UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-30620
UNITY WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-1940650
(State or other jurisdiction of (I.R.S. Employer Identification Number
incorporation or organization
7438 FRASER PARK DRIVE, BURNABY, BRITISH COLUMBIA, CANADA, V5J 5B9
(Address of principal executive offices)
(800) 337-6642
(Issuer's Telephone Number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Number of shares of common stock outstanding at August 14, 2003: 45,388,509
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
-2-
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
45,388,509 common shares outstanding as at August 14, 2003
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
-3-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Financial Statements
(Expressed in United States dollars)
UNITY WIRELESS CORPORATION
(Prepared in accordance with
United States generally accepted accounting principles)
Three and six months ended June 30, 2003 and 2002
(unaudited) Year ended December 31, 2002
UNITY WIRELESS CORPORATION
Consolidated Balance Sheets
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting principles)
-------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,955 $ 335,818
Restricted cash (note 4) 96,734 88,160
Accounts receivable (less allowance for doubtful accounts of $11,166
(December 31, 2002 - $33,059)) 546,207 231,505
Government grant receivable - 29,197
Inventory (note 3) 774,003 461,385
Prepaid expenses and deposits 53,500 39,040
-------------------------------------------------------------------------------------------------------------------
1,474,399 1,185,105
Deferred financing cost - 38,994
Equipment, net 184,702 211,700
Patents 5,672 8,507
Goodwill 741,596 741,596
-------------------------------------------------------------------------------------------------------------------
$ 2,406,369 $ 2,185,902
-------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness (note 4) $ 225,377 $ 101,411
Accounts payable and accrued liabilities (note 5) 1,411,539 1,244,377
Loans payable (note 6) 138,347 202,514
Product warranty (note 10(c)) 36,975 31,720
-------------------------------------------------------------------------------------------------------------------
1,812,238 1,580,022
Convertible debenture 204,444 137,247
-------------------------------------------------------------------------------------------------------------------
2,016,682 1,717,269
Stockholders' equity:
Common stock, $0.001 par value 100,000,000 authorized,
37,172,405 (December 31, 2002 - 35,016,894) issued and outstanding 37,172 35,017
Additional paid-in capital 15,939,809 15,811,919
Accumulated deficit (15,710,914) (15,495,130)
Accumulated other comprehensive income:
Cumulative translation adjustments 123,620 116,827
-------------------------------------------------------------------------------------------------------------------
389,687 468,633
-------------------------------------------------------------------------------------------------------------------
$ 2,406,369 $ 2,185,902
-------------------------------------------------------------------------------------------------------------------
Commitments (note 9)
Contingent liabilities (note 10)
See accompanying notes to consolidated financial statements.
F-1
2
UNITY WIRELESS CORPORATION
Consolidated Statements of Operations and Deficit
(Unaudited)
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting principles)
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
------------------------------- --------------------------------
---------------------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
---------------------------------------------------------------------------------------------------------------------------------
Net sales $ 1,701,021 $ 273,756 $ 2,047,888 $ 1,756,250
Cost of goods sold (3 month data includes stock-based
compensation expense of nil in 2003 and $520 in 2002;
6 month data includes stock-based compensation
expense (recovery) of nil in 2003 and $(19,221) in
2002; and excludes depreciation and
amortization shown separately below) 989,425 447,395 1,370,744 1,504,965
---------------------------------------------------------------------------------------------------------------------------------
711,596 (173,639) 677,144 251,285
Expenses:
Research and development (3 month data includes
stock-based compensation expense of $3,251 in 2003
and $8,905 in 2002; 6 month data includes
stock-based compensation (recovery) of $(13,986)
in 2003 and $(56,433) in 2002) 96,997 584,135 296,921 856,628
Government grant (98,069) (65,348) (171,442) (65,348)
Sales and marketing (3 month data
includes stock-based compensation expense
(recovery) of $2,235 in 2003
and $(397) in 2002; 6 month data includes
stock-based compensation
(recovery) of $(17,571) in 2003 and
$(61,123) in 2002) 68,884 259,376 160,303 398,162
Depreciation and amortization 13,253 22,944 31,392 46,372
Exchange loss 31,509 13,375 20,578 22,127
Interest expense 108,296 3,536 152,377 4,969
General and administrative (3 month data
includes stock-based compensation expense
of $6,060 in 2003 and $30,002
in 2002; 6 month data includes
stock-based compensation (recovery) of
$(22,980) in 2003 and $(84,737) in
2002) 286,460 391,875 438,159 651,005
----------------------------------------------------------------------------------------------------------------------------------
507,330 1,209,893 928,288 1,913,915
----------------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) for the period 204,266 (1,383,532) (251,144) (1,662,630)
Interest income - 1,289 - 2,671
Other income 1,304 198 35,360 74,927
----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) for the period 205,570 (1,382,045) (215,784) (1,585,032)
Deficit, beginning of period (15,916,484) (13,033,276) (15,495,130) (12,830,289)
----------------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (15,710,914) $ (14,415,321) $ (15,710,914) $ (14,415,321)
---------------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share
(note 7(b)) $ 0.006 $ (0.043) $ (0.006) $ (0.050)
Diluted income (loss) per common share 0.006 (0.043) (0.006) (0.050)
----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-2
UNITY WIRELESS CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting principles)
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
------------------------------- ---------------------------------
-------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
Operations:
Earnings (loss) for the period $ 205,571 $ (1,382,045) $ (215,784) $ (1,585,032)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of patents 709 455 2,836 455
Accretion of discount on
convertible loan 38,136 - 67,197 -
Depreciation of equipment 12,544 22,489 28,556 45,917
Stock-based compensation 11,546 39,030 (54,537) (221,514)
Gain on settlement of debt - - - (74,451)
Changes in non-cash working capital
relating to operations:
Accounts receivable (392,173) 256,891 (261,140) 178,149
Government grant receivable 12,514 (30,268) 31,651 (3,811)
Inventory (75,831) 342,150 (219,645) 49,932
Prepaid expenses (5,155) 5,869 (7,433) (16,659)
Accounts payable and accrued
liabilities 134,766 (77,380) 176,297 612,351
-------------------------------------------------------------------------------------------------------------------
(57,373) (822,809) (452,002) (1,014,663)
Investments:
Acquisition of equipment - (43,834) - (56,863)
Disposition of equipment - - 2,582 -
Increase in patents and licenses - (33,847) - (33,847)
Other receivables - 9,232 - 9,232
-------------------------------------------------------------------------------------------------------------------
- (68,449) 2,582 (81,478)
Financing:
Restricted cash 535 (4,113) 5,608 (2,500)
Bank indebtedness 84,161 21,165 99,662 (138,255)
Repayment of loan payable (28,232) - (90,874) -
Cash proceeds from issued and to be
issued common shares - 714,167 - 714,167
Common shares issued upon warrants
exercised 12,903 - 12,903 -
Share issue costs (16) (54,906) (1,880) (56,354)
Obligations under capital lease - (13,046) - (27,383)
-------------------------------------------------------------------------------------------------------------------
69,351 663,267 25,419 489,675
Effect of foreign exchange rate
changes on cash and cash equivalents (8,462) (6,764) 92,138 (1,687)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 3,516 (234,755) (331,863) (608,153)
Cash, beginning of period 439 639,032 335,818 1,012,430
-------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 3,955 $ 404,277 $ 3,955 $ 404,277
-------------------------------------------------------------------------------------------------------------------
Supplementary information (note 11)
See accompanying notes to consolidated financial statements.
