SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITY WIRELESS CORPORATION
(Name of small business issuer in its charter)
Delaware 9995 91-1940650
(State or jurisdiction of (Primary Standard (I.R.S. Employee
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
31635 36th Avenue S.W., Federal Way, WA 98023-2105 - 1 (800) 337-6642
(Address and telephone number of principal executive offices)
31635 36th Avenue S.W., Federal Way, WA 98023-2105
(Address of principal place of business or intended principal place of business)
Evergreen Corporate Services, Inc.
31635 36th Avenue S.W.
Federal Way, WA 98023-2105
(253) 874-2949)
(Name, address and telephone number of agent for service)
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Approximate date of proposed sale to the public: As soon as
possible after the effective date of this registration statement.
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective statement for the
same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
Title of each class of Number of shares Proposed maximum Proposed maximum Amount of
securities to be registered to be registered(1) offering price aggregate registration fee
per unit offering price
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Common Stock issued in 796,428 shares of $0.21(2) 167,250 $41.81
private placements common stock
Common Stock 175,000 shares $0.21(2) 36,750 $ 9.19
acquired in of common stock
private resales
Common Stock Underlying the 300,000 shares of $0.29 $87,000(3) $21.75
Mueller and Ideas warrants common stock
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TOTAL $291,000 $72.75
(1) Calculated pursuant to Rule 457(c) and (g) under the Securities Act of
1933.
(2) Estimated pursuant to Rule 457(c), based on the average of the last bid and
asked prices for the Registrant's Common Stock on October 8, 2001.
(3) Based on the actual warrant exercise price per Rule 457(g).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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Explanatory Note
This Amendment No. 1 is being filed solely to supply the delaying amendment
paragraph set forth immeditely preceding this explanatory note, which was
omitted from the inital filing. The filing fee was paid with the initial filing.
================================================================================
PROSPECTUS
October 10, 2001
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UNITY WIRELESS CORPORATION
(FORMERLY SONIC SYSTEMS CORPORATION)
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1,271,428 Shares of Common Stock
-----------
The Company has prepared this prospectus to register up to 1,271,428 shares
of common stock for sale by certain shareholders and by the Company to certain
warrant holders. Up to 796,428 shares may be sold under this registration
statement by 10 shareholders who received shares from the Company through
various private placements. An additional 175,000 shares may be sold by 4
shareholders, of whom 1 is included in the 10 shareholders mentioned previously,
who acquired their shares through various private resales. The remaining 300,000
shares covered by the registration statement are issuable upon exercise of
warrants that were issued to consultants of the Company.
The Company's common stock is traded on the NASD OTC Bulletin Board under
the symbol UTYW. The closing sale price for its common stock was $0.15 on
September 4, 2001.
FOR INFORMATION REGARDING CERTAIN RISKS RELATING TO THE COMPANY, SEE "RISK
FACTORS" ON PAGES 2-7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is October 10, 2001.
TABLE OF CONTENTS
Page No.
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SUMMARY INFORMATION..........................................................1
RISK FACTORS.................................................................1
USE OF PROCEEDS..............................................................8
SELLING SECURITY HOLDERS.....................................................8
PLAN OF DISTRIBUTION........................................................11
LEGAL PROCEEDINGS...........................................................11
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............15
DESCRIPTION OF SECURITIES...................................................16
INTEREST OF NAMED EXPERTS AND COUNSEL.......................................17
THE SEC'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES........17
DESCRIPTION OF THE BUSINESS.................................................18
MANAGEMENT'S DISCUSSION AND ANALYSIS........................................25
DESCRIPTION OF PROPERTY.....................................................29
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................30
EXECUTIVE COMPENSATION......................................................31
FINANCIAL STATEMENTS........................................................42
INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................II-1
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION...............................II-1
RECENT SALES OF UNREGISTERED SECURITIES...................................II-1
EXHIBITS..................................................................II-4
UNDERTAKINGS..............................................................II-5
SIGNATURES................................................................II-6
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FORWARD-LOOKING STATEMENTS
The Company may use words like "expects," "intends," "anticipates,"
"plans," "projects" or "estimates" in this prospectus. When used, these words
identify "forward-looking" statements. Forward-looking statements are by their
nature subject to many varied uncertainties and risks. Actual results could vary
greatly. Potential investors should review the "Risk Factors" below for a
discussion of some of these risks.
The Company is making these statements only as of the date of this amended
and restated prospectus. It has no obligation to update or revise these
statements if circumstances or its expectations change.
SUMMARY INFORMATION
Because this section is a summary, it may not contain all of the
information important to an investor. Investors should read this prospectus
completely and carefully before deciding whether to invest.
Summary of the Offering
This is an offering of up to 1,271,428 shares of common stock of the
Company, including up to 971,428 shares held by certain of the Company's
security holders (the "Selling Shareholders") and 300,000 shares issuable upon
the exercise of certain outstanding warrants previously issued by the Company to
certain of the Selling Shareholders and others. The Company will not receive any
proceeds from the sale of the shares by the Selling Shareholders but the Company
will receive up to $87,000 in proceeds upon exercise of the warrants.
Summary of Our Business
Unity Wireless Corporation is a designer, developer and manufacturer of
wireless technologies and products for a broad range of industrial and
commercial applications. The Company's business is focused upon its UltraTech
high power linear radio frequency (RF) amplifiers.
UltraTech high power linear RF amplifiers are used in both mobile and fixed
wireless voice, Internet and data base station and repeater networks and support
Cellular, PCS (Personal Communications Services), Paging and WLL (Wireless Local
Loop) frequencies. Unity Wireless produces 6 different models of high power RF
amplifiers, and is developing sub-systems and components, including new
ultra-linear RF amplifiers, that are designed to improve the performance of
wireless telecommunications networks, making it faster and more cost effective
for our customers to build out their next-generation 2.5, 3 and 4G networks.
The Company formerly produced an acoustic siren detector unit (the "Sonem"
product) and a wireless communication card (the "UniLinx" product). Both the
Sonem and the UniLinx businesses have been sold.
RISK FACTORS
Readers should carefully consider the risks described below before deciding
whether to invest in shares of the Company's common stock.
If the Company does not successfully address any of the risks described
below, there could be a material adverse effect on the Company's business,
financial condition or results of operations, and the trading price of the
Company's common stock may decline and investors may lose all or part of their
investment.
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The Company cannot assure any investor that it will successfully address
these risks.
Risks Relating to the Common Stock of the Company
Possible Loss of Entire Investment
Given the Company's continued need for additional capital, the Company's
stock involves a high degree of risk, and should not be purchased by any person
who cannot afford the loss of the entire investment. A purchase of the Company's
stock is currently "unsuitable" for a person who cannot afford to lose his
entire investment.
Need for Additional Capital
Since its inception, the Company has been dependent on investment capital
as its primary source of liquidity. Sales of the Company's Sonem and UniLinx
products have provided insufficient cash flow to sustain operations. The Company
had an accumulated deficit at June 30, 2001 of $11,237,439. During the year
ended December 31, 2000 the Company incurred a loss of $5,318,633 (1999 -
$2,025,101) and used cash from operations of $3,097,829 (1999 - $1,760,306).
Operations to date have been primarily financed by equity. During the six months
ended June 30, 2001, the Company incurred a loss of $505,164 (2000 -$1,727,467)
and used cash from operations of $644,838 (2000 - $954,493).
"Going Concern" Opinion
The financial statements (See 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 long-term debt and
equity transactions. The Company'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 shareholders, and,
ultimately, the achievement of profitable operations. There can be no assurances
that the Company will be successful. If it is not, the Company will be required
to reduce operations or liquidate assets. The Company 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 auditors' report on the December 31, 2000 consolidated
financial statements includes an explanatory paragraph that states that as the
Company has suffered recurring losses from operations, substantial doubt exists
about its ability to continue as a going concern. 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 Company be unable to continue as a going concern.
No Public Market for Common Stock
The Company's common stock is quoted on the OTC electronic bulletin board.
Management's strategy is to develop a public market for the Company's common
stock by soliciting brokers to become market makers of the stock. To date,
however, the Company has
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solicited only a limited number of such securities brokers to become market
makers. There can be no assurance that a stable market for the Company's common
stock will ever develop or, if it should develop, be sustained. It should be
assumed that the market for the Company's common stock will continue to be
highly illiquid, sporadic and volatile. The Company's stock should not be
purchased by anyone who cannot afford the loss of the entire investment.
The Company is required to maintain status as a "reporting" issuer under
the Securities Exchange Act of 1934, in order to be traded by broker-dealers
regulated by the National Association of Securities Dealers ("NASD"). If the
Company fails to continue to be a reporting issuer, management may encounter
difficulty in maintaining or expanding a trading market in the near term, if at
all, and shareholders may not be able to sell their shares in the public market.
While management currently intends to maintain status as a reporting issuer
under the Exchange Act, there can be no assurance that the Company can or will
maintain such status.
Penny Stock Regulation
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 per share (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ National Market System, if current price and volume information with
respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker-dealer, before consummation of a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the SEC that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with bid and ask
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that, before consummation of a transaction in a
penny stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that a penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements often have the effect of reducing the level of
trading activity in any secondary market for a stock that becomes subject to the
penny stock rules. The Company's stock is currently subject to the penny stock
rules, and accordingly, investors may find it difficult to sell their shares, if
at all.
Possible Issuance of Additional Shares in the Future
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of common stock and 5,000,000 shares of preferred stock. The
Company's Board of Directors may issue all such shares that are not yet issued,
without stockholder approval. The Company's Board of Directors may choose to
issue some or all of such shares to acquire one or more businesses or other
types of property, or to provide additional financing in the future. The
issuance of any such shares may result in a reduction of the book value or
market price of the outstanding shares of the Company's common stock. If the
Company does issue any such additional shares, such issuance also will cause a
reduction in the proportionate ownership and voting power of all other
shareholders. Further, any such issuance may result in a change of control of
the Company.
3
Absence of Dividends; Dividend Policy
The Company has never paid dividends on its common stock and does not
anticipate paying any dividends on its common stock in the foreseeable future.
The declaration and payment of dividends by the Company are subject to the
discretion of the Company's Board of Directors. Any determination as to the
payment of dividends in the future will depend upon results of operations,
capital requirements, and restrictions in loan agreements, if any, and such
other factors as the Board of Directors may deem relevant.
