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 September 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
incorporation or organization Identification Number)
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 November 14, 2003: 50,072,999
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:
50,072,999 common shares outstanding as at November 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 nine months ended September 30, 2003 and 2002 (unaudited)
- 4 -
UNITY WIRELESS CORPORATION
Consolidated Balance Sheets
(Expressed in United States dollars)
(Prepared in accordance with United States generally accepted accounting
principles)
===================================================================================================================
September 30, December 31,
2003 2002
-------------------------------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 8,235 $ 335,818
Restricted cash (note 4) 97,770 88,160
Accounts receivable (less allowance for doubtful accounts of $11,077 (December
31, 2002 - $33,059)) 330,265 231,505
Government grant receivable -- 29,197
Inventory (note 3) 557,026 461,385
Prepaid expenses and deposits 50,677 39,040
-------------------------------------------------------------------------------------------------------------------
1,043,973 1,185,105
Deferred financing cost -- 38,994
Equipment, net 167,426 211,700
Patents 4,963 8,507
Goodwill 741,596 741,596
-------------------------------------------------------------------------------------------------------------------
$ 1,957,958 $ 2,185,902
===================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness (note 4) $ 161,823 $ 101,411
Accounts payable and accrued liabilities (note 5) 1,124,704 1,244,377
Loans payable (note 6) 134,563 202,514
Product warranty (note 10(c)) 36,678 31,720
Convertible debenture 246,529 --
-------------------------------------------------------------------------------------------------------------------
1,704,297 1,580,022
Convertible debenture -- 137,247
-------------------------------------------------------------------------------------------------------------------
1,704,297 1,717,269
Stockholders' equity:
Common stock, $0.001 par value 100,000,000 authorized,
48,015,516 (December 31, 2002 - 35,016,894) issued and outstanding 48,015 35,017
Additional paid-in capital 16,848,660 15,811,919
Accumulated deficit (16,774,234) (15,495,130)
Accumulated other comprehensive income:
Cumulative translation adjustments 131,220 116,827
-------------------------------------------------------------------------------------------------------------------
253,661 468,633
-------------------------------------------------------------------------------------------------------------------
$ 1,957,958 $ 2,185,902
===================================================================================================================
Commitments (note 9)
Contingent liabilities (note 10)
See accompanying notes to consolidated financial statements.
- 5 -
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 Nine months ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------------------
Net sales $ 108,590 $ 400,516 $ 2,156,478 $ 2,156,766
Cost of goods sold (3 month data includes stock-based
compensation expense (recovery) of $1,257 in 2003 and
$(10,327) in 2002; 9 month data includes stock-based
compensation expense (recovery) of $1,257 in 2003 and
$(29,548) in 2002; and excludes depreciation and
amortization shown separately below) (note3) 280,690 294,248 1,651,434 1,799,213
--------------------------------------------------------------------------------------------------------------------------
(172,100) 106,268 505,044 357,553
Expenses:
Research and development (3 month data includes
stock-based compensation expense (recovery) of $52,352
in 2003 and $(60,642) in 2002; 9 month data includes
stock-based compensation (recovery) of $38,366 in 2003
and $(117,075) in 2002) 304,902 273,831 646,823 1,130,459
Government grant (note 10(b)(ii)) -- (56,462) (171,442) (121,810)
Sales and marketing (3 month data includes stock-based
compensation expense (recovery) of $24,975 in 2003 and
$(33,152) in 2002; 9 month data includes stock-based
compensation (recovery) of $7,404 in 2003 and $(94,275)
in 2002) 82,021 82,925 242,324 481,087
Depreciation and amortization 20,054 30,586 51,447 76,958
Exchange (gain) loss (9,920) 15,190 10,658 37,317
Interest expense 105,985 6,047 258,362 11,016
General and administrative (3 month data includes
stock-based compensation expense (recovery) of $111,201
in 2003 and $(32,068) in 2002; 9 month data includes
stock-based compensation (recovery) of $88,221 in 2003
and $(116,805) in 2002) 388,178 246,971 781,336 897,976
--------------------------------------------------------------------------------------------------------------------------
891,220 599,088 1,819,508 2,513,003
--------------------------------------------------------------------------------------------------------------------------
Operating loss for the period (1,063,320) (492,820) (1,314,464) (2,155,450)
Interest income -- 469 -- 3,141
Other income -- -- 35,360 74,927
--------------------------------------------------------------------------------------------------------------------------
Loss for the period (1,063,320) (492,351) (1,279,104) (2,077,382)
Deficit, beginning of period (15,710,914) (14,415,321) (15,495,130) (12,830,289)
--------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $(16,774,234) $(14,907,672) $(16,774,234) $(14,907,671)
==========================================================================================================================
Basic and diluted loss per common share (note 7(b)) $ (0.02) $ (0.01) $ (0.03) $ (0.06)
==========================================================================================================================
See accompanying notes to consolidated financial statements.