F-3
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION:
The accompanying interim unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for a complete set of
annual consolidated financial statements. In the opinion of management, all
adjustments (consisting solely of normally recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and six month periods ending June 30, 2003 are not necessarily
indicative of the results that may be expected for the year ended December
31, 2003 or for any other period.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Unity Wireless Corporation's (the
"Corporation") annual report on Form 10-KSB for the year ended December 31,
2002. Except as indicated in note 2(c), the accounting policies applied in
the preparation of these interim consolidated financial statements are
consistent with those applied in the consolidated financial statements
filed with the Corporation's annual report.
These financial statements have been prepared on the going concern basis
under which an entity is considered to be able to realize its assets and
satisfy its liabilities in the ordinary course of business. Operations to
date have been significantly financed by long-term debt and equity
transactions. At June 30, 2003, the Corporation will require additional
financing to continue to operate at current levels throughout the year.
Accordingly, the Corporation's future operations are dependent upon the
identification and successful completion of additional long-term or
permanent equity financing, the continued support of creditors and
stockholders, and, ultimately, the achievement of profitable operations.
There can be no assurances that the Corporation will be successful. If it
is not, the Corporation will be required to reduce operations or liquidate
assets. The Corporation will continue to evaluate its projected
expenditures relative to its available cash and to seek additional means of
financing in order to satisfy its working capital and other cash
requirements. The consolidated financial statements do not include any
adjustments relating to the recoverability of assets and classification of
assets and liabilities that might be necessary should the Corporation be
unable to continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES:
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America using the
same accounting policies and methods of application as those disclosed in
the Corporation's financial statements for the year ended December 31,
2002, except for note 2(c):
F-4
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(a) Stock-based compensation:
The Corporation accounts for employee options using the intrinsic value
method. Had compensation cost been determined based on the fair value
at the grant dates for those options issued to employees, consistent
with the method described in SFAS No. 123, the Corporation's loss and
loss per common share would have been increased to the pro forma
amounts indicated below.
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
------------------------------- ------------------------------
-------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Earnings (loss) for the period,
as reported $ 205,570 $ (1,382,045) $ (215,784) $ (1,585,032)
Add: employee stock-based
compensation recognized - - - -
Less: additional stock-based
employee compensation expense
determined under fair value based
method for all awards (208,331) 4,435 (247,455) (382,868)
-------------------------------------------------------------------------------------------------------------------
Pro forma loss $ (2,761) $ (1,377,610) $ (463,239) $ (1,967,900)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
------------------------------- ------------------------------
-------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Income ( loss)
per common shares:
As reported
Basic $ 0.006 $ (0.043) $ (0.006) $ (0.050)
Diluted 0.006 (0.043) (0.006) (0.050)
Pro forma
Basic $ 0.001 $ (0.043) $ (0.013) $ (0.062)
Diluted 0.001 (0.043) (0.013) (0.062)
-------------------------------------------------------------------------------------------------------------------
The fair value of each option granted in 2003 and 2002 was estimated on
the date of the grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions: no dividend yield;
volatility of 156% (2002 - 148%); risk-free interest rate of 3.25%
(2002 - 3.25%) and an expected life of four years.
F-5
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(a) Stock-based compensation (continued):
Stock option transactions for the respective periods and the number of
stock options outstanding are summarized as follows:
-------------------------------------------------------------------------------------------------------------------
Outstanding options
-------------------------------------------------------------------------------------------------------------------
Shares Number of Weighted
available common average
under options shares issuable exercise price
-------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 3,292,638 5,111,417 $ 0.20
Options granted (355,000) 355,000 0.11
Options expired 1,329,209 (1,329,209) 0.21
-------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2003 (unaudited) 4,266,847 4,137,208 $ 0.19
-------------------------------------------------------------------------------------------------------------------
(b) Comparative figures:
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.
(c) Recent accounting pronouncements:
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 150, Accounting
for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity ("FAS No. 150"), which establishes standards for
how an issuer classifies and measures certain financial instruments
which have characteristics of both liabilities and equity. FAS No. 150
is effective for financial instruments entered into or modified after
May 31, 2003. We have adopted FAS No. 150, which had no effect on our
consolidated financial statements.
In April 2003, the FASB issued FAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities ("FAS No. 149), which
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under FAS No. 133. FAS No. 149 is
to be applied prospectively for certain contracts entered into or
modified after June 30, 2003. We are currently evaluating the impact of
FAS No. 149 on our financial results.