Stock Options
The Company has adopted a stock option plan. The total number of shares of
common stock to be delivered on the exercise of all options granted under the
plan may equal up to 20% of all outstanding shares of such common stock,
including shares of common stock previously issued under the plan. The Company
had options for 4,353,250 shares of common stock issued and outstanding as of
September 4, 2001 (out of 6,442,038 issuable under the plan as of that date) at
the following exercise prices:
Number of Shares* Exercise Price ($)
----------------- -----------------
3,169,500 0.38
210,000 0.47
385,000 0.50
332,500 0.51
10,000 0.64
238,750 1.00
7,500 2.06
* These numbers do not include options for 500,000 shares at an exercise
price of $1.00 originally granted to Integrated Global Financial
Corporation ("IGF"). IGF has sued the Company for a declaration that the
grant of 500,000 options is of unlimited duration. The Company takes the
position that the options have expired. See "Legal Proceedings."
The existence of below-market options could adversely affect the market
price of the Company's common stock and impair the Company's ability to raise
additional capital through the sale of its equity securities or debt financing.
Exercise of any such options will result in dilution of the proportional
interests of shareholders of the Company at the time of exercise, and, to the
extent that the exercise price is less than the book value of the common stock
at that time, to the book value per share of the common stock.
Risks Related to the Business and Operations of the Company
Lack of Prior Operations and Experience
The Company has limited revenues from operations and has no significant
tangible assets. Accordingly, there can be no assurance that the Company will
operate at a profitable level. The Company's business involves the development,
manufacture and marketing of
4
products, novel and otherwise, in the wireless communications industry. Future
development and operating results will depend on many factors, including the
completion of developed products, demand for the Company's products, level of
product and price competition, success in setting up and expanding distribution
channels, and whether the Company can develop and market new products and
control costs. In addition, the Company's future prospects must be considered in
light of the risks, expenses and difficulties frequently encountered in
establishing a new business in the technology industry, which is characterized
by intense competition, rapid technological change, and significant regulation.
There can be no assurance that the Company's future financial forecasts will be
met.
Need for Experienced Management and Key Employees/Limited Experience of Senior
Management
The Company is a growing company dependent upon the services of certain
management and technical personnel, particularly John Robertson and Roland
Sartorius. The loss of the services of any one of these persons, or an inability
to recruit and retain additional qualified personnel, could have a material
adverse effect on the Company. The Company has no plans at present to obtain key
person life insurance for any of its officers and directors.
Substantial Competition
The wireless communications industry is characterized by rapidly evolving
technology and intense competition. The Company may be at a disadvantage with
other companies having larger technical staffs, established market shares and
greater financial and operational resources than the Company. There can be no
assurance that the Company will be able to successfully compete. There also can
be no assurance that the Company's competitors will not succeed in developing
products or competing technologies that are more effective or more effectively
marketed than products marketed by the Company, or that render the Company's
technology obsolete. Earlier entrants into a market often obtain and maintain
significant market share relative to later entrants. The Company believes that
an increasing number of products in the market and the desire of other companies
to obtain market share will result in increased price competition. Price
reductions by the Company in response to competitive pressure could have a
material, adverse effect on the Company's business, financial condition, and
results of operations.
Protection of Proprietary Technology
The Company's success will depend in part on its ability to preserve and
protect its trade secrets and any proprietary technology, and to operate without
infringing upon the patents or proprietary rights of third parties in both the
United States and other countries.
The Company does not own any patents in connection with its UltraTech
products or technologies. Furthermore, the Company does not intend to apply for
patent protection of UltraTech products or technologies.
The Company has filed applications for trade mark protection in the U.S.
and Canada.
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The Company is not aware of any disputes with respect to any of its
intellectual property, except as follows:
a. a possible opposition to the application for registration of the trade mark
"Unity Wireless" in Canada by a party applying for registration in Canada
of the trade mark "Unity;" and
b. an examiner's opposition to the application for registration of the trade
mark "Unity Wireless" in the United States on the basis that the trade mark
"Unity Wireless" is confusing with currently registered trade marks.
The Company is working to resolve these issues and believes it will be able to
so do successfully.
The Company is not involved in any litigation respecting its intellectual
property. The use of trade marks, service marks, trade names, slogans, phrases
and other expressions in the course of the business of the Company and its
subsidiaries, however, may be the subject of dispute and possible litigation.
The Company may have to defend itself from infringement claims by others. Such
litigation is expensive and time-consuming, and can be used by well-funded
adversaries as a strategy for depleting the resources of a small enterprise such
as the Company. There is no assurance that the Company will have sufficient
resources to successfully protect its interests in any litigation that may be
brought. There can be no assurance that the Company or its subsidiaries will be
able to continue to use their current trade names and marks. Any changes could
result in confusion to potential customers and negatively affect the Company's
business.
Dependence on Suppliers and Third Parties
The Company is a small enterprise and has yet to establish substantial
internal management, personnel and other resources. The Company depends
substantially upon third parties for several critical elements of its business
including, among other things, promotion and marketing, technology and
infrastructure development and distribution activities. The Company also depends
substantially upon third party sales agents. A substantial portion of the
Company's high power RF amplifier revenues to date have been derived through its
South Korean sales agent. The loss of any of these resources could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company relies on outside suppliers for some components and the
assembly of some portions of the Company's products. There can be no assurance
that component parts, materials or services obtained from outside suppliers will
continue to be available in adequate quantities or on adequate terms. The
inability to obtain sufficient quantities of such materials, parts or services
at reasonable cost could have a material adverse affect on the Company's
business, financial condition and results of operations.
Need for Marketing and Sales
The successful execution of the Company's business plan entails marketing,
brand development and sales. There is no guarantee that the Company will be
successful in managing such a strategy of marketing and sales to effect a
reasonable penetration of its technologies into its target markets on a timely
basis or at all.
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Need for Future Strategic Partnerships
The successful execution of the Company's business strategy is partially
dependent upon enlisting a number of strategic partners, regionally, nationally
and globally, in order to assist in a focused marketing effort and to provide
financial strength. There is no assurance that the Company will be successful in
developing such strategic partnerships on a timely basis or in developing enough
strategic partnerships to successfully market the Company's technologies and
products globally.
Acceptance of Company's Technology; Creation of New Markets
There can be no assurance that the Company's technologies will be adopted,
that its technologies will be incorporated into products, or that products based
on its technologies will be marketed successfully. In addition, there can be no
assurance that the Company's technologies will be adopted widely as industry
standards, even if products based on its technologies have been introduced
successfully to the marketplace.
The markets for the Company's communication card technologies and products
have only recently begun to develop. As is typical in the case of a new and
rapidly evolving industry, demand and market acceptance for recently introduced
products and services are subject to a high level of uncertainty and risk.
Because the markets for the Company's technologies and products are new and/or
evolving, it is difficult to predict the future growth rate, if any, and size of
these markets. There is no assurance either that the markets for the Company's
technologies and products will emerge or become or remain sustainable. If the
markets fail to develop, develop more slowly than expected or become saturated
with competitors, or if the Company's technologies and products do not achieve
or sustain market acceptance, the Company's business, results of operations and
financial condition will be materially and adversely affected.
Uncertainty of New Product Development
The Company has only recently released commercial versions of some of its
technologies and products. Additional efforts and expenditures to enhance their
capabilities are critical to commercial viability.
Product Warranty
The Company's products are relatively new to their respective markets and
lack extensive field operating experience. While the Company has tested its
products for failure in certain circumstances, there can be no assurance that
the Company's products will continue to operate satisfactorily after sustained
field use. If a substantial number of products are returned and accepted for
warranty replacement, the cost to the Company could have a material adverse
effect on the Company's business and financial condition. See "Recent
Developments - Sale of Sonem Business."
Product Liability
The emergency traffic preemption devices of the Company's Sonem division
(sold in October 2000) are installed at traffic intersections. Also, the Company
has sold some of its UniLinx(TM) devices for use with traffic control equipment
located at intersections. If any of these products fail to perform properly,
significant personal injury, property damage or death could
7
arise from traffic accidents resulting from such failure. Although the Company
maintains product liability insurance, there is no assurance that the amount of
coverage will be sufficient in the event of a claim, or that coverage will
continue to be available to the Company on reasonable terms and conditions or at
all.
Failure to Maintain Technological Advantages/Risk of Obsolescence
The Company is dependent upon what it perceives as the technological
advantages of its products and its ability to maintain trade secret protection
for its products. There can be no assurance that the Company will be able to
obtain or maintain such advantages; failure to do so would have substantial
adverse consequences to the business of the Company.
Technological obsolescence of the Company's technologies and products
remains a possibility. There is no assurance that the competitors of the Company
will not succeed in developing related products using similar processes and
marketing strategies before the Company, or that they will not develop
technologies and products that are more effective than any which have been or
are being developed by the Company. Accordingly, the Company's ability to
compete will be dependent on timely enhancement and development of its
technologies and products, as well as the development and enhancement of future
products. There is no assurance that the Company will be able to keep pace with
technological developments or that its products will not become obsolete.
Foreign Currency Exposure
The Company's functional currency is the Canadian dollar. The Company is
exposed to fluctuations in the US dollar relative to the Canadian dollar,
because it collects revenues in U.S. dollars. As the Company expands its
operations, it may begin to collect revenues from customers in currencies other
than the US or Canadian dollar. The Company does not currently engage in any
hedging activities.
USE OF PROCEEDS
The Company will not receive any proceeds upon the sale of shares by the
selling shareholders described in this prospectus. The Company will, however,
receive proceeds if the warrant holders described in this prospectus exercise
their warrants. The Company will use such proceeds to fund operations and
corporate acquisitions.
SELLING SECURITY HOLDERS
This registration statement covers the offering of shares of common stock
by certain selling security holders (the "Selling Shareholders") and the sale of
common stock by the Company to certain warrant holders upon the exercise of
their warrants. It is being filed in order to register, on behalf of the Selling
Shareholders and the Company, a total of 1,271,428 shares of common stock as
follows:
(i) 796,428 shares issued to investors through various private placements;
8
(ii) 175,000 shares owned by shareholders who acquired their shares through
various private resales.
(collectively, the "secondary shares")
(iii)a total of 300,000 shares of common stock issuable by the Company upon
the exercise of certain warrants previously issued by the Company as
follows: 300,000 shares of common stock issuable to consultants
Mueller &Company, Inc. and Ideas Inc. ("Mueller and Ideas") upon the
exercise of warrants granted under an amendment dated as of April 1,
2001 to a consulting agreement between the Company and Mueller and
Ideas dated as of January 1, 2001. (the "warrant shares").
The secondary shares are "restricted" shares under applicable federal and
state securities laws and are being registered to give the Selling Shareholders
the opportunity to sell their shares. The registration of such shares does not
necessarily mean, however, that any of these shares will be offered or sold by
the Selling Shareholders. The Selling Shareholders may from time to time offer
and sell all or a portion of their shares in the over-the-counter market, in
negotiated transactions, or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices.
