                                                  
                                                  
                                                  Weighted
                                                    Average
                                                    Exercise
                                                    PriceBalance
      at beginning of period
                                                  
                                                  
                                                  20,823,373
                                                  
                                                  
                                                  $
                                                  0.13
                                                  
                                                  
                                                  
                                                  17,058,373
                                                  
                                                  
                                                  $
                                                  0.16Granted
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  
                                                  6,390,000
                                                  
                                                  
                                                  $
                                                  0.01Exercised
                                                  
                                                  
                                                  (980,769
                                                  )
                                                  
                                                  $
                                                  0.01
                                                  
                                                  
                                                  
                                                  (2,550,000
                                                  )
                                                  
                                                  $
                                                  0.04Forfeited
      (expired)
                                                  
                                                  
                                                  (6,239,984
                                                  )
                                                  
                                                  $
                                                  0.20
                                                  
                                                  
                                                  
                                                  (75,000
                                                  )
                                                  
                                                  $
                                                  0.25Balance
      at end of period
                                                  
                                                  
                                                  13,602,620
                                                  
                                                  
                                                  $
                                                  0.11
                                                  
                                                  
                                                  
                                                  20,823,373
                                                  
                                                  
                                                  $
                                                  0.13Warrants
      exercisable at end of period
                                                  
                                                  
                                                  12,102,620
                                                  
                                                  
                                                  $
                                                  0.12
                                                  
                                                  
                                                  
                                                  17,823,373
                                                  
                                                  
                                                  $
                                                  0.15Weighted
      average fair value of warrants granted during the period
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  0.33





During
2009, warrants to purchase 6,239,984 shares of common stock expired during the
year and are recorded as forfeited in the table above.  During 2008,
warrants to purchase 75,000 shares of common stock expired during the year and
are recorded as forfeited in the table above.





The
following table summarizes information about non-employee stock warrants
outstanding and exercisable that were issued for services at December 31, 2009
and 2008:





Warrants Outstanding
                              
                              
                              Warrants ExercisableRange of
                                Exercise Price
                              
                              Number
                                Outstanding at
                                December 31,
                                2009
                              
                              Weighted
                                Average
                                Remaining
                                Contractual
                                Life
                              
                              Weighted
                                Average
                                Exercise Price
                              
                              
                              Number
                                Exercisable at
                                December 31,
                                2009
                              
                              
                              Weighted
                                Average
                                Exercise
                                Price$
                              0.01
                              
                              
                              6,302,135
                              
                              0.66
      Years
                              
                              $
                              0.01
                              
                              
                              
                              4,802,135
                              
                              
                              $
                              0.010.20
                              
                              
                              7,250,485
                              
                              0.67
      Years
                              
                              
                              0.20
                              
                              
                              
                              7,250,485
                              
                              
                              
                              0.200.25
                              
                              
                              50,000
                              
                              0.00Years
                              
                              
                              0.25
                              
                              
                              
                              50,000
                              
                              
                              
                              0.2513,602,620
                              
                              
                              
                              
                              
                              
                              
                              
                              12,102,620





1,500,000
warrants outstanding with an exercise price of $0.01 had not vested as of
December 31, 2009 and were therefore not included as exercisable.





Range of
                      Exercise Price
                    
                    Number
                      Outstanding at
                      December 31,
                      2008
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      Life
                    
                    Weighted
                      Average
                      Exercise Price
                    
                    
                    Number
                      Exercisable at
                      December 31,
                      2008
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price$
                    0.01
                    
                    
                    7,644,887
                    
                    0.77
      Years
                    
                    $
                    0.01
                    
                    
                    
                    4,644,887
                    
                    
                    $
                    0.010.20
                    
                    
                    12,950,485
                    
                    0.28
      Years
                    
                    
                    0.20
                    
                    
                    
                    12,950,485
                    
                    
                    
                    0.200.25
                    
                    
                    98,001
                    
                    0.00
      Years
                    
                    
                    0.25
                    
                    
                    
                    98,001
                    
                    
                    
                    0.250.33
                    
                    
                    30,000
                    
                    0.00
      Years
                    
                    
                    0.33
                    
                    
                    
                    30,000
                    
                    
                    
                    0.330.61
                    
                    
                    100,000
                    
                    0.00
      Years
                    
                    
                    0.61
                    
                    
                    
