WI-TRON, INC. (WTRO) - Description of business

Company Description
Background Wi-Tron, Inc., a Delaware corporation ("we," "us," "our," the "Company") incorporated in Delaware on December 14, 1995 as the successor to Amplidyne, Inc., a New Jersey corporation ("Amplidyne-NJ"), which was incorporated in October 1988. Our executive offices are located at 59 LaGrange Street, Raritan, NJ 08869 and our telephone number is (908) 253-6870. O November 4, 2005, as part of our current restructuring and the development of a new product strategy, we changed our name to Wi-Tron, Inc. Our common stock trades on the OTC Bulletin Board under the symbol WTRO.OB.Amplifier Products We design, manufacture and sell ultra-linear power amplifiers and related subsystems to the worldwide wireless, local loop and satellite uplink telecommunications market. These power amplifiers, which are a key component in cellular base stations, increase the power of radio frequency ("RF") and microwave signals with low distortion, enabling the user to significantly increase the quality and quantity of calls processed by new and existing cellular base stations. Our wireless telecommunications products consist of solid-state, RF and microwave, single and multi-carrier power amplifiers that support a broad range of analog and digital transmission protocols including advanced mobile phone services ("AMPS"), code division multiple access ("CDMA"), time division multiple access ("TDMA"), total access communication systems ("TACS"), extended total access communication systems ("ETACS"), Nordic mobile telephone ("NMT"), global system for mobile communications ("GSM"), digital communication service at 1800 MHz ("DCS-1800") and wideband code division multiple access 3G communications ("W-CDMA"). The products are marketed to the cellular, wireless local loop and personal communication systems ("PCS") segments of the wireless telecommunications industry. We continue to develop products and have completed the development of a multi-carrier W-CDMA (Wide Band CDMA) 80-Watt amplifier with digital signal processing, which meets 3GPP standards. 3GPP refers to the 3rd Generation Partnership Project, a collaboration agreement between ETSI (Europe), ARIB/TTC (Japan), CCSA (China), ATIS (North America) and TTA (South Korea) that was established in December 1998 to develop mobile phone standards. In 2005 and presently, the Company has been engaged in restructuring its business. As a result, we have experienced a considerable downturn in overall business due to a decline in sales of our local loop products, which were being deployed at a much lower rate by our customer. We also maintained low levels of staffing throughout 2005, after significant staff cutbacks in the previous two years. Although, we were able to raise additional funds to restructure our business and fund development of our W-CDMA amplifier and digital signal processing techniques, these funds are not sufficient and as a result we have been operating under severe cash flow conditions for most of 2005. These conditions have considerably limited our sales and marketing efforts. We have several products covered by a patent issued by the United States Patent and Trademark Office for Pre-Distortion and Pre-Distortion Linearization which, the Company believes is effective in reducing distortion, in amplifiers. In addition to our product line of single channel power amplifiers, which are currently utilized by the wireless communications industry, we also develop, design and manufacture Multi-carrier Linear Power Amplifiers ("MCLPA"). MCLPA combine the performance capabilities of many single carrier amplifiers into one unit, eliminating the need for numerous single carrier amplifiers and the corresponding unnecessary space occupied by the cavity filters encasing the amplifiers. Management believes that with our (i) proprietary technology (which effectively reduces distortion), (ii) technological expertise and (iii) established product line consisting of ultra-linear single channel power amplifiers, we can achieve similar performance with MCLPA. Our linear power amplifiers and MCLPA utilize our patented pre distortion and proprietary feed-forward technology, which simultaneously amplifies many channels with minimal distortion. This capability has been enhanced by development of digital signal processing techniques.High Speed Wireless Internet Products In 1999, we made our entry into the emerging wireless Internet access market with new products in the ISM license exempt operating band (2.4 to 2.4835 GHz). The line of spread spectrum radio products has been expanded to provide complete solutions, with designs for indoor, outdoor and hybrid indoor/outdoor network coverage including point-to-point and point-to-multi-point configurations. In 2005, the Company decided to cease any further investment in this technology and products. However, we will continue to review the market place, especially the opportunities in the evolving Wi-Max technologies.Cellular Systems A cellular system consists of a number of cell sites that are networked to form a cellular system operator's geographic coverage area. Each cell site has a base station which houses the equipment that transmits and receives telephone calls between the cellular subscriber within the cell and the switching office of the local wireline telephone system. Such base station equipment includes an antenna and a series of transceivers, power amplifiers and cavity filters. Large cell sites, which generally cover a geographic area of up to five miles in radius, are commonly referred to as "macro cells." The ability of cellular system operators to increase system capacity through the use of micro cells is largely dependent on their ability to broadcast multiple signals with acceptable levels of interference and distortion. In cellular systems, the amplifier is generally the greatest source of signal interference and distortion, particularly with multi-carrier high power amplifiers. Consequently, obtaining amplifiers that can transmit and receive multiple signals with low distortion or interference from adjacent signals ("high spectral purity") is critical to a cellular system operator's ability to increase system capacity. Substantial resources and technical expertise are required to design and manufacture multi carrier power amplifiers with high spectral purity. To achieve high spectral purity, multi-carrier amplifier systems must have high interference cancellation properties. We believe that the potential opportunities for wireless communication services in countries without reliable or extensive wire line systems may be even greater than in countries with developed telecommunication systems.Strategy Utilizing our proprietary, patented technology and experience in interference cancellation, we are focused on developing amplifier products required by telecommunication operators. These amplifier products address the telecommunication operators' wide bandwidth requirements, while maintaining digital signal processing capabilities and higher efficiencies. We developed our W-CDMA 80-Watt amplifier with digital signal processing to meet these requirements, and will continue to develop high-efficiency amplifiers during 2006. We are also looking to broaden our product