The secondary shares may be sold directly or through brokers or dealers, or
in a distribution by one or more underwriters on a firm commitment or best
efforts basis. To the extent required, the names of any agent or broker-dealer
and applicable commissions or discounts and any other required information with
respect to any particular offer will be set forth in an accompanying Prospectus
Supplement. See "Plan of Distribution." Each of the Selling Shareholders
reserves the sole right to accept or reject, in whole or in part, any proposed
purchase of the secondary shares to be made directly or through agents. The
Selling Shareholders and any agents or broker-dealers that participate with the
Selling Shareholders in the distribution of secondary shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by them and any profit on the
resale of the secondary shares may be deemed to be underwriting commissions or
discounts under the Securities Act.
There will be no proceeds received by the Company from the sale of any
secondary shares and the Company has agreed to bear the expenses of registration
of the secondary shares, other than commissions and discounts of agents or
broker-dealers and transfer taxes, if any.
The Company will sell the warrant shares to the holders of the
above-described warrants if and when they choose to exercise them. If this (or
any subsequent) registration statement is then in effect, once the warrant
holders have exercised their warrants, they will be free to re-sell the stock
they receive at such time or times as they may choose, just as any purchaser of
stock in the open market is allowed to do. The Company does not know how much,
if any, of such stock these investors will hold or re-sell upon exercise of
their warrants.
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The foregoing summary of the warrant terms is qualified in its entirety by
the full terms of the applicable warrant agreements, a sample form of which is
incorporated by reference in this Prospectus as an exhibit to the registration
statement.
Selling shareholders who acquired their shares through private placements
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The following is a list of the private placement investors who own 796,428
of the secondary shares received through various private placements. Some of
these investors hold or have held a position, office or any other material
relationship with the Company or predecessors or affiliates within the past
three years. See "Directors, Executive Officers, Promoters, and Control
Persons." Also, Jong Kil Kim is an agent of the Company responsible for sales in
Korea. None of these persons holds over one percent of the outstanding stock of
the Company, except for Mark Godsy who owns 9.30% of the outstanding stock
including options that are exercisable on September 30, 2001 (9.30% after the
offering is complete).
Amount of Securities Amount to be Offered Amount to be Owned
Owned on August 30, 2001 for Security Holder's After Offering is
Account Complete
John Robertson 203,315 203,315 0
Mirza Kassam 144,198 144,198 0
Chris Neumann 130,212 130,212 0
Robert Fetherstonhaugh 82,363 82,363 0
John MacBain 43,706 43,706 0
Louise Blouin 43,706 43,706 0
Hugh Notman 200,500 26,250 174,250(1)
Peter Scott 26,250 26,250 0
3OE Enterprises Inc. 65,000(2) 25,000 40,000(2)
Mark Godsy 2,265,412 21,428 2,243,984
Jong Kil Kim 50,000 25,000 0
Robert Singer 25,000 25,000 0
(1) Includes 50,000 shares registered under the Company's SB-2A filed May 3,
2001.
(2) Includes 40,000 shares owned directly or indirectly by Norm Dowds, the
principal of 3OE Enterprises.
Selling shareholders who acquired their shares through private resales
----------------------------------------------------------------------
The following is a list of the shareholders who own 175,000 secondary
shares received through various private resales. None of these investors holds
or has held any position, office or any other material relationship with the
Company or predecessors or affiliates within the past three years, except as
noted above.
Amount of Securities Amount to be Offered Amount to be Owned
Owned on August 30, 2001 for Security Holder's After Offering is
Account Complete
One Level Holdings Limited 100,000 100,000 0
James Carruthers 26,500 25,000 1,500
Jong Kil Kim 25,000(1) 25,000 0
Holger Spielberg 27,500 25,000 2,500
(1) Excludes 25,000 to be offered in previous table.
Warrants Held by Consultants
The following is a list of holders of warrants for a total of 300,000
warrant shares as described above and issued by the Company as compensation for
consulting services. None of these persons holds or has held any position,
office or any other material relationship with the Company or predecessors or
affiliates within the past three years, except as provided for in their
respective consulting agreements. To the best of the Company's knowledge, none
of these
10
persons holds any other stock of the Company and if they were to sell all of the
shares listed below, they would hold no equity interest in the Company.
No. of Warrant Per Share Exercise Price
Name Shares for Warrant Shares ($)
---- -------------- ------------------------
Mueller & Company, Inc. and Ideas, Inc. 300,000 0.29
Of the 300,000 warrants at $0.29 held by Mueller and Ideas, 25,000 are
immediately exercisable and the balance vest ratably and quarterly, with the
final vesting to occur on March 31, 2004.
The foregoing summary of the terms and conditions of the warrants held by
consultants is qualified in its entirety by the full terms of the applicable
consulting and warrant agreements, which are incorporated by reference in this
Prospectus as exhibits to the registration statement.
PLAN OF DISTRIBUTION
It is anticipated that the secondary shares will be sold by brokers and
dealers on a best efforts basis. It is anticipated that commissions will be
charged in line with the commissions charged by such brokers or dealers in other
standard transactions for the purchase and sale of publicly traded securities.
Such commissions will be paid by the Selling Shareholders just as with any
ordinary sale of stock.
The secondary shares may also be sold in a distribution by one or more
underwriters on a firm commitment or best efforts basis. To the extent required,
the names of any agent or broker-dealer and applicable commissions or discounts
and any other required information with respect to any particular offer will be
set forth in an accompanying Prospectus Supplement. Each of the Selling
Shareholders reserves the sole right to accept or reject, in whole or in part,
any proposed purchase of the secondary shares to be made directly or through
agents. The Selling Shareholders and any agents or broker-dealers that
participate with the Selling Shareholders in the distribution of secondary
shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any commissions received by them and any profit on the resale of the
secondary shares may be deemed to be underwriting commissions or discounts under
the Securities Act.
The Company will distribute the warrant shares if and when holders exercise
their warrants. As described above, the private offering investors may exercise
the warrants held by them in accordance with the appropriate vesting schedule.,
Assuming this or a subsequent registration statement with respect to the stock
is then in effect, the stock issued to the warrant holders upon exercise may be
re-sold in any manner and at any time the holder chooses (subject to applicable
securities laws). This registration statement does not cover any such
re-distribution of such shares.
LEGAL PROCEEDINGS
The Company, along with Sonic Systems Corporation and M&M Realty
Incorporated, has been sued in the Supreme Court of British Columbia, Canada, by
Integrated Global Financial Corporation ("IGF"). The action is dated January 5,
2001. The Plaintiff alleges it has options to purchase 500,000 shares at an
alleged exercise price of $1.00 per share, plus unspecified damages. The Company
disputes the allegations and is defending the claim vigorously.
11
No trial date has been set. No Examinations for Discovery have been
conducted or are even set down. The matter is at a very preliminary stage.
It is the Company's view that the claim has little, if any, merit and does
not expect the proceeding to have any material adverse effect on the Company.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors, executive officers, and significant employees of the Company
and significant employees of its subsidiary, UW Systems, are as follows:
NAME POSITION
---- --------
Mark Godsy................. Director and Chairman of Board of Directors of the Company
Director and Chairman of Board of Directors of UW Systems
John Robertson............. Director, President and Chief Executive Officer of the Company
Director, President and Chief Executive Officer of UW Systems
Roland Sartorius........... Director, Chief Financial Officer and Secretary of the Company
Director, Chief Financial Officer and Secretary of UW Systems
Thomas Dodd................ Director of the Company
Director and Senior Vice President of UW Systems
Ken Maddison............... Director of the Company
Robert W. Singer........... Director of the Company
Robert Fetherstonhaugh..... Director of the Company
Mark Godsy-Age 46. Mr. Godsy is a Director and the Chairman of the Board of
Directors of the Company and UW Systems. He previously served as a Director and
the Chairman of the Board of Directors of UW Systems from May 1993 to November,
1998, and as the Secretary of UW Systems from May, 1993 to July, 1995, and from
May, 1997 to November, 1998. Mr. Godsy was also Chief Executive Officer of the
Company from February 2000 until November 17, 2000. His term as a Director of
the Company runs until the next annual meeting of the shareholders unless
earlier terminated. Mr. Godsy is an experienced entrepreneur working in the
areas of corporate development and venture capital. He practiced law for
approximately five years before entering business and co-founding two successful
companies, ID Biomedical Corporation and Angiotech Pharmaceuticals Ltd., both
leading Canadian biotechnology firms. Mr. Godsy's responsibilities included
building executive management teams, coordinating corporate finance activities
and strategic positioning. Mr. Godsy is a graduate of the University of British
Columbia and received his law degree from McGill University. He is currently a
member of the Law Society of British Columbia.
John Robertson-Age 49. Mr. Robertson is a Director of the Company and the
Chief Executive Officer of the Company and of UW Systems. His term as Director
of the Company runs until the next annual meeting of shareholders unless earlier
terminated. Mr. Robertson has over 18 years experience in the telecommunications
industry with both public and private companies. He has held senior executive
positions with Glentel, Glenayre Communications and Uniden Canada. Mr. Robertson
played a key role in Glentel's increase in annual revenues from $9 million to
over $40 million, in addition to leading the restructuring of related company
Glenayre Communications. At Uniden Canada, his leadership resulted in over $32
million in annual revenues.
12
Recently, he founded Ultratech Linear Solutions ("Ultratech")in mid-1999
achieving over US$3 million in revenue before being acquired in November 2000 by
Unity Wireless.
Roland Sartorius-Age 48. Mr. Sartorius is a Director of the Company and the
Chief Financial Officer and Secretary of the Company and of UW Systems. His term
as Director of the Company runs until the next annual meeting of shareholders
unless earlier terminated. Mr. Sartorius has over 12 years experience in the
position of Chief Financial Officer in several public and private multinational
entities. Most recently, he was based in Switzerland and held the same position
with a private equity/venture capital firm managing several significant equity
funds, exceeding Sfr 100 million, with investments in various European and North
American technological/industrial companies. His focus has been in the areas of
corporate finance, strategic planning, financial reporting and controls,
international tax planning, compliance and investor/shareholder relations. From
1981 to 1988, Mr. Sartorius was employed with KPMG, initially as an auditor and
subsequently as a Management Consultant in Corporate Finance. Mr. Sartorius, a
Certified General Accountant, holds a Bachelor of Commerce & Business
Administration degree from the University of British Columbia. He currently
serves and has previously served on boards of directors for a variety of private
companies.