                    100,000
                    
                    
                    
                    0.6120,823,373
                    
                    
                    
                    
                    
                    
                    
                    
                    17,823,373





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


F-27


Employee Stock Options and
Warrants


The
Company accounts for employee stock options and warrants in accordance with FASB
Accounting Standards Codification No. 718 (“FASB ASC 718”), “Compensation –
Stock Compensation”, which requires the fair value of all stock-based employee
compensation awarded to employees to be recorded as an expense over the
related vesting period.  FASB ASC 718 also requires the recognition of
compensation expense for the fair value of any unvested stock option awards
outstanding at the date of adoption.  During 2006, all employee stock
compensation was recorded at fair value using the Black Scholes Pricing
Model.  In adopting FASB ASC 718, the modified prospective application
(“MPA”) was used.  MPA requires all new stock compensation to
employees to be accounted for using fair value.  For any portion of
awards made prior to January 1, 2006 for which the requisite service has not
been rendered and the options remain outstanding as of January 1, 2006,
compensation cost for that portion of the award the requisite service was
rendered on or after January 1, 2006 was recognized.  The fair value
for these awards was determined based on the grant-date.  As of
January 1, 2006, accrued compensation payable in common stock of $469,112
previously classified as a liability was reclassified as equity due to the
implementation ofFASB ASC 718.





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





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





On May
15, 2008 the Company’s Board of Directors adopted the Waytronx, Inc. 2008 Equity
Incentive Plan (the “Equity Incentive Plan”) and authorized 1,500,000 shares of
Common Stock to fund the Plan.  At the 2008 Annual Meeting of
Shareholders held on September 15, 2008, the Equity Incentive Plan was approved
by the Company shareholders.  At the 2009 Annual Meeting of
Shareholders held on September 29, 2009, the shareholders approved an amendment
to the 2008 Equity Incentive Plan to increase the number of common shares
issuable under the plan from 1,500,000 to 3,000,000.  All of these
shares have been registered under Form S-8.





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





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


F-28





At
December 31, 2009 there are no shares of common stock available under the 2005
Equity Incentive Stock Plan.  At December 31, 2009, there are
1,595,704 shares of common stock available under the 2008 Equity Incentive Stock
Plan.





During
the years ended 2009 and 2008, the Company recorded compensation expense of
$35,942 and $79,545, respectively, for stock options that the requisite service
was performed during the year.  The compensation expense is recorded
over the vesting period based upon fair market value of the options using the
Black Scholes option model in accordance with FASB ASC 718 as discussed in
section Employee Stock
Options and Warrants.





A summary
of the warrants and options issued to employees and directors as of December 31,
2009 and 2008 and changes during the year are presented below:





2009
                                    
                                    
                                    2008Number of
                                      Warrants
                                      and Options
                                    
                                    
                                    Weighted
                                      Average
                                      Exercise
                                      Price
                                    
                                    
                                    Number of
                                      Warrants
                                      and Options
                                    
                                    
                                    Weighted
                                      Average
                                      Exercise
                                      PriceBalance
      at beginning of period
                                    
                                    
                                    5,270,000
                                    
                                    
                                    
                                    0.13
                                    
                                    
                                    
                                    4,531,000
                                    
                                    
                                    $
                                    0.13Exercised
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    
                                    (116,000
                                    )
                                    
                                    $
                                    0.01Expired
                                    
                                    
                                    (1,900,000
                                    )
                                    
                                    $
                                    0.24
                                    
                                    
                                    
                                    (165,000
                                    )
                                    
                                    $
                                    0.73Forfeited
                                    
                                    
                                    (80,000
                                    )
                                    
                                    $
                                    0.19
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    -Granted
                                    
                                    
                                    4,373,273
                                    
                                    
                                    $
                                    0.24
                                    
                                    
                                    
                                    1,020,000
                                    
                                    
                                    $
                                    0.19Balance
      at end of period
                                    
                                    
                                    7,663,273
                                    
                                    
                                    $
                                    0.17
                                    
                                    
                                    
                                    5,270,000
                                    
                                    
                                    $
                                    0.13Exercised
                                    
                                    
                                    6,205,273
                                    
                                    
                                    $
                                    0.15
                                    
                                    
                                    
                                    5,270,000
                                    
                                    
                                    $
                                    0.13





As
      of December 31, 2009, there were 1,458,000 non-vested warrants and options
      issued to employees and directors.  There were no non-vested
      warrants and options issued to employees and directors as of December 31,
      2008 or 2007.