line by introducing filters, diplexers and repeaters by forming strategic alliances. In addition, we intend to enhance our analog pre distortion technology by introducing digital pre distortion correction techniques. The Company's business strategy focuses primarily on the wireless communication market and consists of the following elements: Increase Penetration of Wireless Equipment Manufacturers. Since 1991, we have positioned ourselves as a supplier of amplifier products to large wireless telecommunications OEMs. We seek to capitalize on our existing customer relationships and become a more significant source of our customers' amplifiers by working closely with OEM customers to offer innovative solutions to technical requirements and problems. During 2006, we intend to use our W-CDMA amplifier products as a major marketing and sales thrust both in the U.S. and Asian markets. Maintain a Technology Edge. We believe that, with our products have been addressing the needs of our customers for products that solve significant technical problems. We believe our interference cancellation technologies are among the most advanced that are commercially available in the industry, both in performance and diversity of methodology. We utilize proprietary and patented pre-distortion technology and proprietary feed-forward interference cancellation technology in our linear power amplifiers and MCLPAs to enable the user to significantly increase the quality and quantity of calls processed by new and existing cellular base stations. We intend to continue to maintain resources in research and development, and continue the development of digital signal processing, digital predistortion techniques, and high efficiency amplifiers. Develop Innovative Proprietary Products. To date, we have focused our efforts in the development of amplifier products which are highly innovative, and which are not the standard "commodity" type product. In addition, we believe that we have compiled an extensive design library in the solid-state, high power amplifier industry utilizing our proprietary and patented technology and expertise in interference cancellation. We have developed and intend to continue to develop products that combine basic components in unique and high performance configurations, to command higher prices in the wireless communications market. In addition, we have adapted this expertise for new commercial market applications and have developed products for W-CDMA 3G (third generation) communications. Provide Support from Product Design through Installation and Operation. We work with our customers throughout the design process to assist them in refining and developing their amplifier specifications. Once the specifications have been met and the product delivered, we continue to provide technical support to facilitate system integration, start-up and continued operation. By providing customer support services from the product design phase through installation and operation, management believes it fosters increased levels of customer loyalty and satisfaction. In addition, through this process, we believe we will develop new product definitions and implementations to further enhance our strategic position in the wireless market. Maintain Control of the Manufacturing Process. We have consistently analyzed in house automated manufacturing versus the use of subcontracted manufacturers in order to control our production schedule. In certain instances, we have made the strategic decision to select single or limited source suppliers in order to obtain lower pricing, receive more timely delivery and maintain quality control.The Wi-Tron Advantage We believe that our products have several features, which differentiate them from those of our competitors, such as: The Predistortion Solution. Utilizing its proprietary technology, we can obtain significant distortion reduction in our core amplifiers. This enables the pre-distorted amplifier to have feed-forward correction (which is described below, see "Technology") applied to it to achieve distortion cancellation. Distortion and Spurious Cancellation Resulting in Ultra Linear High Power Amplifiers. We believe the use of MCLPA is critical in the implementation of new cellular systems and the upgrade of older analog systems. Cellular systems need to cover large areas with minimum hardware in order to minimize cost per subscriber. Reduction of the distortion and spurious signals from the amplifiers is a key enabling technology. We have developed proprietary interference cancellation technology using multiple methods to achieve high suppression of spurious output and distortion typically associated with higher power amplifiers. Our single channel amplifiers have also been well received in the industry; however, we have experienced more competition in this area. We are seeking to position ourselves to be a viable source in this area. We constantly monitor these situations and will employ sources to explore such opportunities, as financing permits. By utilizing our proprietary and patented predistortion technology and our proprietary feed forward technology, the MCLPA amplification capacities of our amplifiers are, in management's belief, among the better products in the industry. Linearity, Low Distortion and High Amplification. Wireless service providers' ability to manage scarce spectrum resources more effectively and accommodate large numbers of subscribers is largely dependent on their ability to broadcast signals with high linearity, which pertains to the ability of a component to amplify a wave form without altering its characteristics in undesirable ways. Linear amplifiers allow signals to be amplified without introducing spurious emissions that might interfere with adjacent channels. Higher linearity increases the capacity of cellular systems by enabling a more efficient use of digital transmission technologies, micro-cellular architectures and adaptive channel allocation. In current cellular systems, the power amplifier is generally the source of the greatest amount of signal distortion. Consequently, obtaining power amplifiers with high linearity and low distortion is critical to wireless service providers' ability to improve spectrum efficiency. We have several products covered by a patent issued by the United States Patent and Trademark Office, which we believe, gives us a significant advantage over our competitors. Multicarrier Designs. Multicarrier amplification, in which all channels are amplified together by a MCLPA, rather than each channel using a separate amplifier, allows for instantaneous electronic channel allocation. Functionally, it combines many single channel power amplifiers, into a single unit, thereby eliminating the single channel power amplifiers and the corresponding tunable cavity filters. MCLPA require significantly higher linearity compared to single channel designs. Our high linearity products, incorporating pre-distortion and feed-forward technology, in management's belief, achieve among the lowest distortion in the industry. The MCLPA amplified signal remains within its prescribed band and spectrum with low interference of adjacent channels, thus providing flexibility to accommodate any frequency plan. Bi-Directional Tower Top Amplifier. One of the key