F-6
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(c) Recent accounting pronouncements (continued):
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46"), which requires
the consolidation of a variable interest entity by the primary
beneficiary. FIN 46 also requires additional disclosure by both the
primary beneficiary and enterprises that hold a significant variable
interest in a variable interest entity. FIN 46 is applicable to
variable interest entities created after January 31, 2003. Entities
created prior to February 1, 2003 must be consolidated effective July
1, 2003. However, because we do not have any variable interest
entities, there is no impact on our consolidated financial statements.
In November 2002, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 45, Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others ("FIN 45"). FIN 45 expands on previously
issued accounting guidance and requires additional disclosure by a
guarantor to recognize, at the inception of the guarantee, a liability
for the fair value of an obligation assumed by issuing a guarantee. The
provision for initial recognition and measurement of the liability is
applied on a prospective basis to guarantees issued or modified after
December 31, 2002. The Corporation has adopted FIN 45 in these
consolidated financial statements.
3. INVENTORY:
-------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited)
Raw materials $ 717,818 $ 317,411
Finished goods 56,185 143,974
-------------------------------------------------------------------------------------------------------------------
$ 774,003 $ 461,385
-------------------------------------------------------------------------------------------------------------------
F-7
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
4. BANK INDEBTEDNESS:
In February 2002, the HSBC Bank of Canada revolving operating line was
replaced with a $85,161 (CDN$125,000) operating line from CIBC Bank, at an
interest rate of prime and secured by a $85,161 (CDN$125,000) guaranteed
investment certificate and a general security interest in all the
Corporation's assets. In March 2002, the Corporation arranged for a
$750,000 accounts receivable credit facility with CIBC at an interest rate
of CIBC prime plus 1% and an administrative fee of 1% of invoice value.
At June 30, 2003, the Corporation also had $4,297 (2002 - nil) of cash held
in trust with regards to venture capital fundraising. This amount has been
classified as restricted cash at period-end.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
-------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited)
Trade accounts payable $ 916,839 $ 1,016,759
Accrued liabilities 494,700 227,618
-------------------------------------------------------------------------------------------------------------------
$ 1,411,539 $ 1,244,377
-------------------------------------------------------------------------------------------------------------------
6. LOANS PAYABLE:
-------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited)
Promissory notes $ 138,347 $ 202,514
Current portion 138,347 202,514
-------------------------------------------------------------------------------------------------------------------
$ - $ -
-------------------------------------------------------------------------------------------------------------------
As at June 30, 2003, the Corporation was indebted to two parties for an
aggregate of $138,347 by way of promissory notes at interest rates ranging
from 9.5% to 10.5% per annum. The promissory notes are repayable during
2003, except for one promissory note totaling $100,000 which is repayable
on demand.
F-8
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
7. COMMON STOCK: (a) Issued and outstanding
During the period, the Corporation issued 1,897,447 common shares in
settlement of $212,553 of accounts payable for services rendered.
258,064 common shares were also issued upon exercise of warrants for
cash proceeds of $12,903.
(b) Loss per share:
The following table sets forth the computation of basic and diluted
loss per share:
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
------------------------------- ------------------------------
-------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Numerator:
Earnings (loss) available to common
stockholder - Basic $ 205,570 $ (1,382,045) $ (215,784) $ (1,585,032)
Interest on convertible debt 53,274 - - -
-------------------------------------------------------------------------------------------------------------------
Earnings (loss) available to common
stockholder - Diluted $ 258,844 $ (1,382,045) $ (215,784) $ (1,585,032)
-------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average number of
common shares outstanding
- basic 35,952,913 32,348,299 35,702,170 31,635,959
Incremental shares on debt
conversion 10,092,367 - - -
-------------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding
- Diluted 46,045,280 32,348,299 35,702,170 31,635,959
-------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common
share $ 0.006 $ (0.043) $ (0.006) $ (0.050)
Diluted income (loss) per common
share 0.006 (0.043) (0.006) (0.050)
-------------------------------------------------------------------------------------------------------------------
For the three and six month periods ended June 30, 2003 and 2002, all
of the Corporation's common shares issuable upon the exercise of
outstanding stock options and warrants were excluded from the
determination of dilutive loss per share as their effect would be
anti-dilutive.
F-9
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
7. COMMON STOCK (CONTINUED):
(c) Warrants:
As at June 30, 2003, the Corporation has outstanding warrants to
purchase 13,177,841 common shares at exercise prices ranging from $0.10
to $0.35 per share.
On March 6, 2003, the Board of the Corporation approved to amend and
extend the expiry date of 2,317,857 warrants, which were issued on May
15, 2002, in conjunction with a private placement and having an
exercise price of $0.35 each, from an expiry date of May 14, 2003 to
May 14, 2004.
In June and July 2003, the Company issued non-registered warrants to
purchase 5,936,783 shares, at US$0.10 per share, with an expiry date of
July 15, 2005. Of the non-registered warrants, 258,064 were issued in
June 2003 and the balance was issued in July 2003.
(d) Convertible debenture:
During the period, the Board of the Corporation agreed to amend the
conversion price of all the convertible debentures from
CDN$0.15 to US$0.06.
8. SEGMENTED INFORMATION:
(a) Segment information:
During the three and six month periods ended June 30, 2003 and 2002,
the Corporation was operating only in the RF power amplifier segment.