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





2009
                  
                  
                  2008Exercise
      price lower than the market price
                  
                  $
                  -
                  
                  
                  $
                  -Exercise
      price equaled the market price
                  
                  $
                  -
                  
                  
                  $
                  0.19Exercise
      price exceeded the market price
                  
                  $
                  0.19
                  
                  
                  $
                  0.19Exercise
      price exceeded the market price
                  
                  $
                  0.25
                  
                  
                  
                  N/A




The fair
value of warrants and options granted during 2009 was estimated on the dates of
the grants using the following assumptions: dividend yield of 0%, expected
volatilities of 99% - 135%, risk-free interest rates of 0.73% - 0.93%, and
expected lives of 2 years.





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


F-29


The
following tables summarize information about employee stock warrants and options
outstanding at December 31, 2009 and December 31,
2008:


Warrants and Options Outstanding December 31, 2009
                    
                    
                    Warrants and Options
                      Exercisable December 31,
                      2009Range of
                      Exercise
                      Price
                    
                    Number
                      Outstanding at
                      December 31,
                      2009
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      Life
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Number
                      Exercisable at
                      December 31,
                      2009
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price$
                    0.01
                    
                    
                    2,350,000
                    
                    0.05 Years
                    
                    $
                    0.01
                    
                    
                    
                    2,350,000
                    
                    
                    $
                    0.010.19
                    
                    
                    1,305,000
                    
                    1.96 Years
                    
                    
                    0.19
                    
                    
                    
                    1,305,000
                    
                    
                    
                    0.190.25
                    
                    
                    4,008,273
                    
                    6.17 Years
                    
                    
                    0.25
                    
                    
                    
                    2,550,273
                    
                    
                    
                    0.257,663,273
                    
                    8.18 Years
                    
                    $
                    0.17
                    
                    
                    
                    6,205,273
                    
                    
                    $
                    0.15





Warrants and Options Outstanding December 31, 2008
                    
                    
                    Warrants and Options
                      Exercisable December 31,
                      2008Range of
                      Exercise
                      Price
                    
                    Number
                      Outstanding at
                      December 31,
                      2008
                    
                    Weighted
                      Average
                      Remaining
                      Contractual
                      Life
                    
                    Weighted
                      Average
                      Exercise
                      Price
                    
                    
                    Number
                      Exercisable at
                      December 31,
                      2008
                    
                    
                    Weighted
                      Average
                      Exercise
                      Price$
                    0.01
                    
                    
                    2,350,000
                    
                    0.65 Years
                    
                    $
                    0.01
                    
                    
                    
                    2,350,000
                    
                    
                    $
                    0.010.19
                    
                    
                    1,020,000
                    
                    5.84 Years
                    
                    
                    0.19
                    
                    
                    
                    1,020,000
                    
                    
                    
                    0.190.20
      - 0.25
                    
                    
                    1,900,000
                    
                    0.06 Years
                    
                    
                    0.24
                    
                    
                    
                    1,900,000
                    
                    
                    
                    0.245,270,000
                    
                    6.55 Years
                    
                    $
                    0.13
                    
                    
                    
                    5,270,000
                    
                    
                    $
                    0.13




10.
            RELATED
      PARTY TRANSACTIONS


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





Effective
May 16, 2008, Waytronx acquired CUI, Inc.  The funding for this
acquisition was provided by a $6,000,000 bank note, a $14,000,000 seller’s note,
and a $17,500,000 convertible seller’s note.  Matthew McKenzie, COO
and Daniel Ford, CFO each were partial owners in CUI, Inc. prior to the
acquisition.  For further discussion related to the acquisition of
CUI, Inc. please see Note 3 above.  In May 2008, the Company obtained
a $6,000,000 bank note was utilized to acquire CUI, Inc. which was secured by
personal guarantees.  In exchange for the personal guarantees, the
company issued 6,000,000 warrants.  The warrants vest 50% at date of
issuance and 25% at the first anniversary and 25% at the second anniversary
date.  A former officer of the Company, Clifford Melby received
300,000 warrants (150,000 fully vested), John Rouse, a former director, received
300,000 warrants (150,000 fully vested), Colton Melby, Chairman of the Board of
Directors, received  400,000 warrants (200,000 fully vested), and
Thomas A. Price, a member of the Board of Directors received 700,000 warrants
(350,000 fully vested).