components in the wireless Internet access system is the bi-directional tower top amplifier. We also have considerable experience in the design, development and deployment of fixed broadband amplifier products. The amplifier has to operate reliably in an outdoor application. Our expertise in this area is an advantage over competitors who are required to purchase their amplifiers from outside sources. We also have considerable know-how of other related products such as antennas, filters, power supplies and digital control circuits. We are therefore able to offer a turnkey solution to ISP's, providing indoor and outdoor networking support using our existing resources. We have a cost advantage because we manufacture our own amplifiers, which we can, if necessary, rapidly refine and change. We intend to refine our products as needed and in a timely fashion in order to obtain market share. High Quality, Reliability and Customer Support. We believe that the power amplifier in cell sites historically has been the single most common point of equipment failure in wireless telecommunications networks. Increasingly reliable power amplifiers, therefore, will improve the level of service offered by wireless service providers, while reducing their operating costs. In addition, MCLPA eliminate the need for high-maintenance; tunable cavity filters that should further reduce costs. We work closely with our customers throughout the design process in refining and developing their amplifier specifications. We use the latest equipment and computer aided design and modeling, solid-state device physics, advanced digital signal processing, and digital control systems, in developing our products. The integration of our design and production is a factor in our ability to provide our customers with high reliability, low distortion and low maintenance amplifiers.Technology Wireless Transmit Technology. A typical wireless communications system comprises a geographic region containing a number of cells, each with a base station, which are networked to form a service provider's coverage area. Each base station or cell site houses the equipment that transmits and receives telephone calls to and from the cellular subscriber within the cell and the switching office of the local wire line telephone system. Such equipment includes a series of transceivers, power amplifiers, tunable cavity filters and an antenna. In a single channel system, each channel requires a separate transceiver, power amplifier and tunable cavity filter. The power amplifier within the base station receives a relatively weak signal from the transceiver and significantly boosts the power of the outgoing wireless signal so that it can be broadcast throughout the cell. The radio power levels necessary to transmit the signal over the required range must be achieved without distorting the modulation characteristics of the signal. The signal must also be amplified with linearity in order to remain in the assigned channel with low distortion or interference with adjacent channels. Because cellular operators are allocated a small RF spectrum and certain channels, it is necessary to make efficient use of the spectrum to enable optimum system capacity. By amplifying all channels with minimum distortion at the same time, rather than inefficient use of single channel amplification, one obtains better system capacity. A MCLPA combines the performance capabilities of many single carrier amplifiers into one unit, eliminating the need for numerous single carrier amplifiers and their corresponding tunable cavity filters. These MCLPA require less space than multiple single channel amplifiers and their corresponding tunable cavity filters, which reduce the size and cost of a base station. MCLPA create distortion products, which can cause adjacent channel interference. The minimization of these distortion products requires sophisticated technology. This is accomplished through interference cancellation techniques such as "pre distortion" and "feed forward" accompanied by highly advanced control and processing technology. We have developed certain proprietary technology and methods to achieve minimal distortion in our amplifiers, technically called pre distortion and feed- forward correction. We use three distinct technologies (1) linear class A and AB amplifiers, (2) pre distorted class A and AB amplifiers and (3) pre distortion feed-forward amplifiers. Our proprietary leading edge products contain patented pre distortion and proprietary feed-forward technology combined in a proprietary automatic correction technique. All amplifiers create distortion when they are run at a high power level. In an ideal case the output of the amplifier would faithfully reproduce the input signal without any distortion. In real life, however, distortion characteristics are produced. These distortion products can cause interference with another caller's channel, which in turn produces poor call quality. By using a simple, patented technology, we recreate the distortion for the amplifier in such a manner to cancel the interference signals. Feed-forward cancellation involves taking the distortion created by the amplifier and processing it in such a way that when it is added back into the amplifier having been pre-distorted and combined with the feed forward technology, distortion cancellation occurs. We believe that our patented technology has the most unique and potent technology for distortion cancellation. Furthermore, we have selected linear class AB technology for our base amplifier which we believe also has superior distortion characteristics compared to other competitors because it is easier to pre-distort. Thus the three key ingredients (1) linear class A and AB amplifiers, (2) pre distortion technology and (c) feed-forward technology enable us to produce MCLPA for our major OEM customers. Our wireless Internet access products consist of point-to-point and point to multipoint indoor and outdoor units that can be configured to provide broad coverage over a city or region or to create coverage in an indoor space with free roaming access. At the remote site an indoor or outdoor LAN system can be connected using a single channel CPE or Access Point, with various antennae combinations. Amplifiers are used for range extension purposes.Markets The market for wireless communications services has grown substantially during the past decade as cellular wireless local loop, 3G and other new and emerging applications (such as W-CDMA) have become increasingly accessible and affordable to growing numbers of consumers. Cellular Market. The market for cellular communications still accounts for a fairly large portion of the wireless services. The general downturn in this segment decreased demand for amplifier products during 2004 and 2005. Wireless Local Loop. Wireless local loop systems are increasingly being adopted in developing markets to more quickly implement telephone and Data communication services. In certain developing countries, wireless local loop systems provide an attractive alternative to copper and fiber optic cable based systems, with the potential to be implemented more quickly and at lower cost than wire line telephone systems. The Company designs, manufactures and markets MCLPA and single channel