- 6 -
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 Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------------
Operations:
Loss for the period $(1,063,320) $ (492,351) $(1,279,104) $(2,077,382)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of patents 709 3,031 3,545 3,485
Accretion of discount on
convertible loan 69,238 -- 136,435 --
Depreciation of equipment 13,136 33,855 41,692 79,772
Stock-based compensation 189,785 (136,189) 135,248 (357,703)
Gain on settlement of debt -- -- -- (74,451)
Changes in non-cash working capital
relating to operations:
Accounts receivable 201,462 (141,839) (59,678) 36,310
Government grant receivable 546 14,228 32,197 10,417
Inventory 197,208 112,678 (22,437) 162,610
Prepaid expenses and deposits 4,586 (36,631) (2,847) (53,290)
Accounts payable and accrued
liabilities (90,809) (67,560) 85,488 544,791
-----------------------------------------------------------------------------------------------------------
(477,459) (710,778) (929,461) (1,725,441)
Investments:
Acquisition of equipment -- (6,696) -- (63,559)
Disposition of equipment -- -- 2,582 --
Increase in patents and licenses -- 347 -- (33,500)
Other receivables -- -- -- 9,232
Restricted cash (1,632) 3,687 3,976 1,187
-----------------------------------------------------------------------------------------------------------
(1,632) (2,662) 6,558 (86,640)
Financing:
Bank indebtedness (57,165) 4,200 42,497 (134,055)
Repayment of loan payable (4,116) -- (94,989) --
Cash proceeds from issued and to be
issued common shares 108,333 379,830 108,333 1,093,997
Common shares issued upon warrants
exercised 416,306 -- 429,209 --
Common shares issued upon options
exercised 5,569 -- 5,569 --
Share issue costs -- -- (1,880) (56,354)
Repayment of share subscription receivable -- 90,600 -- 90,600
Obligations under capital lease -- (49,381) -- (76,764)
-----------------------------------------------------------------------------------------------------------
468,927 425,249 488,739 917,424
Effect of foreign exchange rate
changes on cash and cash equivalents 14,444 3,729 106,581 2,042
-----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 4,280 (284,462) (327,583) (892,615)
Cash, beginning of period 3,955 404,277 335,818 1,012,430
-----------------------------------------------------------------------------------------------------------
Cash, end of period $ 8,235 $ 119,815 $ 8,235 $ 119,815
===========================================================================================================
Supplementary information (note 11)
See accompanying notes to consolidated financial statements.