F-30





In May
2009, Waytronx and the holder of the $17,500,000 convertible promissory note,
IED, Inc., agreed to amend the convertible promissory note 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 a result, the Company recognized an extraordinary gain
on the extinguishment of this debt of $11,808,513 and a reduction in the related
discount of debt of $791,487.  As of December 31, 2009, there is a
discount on debt related to this note of $2,773,555 and the net long term
balance of this note is $2,126,445.





As an
integrated part of the CUI asset acquisition, the Waytronx, Inc. corporate
offices were relocated to the CUI location at 20050 SW 112th Avenue,
Tualatin, Oregon 97062.  CUI and Waytronx occupy the 61,380 square
feet of offices and warehouse premises under a ten year non-cancelable lease
agreement beginning September 1, 2006 with Barakel, LLC at a base monthly rent
subject to periodic base payment increases plus real property taxes, utilities,
insurance and common area maintenance charges.  During the period
January 1 through August 31, 2009, the monthly base rent was
$39,900.  For the period September 1 through December 31, 2009, the
monthly base rent was $40,000. During the fiscal year ending December 31,
2008, the monthly base rent was $39,900.  Barakel, LLC is controlled
by James McKenzie, majority owner of CUI, Inc. prior to acquisition and Matt
McKenzie, COO.





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





During
2009 and 2008, the Company recorded an investment loss of $41,424 and $1,620,
respectively, related to its 10.47% interest in Test Products International
(“TPI”).  During 2009 and 2008, the Company received principal and
interest payments totaling $15,000 and $20,000, respectively, on a note
receivable from TPI.  For further details regarding TPI, please see
Note 2 discussion Investment in
Affiliate.





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





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





During
2009, the Company paid $100,000 to an entity controlled by Colton Melby who is
Chairman of the Board of Directors in settlement of a note payable of $125,000
and recognized a gain on the extinguishment of $25,542 related to the remaining
principal and accrued interest.





During
2009, 416,667 shares of common stock were sold pursuant to a stock purchase
agreement with proceeds of $4,167 by an entity controlled by Colton Melby who is
Chairman of the Board of Directors.





11.
            INCOME
      (LOSS) PER COMMON SHARE


In
accordance with Statement of Financial Accounting Standards Codification 260,
“Earnings per Share”, basic net loss per share is computed by dividing the net
loss available to common stockholders for the period by the weighted average
number of common shares outstanding during the period.  Diluted net
loss per share is computed by dividing net loss available to common stockholders
by the weighted average number of common and common equivalent shares
outstanding during the period.  Common equivalent shares outstanding
as of December 31, 2009 and 2008, which consist of options, warrants,
convertible notes and convertible preferred stock, have been excluded from the
diluted net loss per common share calculations because they are
anti-dilutive.  Accordingly, diluted net loss per share is the same as
basic net loss per share for 2009 and 2008.  The following table
summarizes the potential common stock shares at December 31, 2009 and 2008,
which may dilute future earnings per share.


F-31




2009
                  
                  
                  2008Convertible
      preferred stock
                  
                  
                  252,715
                  
                  
                  
                  252,715Warrants
      and options
                  
                  
                  18,307,893
                  
                  
                  
                  23,093,373Convertible
      debt
                  
                  
                  76,200,000
                  
                  
                  
                  76,400,00094,760,608
                  
                  
                  
                  99,746,088




The
following table sets forth the computation of basic earnings per share for the
years ended December 31, 2009 and 2008:





2009
                    
                    
                    2008Net
      profit (loss) for the period attributable to Waytronx Inc.
                    
                    $
                    (4,198,701
                    )
                    
                    $
                    (1,830,367
                    )Weighted
      average number of shares outstanding
                    
                    
                    168,531,862
                    
                    
                    
                    161,888,206Weighted
      average number of common and commonequivalent
      shares
                    
                    
                    168,531,862
                    
                    
                    
                    161,888,206Basic
      earnings (loss) per share
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.01
                    )




The
following table sets forth the computation of diluted earnings per share for the
years ended December 31, 2009 and 2008:





2009
                            
                            
                            2008Net profit (loss) for the period attributable to Waytronx Inc.
                            