amplifiers for infrastructure equipment systems in the wireless local loop market in the 2 and 3.5 GHz bands. Custom Communications and Other Markets. The custom communications market consists of small niche segments within the larger communications market:long-haul radio communications, land mobile communications, surveillance communications, ground-to-air communications, microwave communications, broadband communications and telemetry tracking. The Company sells custom amplifiers and related products to these segments.Products We design and sell multi-carrier transmit amplifiers and low noise receive amplifiers for the cellular communications market, as well as the PCS and wireless local loop segments of the wireless communications industry. We also provide a large number of catalog and custom amplifiers to OEMs and to other customers in the communications market in general. In addition, we also sell a complete line of fixed broadband wireless networking and LAN products for private networks, virtual private networks and Internet access. Multicarrier Linear Power Amplifiers (MCLPA). When a cellular or PCS user places a call, the call is processed through a base station, amplified, and then transmitted on to the person receiving the call. Therefore, all base stations require amplifiers (MCLPA) whether they are being used for cellular, PCS or 3G (third generation) local loop applications. We design and manufacture these amplifiers. The objective is to provide a quality product at a good price and to have exemplary reliability. Management believes that our products with patented pre-distortion technology, core linear amplifier technology, and proprietary feed-forward technology, achieve all of the objectives mentioned above. Our MCLPA are a unique line of ultra linear devices, which utilize a proprietary pre-distortion and phase locked feed forward architecture. High Power Linear Amplifiers. Our product line of linear amplifiers have a high third-order intercept point, which translates to better call quality. These high power amplifiers are supplied as modules or plug in enclosures. The communication bands available are NMT-450, AMPS, TACS, ETACS, 3G and PCS. The output power ranges from 1 to 200 Watts. These amplifiers can be used in instances where service providers only need a single transmit channel. W-CDMA Amplifier Development. In 2005, we completed the development of a wide band 80W MCLPA with Digital Signal Processing technology. Local Loop and Mini Cell Amplifiers. Local loop and mini cell amplifiers are designed with a proprietary circuit to achieve a high IMD specification, which translates to better call quality through the mini cell. These amplifiers can be ordered as modules or in a rack configuration. Low Noise Amplifier, Cellular, PCN, PCS, GSM. Our low noise amplifiers are manufactured with a mix of silicon and GaAsFET devices. These amplifiers offer the user the lowest noise and the highest intercept point, while maintaining good efficiency. Received calls at a base station are low in level due to the fact that hand held cellular phones typically operate at half a watt power level. This weak signal has to be amplified clearly which is done by using our low noise amplifier. All amplifiers undergo a 72-hour burn-in period to ensure reliable filed operation. Communication Amplifiers. These amplifiers are designed for cellular and PCN/PCS applications and use GaAs or Silicon Bipolar FET devices. The transmit amplifiers are optimized for low distortion products. Custom configurations are available for all communication amplifiers. This line of products is aimed at the single channel base station users employing the digital cellular standards (CDMA, 3G and TDMA). Our wireless telecommunications amplifiers can be configured as modules separate plug-in amplifier units or integrated subsystems. Our products are integrated into systems by OEM customers, and therefore must be engineered to be compatible with industry standards and with certain customer specifications, such as frequency, power, linearity and built-in test (BIT) for automatic fault diagnostics.Product Warranty We warranty new products against defects in materials and workmanship generally for a period of one (1) year from the date of shipment. To date, we have not experienced a material amount of warranty claims.Backlog/Future Orders We regularly review our backlog (which includes projected future orders from customers) that we expect to ship over the next 12 months. We have had to change schedules and delay orders depending on customer needs. Customer schedules or requirements may frequently change and in some cases result in cancellation of orders, in response to which the Company has to change its production schedule. Changes and cancellations exist since, among other matters, the wireless communications industry is characterized by rapid technological change, new product development, product obsolescence and evolving industry standards. In addition, the decline in the telecommunications industry resulted in low activity during most of 2004 and 2005. This uncertainty may lead to postponement or cancellation of future or current orders. In addition, as technology changes, corporations are frequently requested to update and provide new prototypes in accordance with new specifications if products become obsolete or inferior. Therefore, we have been focusing on strategic partnerships to provide better quality solutions to our partners with higher margin sales opportunities. The Company has backlog of orders worth approximately $1.5m and expects to ship these products during the second half of 2006. In the present state of the telecommunications industry there is a reluctance of companies to commit to large blanket orders. We expect to see this trend, of just in time orders, to continue during 2006. The Company would like to stress, although useful for scheduling production, backlog as of any particular date may not be a reliable indicator of sales for any future period.Customers, Sales & Marketing Customers. The Company markets its products worldwide generally to wireless communications manufacturers (OEMs) and communications system operators. The table below indicates net revenues derived from customers in the Company's markets in 2005 and 2004. Net Revenues By Market Categories (In thousands) Year Ended December 31, -------------------- 2005 2004 ---- ---- Amplifier Markets ----------------- Wireless Telephony . . . . . . . . . . . . . . . . . . . . . . . 471 $656 Satellite Communications, Custom and other Products . . . . . . . Ampwave Market -------------- Wireless Internet Products. And Broadband solutions . . . . . . . 0 88 ---- ---- Total . . . . . . . . . . . . . . . . . . . . . . . . . $471 $744 ==== ==== * Wireless Telephony. Sales to the wireless telephone segments of the wireless communications industry decreased from approximately $656,000 in 2004 to $472,000 in 2005.