Thomas Dodd-Age 50. Mr. Dodd is a Director of the Company and Senior Vice
President of the Company and of UW Systems. His term as a Director of the
Company runs until the next annual meeting of the shareholders unless earlier
terminated. Mr. Dodd is a senior marketer/manager with over 25 years experience
as an end user, OEM, consultant, and manufacturer, in roles ranging from field
technical support to executive management. He has held senior executive
positions with Dynapro Systems Inc. and Campbell Technologies with primary
responsibilities in sales and marketing. Currently, Mr. Dodd serves on the Board
of Directors of FutureFund (VCC) Capital Corp.
Ken Maddison-Age 60. Mr. Maddison is a Director of the Company. His term
runs until the next annual meeting of the shareholders unless earlier
terminated. Mr. Maddison, a Chartered Accountant since 1966 and elected a Fellow
of the Institute of Chartered Accountants of BC in 1975, retired in August, 1997
after a lengthy career as a partner with the accounting firm KPMG. In public
practice over the past 32 years, Mr. Maddison provided auditing, accounting and
business advisory services to a wide range of clients in the hospitality, real
estate, construction, non-profit and insurance industries. Mr. Maddison
currently serves on the boards of International Wayside Gold Mines Ltd, Island
Mountain Gold Mines Ltd., Northern Continental Resources Inc., Northern
Hemisphere Development Inc. and Golden Cariboo Resources Ltd.
Robert W. Singer - Age 53. Senator Singer is a New Jersey state senator and
serves within the Senate leadership circle as Assistant Majority Leader. Senator
Singer is also Vice-Chairman of the Senate Commerce Committee and a member of
the Senate Health Committee. In his former duties as an elected representative
in the Upper House, Senator Singer was Chairman of the Senate Senior Citizens,
Veterans Affairs and Agriculture Committee and was Vice-Chairman of the Senate
Environment Committee, and had been appointed to chair the Joint Legislative
Biotechnology Task Force and the Software Task Committee. Senator Singer is
presently Chairman of the Senate Task Force on Science and Technology, which was
established in 2001. On a national level, Senator Singer was also appointed as a
member of the Health Committee of the Assembly on Federal Issues of the National
Conference of State Legislatures. Members of the Assembly on Federal Issues meet
with federal officials and play a key role in developing recommendations on a
wide range of national issues that affect state-federal relations. Senator
Robert Singer has distinguished himself among his national peers through his
recognition and understanding of high technology industries, particularly
biotechnology and the economic development, health care, agricultural and
environmental benefits this industry offers his state and the nation. The
Senator has also been honored at the national and state level for his leadership
and support in promoting the biotechnology industry. Senator Singer currently
serves on the boards of Brocker Technology Group. and Healthchoice Incorporated.
13
Robert Fetherstonhaugh - Age 45. Mr. Fetherstonhaugh is a chartered
accountant with executive experience in technology companies and public
accounting. He is presently Deputy Chairman and Corporate Secretary of
Trader.com, a public company in the business of online and print publication,
which he joined in 1998. Mr. Fetherstonhaugh is responsible for internet and
media acquisitions in Canada, U.S.A., Holland, and Russia, and closed three such
acquisitions in 1999. He is also responsible for coordinating the company's
Russian operations, which now generate $20 million in free cash flows per year,
and has set up operation in China. From 1978 to 1998 he served with KPMG and
became Partner in charge of the Financial Institutions Practice for Montreal. He
also set up, led, and significantly expanded the High Technology Practice in
Montreal.
Directors of the Company are elected at the annual meeting of the
shareholders and serve until their successors are elected and qualified, or
their earlier resignation or removal. Officers are appointed by the Board of
Directors and serve at the discretion of the Board of Directors or until their
earlier resignation or removal.
There are no family relationships among directors or executive officers of
the Company.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the common shares of the Company as of September 4, 2001 by (i)
each person who is known by the Company to beneficially own more than 5% of the
issued and outstanding common shares of the Company; (ii) the chief executive
officer of the Company and the Company's two former chief executive officers
during its last fiscal year, individually named in the executive compensation
table below; (iii) the Company's directors; and (iv) all of the Company's
executive officers and directors as a group. Unless otherwise indicated, the
persons named below have sole voting and investment power with respect to all
shares beneficially owned by them, subject to community property laws where
applicable. As of September 4, 2001, there were 25,768,153 common shares of the
Company issued and outstanding. Each common share entitles the holder thereof to
one vote in respect of any matters that may properly come before the
shareholders of the Company. To the best of the knowledge of the Company, there
exist no arrangements that could cause a change in voting control of the
Company.
SHARES
NAME AND ADDRESS RELATIONSHIP BENEFICALLY PERCENT
TITLE OF CLASS OF OWNER TO COMPANY OWNED(1) OWNED
-------------- ---------------- ---------- -------- -----
Common Stock........ Mark Godsy Director, 5% Shareholder and Past CEO 2,402,495 9.30
7575 Carnarvon Street (February 22, 2000 - November 17,
Vancouver, B.C. V6N 1K6 2000)
Common Stock........ John Robertson Director and Current CEO (November 386,648 1.49
#203-728 Farrow Street 17, 2000 - present)
Coquitlam, B.C. V3J 3S6
Common Stock........ Roland Sartorius Director and Executive Officer 186,667 0.72
#203 - 7155 Granville Street
Vancouver, B.C. V6P 4X6
Common Stock........ Thomas Dodd Director and Executive Officer 203,333 0.78
808 Seymour Blvd..
North Vancouver, B.C.
V7J 2J6
Common Stock........ Ken Maddison Director 37,500 0.15
2591 Lund Avenue
Coquitlam, B.C.
V3K 6J8
Common Stock........ Robert W. Singer Director 31,250 0.12
2110 West County Line Road
Jackson, NJ
08527
Common Stock........ Robert Fetherstonhaugh Director 89,446 0.35
20 Avenue Lilas
Dorval, Quebec
H9S 3L9
15
SHARES
NAME AND ADDRESS RELATIONSHIP BENEFICALLY PERCENT
TITLE OF CLASS OF OWNER TO COMPANY OWNED(1) OWNED
-------------- ---------------- ---------- -------- -----
Common Stock........ H. William Brogdon Past CEO (February, 1999 to February 550,000 2.13
1817 Sleepy Hollow Lane 22, 2000)
Petaluma, CA 94954
Common Stock........ All directors and executive 3,974,751 15.43
officers as a group
(8 individuals)
-----------
(1) Includes the following numbers of shares of common stock (total of804,583)
that may be acquired by the exercise of stock options or warrants that are
now exercisable or will become exercisable within the next 60 days:
o Mark Godsy - 67,083 shares;
o John Robertson - 183,333 shares;
o Roland Sartorius - 186,667 shares;
o Thomas Dodd - 183,333 shares;
o Ken Maddison - 37,500 shares;
o Robert Singer - 6,250 shares
o Robert Fetherstonhaugh - 7,083 shares
DESCRIPTION OF SECURITIES
General Provisions of Common Stock
All outstanding shares of common stock are duly authorized, validly issued,
fully paid and non-assessable. Upon liquidation, dissolution or winding up of
the Company, the holders of common stock are entitled to share ratably in all
net assets available for distribution to stockholders after payment to
creditors. The common stock is not convertible or redeemable and has no
preemptive, subscription or conversion rights.
Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of shareholders. There are no cumulative voting
rights.
The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. Holders of
common stock will share equally on a per share basis in any dividend declared by
the Board of Directors. The Company has not paid any dividends on its common
stock and does not anticipate paying any cash dividends on such stock in the
foreseeable future.
16
In the event of a merger or consolidation, the holders of common stock will
be entitled to receive the same per share consideration.
General Provisions of Preferred Stock
The Board of Directors is authorized by the Certificate of Incorporation of
the Company to issue up to 5,000,000 shares of preferred stock on such terms as
the Board may determine. No such stock has been issued to date. The preferred
shares could, in certain instances, render more difficult or discourage a
merger, tender offer, or proxy contest and thus potentially have an
"anti-takeover" effect, especially if preferred shares were issued in response
to a potential takeover. In addition, issuances of authorized preferred shares
can be implemented, and have been implemented by some companies in recent years,
with voting or conversion privileges intended to make acquisition of the Company
more difficult or more costly. Such an issuance could deter the types of
transactions which may be proposed or could discourage or limit the
shareholders' participation in certain types of transactions that might be
proposed (such as a tender offer), whether or not such transactions were favored
by the majority of the shareholders, and could enhance the ability of officers
and directors to retain their positions.
INTEREST OF NAMED EXPERTS AND COUNSEL
Our auditors are KPMG LLP, Chartered Accountants, of Suite 900, 777
Dunsmuir Street, Vancouver, British Columbia, Canada V7Y 1K3. Prior to December
31, 2000, our auditors were Ernst & Young LLP, Chartered Accountants, Suite
2200, 700 Georgia Street, Vancouver, British Columbia, Canada V7Y 1C7. Our
consolidated financial statements as at and for the year ended December 31, 2000
have been included in this prospectus and in the registration statement in
reliance upon the report of KPMG LLP, independent chartered accountants, and
upon the authority of KPMG LLP as experts in accounting and auditing.
The consolidated financial statements of Unity Wireless Corporation
(formerly Sonic Systems Corporation) at December 31, 1999, and the year then
ended, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and is included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
THE SEC'S POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The Company's bylaws provide that directors and officers shall be
indemnified by the Company to the fullest extent authorized by the Delaware
Business Corporation Act ("DBCA"), against all expenses and liabilities
reasonably incurred in connection with services for or on behalf of the Company.
The bylaws also authorize the board of directors to indemnify any other person
who the Company has the power to indemnify under the DBCA, and indemnification
for such a person may be greater or different from that provided in the bylaws.
To the extent that indemnification for liabilities arising under the Securities
Act may be permitted for directors, officers and controlling persons of the
Company, the Company has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
17
DESCRIPTION OF THE BUSINESS
General
The Company is a designer, developer and manufacturer of wireless
technologies and products for a broad range of industrial and commercial
applications. The Company's business is focused upon its UltraTech high power
linearradio frequency (RF) amplifiers.
UltraTech high performance linear RF amplifiers are used in current
generation wireless voice, Internet and data base station and repeater networks
and support Cellular, PCS (Personal Communications Services), Paging, and WLL
(Wireless Local Loop) frequencies.
Recent Developments
Sale of Sonem Business
The Company was founded to commercialize the Sonem technology. Based on its
knowledge of intersection controllers gained in the traffic signal preemption
business, specifically the specialized computers that control the signal lights,
the Company developed its "UniLinx(TM)" technology. With further development of
the UniLinx(TM) technology, management came to believe that the Company's Sonem
business should be de-emphasized in favor of a focus on UniLinx(TM) and other
wireless technologies.