                            $
                            (4,198,701
                            )
                            
                            $
                            (1,830,367
                            )Add: Adjustment for interest and discountamortization on 4% convertible notes
                            
                            
                            —
                            
                            
                            
                            —12% convertible notes and discount amortization
                            
                            
                            —
                            
                            
                            
                            —Adjusted net profit (loss)
                            
                            $
                            (4,198,701
                            )
                            
                            $
                            (1,830,367
                            )Weighted average number of shares outstanding
                            
                            
                            168,531,862
                            
                            
                            
                            161,888,206Add: Weighted average shares assumed to be issuedupon conversion of 4% convertible notes as of
                            
                            
                            
                            
                            
                            
                            —the date of issuance
                            
                            
                            —
                            
                            
                            
                            —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 and commonequivalent shares
                            
                            
                            168,531,862
                            
                            
                            
                            161,888,206Diluted earnings (loss) per share
                            
                            $
                            (0.02
                            )
                            
                            $
                            (0.01
                            )





12.
            INCOME
      TAXES


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


F-32


An income
tax benefit has not been recognized for operating losses generated in prior
periods based on uncertainties concerning the ability to generate taxable income
in future periods.  At December 31, 2009, the Company had available
net operating loss carry-forwards of approximately $34,360,000.  These
operating loss carry-forwards expire in various years through the year ending
December 31, 2029; however, because the Company has incurred significant
operating losses, utilization of the tax loss carry-forwards are not
assured.  The decrease in the valuation allowance for the year ended
December 31, 2009 was approximately $186,000.  As a result, the
non-current deferred income tax asset arising from these net operating loss
carry-forwards and from other temporary differences are not recorded in the
accompanying balance sheets because a valuation allowance was established to
fully reserve such assets due to the uncertainty of the Company’s realization of
this benefit.





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





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





The
Company’s tax expense differs from the “expected” tax expense for the periods
ended December 31, 2009 and 2008, computed by applying the Federal Corporate tax
rate of 34% to loss before taxes, as follows:





2009
                    
                    
                    2008Computed
      “expected” tax benefit
                    
                    $
                    (1,431,000
                    )
                    
                    $
                    (622,000
                    )State
      tax benefit, net of federal effect
                    
                    
                    (184,000
                    )
                    
                    $
                    (80,000
                    )Change
      in valuation allowance
                    
                    
                    4,932,000
                    
                    
                    $
                    963,000Equity
      instruments for services
                    
                    
                    ( 3,317,000
                    )
                    
                    $
                    (261,000
                    )$
                    -
                    
                    
                    $
                    -





For the
periods ended December 31, 2009 and 2008, the tax effects of temporary
differences that gave rise to significant portions of deferred tax assets and
liabilities were as follows:





2009
                              
                              
                              2008Deferred
      tax liabilityIntangible
      assets
                              
                              $
                              4,102,000
                              
                              
                              $
                              -Deferred
      tax assets:Net
      operating loss carryforwards
                              
                              $
                              (13,180,000
                              )
                              
                              $
                              (
      13,190,000
                              )Warrants
      issued to employees
                              
                              
                              (609,000
                              )
                              
                              
                              (605,000
                              )Accrued
      expenses payable with common stock
                              
                              
                              —
                              
                              
                              
                              86,000Impairment
      of assets
                              
                              
                              —
                              
                              
                              
                              (241,000
                              )Other
                              
                              
                              90,000
                              
                              
                              
                              65,000Valuation
      allowance
                              
                              
                              13,699,000
                              
                              
                              
                              13,885,000Net
      deferred tax assets
                              
                              $
                              -
                              
                              
                              $
                              -





13.
            CONCENTRATIONS


During
2009, 31% of revenues were derived from one customer.


During
2008, 33% of revenues were derived from one customer.





The
Company’s major product lines in 2009 were external power, internal power,
electro-mechanical and DSP based digital to analog and analog to digital test
& measurement systems. The Company continues to work on the development of
the WayCool technologies.  The Company’s major product lines in 2008 were
external power, internal power, and electro-mechanical.


F-33





At
December 31, 2009, of the gross trade accounts receivable totaling $4,808,382,
14% was due from one customer.


At
December 31, 2008, of the gross trade accounts receivable totaling $2,897,416,
13% was due from one customer.