* Wireless Internet and Broadband solutions. The Company decided not to pursue this business in 2005* International Sales. Sales of wireless products outside the United States accounted for almost all the sales in 2005* Sales and Marketing. The Company's officers and sales and marketing consultants maintain significant contact with potential prospects and key customers, ensuring close technical liaison with customer engineers and purchasing managers.CompetitionAmplifier Products Our ability to compete successfully and operate profitably depends in part upon the rate of which OEM customers incorporate our products into their systems. We believe that a substantial majority of the present worldwide production of power amplifiers is captive within the manufacturing operations of a small number of wireless telecommunications OEMs and offered for sale as part of their wireless telecommunications systems. Our future success is dependent upon the extent to which these OEMs elect to purchase from outside sources rather than manufacture their own amplification products. There can be no assurance that OEM customers will incorporate our products into their systems or that in general OEM customers will continue to rely, or expand their reliance, on external sources of supply for their power amplification products. Since each OEM product involves a separate proposal by the amplifier supplier, there can be no assurance that our current OEM customers will not rely upon internal production capabilities or a non-captive competitor for future amplifier product needs. Our OEM customers continuously evaluate whether to manufacture their own amplification products or purchase them from outside sources. These OEM customers are large manufacturers of wireless telecommunications equipment who could elect to enter the non-captive market and compete directly with us. Such increased competition could materially adversely affect our business, financial condition and results of operations. Certain of our competitors have substantially greater technical, financial, sales and marketing, distribution and other resources, and have greater name recognition and market acceptance of their products and technologies. In addition, certain of these competitors are already established in the wireless amplification market, but we believe we can compete with them effectively. No assurance can be given that our competitors will not develop new technologies or enhancements to existing products or introduce new products that will offer superior price or performance features. To the extent that OEMs increase their reliance on external sources for their power amplification needs more competitors could be attracted to the market. We expect our competitors to offer new and existing products at prices necessary to gain or retain market share. We expect to experience significant price competition, which could have a materially adverse effect on gross margins. Certain of our competitors have substantial financial resources, which may enable them to withstand sustained price competition or downturns in the power amplification market. Currently, we compete primarily with non-captive suppliers of power amplification products. We believe that our competition, and ultimately our success, will be based primarily upon service, pricing, reputation and the ability to meet the delivery schedules of our customers. During 2005, we operated under severe cash flow circumstances, which restricted our sales and marketing efforts.Manufacturing We assemble, test, package, and ship products at our manufacturing facilities located in Raritan, New Jersey. This facility includes a separate assembly and test facility for various custom products. Our manufacturing process consists of purchasing components, assembling and testing components and subassemblies, integrating the subassemblies into a final product and testing the product. Our amplifiers consist of a variety of subassemblies and components which we designed or specified, including housings, harnesses, cables, packaged RF power transistors, integrated circuits and printed circuit boards. Most of these components are manufactured by others and are shipped to us for final assembly. Each of our products receives extensive in process and final quality inspections and tests. Our devices, components and other electrical and mechanical subcomponents are generally purchased from multiple suppliers. We do not have any written agreement with any of our suppliers. We have followed a general policy of multiple sourcing for most of our suppliers in order to assure a continuous flow of such supplies. However, we purchase certain transistors produced by a single manufacturer because of the high quality of its components. We believe it is unlikely that such transistors would become unavailable, however, if that were to occur, there are multiple manufacturers of generally comparable transistors. We believe that the distributors of such transistors maintain adequate inventory levels, which would mitigate any adverse effect on our production in the event unavailability or shortage of such transistors. If for any reason, we could not obtain comparable replacement transistors or could not return its products to operate with the replacement transistors, our business, financial condition and results of operations could be adversely affected. We currently utilize discrete circuit technology on printed circuit boards that we design and are provided by suppliers to our specifications. All transistors and other semiconductor devices are purchased in sealed packages ready for assembly and testing. Others also manufacture other components such as resistors, capacitors, connectors or mechanical supported subassemblies. Components are ordered from suppliers under master purchase orders with deliveries timed to meet our production schedules. As a result, we maintain a low inventory of components, which could result in delay in production in the event of delays in such deliveries. We purchased automated surface mount machinery to enhance our manufacturing ability for amplifiers as well as wireless internet products, which was installed during the first quarter of 2000. The equipment has provided improved efficiency in production and faster turn around for certain products. We have started to manufacture some of the products for our high speed wireless internet products. We manufacture some of our high speed wireless internet products and amplifiers in our New Jersey facility and the rest in offshore facilities, which are ISO 9001 certified.Research, Engineering and Development We research, engineering and development efforts are focused on the design of amplifiers for new protocols, the improvement of existing product performance, cost reductions and improvements in the manufacturability of existing products. We have historically devoted a significant portion of its resources to research, engineering and development programs. Our research, engineering and development expenses in fiscal 2005 and 2004 were approximately $552,000 and $256,000, respectively, and represented approximately 117% and 34% respectively, of net revenues. These efforts were primarily dedicated to the development of the linear feed forward, high power, low distortion amplifiers, resulting in our models for 3G W-CDMA. During most of 2005, we spent substantial sums to develop our 3G 80W W-CDMA amplifier, of which we have produced four pre-production units that are available for evaluation or sale to customers. We use the latest equipment and computer aided design and modeling, solid-state device physics, advanced digital signal