(b) Geographic information:
Substantially all assets and operations are in Canada. A summary of
sales by region of customer location is as follows ($000):
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
------------------------------- ------------------------------
-------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Korea $ - $ 45 $ 93 $ 987
China 520 60 518 280
Sweden 134 42 165 42
United States 907 127 1,113 447
Israel 29 - 38 -
Canada 111 - 115 -
Other - 6 -
-------------------------------------------------------------------------------------------------------------------
Total sales $ 1,701 $ 274 $ 2,048 $ 1,756
-------------------------------------------------------------------------------------------------------------------
F-10
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
8. SEGMENTED INFORMATION (CONTINUED):
(c) Major customers:
Sales to customers representing greater than 10% of total sales are as
follows ($000):
-----------------------------------------------------------------------------
Six months ended
-----------------------------------------------------------------------------
June 30, June 30,
-----------------------------------------------------------------------------
2003 2002
-----------------------------------------------------------------------------
(Unaudited) (Unaudited)
Customer A 452 nil
Customer B 963 Less than 10%
Customer C Less than 10% 612
Customer D nil 331
Customer E nil 386
-----------------------------------------------------------------------------
9. COMMITMENTS:
The Corporation has the following future minimum lease commitments for
premises and equipment:
---------------------------------------------------------------------------
2003 $ 45,000
2004 96,000
2005 104,000
2006 106,000
2007 106,000
2008 and thereafter 159,000
---------------------------------------------------------------------------
$ 616,000
---------------------------------------------------------------------------
10. CONTINGENT LIABILITIES:
(a) The Corporation is currently a party to an action in the Supreme Court
of British Columbia, Vancouver Registry, brought by an optionholder
seeking a declaration that 500,000 options to purchase shares in the
common stock of the Corporation held by it have a term of unlimited
duration.
The Corporation provides for costs related to contingencies when a loss
is probable and the amount is reasonably determinable. It is the
opinion of management, based in part on advice of legal counsel, that
the ultimate resolution of this contingency, to the extent not
previously provided for, will not have a material adverse effect on the
financial condition of the Corporation.
F-11
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
10. CONTINGENT LIABILITIES (CONTINUED):
(b) Contingent liability on sale of products:
(i) Under a certain license agreement, the Corporation is committed to
royalty payments based on the sales of products using certain
technologies. Royalties are paid between 6% to 7% of sales of
licensed products sold integrating the XNN Technology into various
products to a minimum of $150,000 within twelve months subsequent
to the first commercial sales of the integrated product. The
Corporation recognizes royalty obligations as determinable in
accordance with agreement terms.
(ii) Under an agreement with the Government's National Research Council
Canada IRAP ("IRAP") program, the Corporation is eligible to
receive conditionally repayable government assistance amounting to
$308,130 (CDN$483,491) to support the development of a
multi-carrier linear power amplifier. During the three and six
month periods ended June 30, 2003, the Corporation claimed gross
proceeds of $14,796 (CDN$21,516) and $90,982 (CDN$132,295),
respectively, which have been recorded as government grant income.
Under the terms of the agreement, an amount up to a maximum of
$536,312 (CDN$725,236) is to be repaid at a rate of 1.5% of
quarterly gross revenue commencing on September 1, 2003, on a
quarterly basis.
(iii)Under an agreement with the Canada Israel Industrial Research &
Development Foundation, the Corporation is eligible to receive
conditionally repayable government assistance amounting to
$258,825 (CDN$350,000) to support the development of digital
repeater technology. During the three and six month periods ended
June 30, 2003, the Corporation claimed gross proceeds of $80,460
(CDN$116,667) and $80,460 (CDN$116,667), respectively, which have
been recorded as government grant income. Under the terms of the
agreement, commencing with the first commercial transaction, 2.5%
of yearly gross sales shall be paid until 100% of the grant has
been repaid.
F-12
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
10. CONTINGENT LIABILITIES (CONTINUED):
(c) Product warranties:
The Corporation provides for estimated warranty costs at the time of
product sale. Warranty expense accruals are based on best estimate with
reference to historical claims experience. Since warranty estimates are
based on forecasts, actual claim costs may differ from amounts
provided. An analysis of changes in liability for product warranties
follows:
------------------------------------------------------------------------------
Balance, January 1, 2002 $ 31,500
Provision increase 20,276
Expenditures (20,056)
------------------------------------------------------------------------------
Balance, December 31, 2002 31,720
Provision increase 4,390
Expenditures (2,045)
------------------------------------------------------------------------------
Balance, March 31, 2003 (unaudited) 34,065
Provision increase 6,879
Expenditures (3,969)
------------------------------------------------------------------------------
Balance, June 30, 2003 (unaudited) $ 36,975
------------------------------------------------------------------------------
11. SUPPLEMENTARY INFORMATION:
-------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
------------------------------- ------------------------------
-------------------------------------------------------------------------------------------------------------------
June 30, June 30, June 30, June 30,
-------------------------------------------------------------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
(Unaudited) (Unaudited)
Cash paid for:
Interest $ 2,044 $ 3,535 $ 3,694 $ 4,969
Income taxes - - - -
-------------------------------------------------------------------------------------------------------------------
Non-cash investing or financial activities:
Issuance of common shares
in settlement of accounts
payable $ 152,174 $ - $ 212,553 $ -
-------------------------------------------------------------------------------------------------------------------
F-13
UNITY WIRELESS CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
Three and six months ended June 30, 2003 and 2002 (unaudited) Year ended
December 31, 2002
--------------------------------------------------------------------------------
12. SUBSEQUENT EVENTS:
Subsequent to June 30, 2003, 7,427,677 warrants were exercised for total
proceeds of $383,973.
F-14
-4-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition, changes in financial
condition, and results of operations of Unity Wireless Corporation should be
read in conjunction with our most recent financial statements and notes
appearing: (1) in this Form 10-QSB; and (2) the Form 10-KSB for the year ended
December 31, 2002 filed on April 3, 2003.
The financial statements have been prepared on the going concern basis under
which an entity is considered to be able to realize its assets and satisfy its
liabilities in the ordinary course of business. Operations to date have been
primarily financed by borrowing and equity transactions. Our future operations
are dependent upon the identification and successful completion of additional
long-term or permanent equity financing, the continued support of creditors and
stockholders, and, ultimately, the achievement of profitable operations. There
can be no assurances that we will be successful. If we are not, we will be
required to reduce operations or liquidate assets. We will continue to evaluate
our projected expenditures relative to our available cash and to seek additional
means of financing in order to satisfy our working capital and other cash
requirements. The auditors' report on the audited consolidated financial
statements for the fiscal year ended December 31, 2002 contained in the 10-KSB
filed on April 3, 2003, includes an explanatory paragraph that states that as we
have suffered recurring losses from operations, substantial doubt exists about
our ability to continue as a going concern. The audited consolidated financial
statements or the interim quarterly unaudited consolidated financial statements
included with this quarterly report do not include any adjustments relating to
the recoverability of assets and classification of assets and liabilities that
might be necessary should we be unable to continue as a going concern.