14.
            STOCK-BASED
      EMPLOYEE COMPENSATION


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





At the
2009 Annual Meeting of Shareholders held on September 29, 2009, the shareholders
approved an amendment to the 2008 Equity Incentive Plan to increase the number
of common shares issuable under the plan from 1,500,000 to
3,000,000.  All of these shares have been registered under Form
S-8.





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.





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.





The fair
value of each stock option is estimated on the date of grant using a Black
Scholes Pricing Model.  During the year ended December 31, 2009, the
Company granted 4,373,273 stock options to employees and directors with the
following assumptions; exercise price of $0.19 - $0.25, volatility of 99% -
135%, risk free interest rate of 0.73% - 0.93% and a term of 2
years.  During the year ended December 31, 2008, the Company granted
1,020,000 stock options to employees with the following assumptions; exercise
price of $0.19, volatility of 78% - 99%, risk free interest rate of 0.03% -
1.64% and a term of 0.25 - 2 years.


F-34





The
following information is presented for the stock option activity for the year
ended December 31, 2009:





# of Shares
                              
                              
                              Weighted
                                Average
                                Exercise
                                Price
                              
                              
                              Weighted
                                Average
                                Remaining
                                Contract
                                Life
                              
                              
                              Aggregate
                                Intrinsic
                                ValueOutstanding
      at December 31, 2007
                              
                              
                              4,531,000
                              
                              
                              $
                              0.13
                              
                              
                              
                              3.13
                              
                              
                              $
                              16,165Exercised
                              
                              
                              (116,000
                              )
                              
                              $
                              0.01Expired
                              
                              
                              (165,000
                              )
                              
                              $
                              0.73Forfeited
                              
                              
                              -
                              
                              
                              $
                              -Granted
                              
                              
                              1,020,000
                              
                              
                              $
                              0.19
                              
                              
                              
                              9.11Outstanding
      at December 31, 2008
                              
                              
                              5,270,000
                              
                              
                              $
                              0.13
                              
                              
                              
                              6.55
                              
                              
                              $
                              2,350Exercised
                              
                              
                              -
                              
                              
                              $
                              -Expired
                              
                              
                              (1,900,000
                              )
                              
                              $
                              0.24Forfeited
                              
                              
                              (80,000
                              )
                              
                              $
                              0.19Granted
                              
                              
                              4,373,273
                              
                              
                              $
                              0.24
                              
                              
                              
                              9.11Outstanding
      at December 31, 2009
                              
                              
                              7,663,273
                              
                              
                              $
                              0.17
                              
                              
                              
                              8.18
                              
                              
                              $
                              1,880Outstanding
      exercisable at December 31, 2009
                              
                              
                              6,205,273
                              
                              
                              $
                              0.15
                              
                              
                              
                              7.91
                              
                              
                              $
                              1,880




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




2009
                  
                  
                  2008Exercise
      price lower than the market price
                  
                  $
                  -
                  
                  
                  $
                  -Exercise
      price equaled the market price
                  
                  $
                  -
                  
                  
                  $
                  0.19Exercise
      price exceeded the market price
                  
                  $
                  0.19
                  
                  
                  $
                  0.19Exercise
      price exceeded the market price
                  
                  $
                  0.25
                  
                  
                  
                  N/A




15.
            DERIVATIVE
      LIABILITY


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





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


F-35




Freestanding
options, warrants and convertible notes





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





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





16.
            SUBSEQUENT
      EVENTS


Management
has reviewed for subsequent events through March 31, 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.





On
January 12, 2010, Comex Electronics secured short term loans with 82 Bank for
approximately $209,000 bearing annual interest at 2.975% and approximately
$26,000 bearing annual interest at 2.70%.





On
January 15, 2010, Key Bank National Association extended the $3,000,000 line of
credit to mature May 1, 2010.





On March
5, 2010, the Company entered into a consulting agreement with a firm that
specializes in the development of power supply technologies.  The
agreement provides the Company with exclusive rights to the consultants patent
portfolio associated with the power supply technology for which the agreement
was made.  The Consultant will receive fees for the research and
development of products as well as royalties on sales of the products
developed.





On March
10, 2010, Comex Electronics secured a short term loan with Seibu Bank for
approximately $110,000 bearing annual interest of 3.85%.


F-36