- 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 nine months ended September 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 nine month periods ending September
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 September 30, 2003, the Corporation requires additional
financing to continue to operate at current levels throughout the next
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):
- 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 nine months ended September 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 Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
---------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Loss for the period, as reported $(1,063,320) $ (492,351) $(1,279,104) $(2,077,382)
Add: employee stock-based
compensation recognized in
reported loss 93,606 -- 93,606 --
Less: additional stock-based employee
compensation expense determined under
fair value based method for all awards (10,202) (225,391) (257,657) (608,259)
---------------------------------------------------------------------------------------------------
Pro forma loss $ (979,916) $ (717,742) $(1,443,155) $(2,685,641)
===================================================================================================
====================================================================================================
Three months ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
----------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Basic and diluted loss per common shares:
As reported $ (0.02) $ (0.01) $ (0.03) $ (0.06)
Pro forma (0.02) (0.01) (0.04) (0.06)
====================================================================================================
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 159% (2002 - 148%); risk-free interest rate of
3.25% (2002 - 3.25%) and an expected life of four years.
- 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 nine months ended September 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 (955,000) 955,000 0.15
Options expired 1,768,167 (1,768,167) 0.20
Options exercised -- (35,917) 0.16
-----------------------------------------------------------------------------------------
Balance, September 30, 2003 (unaudited) 4,105,805 4,262,333 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 have
adopted FAS No. 133, which had no effect on our consolidated
financial statements.
- 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 nine months ended September 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, which had no effect on our consolidated financial
statements.
3. Inventory:
================================================================================
September 30, December 31,
2003 2002
--------------------------------------------------------------------------------
(Unaudited)
Raw materials $492,142 $317,411
Finished goods 64,884 143,974
--------------------------------------------------------------------------------
$557,026 $461,385
================================================================================
During the quarter, the Company recorded a write-down of inventory of
$190,616. The write-down of inventory was due to management's assessment
of the net realizable value of current inventory balances. The write-down
has been included in cost of sales.
- 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 nine months ended September 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 $91,694 (CDN$125,000) operating line from CIBC Bank, at an
interest rate of prime and secured by a $91,694 (CDN$125,000) guaranteed
investment certificate and a general security interest in all the
Corporation's assets.
At September 30, 2003, the Corporation also had $6,076 (2002 - nil) of
cash held in trust with regards to venture capital fundraising. Cash held
in trust and guaranteed investment certificates has been classified as
restricted cash.
5. Accounts payable and accrued liabilities:
================================================================================
September 30, December 31,
2003 2002
--------------------------------------------------------------------------------
(Unaudited)
Trade accounts payable $ 765,750 $1,016,759
Accrued liabilities 358,954 227,618
--------------------------------------------------------------------------------
$1,124,704 $1,244,377
================================================================================
6. Loans payable:
================================================================================
September 30, December 31,
2003 2002
--------------------------------------------------------------------------------
(Unaudited)
Promissory notes $134,563 $202,514
Current portion 134,563 202,514
--------------------------------------------------------------------------------
$ -- $ --
================================================================================
As at September 30, 2003, the Corporation was indebted to two parties for
an aggregate of $134,563 cash by way of promissory notes at interest rates
ranging from 9.5% to 10.5% per annum. The promissory notes are repayable
on demand.
- 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 nine months ended September 30, 2003 and 2002 (unaudited)
Year ended December 31, 2002
================================================================================
7. Common stock:
(a) Issued and outstanding
During the nine month period ended September 30, 2003, the
Corporation issued 3,416,639 common shares in settlement of $385,102
of accounts payable, 8,296,066 common shares upon exercise of
warrants for cash proceeds of $429,209, 35,917 common shares upon
exercise of options for cash proceeds of $5,569, 833,333 common
shares upon private placement for cash proceeds of $108,333, and
416,667 common shares upon conversion of convertible debentures with
a carrying value of $27,153
(b) Loss per share:
The following table sets forth the computation of basic and diluted
loss per share:
==========================================================================================================================
Three months ended Nine months ended
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Numerator:
Loss for the period $ (1,063,320) $ (492,351) $ (1,279,104) $ (2,077,382)
==========================================================================================================================
Denominator:
Weighted average number of
common shares outstanding 43,705,300 34,720,155 38,474,512 32,675,322
==========================================================================================================================
Basic and diluted loss per
common share $ (0.02) $ (0.01) $ (0.03) $ (0.06)
==========================================================================================================================
For the three and nine month periods ended September 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.