processing and digital control systems, in the development of our products in the specialized engineering and research departments. We use a CAD environment employing networked workstations to model and test new circuits. This design environment, together with our experience in interference cancellation technology and modular product architecture, allows us to rapidly define, develop and deliver new and enhanced products and subsystems sought by our customers. The markets in which the Company and OEM customers compete are characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services.Patents, Proprietary Technology and Other Intellectual Property Our ability to compete successfully and achieve future revenue growth will depend, in part, on our ability to protect proprietary technology and operate without infringing the rights of others. We have a policy of seeking patents, when appropriate, on inventions resulting from its ongoing research and development and manufacturing activities. Presently, we have been granted a patent (No. 5,606,286) by the United States Patent and Trademark Office with respect to its Pre-Distortion and Pre-Distortion Linearization technology which, we believe, is more effective in reducing distortion then other currently available technology. There can be no assurance that our patent will not be challenged or circumvented by competitors. Notwithstanding our active pursuit of patent protection, we believe that the success of our amplifier business depends more on its specifications, CAE/CAD design and modeling tools, technical processes and employee expertise than on patent protection. We generally enter into confidentiality and non-disclosure agreements with its employees and limits access to and distribution of its proprietary technology. We may in the future be notified that it is infringing certain patent and/or other intellectual property rights of others. Although there are no such pending lawsuits against us or unresolved notices that we are infringing intellectual property rights of others, there can be no assurance that litigation or infringement claims will not occur in the future. Our wireless internet access products are marketed under the trademark Ampwave(TM) .Governmental Regulations Our customers must obtain regulatory approval to operate their base stations. The United States Federal Communications Commission ("FCC") has regulations that impose more stringent RF and microwave emissions standards on the telecommunications industry. There can be no assurance that our customers will comply with such regulations, which could materially adversely affect our business, financial condition and results of operations. We manufacture our products according to specifications provided by our customers, which specifications are given to comply with applicable regulations. We do not believe that costs involved with manufacturing to meet specifications will have a material impact on its operations. There can be no assurances that the adoption of future regulations would not have a material adverse affect on us.Employees As of March 31, 2006, we had a total of 14 employees: 7 in operations, 3 in engineering, 3 in administration, and 1 in international sales. We employ one consultant in sales and marketing. We believe our future performance will depend in large part on our ability to retain highly skilled employees. None of our employees are represented by a labor union and we have not experienced any work stoppages. We consider our employee relations to be good.Environmental Regulations We are subject to Federal, state and local governmental regulations relating to the storage, discharge, handling, emissions, generation, manufacture and disposal of toxic or other hazardous substances used to manufacture our products. We believe that we are currently in compliance in all material respects with such regulations. Failure to comply with current or future regulations could result in the imposition of substantial fines, suspension of production, alteration of its manufacturing process, cessation of operations or other actions which could materially and adversely affect our business, financial condition and results of operations. In addition to other information in this Annual Report, the following important factors should be carefully considered in evaluating us and our business, because such factors currently have a significant impact on the Company's business, prospects, financial condition and results of operations. RISK FACTORS You should carefully consider the risks described below before investing in our company. The risks and uncertainties described below are not the only ones facing our company. Other risks and uncertainties that we have not predicted or assessed may also adversely affect our company. Some of the information in this Annual Report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe,' "intend," "estimate," and "continue" or other similar words. You should read statements that contain these words carefully for the following reasons: o the statements may discuss our future expectations; o the statements may contain projections of our future earnings or of our financial condition; and o the statements may state other "forward-looking" information. We believe it is important to communicate our expectations to our investors. There may be events in the future, however, that we are not accurately able to predict or over which we have no control. The risk factors listed below, as well as any cautionary language in or incorporated by reference into this Annual Report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our company, you should be aware that the occurrence of any of the events described in the risk factors below, elsewhere in or incorporated by reference into this Annual Report and other events that we have not predicted or assessed could have a material adverse effect on our earnings, financial condition or business. In such case, the trading price of our securities could decline and you may lose all or part of your investment.We have a recent history of losses and expect losses to continue.We have incurred net losses of $1,318,735 and $768,878 for the years ended December 31, 2005 and 2004, respectively. These losses were due primarily to substantially reduced sales, against which our cost-cutting efforts have yielded minimal results. We are expecting increased sales for amplifier products to compensate for the expenses, however we have reduced staff levels, therefore there is no guarantee that this will happen. Reduced demand for our products by our key customer has reduced our sales significantly. With our reduced staff levels, we may not be able to compete. Further, we have not generated sufficient sales volume to cover our overhead costs and generate profits. We have minimized losses by staff reduction; this could result in loss of market share from which we may not be able to recover. We expect that our losses will increase and will continue until such time, if ever, as we are able to successfully manufacture and market our products on a larger scale and therefore generate higher profit margins. We will need to generate a substantial increase in revenues to become profitable. Accordingly, we cannot assure you that we will ever become or remain