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"will", "should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors", that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update
any of the forward-looking statements to conform these statements to actual
results.
Our financial statements are stated in United States Dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
In this quarterly report, unless otherwise specified, all dollar amounts are
expressed in United States dollars. All references to "CDN$" refer to Canadian
dollars and all references to "common shares" refer to the common shares in our
capital stock.
As used in this quarterly report, the terms "we", "us", "our", and "Unity" mean
Unity Wireless Corporation, unless otherwise indicated.
-5-
GENERAL
We are in the business of designing, developing and manufacturing high power
linear RF (radio frequency) amplifiers and specialized communications products
targeting both the cellular and fixed wireless markets. Most of our products are
high power amplifiers, defined as single and multi-channel power amplifiers used
for sending signals from a network to a terminal such as a cell phone. Most are
used in repeaters that are used to extend coverage in cellular telephone
networks. Some products are also used in base station equipment. One product has
been tested for digital television broadcasting in Korea, and one product is for
base stations used in wireless local loop applications. Wireless local loop
networks are sometimes referred to as "the last mile" solution - unlike cellular
phone systems which are mobile wireless networks, wireless local loop is
designed to deliver voice and high speed data (e.g., Internet) services to fixed
locations such as homes and small offices without the need for special wiring
via wireless communication devices.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
--------------------------------------------------
Sales
Net sales in the second quarter of 2003 increased by 521% or $1,427,265, to
$1,701,021 from $273,756 in the second quarter of 2002. In the second quarter of
2002, we experienced a significant decline in sales from the first quarter of
2002 due to a slowdown in the telecommunications industry, increased competition
in the Korean market, and one of our significant customers in the United States
went bankrupt. Since then, we refocused our sales strategy, which transitioned
our focus from one of short term relationships resulting in immediate sales to a
focus on building long term relationships resulting in sales over several years.
This refocused strategy, along with an improvement in market conditions of the
wireless sector has resulted in increased sales.
Cost of Goods Sold and Operating Expenses
Cost of goods sold during the second quarter of 2003 increased by 121%, or
$542,030, to $989,425 from $447,395 in the second quarter of 2002. However, as a
percentage of revenue, cost of goods sold decreased from the second quarter of
2002 to the second quarter of 2003. The decrease was primarily a factor of
reduced material costs, wages and benefits, sub-contract labour and testing
equipment due to completing a refinancing and reduction of some of our test
equipment, reducing and creating more efficiency in our staffing requirements
and we started working with an outsource manufacturing company. As well, we have
started producing larger runs for customers. These factors allow us to take
advantage of better purchasing power and ensure that a consistent quality
product is delivered on time. We anticipate that our cost of goods sold, as a
percentage of sales, will be reduced during the remainder of 2003 as a result of
further increased sales, better pricing and outsourced manufacturing
efficiencies. Cost of goods includes stock-based compensation expense of nil in
2003 versus $520 in 2002.
The gross margin of $711,596 or 42% of net sales for the second quarter of 2003
represented a increase from a negative gross margin of 173,639 or (63)% of net
sales for the second quarter of 2002 due to the initiation, during the second
quarter of 2002, of our refocused sales strategy, which increased revenues, and
due to our cost cutting measures since the second quarter of 2002.
Research and development expenses in the second quarter of 2003 decreased by
83%, or $487,138, to $96,997 from $584,135 in the second quarter of 2002. This
decrease was primarily due to decreased research and development activities and
related expenditures as a result of a fewer number of engineering personnel on
staff during the second quarter of 2003 versus the second quarter of 2002, and
due to a number of the 2002 research and development initiatives progressing to
the production stage in the first quarter of 2003. Research and development
expenses include stock-based compensation expense of $3,251 in 2003 versus
$8,905 in 2002.
Sales and marketing expenses in the second quarter of 2003 decreased by 73%, or
$190,492, to $68,884 from $259,376 in the second quarter of 2002. The decrease
was a net effect of decreased advertising, promotional activities, tradeshow and
-6-
travel expenses to visit new customers and distributors. In fiscal 2003, we
anticipate increasing our sales and marketing expenses as we focus our marketing
and sales personnel on the goal of securing additional short and long-term
supply agreements in order to execute our business plan. Sales and marketing
expenses include stock-based compensation (recovery) expense of $2,235 in 2003
versus $(397) in 2002.
Depreciation and amortization in the second quarter of 2003 decreased by 42%, or
$9,691, to $13,253 from $22,944 in 2002. The decrease was attributable to the
return of a number of leased equipment resulting in a lower asset balance to be
depreciated.
Exchange loss in the second quarter of 2003 increased by $18,134, to an exchange
loss of $31,509 from an exchange loss of $13,375 in the second quarter of 2002
due to fluctuations in the currency exchange rate between the U.S. and Canada.
Our company's revenues are received in U.S. dollars, while the majority of
expenses are incurred in Canadian dollars.
Interest expense in the second quarter of 2003 increased by $104,760, to
$108,296 from $3,536 in 2002. The increase was the result of interest relating
to the outstanding loans payable and convertible debenture.
General and administrative expenses in the second quarter of 2003 decreased by
27%, or $105,415, to $286,460 from $391,875 in 2002. The reduction was a result
of a decrease in the number of employees, better control of overhead expenses
and reduced professional service fees due to fewer public company filings and
associated expenses in comparison to the second quarter of 2002. We expect
general and administrative expenses to decrease further in fiscal 2003 as a
result of further cost control measures that we have implemented. General and
administrative expenses include stock-based compensation expense of $6,060 in
2003 versus $30,002 for 2002.