- 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 nine months ended September 30, 2003 and 2002 (unaudited)
Year ended December 31, 2002
================================================================================
7. Common stock (continued):
(c) Warrants:
As at September 30, 2003, the Corporation has outstanding warrants
to purchase 12,163,906 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.
During the period, the Company issued non-registered warrants to
purchase 6,865,484 shares, at US$0.10 per share, with an expiry date
of July 15, 2005. Non-registered warrants were also issued, in
conjunction with the private placement, to purchase 416,667, at
$0.26 (CDN$0.36) per share, with an expiry date of August 7, 2005.
(d) Convertible debenture:
During the period, the Board of the Corporation agreed to amend the
conversion price of all the convertible notes from $0.09 (CDN$0.15)
to $0.06.
8. Segmented information:
(a) Segment information:
During the three and nine month periods ended September 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 Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
--------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Korea $ -- $ 196 $ 93 $1,183
China -- 82 518 362
Sweden -- 25 164 67
United States 100 68 1,212 515
Israel 35 30 73 30
Canada (26) -- 90 --
Other -- -- 6 --
--------------------------------------------------------------------------------------------------------
Total sales $ 109 $ 401 $2,156 $2,157
========================================================================================================
- 14 -
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 nine months ended September 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):
===============================================================================
Nine months ended
-----------------------------------
September 30, September 30,
2003 2002
------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Customer A 452 nil
Customer B 1,022 Less than 10%
Customer C Less than 10% 624
Customer D nil 507
Customer E nil 404
===============================================================================
9. Commitments:
The Corporation has the following future minimum lease commitments for
premises and equipment:
===============================================================================
2003 $ 17,000
2004 70,000
2005 76,000
2006 78,000
2007 78,000
2008 and thereafter 116,000
-------------------------------------------------------------------------------
$ 435,000
===============================================================================
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.
- 15 -
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 nine months ended September 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 $354,667 (CDN$483,491) to support the
development of a multi-carrier linear power amplifier. During
the three and nine month periods ended September 30, 2003, the
Corporation claimed gross proceeds of nil 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 $532,000 (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 $256,744 (CDN$350,000) to support the development
of a multi-carrier linear power amplifier. During the three
and nine month periods ended September 30, 2003, the
Corporation claimed gross proceeds of nil 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.
- 16 -
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 nine months ended September 30, 2003 and 2002 (unaudited)
Year ended December 31, 2002
================================================================================
10. Contingent liabilities (continued):
(c) Product warranty:
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, 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
Provision increase 5,773
Expenditures (6,070)
-------------------------------------------------------------------------------
Balance, September 30, 2003 (unaudited) $36,678
===============================================================================
- 17 -
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 nine months ended September 30, 2003 and 2002 (unaudited)
Year ended December 31, 2002
================================================================================
11. Supplementary information:
==========================================================================================================
Three months ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
----------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash paid for:
Interest $ 8,160 6,047 11,854 11,016
Income taxes -- -- -- --
==========================================================================================================
Non-cash investing or financial activities:
Issuance of common shares
in settlement of accounts
payable $172,549 $ -- $385,102 $ --
Issuance of common shares
upon conversion of convertible
debenture $ 27,153 $ -- $ 27,153 $ --
Note payable on reclassification
of accounts payable $ -- $106,559 $ -- $106,559
Purchase of equipment funded
by obligation under capital
lease $ -- $162,381 $ -- $162,381
==========================================================================================================
12. Subsequent events:
Subsequent to September 30, 2003, 2,057,483 warrants were exercised for
total cash proceeds of $288,049.
- 18 -
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.