In keeping with this change in focus, the Company's Sonem business was sold
on October 6, 2000, to Traffic Systems LLC ("Traffic Systems"), an Arizona
limited liability corporation owned 37% by UW Systems and 63% by one of the
Sonem contractors of UW Systems. The sale took place pursuant to an Asset
Purchase Agreement (the " Sonem Asset Purchase Agreement") among UW Systems,
Traffic Systems and others, a copy of which is attached as an exhibit to the
Company's Form 8-K filed with the SEC on October 23, 2000 (the "Sonem 8-K").
Under the Sonem Asset Purchase Agreement, UW Systems licensed substantially all
of its Sonem patent rights to Traffic Systems (on an exclusive world-wide basis)
and Traffic Systems covenanted to commercialize and sell the Sonem technology.
In addition to its equity interest in Traffic Systems, UW Systems was entitled
to receive $2,000,000 from the gross profits of Traffic Systems. UW Systems also
agreed to assist Traffic Systems in the transition of the Sonem business, by
providing limited technical, consulting and financial support.
Although Traffic Systems agreed under the Sonem Asset Purchase Agreement to
assume the warranty obligations of UW Systems for Sonem products already
installed, UW Systems was required to advance the costs of such obligations,
with repayment to come from the gross profits of Traffic Systems. The Company
believes that the costs of such obligations in the future may be substantial,
and has agreed, pursuant to a term sheet dated January 31, 2001, that these
obligations will be assumed by Traffic Systems in consideration of UW System's
transfer of its equity interest in Traffic Systems and the Company's residual
interest in the Sonem patents. The Term Sheet is attached as an exhibit to the
Company's Form 8-K filed with the SEC on February 16, 2001 (the "Second Sonem
8-K"). On April 30, 2001, UW Systems and Traffic Systems signed a definitive
agreement consummating the Term Sheet. The definitive agreement is attached as
Exhibit 10.5 to this SB-2A.
The foregoing is only a summary of the terms of the Sonem transactions, and
by its nature does not contain all of the terms thereof. Investors are directed
to Exhibit 2.1 of the Sonem 8-K for the complete Sonem Asset Purchase Agreement,
and to Exhibit 2.1 of the Second Sonem 8-K for the complete terms of the Term
Sheet.
For financial reporting purposes, the ultimate disposition of the Sonem
business results in it being considered to be a discontinued operation.
Accordingly, all discussions of the Company's continuing operations in this
Registration Statement exclude the Sonem business. See also note 5 to the
consolidated financial statements.
18
Acquisition of Ultratech
Also as part of its strategy to focus on wireless technologies, the Company
acquired Ultratech Linear Solutions, Inc., of Burnaby, British Columbia, Canada,
in a share purchase transaction that completed on November 16, 2000. The Company
reported the acquisition on Form 8-K filed with the SEC on December 4, 2000 (the
"Ultratech 8-K") and amended Form 8-K (providing audited financial information)
on February 15, 2001. Ultratech is a wireless communications technology
designer, developer and marketer specializing in high power linear RF
amplifiers. In consideration of the Ultratech shares, the Company paid to the
shareholders of Ultratech Cdn.$72,000 ($48,000) on account of shareholder loans,
and issued 700,000 shares of the common stock of the Company. The Company had
loaned Cdn.$300,000 ($200,000) to Ultratech before closing.
The foregoing is a summary only of the terms of the Ultratech acquisition,
and by its nature does not contain all the terms thereof. Investors are directed
to Exhibit 2.1 of the Ultratech 8-K for the complete Share Purchase Agreement.
Disposition of Integration Services Business
To complement internally developed Sonem technology, the Company had formed
wholly-owned UW Integration (and its wholly owned subsidiary Unity Wireless
Integration (S) Pte Ltd.) to pursue alliances, licensing agreements and
marketing partnerships in the ITS (intelligent transportation systems) and
communications markets. In order to better focus on its new high power linear
amplifier business, the Company sold UW Integration to Lyma Sales & Management
Corp. ("Lyma"), a British Columbia, Canada company wholly owned by Siavash
Vojdani, a former officer and director of the Company, on December 30, 2000. The
sale took place pursuant to an Asset Purchase Agreement (the "Integration Asset
Purchase Agreement") among UW Integration, the Company and Lyma and dated
December 30, 2000, a copy of which is attached as an exhibit to the Company's
Form 8-K filed with the SEC on January 16, 2001 (the "Integration 8-K").
The foregoing is only a summary of the terms of the UW Integration
transaction, and by its nature does not contain all of the terms thereof.
Investors are directed to Exhibit 2.1 of the Integration 8-K for the complete
Integration Asset Purchase Agreement.
Change of Auditor
Ernst & Young LLP ("E&Y") was dismissed from its position as the certifying
accountant of the registrant on December 31, 2000. KPMG LLP ("KPMG") was
appointed the new certifying accountant of the registrant on the same day.
E&Y's report on the financial statement for the years ended December 31,
1999 and 1998 did not contain an adverse opinion or a disclaimer of opinion, and
was not qualified or modified as to uncertainty, audit scope, or accounting
principles, except for the report on the 1998 financial statement, which
contained an explanatory paragraph (after the opinion paragraph) that stated the
Company's recurring losses from operations raised substantial doubt about its
ability to continue as a going concern. The 1998 financial statements did not
include any adjustments that might result from the outcome of this uncertainty.
The report on the 1999 financial statement did not contain any such explanatory
paragraph as to uncertainty.
19
The decision to change accountants was approved by the board of directors
of the Company pursuant to a consent board resolution dated December 31, 2000.
The Company has an audit committee, but the decision to change accountants was
not considered by this committee.
During the Company's fiscal years ended December 31, 1999 and 1998 and the
subsequent interim period preceding the dismissal of E&Y, there were no
disagreements with E&Y on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
KPMG was engaged as the new principal accountant of the Company to audit
the Company's financial statements. The date of engagement was December 31,
2000. The Company filed a Form 8-K with respect to its change in auditors on
January 24, 2001.
Corporate History
Unity Wireless Corporation was incorporated in the State of Delaware on
October 1, 1998, under the name Sonic Systems Corporation. The Company is the
successor to M&M International Realty, Inc., a Florida corporation, which
effected a reincorporation as a Delaware corporation by merger on December 1,
1998, with the Company as the surviving corporation. Before the merger, the
Florida corporation had had no material commercial activity. On December 11,
1998 the Company acquired all of the issued and outstanding stock of UW Systems
in exchange for 11,089,368 shares of Company common shares. As a result, the
former shareholders of UW Systems owned a majority of the Company's outstanding
stock. Therefore, for accounting purposes, UW Systems was deemed to have
acquired the Company.
In connection with the acquisition of UW Systems, the Company formed 568608
B.C. Ltd. ("568608") to act as an acquisition vehicle. As of December 31, 2000,
568608, Ultratech and UW Systems were merged, with UW Systems remaining as the
surviving corporation.
In keeping with its decision to focus on wireless technologies, the Company
changed its name to Unity Wireless Corporation by filing Articles of Amendment
with the State of Delaware Secretary of State that became effective on July 20,
2000. The Company began using the new name as a "dba" in March, 2000.
The Company's fiscal year end is December 31.
Principal Products & Services
The Company currently has a line of UniLinx(TM) wireless data
communications devices that are being offered commercially.
High Power Linear RF Amplifiers
High power linear RF amplifiers allow radio frequency signals to be
amplified and broadcast in a given area with minimal distortion. RF signals
carry voice and data information used in wireless transmissions such as those
used for cell phones and wireless Internet access.
"Linearity" of the signal (the lack of distortion) becomes more important
as the amount of data transported and the density of adjacent channels in a cell
increases.
20
The following table identifies currently marketed UltraTech products:
PRODUCT: DESCRIPTION: FREQUENCY RANGE:
-------- ------------ ----------------
Black Bear 4 Channel, 25 Watt Amplifier 1840-1870 MHz
Dolphin 2 Channel, 12 Watt Amplifier 1840-1870 MHz
Otter 4 Channel, 30 Watt Amplifier 1840-1870 MHz
Cougar W-CDMA, 15 Watt Amplifier 2110-2170 MHz
Manx 10 Watt Amplifier 1930-1990 MHz
Buffalo 4 Channel, 30 Watt Amplifier 1840-1870 MHz
Wireless communications infrastructure is the quickest and most
cost-effective method of providing both fixed and mobile voice, Internet and
data network communications. The global market is being driven by several
economic and other factors as it goes wireless:
a. Consumers and businesses worldwide are driving up penetration rates and
therefore increasing the demands for voice, Internet and data wireless
communication networks.
b. Affordable telecommunication infrastructure is becoming necessary in
developing countries and the construction of wireless local loops is the
quickest and most cost-effective solution.
c. Telecommunication service providers are starting to incorporate and bundle
wireless technology into their suite of offerings.
d. Applications such as video demand higher bandwidth to support higher data
rates.
e. The move to one or a small number of global standards for 3G wireless will
cause most current infrastructure to be upgraded or replaced.
The Company expects that factors such as these will continue to drive the
global demand for wireless technologies for the foreseeable future. As consumer
usage of wireless applications increases, the demand for more system capacity
and greater system coverage also increases, thus creating an increased demand
for amplifiers. Industry analysts estimate that the wireless telecommunications
networks and technologies market will grow to $135 billion by 2004, and that the
total global market sales of RF power amplifiers to support such growth will
increase from $1.1 billion in 1999 to $3.5 billion by 2003.
Network service providers typically source their network equipment from
companies known as system integrators, which in turn source their system
components from a variety of subcontractors and component suppliers. Typically
they use representative agents to source and present to them suppliers of
network sub components such as amplifiers. The amplifier supplier that has
experienced sales and agent representation, combined with the required technical
and operational capability will have the market advantage. The Company currently
has strong agent representation in Asia and plans to develop a broader network
of agents in the coming year, as well as building its direct sales and marketing
capabilities.
The wireless telecommunications industry consists of four primary sectors:
(1) wireless system integrators or infrastructure providers; (2) handset and end
user terminal devices; (3) accessory items, including towers, cable, connectors
etc.; and (4) the amplifying equipment sector. The Company's UltraTech products
compete in the amplifying equipment sector.
Several trends have affected the supply and demand for high power linear
amplifiers in the global market. As recently as a few years ago, the global
21
market was small and dominated by only two or three players. With the explosion
in the growth of wireless technologies in the past five years, however, the
smaller companies that supplied amplifiers to niche markets grew very quickly
into large companies with very large overheads to sustain.
While the high growth rates these companies have enjoyed over the past five
years have allowed them to flourish financially, they have also made it more
difficult for them to deal with the rapid pace of change in the second tier
amplifier market. Management believes these changes in the marketplace create
additional opportunities for the Company to provide quality products for
specialty applications.