-7-
SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30, 2002
------------------------------------------------
Sales
Net sales in the first half of 2003 increased by 17% or $291,638, to $2,047,888
from $1,756,250 in the first half of 2002. The increase was due largely to the
refocused sales strategy, initiated during the second quarter of 2002, which
transitioned our focus from one of short-term relationships resulting in
immediate sales, but no commitment for additional purchases, to a focus on
building long-term relationships with customers who would commit to purchase a
specified percentage of their amplifier requirement from us over a term of three
or more years. This strategy has resulted in several new long term customers
throughout several regions. Other factors contributing to the lower sales in the
first half of 2002 was the general worldwide softening and changing of the
market conditions in the wireless sectors during the first half of fiscal 2002,
increased competition in the Korean market, and one of our significant customers
in the United States went bankrupt in the second quarter of 2002 In general, we
anticipate that revenues will increase in the remaining quarters in 2003 as we
make progress with our refocused sales strategy.
Cost of Goods Sold and Operating Expenses
Cost of goods sold during the first half of 2003 decreased by 9%, or $134,221,
to $1,370,744 from $1,504,965 in the first half of 2002. The decrease was
primarily a factor of reduced material costs, wages and benefits, sub-contract
labour and testing equipment due to completing a refinancing and reduction of
some of our test equipment, reducing and creating more efficiency in our
staffing requirements and we started working with an outsource manufacturing
company. As well, we have started producing larger runs for customers. These
factors allow us to take advantage of better purchasing power and ensure that a
consistent quality product is delivered on time. We anticipate that our cost of
goods sold, as a percentage of sales, will be reduced during the remainder of
2003 as a result of further increased sales, better pricing and outsourced
manufacturing efficiencies. Cost of goods includes stock-based compensation
(recovery) expense of nil in 2003 versus $(19,221) in 2002.
The gross margin of $677,144 or 33% of net sales for the half of 2003
represented a increase from a gross margin of 251,285 or 14% of net sales for
the first half of 2002 due to the initiation, during the second quarter of 2002,
of our refocused sales strategy which increased revenues and due to our cost
cutting measures since the second quarter of 2002.
Research and development expenses in the first half of 2003 decreased by 65%, or
$559,707, to $296,921 from $856,628 in the first half of 2002. This decrease was
primarily due to decreased research and development activities and related
expenditures as a result of a fewer number of engineering personnel on staff
during the first half of 2003 versus the first half of 2002, and due to a number
of the 2002 research and development initiatives progressing to the production
stage in the first quarter of 2003. Research and development expenses include
stock-based compensation (recovery) expense of $(13,986) in 2003 versus
$(56,433) in 2002.
Sales and marketing expenses in the first half of 2003 decreased by 60%, or
$237,859, to 160,303 from $398,162 in the first half of 2002. The decrease was a
net effect of decreased advertising, promotional activities, tradeshow and
travel expenses to visit new customers and distributors. In fiscal 2003, we
anticipate increasing our sales and marketing expenses as we focus our marketing
and sales personnel on the goal of securing additional short and long-term
supply agreements in order to execute our business plan. Sales and marketing
expenses include stock-based compensation (recovery) expense of $(17,571) in
2003 versus $(61,123) in 2002.
Depreciation and amortization in the first half of 2003 decreased by 32%, or
$14,980, to $31,392 from $46,372 in 2002. The decrease was attributable to the
return of a number of leased equipment resulting in a lower asset balance to be
depreciated.
-8-
Exchange loss in the first half of 2003 decreased by $1,549, to an exchange loss
of $20,578 from an exchange loss of $22,127 in the first half of 2002 due to
fluctuations in the currency exchange rate between the U.S. and Canada. Our
company's revenues are received in U.S. dollars, while the majority of expenses
are incurred in Canadian dollars.
Interest expense in the first half of 2003 increased by $147,408, to $152,377
from $4,969 in 2002. The increase was the result of interest relating to the
outstanding loans payable and convertible debenture.
General and administrative expenses in the first half of 2003 decreased by 33%,
or $212,846, to $438,159 from $651,005 in 2002. The reduction was a result of a
decrease in the number of employees, better control of overhead expenses and
reduced professional service fees due to fewer public company filings and
associated expenses in comparison to the first half of 2002. We expect general
and administrative expenses to decrease further in fiscal 2003 as a result of
further cost control measures that we have implemented. General and
administrative expenses include stock-based compensation (recovery) expense of
$(22,980) in 2003 versus $(84,737) in 2002.
Other Income and Expenses
Other income in the first half of 2003 decreased by 53%, or $39,567, to $35,360
from $74,927 in the first half of 2002. This 2002 balance results primarily from
a $74,451 settlement of a government debt while the 2003 balance is due to a
settlement with the leasing company that the Corporation had returned certain
leased equipment.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have been dependent on investment capital as our primary
source of liquidity.. We had an accumulated deficit at June 30, 2003 of
$15,710,914. During the six months ended June 30, 2003, we focused entirely on
the wireless amplifier product segment and incurred a net loss, after
stock-based compensation recovery, of $215,784 (2002 - loss of $1,585,032).
During the first half of 2003, our cash position decreased significantly. The
primary use of cash was for our continued operations which also included
non-cash charges in depreciation expense, and stock-based compensation recovery.
Other significant non-cash working capital changes included a decrease in
accounts receivable and an increase in inventory. We currently have good
on-going communications with our suppliers and are in various stages of
discussion with them regarding extended payment terms for their respective
outstanding June 30, 2003 accounts payable balances.
During the first half of 2003, we had no investing activities
During the first half of 2003, we issued 1,897,447 shares for settlement of
$212,513 of accounts payable. 258,064 common shares were also issued upon
exercise of warrants for cash proceeds of $12,903. In June and July 2003, the
Company issued non-registered warrants with an expiry date of July 15, 2005, to
purchase 5,936,783 shares, at US$0.10 per share, to holders of Secured
Convertible Notes who exercised previous warrants to purchase the same number of
shares at an exercise price that was reduced to US$.05 per share from CDN$0.15
per share. Of the non-registered warrants, 258,064 were issued in June 2003 and
the balance was issued in July 2003. We also extended the expiry date of
2,317,857 warrants, which were issued on May 15, 2002, with an exercise price of
$0.35, from an expiry date of May 14, 2003 to May 14, 2004. During the period,
the Board of the Corporation agreed to amend the conversion price of all
convertible debentures from CDN$0.15 to US $0.06.