General
We are in the business of designing, developing and manufacturing RF (radio
frequency) subsystems including high power linear RF amplifiers and specialized
integrated communications products targeting
- 19 -
both the cellular and fixed wireless markets, referred to as wireless local
loop. 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. 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. Our products are used in base stations and repeaters that are used to
extend coverage in cellular telephone networks. Some products are also used in
base station equipment.
Results of Operations
Three months Ended September 30, 2003 and September30, 2002
Sales
Net sales in the third quarter of 2003 decreased by 73% or $291,926, to $108,590
from $400,516 in the third quarter of 2002. The is primarily a factor of the
slowness in the realization of projects in our customer base.
Cost of Goods Sold and Operating Expenses
Cost of goods sold during the third quarter of 2003 decreased by 5%, or $13,558,
to $280,690 from $294,248 in the third quarter of 2002. Included in cost of
goods sold in the third quarter of 2003 was a write-down of inventory, in the
amount of $190,616. Net of the write-down of inventory cost of goods sold for
the third quarter of 2003 decreased by $204,174. As a percentage of revenue,
cost of goods sold increased from the third quarter of 2002 to the third quarter
of 2003. This is primarily a factor of certain costs that did not decrease
proportionately as revenue declined. Cost of goods sold includes stock-based
compensation expense (recovery) of $1,257 in 2003 versus $(10,327) in 2002.
The gross margin of $(172,100) for the third quarter of 2003 represented a
decrease from a gross margin of $106,268 or 27% of net sales for the third
quarter of 2002. Net of the write-down of inventory, the gross margin of $18,516
or 17% of net sales for the third quarter of 2003 represented a decrease from
the third quarter of 2002. This was due to certain costs not being able to be
reduced proportionately as revenues decreased.
Research and development expenses in the third quarter of 2003 increased by 11%,
or $31,071, to $304,902 from $273,831 in the third quarter of 2002, however, net
of stock-based compensation, research and development expenses decreased by
$81,923. 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 third quarter of 2003 versus the third quarter of
2002. Research and development expenses include stock-based compensation expense
(recovery) of $52,352 in 2003 versus $(60,642) in 2002.
Sales and marketing expenses in the third quarter of 2003 decreased by 1%, or
$904, to $82,021 from $82,925 in the third quarter of 2002, however, net of
stock-based compensation, sales and marketing expenses decreased by $59,031. The
decrease was a net effect of decreased advertising, promotional activities,
tradeshow and travel expenses to visit new customers and distributors. In the
remainder of 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
expense (recovery) of $24,975 in 2003 versus $(33,152) in 2002.
- 20 -
Depreciation and amortization in the third quarter of 2003 decreased by 34%, or
$10,532, to $20,054 from $30,586 in 2002. The decrease was attributable to the
return of a number of leased equipment pieces resulting in a lower asset balance
to be depreciated.
Exchange (gain) loss in the third quarter of 2003 decreased by $25,110, to an
exchange gain of $(9,920) from an exchange loss of $15,190 in the third 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 third quarter of 2003 increased by $99,938, to $105,985
from $6,047 in 2002. The increase was the result of interest relating to the
outstanding loans payable and convertible debenture.
General and administrative expenses in the third quarter of 2003 increased by
57%, or $141,207, to $388,178 from $246,971 in 2002, however, net of stock-based
compensation, general and administrative expenses decreased by $2,062 . The
change was the net result of an increase of $35,394 in corporate expenses due to
value assigned to shares issued for investor relation services, an increase of
$41,078 in facility expenses due to value assigned to shares issued relating to
a renegotiation of our leased premises, and a decrease of decrease of 54% or
$78,534 to $66,102 from $144,636 largely resulting from a decrease in salaries
and related expenses due to a decline in the number of employees. General and
administrative expenses include stock-based compensation expense (recovery) of
$111,201 in 2003 versus $(32.068) for 2002.
- 21 -
Nine months Ended September 30, 2003 and September 30, 2002
Sales
Net sales for the nine months ended September 30, 2003 remained relative
constant at $2,156,478 from $2,156,766 for the nine months ended September 30,
2002.