The large, conventional amplifier suppliers will continue to deliver
approximately 80% of the market, but a great opportunity exists for smaller and
better-focused amplifier businesses to supply the non-captive or specialized
markets that it is expected will prevail for many years to come.
Product Research & Development
The Company has recently augmented its research and development
capabilities in the area of its Ultratech High Power Linear Amplifiers, with the
addition of RF design engineers and the leasing of additional test and
measurement equipment. The Company has and will continue to devote a large
portion of its research and development resources towards next generation
products, using leading edge design techniques and other progressive
technologies.
The Company spent $ 880,818 on research and development in 2000 and $
502,643 in 1999 (includes stock based compensation of $ 238,655 in 2000 and $nil
in 1999).
Sales & Marketing
The Company plans to build strategic alliances and partnerships to create a
network of distributors and original equipment manufacturers to extend the
Company's position in the wireless communications market.
The Company sells its high power linear RF amplifiers primarily through
sales agent channels and on-site visits with its customers. The majority of
UltraTech amplifier sales to date have been in South Korea through one agent.
The agent is under contract with the Company for sales commissions, and has been
granted a significant number of options (vesting over three years) in the
Company's stock as a longer-term incentive.
The Company intends to expand its marketing efforts to include North
America and Europe. Initial sales have already been made in North America and
appearances will be made at industry trade shows in order to get the Company
name and brand in front of the wireless network infrastructure market.
An experienced vice-president of Marketing has been hired for the UltraTech
products, joining the vice-president of Sales, and marketing activities have
begun. Short term marketing efforts will focus on two areas to expand sales:
direct sales and channel development. Direct sales activities will target the
large "tier one" suppliers of base transceiver station (BTS) equipment. The
Company's positioning will be built around its ability to quickly turn out
specialty product to high standards, with the several thousand installed units
in Korea providing needed credibility for technical and manufacturing
capabilities,
Channel development activities will focus on sales representatives
following closely the model already working in Korea, that is, to contract with
agents who are currently representing manufacturers of complementary products,
selling to system integrators of cellular, PCS and related wireless transceiver
equipment.
22
A third, longer-term component of the Company's marketing strategy for the
UltraTech RF amplifier products is to align with developers of new technologies
in the RF marketplace to keep current with technical advances and position as
key supplier to the innovators. Several organizations with exciting technologies
have been identified and/or are being worked with currently.
Manufacturing & Suppliers
The Company subcontracts its digital electronics manufacturing to qualified
companies with a history of quality assurance. This minimizes the need for
capital expenditures related to electronics manufacturing facilities, minimizes
staff and uses specialists in each stage of manufacturing. All enclosure
metalwork and painting is also subcontracted. Alternate contract manufacturers
are available, should any of its existing contract manufacturers cease providing
services to the Company. RF circuitry is assembled and tested in-house, as is
all final assembly, integration, configuration, tuning and final testing.
The principal raw materials used in the production of the Company's
products are mostly standard electronic, plastic and hardware components. The
Company has, from time to time, experienced difficulties in obtaining raw
materials and reduces supply risk by using alternate suppliers.
Competition
Two sizes and types of players characterize the RF amplifier business: (1)
large-scale manufacturers with anywhere from $100,000,000 to $500,000,000 in
annual sales, specializing in large volume production runs and mainstream type
products; and (2) smaller companies with anywhere from $1,000,000 to $30,000,000
in annual sales, specializing in custom order markets. The large and dominant RF
amplifier companies are Powerwave Technologies Inc. ("Powerwave"), Spectrian
Inc. ("Spectrian"), and Microwave Power Devices Inc. ("MPD"). MPD was recently
purchased by Ericsson. The dominant smaller companies are Amplidyne Inc.
("Amplidyne"), Stealth Microwave Inc. ("Stealth") and AML Communications
("AML").
Powerwave, located in Irvine, California, is an independent supplier of RF
high performance amplifiers that it designs and manufacturers for the
multi-carrier ultra-linear high power RF amplifier market. These types of
amplifiers are key components in wireless communications networks such as
Cellular and PCS (Personal Communications Services). Powerwave is also the
leading supplier of RF amplifiers for the Land Mobile Radio ("LMR") market. More
than 50% of Powerwave's $500,000,000+ annual revenue comes from Nortel Networks.
Spectrian, located in Sunnyvale, California, is also a leading supplier of
ultra-linear high power RF amplifiers to wireless communications infrastructure
manufacturers and service providers worldwide. Spectrian designs and
manufactures power amplifiers for use in microcell and macrocell base stations
for cellular, PCS and wireless local loop.
MPD, located in Hauppauge, New York, designs, manufactures, and sells
linear power amplifiers, and related subsystems to the worldwide wireless
telecommunications market. These single and multi channel amplifiers, which are
an essential component in wireless base stations, increase the power of the
radio frequency and microwave signals with low distortion. In addition, MPD also
designs amplifiers for the satellite communications market and medical
applications. As Powerwave is linked to Nortel Networks, it is assumed that MPD
will likely be the prime supplier of amplifiers to Ericsson's network products.
Amplidyne, located in Somerset, New Jersey, designs, manufactures and sells
ultra-linear power amplifiers and related subsystems to the worldwide wireless
telecommunications market. These single and multi-carrier linear power
amplifiers, which are key components in cellular and PCS base stations, utilize
a patented pre-distortion technique.
23
Stealth, located in Trenton, New Jersey, designs and manufactures single
channel amplifiers for the cellular market and is trying to penetrate the PCS
bands with newer technology.
ADL, located in Camarillo, California, designs and manufactures high power
linear amplifiers for cellular, PCS and satellite markets. ADL also is involved
in the design and manufacture of low noise amplifiers.
Intellectual Property
Trade Marks
The Company registered the trade marks "We Hear the Future Now(R)," "Sonic
Solution(R)," and "Sonic Systems Corporation(R)" with the Canadian Intellectual
Property Office in 1997. The Company has also been using the unregistered trade
mark "SONEM 2000(TM)" since 1997, but did not register it at the time due to
resource constraints. As a result of the sale of its Sonem division, the Company
does not intend to formally register this trade mark. The Company is also using
the unregistered trade mark "Unity Wireless(TM)". The Company intends to
register this mark in the U.S., Canada and, possibly, other countries.
The Company's Sonem business was sold on October 6, 2000, to Traffic
Systems LLC ("Traffic Systems"), an Arizona limited liability corporation owned
37% by UW Systems and 63% by one of the Sonem contractors of UW Systems. The
sale took place pursuant to an Asset Purchase Agreement (the " Sonem Asset
Purchase Agreement"). The US and Canadian siren detector patents and trade marks
related to the Sonem business of the Company, except for the trade mark Sonic
Solution(R), were licensed on an exclusive basis to Traffic Systems under the
Sonem Asset Purchase Agreement. All rights to the trade mark Sonic
Solution(R) were sold to Traffic Systems under the Sonem Asset Purchase
Agreement. See "Recent Developments -- Sale of Sonem Business."
Patents
The Company does not have any patents with respect to its Ultratech
technology. The Company has an immaterial residual interest in several patents
associated with the Sonem technology, substantially all of which it has agreed
to transfer to Traffic Systems under the Term Sheet. See "Recent Developments --
Sale of Sonem Business."
Service & Product Warranty
The Company offered a standard warranty on its Sonem products covering
parts and labor for a fixed period, either 1 year, 2 years or 5 years, depending
on the product and application. The Company's warranty obligations for its Sonem
products were assumed by Traffic Systems under the Sonem Asset Purchase
Agreement. See "Recent Developments -- Sale of Sonem Business."
The Company offers a standard warranty of one year on parts and labor from
date of shipment on its Ultratech amplifiers. In some cases, a warranty period
of two years may be negotiated. For instance, the sale of Ultratech amplifiers
into Korea to date typically have a two year warranty.
The Company will repair units under warranty at its cost and return freight
prepaid back to the customer. A repaired unit will be warranted for the
remainder of the original warranty period or for one year from the repair date,
whichever is longer.
The Company's warranties specifically exclude all liabilities for "special,
incidental, direct, indirect, or consequential damages or expenses whatsoever"
arising from the functioning or use, or inability to use, the warranted
products. The warranties are void if the product has been improperly installed,
subjected to abuse or negligence, or tampered with. State and other laws may
limit the Company's ability to limit its liability or exclude certain types of
damages.
24
Government Regulation
UltraTech RF power amplifiers are sold as components which form part of
larger systems, which are tested for FCC compliance at the system level, by the
manufacturer or integrator of the system equipment. The Company does not test
its amplifier products for compliance at the component level.
Management & Employees
The Company's senior management team has proven experience in exploiting
technologies in emerging markets and the Company's technical team is proficient
in wireless technologies. Employees and management have a commitment to help
create and, in turn, share in the success potential of the Company. Currently
each holds stock and/or options with future vesting dates to encourage continued
commitment and focus for several years. As of September 4, 2001, the Company had
36 full-time employees and 11 contract or part-time employees. The employees are
not represented by a collective bargaining agreement and the Company considers
its relationship with its employees to be good.
Reports to Security Holders
The Company is a reporting company under the Exchange Act. It files an
annual report (10-KSB) and quarterly statements (10-QSB) with the SEC. It must
also file other reports, such as Form 8-K, as applicable. In addition, the
Company files a proxy statement for its annual shareholders meeting (and, if
applicable, any special meetings).
The public may read and copy any materials filed by the Company with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an
electronic filer. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The Internet address of the site is
http://www.sec.gov. The Internet address of the Company is
http://www.unitywireless.com.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the financial condition, changes in financial
condition, and results of operations of Unity Wireless Corporation (the
"Company") should be read in conjunction with the Company's most recent
financial statements and notes appearing elsewhere in this Form SB-2 and in the
SB-2A filed May 3, 2001; the 8-K's filed January 9, 2001, January 16, 2001 and
February 16, 2001 (see Item 6. Exhibits and Reports on Form 8-K); the 10-KSB for
Dec. 31, 2000 filed on April 2, 2001, and the 10-QSB's for March 31, 2001 and
June 30, 2001, filed on May 10 and August 14, 2001 respectively.
OVERVIEW
The Company is in the business of designing, developing and manufacturing
high power linear RF amplifiers and specialized communications products that use
traditional wireless channels. Prior to the introduction of its RF
communications products, the Company had designed, manufactured, and sold an
acoustic-based traffic signal preemption system under the trade name "Sonem".