Other than operating loan commitments and a commitment under existing leases for
an aggregate of $616,000 through 2009, we have no material commitments,
including capital commitments, outstanding at June 30, 2003.
-9-
Our capital requirements are difficult to plan in light of our current strategy
to expand our customer base and to develop new products and technologies. Since
our inception, we have been dependent on investment capital as our primary
source of liquidity. Our operations to date have been primarily financed by
sales of our equity securities. As of June 30, 2003, we had a working capital
deficiency of $337,839. Our operations presently are generating negative cash
flow, and we do not expect positive cash flow from operations in the near term.
We need to secure additional working capital in the short-term in order to
sustain our operations and execute our business plan. It is our intention to
raise funds necessary to carry our company through to positive cash flow and
profitability.
We anticipate that we will require a greater amount of additional working
capital for inventory, components and work in process or to expand our
manufacturing capacity if we enter into contracts for large quantities of our
amplifiers. We are incurring expenses in anticipation of future sales that may
not materialize. If future sales fall significantly below our expectations or if
we incur unanticipated costs or expenses, our financing needs could be
increased. Any inability to obtain sufficient capital to sustain our existing
operations, to meet commitments or to fund our obligations under our existing
sales orders may require us to delay delivery of products, to default on one or
more agreements or to significantly reduce or eliminate sales and marketing,
research and development or administrative functions. The occurrence of any of
these, or other adverse affects of inability to raise adequate capital may have
a material adverse effect on our business, financial condition and results of
operations.
INFLATION
We do not believe that inflation has had a significant impact on our
consolidated results of operations or financial condition.
FUTURE OPERATIONS
Presently, our revenues are not sufficient to meet operating and capital
expenses. We have incurred operating losses since inception, and this is likely
to continue into for fiscal 2003. As at December 31, 2002, we had a working
capital deficiency of $394,917. In November and December, 2002, we effected a
debt private placement of $605,435 (CDN$956,323). This financing and the cash
flows which we receive from our ongoing sales will enable us to address a
portion of our aged payables, continue with the support of existing clients and
sales and marketing activity until September, 2003.
Due to the uncertainty of our ability to meet our current operating and capital
expenses, in their report on the annual consolidated financial statements for
the year ended December 31, 2002, our independent auditors included an
explanatory paragraph regarding concerns about our ability to continue as a
going concern. Our consolidated financial statements contain additional note
disclosures describing the circumstances that lead to this disclosure by our
independent auditors.
There is substantial doubt about our ability to continue as a going concern as
the continuation of our business is dependent upon obtaining further financing,
successful and sufficient market acceptance of our current products and any new
product offerings that we may introduce, the continuing successful development
of our products and related technologies, and, finally, achieving a profitable
level of operations. The issuance of additional equity securities by us could
result in a significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.
-10-
There are no assurances that we will be able to obtain further funds required
for our continued operations. We are pursuing various financing alternatives to
meet our immediate and long-term financial requirements. There can be no
assurance that additional financing will be available to us when needed or, if
available, that it can be obtained on commercially reasonable terms. If we are
not able to obtain the additional financing on a timely basis, we will not be
able to meet our other obligations as they become due.
RISK FACTORS
For information on risk factors refer to Unity Wireless Corporation's annual
report on Form 10-KSB for the year ended December 31, 2002.
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
the filing date of this report, we have carried out an evaluation of the
effectiveness of the design and operation of our company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of our company's management, including our company's president
and chief executive officer. Based upon that evaluation, our company's president
and chief executive officer concluded that our company's disclosure controls and
procedures are effective. There have been no significant changes in our
company's internal controls or in other factors, which could significantly
affect internal controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our company's reports filed under the
Exchange Act is accumulated and communicated to management, including our
company's president and chief executive officer as appropriate, to allow timely
decisions regarding required disclosure.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as set forth below, we know of no material, active or pending legal
proceedings against our company, nor are we involved as a plaintiff in any
material proceeding or pending litigation. There are no proceedings in which any
of our directors, officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to our
interest.
We, along with Sonic Systems Corporation and M&M Realty Incorporated, have been
sued in the Supreme Court of British Columbia, Canada, by Integrated Global
Financial Corporation. The lawsuit was commenced on January 5, 2001. Integrated
Global alleges it has options to purchase 500,000 shares, with no expiry date,
at an alleged exercise price of $1.00 per share, plus unspecified damages. We
dispute the allegations and are defending the claim. No trial date has been set.
No Examinations for Discovery have been conducted or have been scheduled. The
matter is at a very preliminary stage. It is our view that the claim has little,
if any, merit and we do not expect the proceeding to have any material adverse
effect on us. It is our position that these options have expired and we have not
included such options in our outstanding options at June 30, 2003.
ITEM 2. CHANGES IN SECURITIES
During the period, the Corporation issued 1,897,447 common shares in settlement
of $212,513 of accounts payable for services rendered. 258,064 common shares
were also issued upon exercise of warrants.
In June and July 2003, the Company issued non-registered warrants to purchase
5,936,783 shares, at US$0.10 per share, to holders of Secured Convertible Notes
who exercised previous warrants to purchase the same number of shares at an
exercise price that was reduced to US$0.05 per share from CDN$0.15 per share. Of
the non-registered warrants, 258,064 were issued in June 2003 and the balance
was issued in July 2003.
-11-
We also extended the expiry date of 2,317,857 warrants, which were issued on May
15, 2002, with an exercise price of $0.35, from an expiry date of May 14, 2003
to May 14, 2004. During the period, the Board of the Corporation agreed to amend
the conversion price of all convertible debentures from CDN$0.15 to $0.06.