profitable. In addition, we had an accumulated deficit of $24,947,724 as of December 31, 2005.We have limited cash available, and may not have sufficient cash to continue our business operations without the additional financing.To date, we have financed our operations principally through the private placement of shares of common stock. Our current burn rate is approximately $110,000 per month, and we will require substantial additional financing at various intervals for manufacturing, marketing and sales capabilities, our research and development programs, and for operating expenses including intellectual property protection and enforcement. We may seek additional funding from public or private financings, but there is no assurance that such additional funding will be available on terms acceptable to us, or at all. Accordingly, we may not be able to secure the significant funding which is required to maintain and continue development programs at their current levels or at levels that may be required in the future. If we cannot secure adequate financing, we may be required to delay, scale back or eliminate one or more of its development programs or to enter into license or other arrangements with third parties to commercialize products or technologies. Our auditors have included an "uncertainty paragraph" in their audit report on our financial statements regarding our ability to continue as a going concern.The report from our independent auditors includes an explanatory paragraph regarding the doubt that we can continue as a going concern.The auditors' report on our financial statements for the year ended December 31, 2005 includes an explanatory paragraph stating that our losses, lack of cash and otherwise limited financial resources raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is subject to our ability to realize a profit and/or obtain funding from outside sources. Our plan to address our ability to continue as a going concern, include: (1) obtaining additional funding from the sale of securities; (2) increasing revenues from the sales of our products; and (3) obtaining loans and grants from various financial and/or governmental institutions, where possible. Although we believe that we will be able to obtain the necessary funding to allow us to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful.We will continue to incur losses and may never achieve profitability.We will continue to incur losses as we engage in the development of our products. There can be no assurance that we will ever be able to achieve or sustain market acceptance, profitability or positive cash flow. Our ultimate success will depend on many factors, including whether our amplifier products will be successfully marketed and accepted by the marketplace. Even with additional capital, we may not be able to execute our current business plan and fund business operations long enough to achieve positive cash flow. Furthermore, we may be forced to reduce our expenses and cash expenditures to a material extent, which would impair our ability to execute our business plan.Our success relies upon the growth of wireless telecommunications services.The demand for our products will depend in large part upon continued and growing demand within the wireless telecommunications industry for power amplifiers. During 2005 and 2004, a major downturn occurred in the telecommunications market and recovery has been slow, therefore the demand for our products will remain subject to great uncertainty from quarter to quarter.Our lack of automated manufacturing processes and our dependence on third party manufacturers could adversely affect our business.We have consistently reviewed our automated manufacturing needs in order to control our production schedule. To date, we have not established a fully automated manufacturing facility although we have purchased an automated surface mount machine and reflow process oven. Our wireless internet products are manufactured at offshore facilities, which are our sole suppliers. Until such time as we are able to establish such facilities, we expect to be dependent on third party manufacturers. We cannot be sure that these third party manufacturers will be able to fulfill our production commitment. Furthermore, we do not have written agreements with these manufacturers. Our inability to obtain timely deliveries of acceptable assemblies could delay our ability to deliver products to our customers, and would have a material adverse effect on our business, financial condition and results of operations. In addition, if these manufacturers increase their production costs, we may not be able to recover such cost increases under the fixed price commitments with our customers.Our limited number of suppliers could adversely affect our business.Power transistors and certain other key components used in our products for our amplifiers, as well as our wireless internet business are currently available from only a limited number of suppliers. Certain of our suppliers have limited operating histories and limited financial and other resources. Our suppliers may prove to be unreliable sources of certain components. Furthermore, we have no written agreements with our suppliers. In the past, we have not purchased key components in large volumes but anticipate that our need for component parts will increase. If we are unable to obtain sufficient quantities of components, particularly power transistors, we could experience delays or reductions in product shipments. Such delays or reductions could have a material adverse effect on our business, financial condition and results of operations. Additionally, such delays or reductions may have a material adverse effect on our relationships with customers and result in the termination of existing orders and/or a permanent loss in our future sales. Our wireless internet products are manufactured at offshore facilities. The lack of supply from this source due to any reason could adversely impact our business.Our success will rely on our ability to enter into strategic partnerships.We are currently developing and expect to continue to develop strategic partnerships and other relationships in order to expand our business. The failure to successfully develop such relationships could have a material adverse effect on our business, financial condition and result of operations.Our success relies on a small number of customers and our sales orders have had a high degree of delays and cancelled orders.In 2005, one customer accounted for 95% of our sales and 100% of our accounts receivable. In the past few years we have experienced reductions, delays and cancellations in orders from our new and existing customers and we have lost important North American customers. We anticipate that sales of our products to relatively few customers will account for a majority of our 2006 revenues. The reduction, delay or cancellation of orders from one or more of our significant customers would materially and adversely affect our financial condition and results of operation. Moreover, we may experience significant fluctuations in net sales, gross margins and operating results in the future as a result of the uncertainty of such sales.Our limited marketing experience may adversely affect our business.We are not