Cost of Goods Sold and Operating Expenses
Cost of goods sold for the nine months ended September 30, 2003 decreased by 8%,
or $147,779, to $1,651,434 from $1,799,213 for the nine months ended September
30, 2002. Included in cost of goods sold for the nine months ended September 30,
2003 was a write-down of inventory, in the amount of $190,616. Net of the
write-down of inventory cost of goods sold for the nine months ended September
30, 2003 decreased by 19%, or $338,395. 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. Cost of goods includes stock-based compensation
expense (recovery) of $1,257 in 2003 versus $(29,548) in 2002.
The gross margin of $505,044 or 23% of net sales for the nine months ended
September 30, 2003 represented a increase from a gross margin of 357,553 or 17%
of net sales for the nine months ended September 30, 2002. Net of the write-down
of inventory, the gross margin for the nine months ended September 30, 2003 was
695,660 or 32% of net sales. The increase was due to our cost cutting measures
since the third quarter of 2002.
Research and development expenses for the nine months ended September 30, 2003
decreased by 43%, or $483,636, to $646,823 from $1,130,459 for the nine months
ended September 30, 2002, however, net of stock-based compensation, research and
development expenses decreased by $639,077. 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 nine
months ended September 30, 2003 versus the nine months ended September 30, 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 $38,366 in 2003
versus $(117,075) in 2002.
Sales and marketing expenses for the nine months ended September 30, 2003
decreased by 50%, or $238,763, to $242,324 from $481,087 for the nine months
ended September 30, 2002, however, net of stock-based compensation, sales and
marketing expenses decreased by $340,442. The decrease was a net effect of
decreased advertising, promotional activities, tradeshow and travel expenses to
visit new customers and distributors. In the remainder of 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 $7,404 in 2003
versus $(94,275) in 2002.
Depreciation and amortization for the nine months ended September 30, 2003
decreased by 33%, or $25,511, to $51,447 from $76,958 in 2002. The decrease was
attributable to the return of a number of leased equipment pieces resulting in a
lower asset balance to be depreciated.
Exchange (gain)loss for the nine months ended September 30, 2003 decreased by
$26,659, to an exchange loss of $10,658 from an exchange loss of $37,317 for the
nine months ended September 30, 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.
- 22 -
Interest expense for the nine months ended September 30, 2003 increased by
$247,346, to $258,362 from $11,016 in 2002. The increase was the result of
interest relating to the outstanding loans payable and convertible debenture.
General and administrative expenses for the nine months ended September 30, 2003
decreased by 13%, or $116,640, to $781,336 from $897,976 in 2002, however, net
of stock-based compensation, general and administrative expenses decreased by
$321,666. The change was the net result of an increase of $40,867 in corporate
expenses due to value assigned to shares issued for investor relation services,
an increase of $36,063 in facility expenses due to value assigned to shares
issued relating to a renegotiation of our leased premises, and a decrease of 61%
or $398,596 to $259,317 from $657,913 largely resulting from a decrease in
salaries and related expenses due to a decline in the number of employees.
General and administrative expenses include stock-based compensation (recovery)
expense of $88,221 in 2003 versus $(116,805) in 2002.
Other Income and Expenses
Other income in the nine months ended September 30, 2003 decreased by 53%, or
$39,567, to $35,360 from $74,927 in the nine months ended September 30, 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 September 30, 2003 of
$(16,774,234). During the nine months ended September 30, 2003, we focused
entirely on the wireless amplifier product segment and incurred a net loss,
after stock-based compensation, of $(1,279,104)
During the three and nine months ended September 30, 2003, our cash position
decreased significantly. The primary use of cash was for our continued
operations. We currently are in various stages of discussion with our suppliers
regarding extended payment terms for their respective outstanding September 30,
2003 accounts payable balances.