These newly issued securities were issued in private placements in reliance on
Section 4(ii) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-B
Exhibit
Number Description
3.1* Amended and Restated Certificate of Incorporation of Unity Wireless Corporation (1)
3.2* Amended and Restated Bylaws of Unity Wireless Corporation (1)
3.3* First Amendment to Amended and Restated Bylaws of Unity Wireless Corporation (2)
3.4* Second Amendment to Amended and Restated Bylaws of Unity Wireless Corporation (2)
4.1* Consulting agreement among Mueller & company, Inc., Ideas, Inc., Mark Mueller,
Aaron Fertig and Unity Wireless Corporation dated January 1, 2001 (3)
4.2* Consulting agreement amendment among Mueller & company, Inc. and Unity Wireless
Corporation dated November 15, 2001 (3)
10.1* Asset Purchase Agreement dated October 6, 2000 among Unity Wireless Systems Corporation, a British Columbia,
Canada, corporation, 568608 B.C. Ltd., a British Columbia, Canada
corporation, Traffic Systems, L.L.C., an Arizona limited liability
company, Traffic Safety Products, Inc., an Arizona corporation and
James L. Hill (4)
10.2* Intellectual Property License Agreement, dated October 6, 2000,
between Unity Systems Corporation, as licensor, and Traffic Systems,
LLC, as licensee (4)
10.3* Share Purchase Agreement, dated November 16, 2000 among John
Robertson, Mirza Kassam, Chris Neumann, Robert Fetherstonhaugh, Unity
Wireless Corporation, Stirling Mercantile Corporation, Peter A. Scott
Consulting Ltd., W. Hugh Notman (5)
10.4* Asset Purchase Agreement, dated for reference December 30, 2000,
among Unity Wireless Integration Corporation as vendor, Lyma Sales &
Management Corp. as purchaser and Unity Wireless Corporation (6)
10.5* Agreement to Redeem Membership Interest, Transfer Intellectual
Property and Amend Asset Purchase Agreement, effective April 9, 2001,
by and among Traffic Systems, L.L.C., Unity Wireless Systems
Corporation, Traffic Safety Products, Inc. and Jim Hill (7)
10.6* 1999 Stock Option Plan, as amended (3)
10.7* Recommended Stock Option Grant Policy for our company (3)
-12-
10.8* Form of Private Placement Purchase Agreement, dated November 20,
2002, among Unity Wireless Corporation, Unity Wireless Systems
Corporation, and each person or entity listed in 10.11 below. (8)
10.9* General Security Agreement, dated for reference November 20,
2002, between each of the Investors listed in Schedule 1 to the
Agreement, Unity Wireless Systems Corporation and Jeffrey Rubin, as
Agent. (8)
10.10* General Security Agreement, dated for reference, November
20, 2002, between each of the Investors listed in Schedule
1 to the Agreement, Unity Wireless Corporation and Jeffrey Rubin, as Agent. (8)
10.11* Form of Secured Convertible Note issued by Unity Wireless
Corporation and Unity Wireless Systems Corporation in the aggregate
principle amount of $956,322.50.
10.12* Licence Agreement, dated April 23, 2002, between Unity Wireless
Corporation and Paragon Communications. (8)
10.13* Agreement, dated July 19, 2002, between Unity Wireless
Corporation and Dekolink Wireless Ltd. (8)
10.14* Manufacturing Agreement, dated July 10, 2002, between Unity
Wireless Systems Corporation and Netro Corporation. (8)
10.15* Strategic Supply Agreement, dated June 19, 2002, between Unity
Wireless Systems Corporation and Avtec, AB. (8)
10.16* Investor Relations Agreement, dated April 10, 2002, between
Unity Wireless Corporation and Osprey Partners. (8)
10.17* Amendment to Investor Relations Agreement, dated September 20,
2002, between Unity Wireless Corporation and Osprey Partners. (8)
10.18* Form of Addendum to Secured Convertible Note between Unity
Wireless Corporation, Unity Wireless Systems Corporation and each of
the following: (9)
S. Heiman
Casey J. O'Byrne Professional Corporation
Moshe Rosner
Jeffrey Rubin
William N. Weidman
Chancellor Apartments LLC
Gabrielle Chaput
Desmonde Farruga
Shalom Torah Centers
Sid M. Tarrabain Professional Corporation
Mokhlis Y. Zaki
10.19**Form of warrants issued in June and July 2003 to holders of
Secured Convertible Notes for an aggregate of 5,936,783 shares.
-13-
21.1 Subsidiaries of our company:
Unity Wireless Systems Corporation (British Columbia)
321373 B.C. Ltd. (British Columbia)
Subsidiaries of our company:
Unity Wireless Systems Corporation (British Columbia)
321373 B.C. Ltd. (British Columbia)
31.1** Certification of Ilan Kenig pursuant to Rule 13q-14(a) of the
Securities Exchange Act of 1934
32.2** Certification required by Rule 13a-14(b) under the Securities
Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. 1350).
* Previously filed
** Filed herewith
(1) Incorporated by reference to our Form SB-2 filed with the
Securities and Exchange Commission on October 4, 2000.
(2) Incorporated by reference to our Form 8-K filed with the
Securities and Exchange Commission on August 30, 2002.
(3) Incorporated by reference to our Form 10-KSB filed with the
Securities and Exchange Commission on April 2, 2001.
(4) Incorporated by reference to our Form 8-K filed with the
Securities and Exchange Commission on October 23, 2000.
(5) Incorporated by reference to our Form 8-K filed with the
Securities and Exchange Commission on December 4, 2000.
(6) Incorporated by reference to our Form 8-K filed with the
Securities and Exchange Commission on January 16, 2001.
(7) Incorporated by references to our Form SB-2A filed with the
Securities and Exchange Commission on May 3, 2001.
(8) Incorporated by reference to our Form 10-KSB filed with the
Securities and Exchange Commission on April 3, 2003.
(9) Incorporated by reference to our SB-2 filed with the Securities
and Exchange Commission on May 2, 2003
(b) Reports on form 8-K
We did not file any reports on Form 8-K during the period ended June
30, 2003.
-14-
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.
UNITY WIRELESS CORPORATION
/s/ Ilan Kenig
By: Ilan Kenig, President, Chief Executive Officer
(Principal Executive Officer, Principal Financial Officer
and Principal Accounting Officer)
August 14, 2003