The Sonem product accounted for all revenues earned in the fiscal years ended
December 31, 1998 and 1999, and the quarter ending March 31, 2000. In view of
the Company's strategic repositioning toward RF wireless products during 2000,
the Company, through its subsidiary Unity Wireless Systems Corporation, sold its
Sonem business to Traffic Systems, L.L.C. on October 6, 2000. Accordingly,
revenue from acoustic products ended in the third quarter of 2000. This business
has been accounted for as a discontinued operation in the company's consolidated
financial statements.
25
The Company agreed, pursuant to a term sheet dated January 31, 2001, that
warranty obligations of its subsidiary Unity Wireless Systems Corporation ("UW
Systems") for Sonem products already installed will be assumed by Traffic
Systems, L.L.C. ("Traffic Systems"), the purchaser of the Company's Sonem
business, in consideration of UW System's transfer of its equity interest in
Traffic Systems and the Company's residual interest in the Sonem patents. The
term sheet is attached as an exhibit to the Company's Form 8-K filed with the
SEC on February 16, 2001. On April 30, 2001 UW Systems and Traffic Systems
entered into a definitive agreement consummating the term sheet. The definitive
agreement is attached as an exhibit to the Company's SB-2A which was filed on
May 3, 2001.
Also in late 1999, the Company increased its marketing efforts in Asia,
resulting in a contract in the first quarter of 2000 with the Transportation
Management Systems division of Orbital Sciences ("Orbital"). Under the Orbital
contract, UW Integration, through its wholly owned subsidiary, UW Singapore,
provided systems integration support, warranty and maintenance services for the
Automatic Vehicle Management System ("AVMS") to be delivered by Orbital and
Sanyo Trading Company to Singapore Bus Services Ltd. Revenue from this contract
started in the quarter ended June 30, 2000, and continued for the rest of the
year. As the Company continued to refocus upon RF communication products, the
Orbital contract was assigned to Lyma Sales & Management Corp. on December 30,
2000, and therefore the Company has no further interest in any revenue resulting
from the contract.
In 1999 and 2000, the Company designed a specialized RF communication
product with the trade mark "UniLinx", which it introduced commercially in the
later part of 2000. This wireless IP (Internet Protocol) gateway was deployed in
the traffic control market and the remote POS market during 2000. Sales from
UniLinx commenced in the quarter ended June 30, 2000 and continued for the rest
of the year and into the first quarter of 2001. In order to focus solely on the
RF communication products, the Company sold the UniLinx business and assets on
June 12, 2001 to Horton Automation Inc. ("Horton") for Cdn $150,000 , which is
payable on a percentage of unit sales by Horton. Consequently, revenue from the
Unilinx business ended in second quarter on 2001.
On November 16, 2000 the Company acquired Ultratech Linear Solutions Inc.
("Ultratech"), a designer, developer and manufacturer of linear power amplifiers
for the wireless network infrastructure industry. Its operations have been
consolidated from the date of acquisition. The revenues from sales of Ultratech
amplifiers from its inception on April 22, 1999 to December 31, 2000 were
approximately $3,200,000. The Company received revenue from the sale of RF power
amplifiers starting in the quarter ended December 31, 2000. Management expects
that the Ultratech acquisition will have a significant positive impact on
Company revenues in the current year and beyond.
The Company has incurred net losses since it became active in July 1995.
Losses resulted from low sales of the Company's Sonem traffic signal preemption
system, combined with startup manufacturing activity and engineering and
research and development costs relating to product improvement and new
technologies.
Losses continued into 2000 as the Company's revenue from Sonem sales, and
the later revenue from UniLinx and the Orbital contract, did not exceed
expenditures for research and development, marketing, and general and
administrative activities. In the first half of 2000 the Company became a
registrant with the SEC, requiring additional expenditures on legal and
accounting services. Also, up to the time of the sale of the Sonem product, the
Company made further development expenditures on this product to improve
performance and to reduce unit costs. Marketing and additional development costs
were also incurred on the UniLinx product.
With the completion of the Ultratech purchase, the discontinuance of the
contract services (Singapore) business segment, the ending of active
participation in the Sonem product, the sale of the Unilinx business, the has
Company restructured its operations and staff complement to adjust for the needs
of higher manufacturing volumes and development activities for its RF power
amplifier products. The Company has also reviewed other costs and eliminated
expenditures not directly required to implement its RF wireless focus. Given the
effectiveness of Ultratech's existing distribution channels and the potential
for increased amplifier sales as the Company introduces these products in U.S.,
European, and additional Asian markets, management believes that losses from
operations will diminish and be eliminated as the Company advances its business
plan into the current year and beyond.
26
Results of Operations
(All amounts are in US dollars unless otherwise stated)
As mentioned in Note 5 of the Notes to Consolidated Statements and in the
Overview Section of Management's Discussion and Analysis or Plan of Operation
above, the Company operations in 2001 related mainly to the designing,
developing and marketing of high power linear RF amplifiers after the
discontinuance of the Sonem, Unilinx and UW Integration operations.
Due to this restructuring of operations, there are no comparative numbers
and analysis for the periods, 3 months ended June 30, 2000 and 6 months ended
June 30, 2000.
3 Months Ended June 30, 2001
Net Sales in the second quarter of 2001 from sales of RF amplifiers were
$570,559.
Cost of goods sold in the second quarter of 2001 amounted to $336,802. The
gross margin of $233,757 or 41% of Net Sales reflects lower commissions paid to
distributors due to a lower volume of sales operation. Stock compensation
expense from the variable plan stock options was nil in the second quarter of
2001.
Research and development expenses in the second quarter of 2001 were
$218,304. This amount was primarily due to the focus on R&D activities in the
second quarter of 2001 comprising the hiring of senior level engineering
positions and the development of additional RF amplifier products. Stock
compensation expense from the variable plan stock options was $58,621 in the
second quarter of 2001.
Sales and marketing expenses in the second quarter of 2001 amounted
$139,987. The costs were primarily attributable to the restructuring of sales
and marketing staff to eliminate UniLinx marketing staff and an increase in the
level of sales and marketing support for RF amplifier products, which included
hiring senior level marketing and sales positions, revamping corporate
promotional material and attendance at various industry trade shows. Stock
compensation expense from the variable plan stock options was $36,870 in the
second quarter of 2001 .
Exchange gain in the second quarter of 2001 was $20,320 due to fluctuations
in the currency exchange rate between the U.S. and Canada. The Company's
revenues are received mostly in U.S. dollars, while the majority of expenses are
incurred in Canadian dollars.
General and administrative expenses in the second quarter of 2001 were
$661,840. Expenses occurred due to non-recurring legal and regulatory related
costs associated with restructuring the operations of the Company in 2001 as
well as increased investor relations and corporate finance activities. Stock
compensation expense from the variable plan stock options was $218,678 in the
second quarter of 2001.
Interest income in the second quarter of 2001 generated $6,069. This amount
results primarily from interest earned from term deposits.
Net gain from discontinued operations amounted to $217,966. A loss of
$165,125 is attributable to sale of the Unilinx business on May 1, 2001 and a
gain of $383,091 resulted on the sale of the Sonem business from a reduction of
the warranty accrual for the Sonem product due to the replacement of previously
installed Sonem systems and the sale of the remaining interest in the Sonem
6 Months Ended June 30, 2001
Net Sales in the first 6 months of 2001 amounted to $1,963,506 from the
sales of RF amplifiers.
Cost of goods sold in the first 6 months of 2001 was $1,382,802 . The gross
margin amounted to $580,704 or 30% of Net Sales.
27
Research and development expenses in the first 6 months of 2001 were
$312,883. These expenses are primarily due to the hiring of senior level
engineering positions and the development of additional amplifier products.
Stock compensation expense from the variable plan stock options was $33,985 in
the first 6 months of 2001 .
Sales and marketing expenses in the first 6 months of 2001 amounted to
$180,672. The costs were primarily attributable to the restructuring of sales
and marketing staff to eliminate the UniLinx marketing staff and ramp up in the
level of sales and marketing support for amplifier products, which included
hiring senior level marketing and sales positions, revamping corporate
promotional material and attendance at various industry trade shows. Stock
compensation expense from the variable plan stock options was $25,897 in the
first 6 months of 2001.
Exchange gain in the first 6 months of 2001 was $75,318 due to fluctuations
in the currency exchange rate between the U.S. and Canada. The Company's
revenues are received mostly in U.S. dollars, while the majority of expenses are
incurred in Canadian dollars.
General and administrative expenses in the first 6 months of 2001 were
$835,350. Non-recurring legal and regulatory related expenses associated with
restructuring the operations of the Company in 2001 as well as increased
investor relations and corporate finance activities were incurred. Stock
compensation expense from the variable plan stock options was $165,183 in the
first 6 months of 2001 .
Interest income in the first 6 months of 2001 generated $34,639. This
amount results primarily from interest earned term deposits
Net gain from discontinued operations amounted to $267,504. A loss of
$165,125 is attributable to sale of the Unilinx business on May 1, 2001 and a
gain of $432,629 resulted on the sale of the Sonem business from a reduction of
the warranty accrual for the Sonem product due to the replacement of previously
installed Sonem systems and the sale of the remaining interest in the Sonem
Years Ended December 31, 2000 and 1999
Net Sales in fiscal 2000 totalled $474,003 from the sales of RF amplifiers
between November 16 and December 31, 2000.
Cost of goods sold in fiscal 2000 was $364,423 from sales of RF amplifiers.
The gross margin for RF amplifiers was positive, which reflected the Company's
acquisition of a going concern business.
Sales and marketing expenses in fiscal 2000 of $10,745 were incurred in the
Ultratech power amplifier business between acquisition of the business on
November 16, 2000 and the end of the fiscal year
Exchange loss (gain) decreased by $93,357 to ($3,036) from ($96,393) in
1999 due to fluctuations in the currency exchange rate between the U.S. and
Canada. The Company's revenues are received mostly in U.S. dollars, while the
majority of expenses are incurred in Canadian dollars.
General and administrative expenses in fiscal 2000 increased by 357%, or
$1,524,978 to $1,952,469 from $427,491 in 1999. The increase is due primarily to
$334,902 in additional salary and consulting costs, $118,096 in additional
accounting and legal expenses due to the costs of becoming a reporting issuer,
increases of $107,160 in investor relations expenses, and $45,861 in staff
placement fees. $354,426 of the increase was attributable to stock compensation
expense resulting from the granting of stock options and warrants.
Loss from discontinued operations in fiscal 2000 increased to $3,479,424
from $1,660,004 in 1999. This loss was incurred in connection with the disposal
of the Sonem, Unilinx and of UW Integration operations.