sure whether our marketing efforts will be successful or that we will be able to maintain competitive sales and distribution capabilities. In addition, we have limited experience in the marketing and sales of our wireless internet products, and cannot be certain that this sector will grow in revenue as expected, particularly with our reduced staff levels.Our management owns a significant amount of our outstanding common stock.Our officers, directors and persons who may be deemed our affiliates beneficially own, in the aggregate, and have the right to vote approximately 42% of our issued and outstanding common stock, not including common stock options they may own. In 2005, control shifted to John Chase Lee, our president and CEO, who loaned us $650,000 in connection with a Note Purchase Agreement. In settlement of these loans, Mr. Lee was issued 130,000 shares of our Series C Convertible Preferred Stock, which is convertible at any time into 13,000,000 shares of common stock. As a result, Mr. Lee holds approximately 33% of our outstanding voting stock on a fully diluted basis. Accordingly, Mr. Lee and other affiliates may be in a position to affect the election of all of our directors and control the company.Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly.It may be costly, difficult, and time consuming for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications required by the Sarbanes-Oxley Act.Our success depends on our ability to manage the size of our operations.We downsized some of our operations in order to maintain competitiveness and reduce our operating losses. We have also explored joint ventures and mergers in order to achieve these results, but have not consummated any such transaction. If we do not increase our sales, decrease overhead expenditure or do not adequately manage the size of our operations, our results of operations will be materially adversely affected.Declining average sales prices could adversely affect our business.If wireless internet and telecommunications customers come under increasing price pressure from service providers, we could expect to experience downward pricing pressure on our products. In addition, competition among non-captive amplifier suppliers could increase the downward pricing pressure on our amplifier products. To date, we have not experienced such pressure. As our customers frequently negotiate supply arrangements with us far in advance of product delivery dates, we often must commit to price reductions before we can determine whether cost reductions can be obtained. If we are unable to achieve cost reductions, our gross margins will decline and our business, financial condition and results of operations could be materially and adversely affected.Rapid technological change and intense competition could adversely affect our business.The wireless internet and telecommunications equipment industry is extremely competitive and is characterized by rapid technological change, new product development, product obsolescence and evolving industry standards. In addition, price competition in this market is intense and characterized by significant price erosion over the life of a product. Currently, we compete primarily with non-captive suppliers of power amplification products. We believe that our success will be based primarily upon service, pricing, reputation, and our ability to meet product delivery schedules. Our existing and potential customers continuously evaluate whether to manufacture their own amplification products or to purchase such products from outside sources. These customers and other large manufacturers of wireless telecommunications equipment could elect to enter the market and compete directly with us. Many of our competitors have significantly greater financial, technical, manufacturing, sales and marketing capabilities and research and development personnel and other resources than us and have achieved greater name recognition of their existing products and technologies. In order for us to successfully compete, we must continue to develop new products, keep pace with advancing technologies and competitive innovations and successfully market our products. Our inability to successfully compete against our larger competitors will have a materially adverse affect on our business, financial condition and operations.In addition, we are not sure whether new products or alternative technology will render our current or planned products obsolete or inferior. Rapid technological development by others may result in our products becoming obsolete before we recover a significant portion of the research, development and commercialization expenses we incurred with respect to those products.Our business will be adversely affected if we do not keep up with the rapid technological change, evolving industry standards and changing user requirements.To be successful, we must adapt to our rapidly changing market by continually enhancing the technologies used for communications. If we are unable, for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or user requirements, our business could be materially adversely affected. Significant issues concerning the commercial use of communication technologies, including security, reliability, cost, ease of use and quality of service, remain unresolved and may inhibit the growth of businesses relying on the Internet. Our future success will depend, in part, on our ability to meet these challenges. Among the most important challenges facing us is the need to: o effectively use established technologies; o continue to develop our technical expertise; and o respond to emerging industry standards and other technical changes.All of these changes must be met in a timely and cost-effective manner. We cannot assure you that we will succeed in effectively meeting these challenges and our failure to do so could materially and adversely affect our business.Risks associated with sales outside of the United States may adversely affect our business.International sales represented close to 100% of our net revenues for the years ended December 31, 2005 and 2004. We expect that international sales will continue to account for a significant portion of our net revenues in the future. To the extent that we do not achieve and maintain substantial international sales, our business, results of operations and financial condition could be materially and adversely affected.Sales of our products outside of the United States are denominated in U.S. dollars. An increase in the value of the U.S. dollar relative to foreign currencies would make our products more expensive and, therefore, potentially less competitive outside the United States. Additional risks inherent in our sales abroad include: o the impact of recessionary environments in economies outside the United States; o generally longer receivables collection periods; o unexpected changes in regulatory requirements; o tariffs and other trade barriers; o potentially adverse tax consequences; o reduced protection for intellectual property rights in some countries; o the burdens of complying with a wide variety of foreign laws. These factors may have an adverse effect on our future international sales and, consequently, on our business, financial condition and results of operations.O