During the three and nine months ended September 30, 2003, we had no material
investing activities
During the three months ended September 30, 2003, the Corporation issued
1,519,192 common shares in settlement of $172,549 of accounts payable, 8,038,002
common shares upon exercise of warrants for cash proceeds of $416,306, 35,917
common shares upon exercise of options for cash proceeds of $5,569, and 416,667
common shares upon conversion of convertible debentures for a value of $27,153.
In addition, the Corporation issued in a private placement to Myer Bentob, a
director of the Company, 833,333 common shares for cash proceeds of $108,333.
Non-registered warrants were also issued, in conjunction with the private
placement, to purchase 416,667, at US$0.26 (CDN$0.36) per share. The Company
issued non-registered warrants to purchase 6,607,420 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.
During the nine months ended September 30, 2003, the Corporation issued
3,416,639 common shares in settlement of $385,102 of accounts payable, 8,296,066
common shares upon exercise of warrants for cash proceeds of $429,209, 35,917
common shares upon exercise of options for cash proceeds of $5,569, and 416,667
common shares upon conversion of convertible debentures for a value of $27,153.
In addition, the Corporation issued in a private placement to Myer Bentob, a
director of the Company, 833,333 common shares for cash proceeds of $108,333.
Non-registered warrants were also issued, in conjunction with the private
placement, to purchase 416,667, at US$0.26 (CDN$0.36) per share. The Company
issued non-registered warrants to purchase 6,865,484 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
- 23 -
an exercise price that was reduced to US$0.05 per share from CDN$0.15 per share.
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.
Subsequent to September 30, 2003, the Corporation issued 2,057,483 common shares
upon exercise of warrants for cash proceeds of $288,049.
Other than operating loan commitments and a commitment under existing leases for
an aggregate of $435,000 through 2009, we have no material commitments,
including capital commitments, outstanding at September 30, 2003.
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 September 30, 2003, we had a working
capital deficiency of $660,324. 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. Our ability to continue as a going concern as to 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.
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, however, 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.
- 24 -
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 September 30, 2003.
Item 2. Changes in Securities
During the three months ended September 30, 2003, the Corporation issued
1,519,192 common shares in settlement of $172,549 of accounts payable, 8,038,002
common shares upon exercise of warrants for cash proceeds of $416,306, 35,917
common shares upon exercise of options for cash proceeds of $5,569, and 416,667
common shares upon conversion of convertible debentures for a value of $27,153.
In addition, the Corporation issued in a private placement to Myer Bentob, a
director of the Company, 833,333 common shares for cash proceeds of $108,333.
Non-registered warrants were also issued, in conjunction with the private
placement, to purchase 416,667, at US$0.26 (CDN$0.36) per share. The Company
issued non-registered warrants to purchase 6,607,420 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.
Subsequent to September 30, 2003, the Corporation issued 2,057,483 common shares
upon exercise of warrants for cash proceeds of $288,049.
These newly issued securities were issued in private placements in reliance on
Section 4(2) of the Securities Act of 1933.
- 25 -
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* Third 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)
- 26 -
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 6,865,484 shares. (10)
10.20** Form of subscription agreement for common shares and warrants issued to
Myer Bentob, in a private placement, for an aggregate of 833,333 shares
and 416,667 warrants.
- 27 -
10.21** Form of warrants issued to Myer Bentob, in a private placement, for an
aggregate of 416,667 shares.
21.1 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
(10) Incorporated by reference to our 10-QSB filed with the Securities and
Exchange Commission on August 14, 2003
(b) Reports on form 8-K
The Company filed a current report on Form 8-K July 24, 2003, with respect
to revenues for the second quarter of 2003.
The Company filed a current report on Form 8-K August 21, 2003, with
respect to results for the second quarter of 2003.
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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
bethree quarters by the undersigned, thereunto duly authorized.
UNITY WIRELESS CORPORATION
By: /s/ Ilan Kenig
-------------------------------------
Ilan Kenig, President,
Chief Executive Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
November 14, 2003