Liquidity and Capital Resources
Since its inception, the Company has been dependent on equity capital as
its primary source of funding. Prior to December 31, 2000, sales of the
Company's Sonem traffic signal
28
priority product, and sales of its UniLinx product, has provided insufficient
cash flow to sustain operations. The Company had an accumulated deficit at June
30, 2001 of $11,237,439. During the first 6 months ended June 30, 2001 the
Company focused entirely on the wireless product segment, primarily its
amplifier products, and incurred a net loss, after stock-based compensation
expense, of $505,164 (2000 - loss of $1,727,466). The Company also used cash
from operations of $644,830 (2000 - $954,493 in cash used). Operations to date
have been primarily financed by equity.
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 long-term debt and equity transactions. The Company'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 shareholders, and, ultimately, the achievement of
profitable operations. There can be no assurances that the Company will be
successful. If it is not, the Company will be required to reduce operations or
liquidate assets. The Company 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 auditors' report on the December 31, 2000 consolidated financial statements
includes an explanatory paragraph that states that as the Company has suffered
recurring losses from operations, substantial doubt exists about its ability to
continue as a going concern. 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
Company be unable to continue as a going concern.
During the first 6 months of 2001, the Company's cash position decreased by
$553,394 to $1,448,690 on June 30, 2001 from $2,002,084 on December 31, 2000.
The $644,838 used by operations was comprised of a net loss $505,164, and
non-cash charges including $48,783 in depreciation and $92,700 in goodwill
amortization. Stock-based compensation expense was $225,415 during the first 6
months. Other significant non-cash working capital changes included accounts
receivable, which decreased by $68,716 primarily due to collections. Ongoing
operations during the first 6 months resulted in an inventory decrease of
$182,741 and a decrease in accounts payable and accrued liabilities of $287,541.
The product warranty accrual decreased by $471,700 as the Company contributed to
the replacement of previously installed Sonem systems.
The Company's investing activities during the first 6 months of 2001
amounted to $46,528, which was mainly attributable to increased purchases of
computing hardware and software.
Financing activities during the first 6 months included a repayment in the
Cobratech loan receivable of $118,824 and the bank overdraft decreased by
$34,872 due to a lower level of cheques outstanding at June 30, 2001 than at
December 31, 2000. The operating loan was replaced in April, 2001 by a US
$66,072 (Cdn $125,000) operating line of credit from HSBC Bank Canada, at an
interest rate of HSBC prime, and secured by an $80,000 guaranteed investment
certificate.
Other than operating loan commitments, the Company has no material
commitments, including capital commitments, outstanding at June 30, 2001.
Inflation
The Company does not believe that inflation has had a significant impact on
its consolidated results of operations or financial condition. However, the
Company has recently experienced some significant price increases for certain
components that are used in the wireless industry.
DESCRIPTION OF PROPERTY
The Company currently leases 11,425 square feet of office, research and
development, and production space on a triple net basis at 7438 Fraser Park
Drive, Burnaby, British Columbia, Canada. The lease has a five-year term
expiring on August 31, 2005, with an option to renew for an additional
three-year term. Minimum basic rental rates are as follows:
29
(a) years 1 and 2 - Cdn$10.00 per square foot per annum;
(b) year 3 - Cdn$10.25 per square foot per annum; and
(c) years 4 and 5 - Cdn$10.50 per square foot per annum.
The Company's head office is located at 31635 36th Avenue S.W., Federal
Way, WA.
The Company does not currently maintain any investments in real estate,
real estate mortgages or persons primarily engaged in real estate activities,
nor does it expect to do so in the foreseeable future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has a loan receivable from Cobratech Industries Inc.
("Cobratech"), a company with two common directors, in the principal amount of
$200,000. Interest is payable to the Corporation at 1% per month, calculated
monthly not in advance. The loan is secured by a general security agreement
which includes all of the personal and real property of Cobratech. The loan is
repayable upon demand. Cobratech repaid the Corporation $100,000 on January 10,
2001, and has agreed to repay the balance later in 2001.
There are no other material related transactions or related contracts with
a value of over $60,000.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter or "Bulletin
Board" market under the symbol "UTYW." Between February 6, 1999 and August 17,
2000, the common stock traded under the symbol "ZSON." Before February 6, 1999,
the common stock traded under the symbol "MMIM." The following comprises the
high and low bid prices for the Company's common stock as of the end of each
period indicated since March 31, 1999 (the stock was not "publicly traded"
before December 31, 1998), unless otherwise indicated:
High Low
Period Bid Bid
------ --- ---
January 1 - March 31 1999.............. 3.3125 0.0000
April 1 - June 30 1999................. 3.0000 0.8750
July 1 - September 30 1999............. 1.0625 0.4375
October 1 - December 31 1999........... 1.1875 0.3750
January 1 - February 9 2000............ 1.27 0.89
February 10 - April 27 2000*........... 6.25 (No Bid/Ask - High Trade) 0.9000 (No Bid/Ask - Low Trade)
April 28 - June 30 2000................ 4.50 1.0625
July 1 - September 30 2000............. 1.90 1.16
October 1 - December 31 2000........... 1.53 0.37
January 1 - March 31 2001.............. 0.68 0.26
April 1 - June 30, 2001 0.48 0.19
Source: Nasdaq Trading & Marketing Services
--------------------------------------------------------------------------------
* The common shares of the corporation were traded on the National Quotation
Bureau "Pink Sheets" from February 10, 2000 until April 27, 2000 and
therefore high and low bid information is not available during this period.
30
Over-the-counter market quotations reflect inter-dealer prices without
retail mark-up, mark down or commission, and may not represent actual
transactions.
As of September 4, 2001 there were approximately 175 holders of record of
the Company's common stock. The Company has never declared a cash dividend on
its common stock.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned by all persons
serving as the Chief Executive Officer of the Company during the fiscal year
ended December 31, 2000. No officer of the Company or its subsidiaries earned
greater than $100,000 in total salary and bonus during 2000, the most recently
completed fiscal year of the Company.
Summary Compensation Table
Restricted Securities
Name and Position Year Salary Stock Underlying
Awards($) Options(#)
Annual Compensation ($) Long Term Compensation
----------------------- ----------------------
John Robertson 2000(1) 10,300 0 275,000(2)
Mark Godsy 2000(3) 0 72,000 200,000(4)
William Brogdon 1999 38,756 0 0
William Brogdon 1998 64,167 61,480(5) 200,000
-----------
NOTES:
(1) Mr. Robertson, the current Chief Executive Officer of the Company, served
as Chief Executive Officer during the period November 17 - December 31,
2000.
(2) Mr. Robertson received 200,000 options in December 2000 as partial
compensation for serving as Chief Executive Officer of the Company. He also
received 75,000 options in December 2000 as compensation for serving as a
director of the Company.
(3) Mr. Godsy served as Chief Executive Officer of the Company during the
period February 22 - November 17, 2000. At the end of this period, Mr.
Godsy was paid accrued wages in restricted stock (171,428 shares)
equivalent to $72,000 on the date of issue.
(4) Mr. Godsy received 200,000 options in December 2000 as compensation for
serving as the Chairman of the Board of the Company.
(5) Mr. Brogdon served as Chief Executive Officer of UW Systems from February
1, 1998 and the Company from December, 1998. Both appointments concluded on
February 22, 2000.
At the end of 2000 the named executive officers held restricted stock of
the Company as follows. The value of these holdings is calculated at 50 cents,
which was the price of the Company's stock on December 31, 2000.
Restricted shares held Value of restricted shares held
---------------------- -------------------------------
John Robertson 203,315 $101,658
Mark Godsy 2,178,261 $1,089,131
William Brogdon 550,000 $275,000
As of December 31, 2000, Mark Godsy also owned 215,151 unrestricted shares for a
total of 2,393,412.
31
OPTION GRANTS IN 2000
Option/SAR Grants Table
Option/SAR Grants in Last Fiscal Year
Individual Grants
(a) (b) (c) (d) (e) (f)
% of Total
Number of Securities Options/SARs Granted Market price on
Underlying Options/SARs to Employees in Fiscal Exercise or Base date of grant
Name Granted (#) Year* Price ($/Sh) ($/sh) Expiration Date
---- ----------------------- ---------------------- ---------------- ---------------- ---------------
CEO
John Robertson** 200,000 6.1 0.38 0.38 December 31, 2005
John Robertson 75,000 2.3 0.38 0.50 December 31, 2005
Mark Godsy*** 200,000 6.1 0.38 0.38 December 31, 2005
* The denominator (of 3,300,000) was arrived at by calculating the total
number of new options awarded during the year, and adjusting this number
downward for those awards during the year that were later reduced due to
repricing.
** John Robertson received 200,000 options at $1.00 (one-half fully vested and
one-half time-based) on December 22, 2000. Mr. Robertson renounced these
options in return for 200,000 options (one-half fully vested and one-half
time-based) with an exercise price of $0.38 granted on December 27, 2000
(first vesting date December 31, 2000). He received an additional 75,000
with an exercise price of $0.38 options on December 31, 2000.
*** Mark Godsy received 500,000 options at $2.06 (one-half fully vested and
one-half time-based) on February 22, 2000. He also received 50,000
time-based options in December 1999. Mr. Godsy renounced all these options
in return for 200,000 time-based options with an exercise price of $0.38
granted on December 27, 2000 (first vesting date December 31, 2000).
FISCAL YEAR-END OPTION VALUE
The following table presents the value of unexercised options held as of
December 31, 2000 by each of the named executive officers appearing in the
Summary Compensation Table in this section. None of these named executive
officers exercised any of their options in 2000. Mr. Brogdon held no options as
of December 31, 2000.
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
-----------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
Shares Acquired Value
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
John Robertson 0 $0 114,583 / 160,417 $ 13,750 / $ 19,250
Mark Godsy 0 $0 16,667 / 183,333 $ 2,000 / $ 22,000
32
Compensation of Directors
The directors of the Company do not receive salaries or fees for serving as
directors of the Company, nor do they receive any compensation for attending
meetings of the Board of Directors or serving on committees of the Board of
Directors. The Company may, however, determine to compensate its directors in
the future. Directors are entitled to reimbursement of expenses incurred in
attending meetings. In addition, the directors of the Company are entitled to
participate in the Company's stock option plan. The Company has adopted a policy
whereby members of the Board of Directors receive initial grants of options upon
appointment or upon adoption of the policy, as follows:
Chairman 200,000 options
Director (other than Chairman) 75,000 options
Compensation Committee 5,000 options
Audit Committee 5,000 options
Options Committee 2,500 options
Employment Agreements
There are no employment agreements between the Company or any of its
subsidiaries with William Brogdon or Mark Godsy. The Company had an employment
agreement with John Robertson, dated November 16, 2000, which was replaced with
a consulting agreement of indefinite term on February 1, 2001. The consulting
agreement may be terminated on three months' notice. Pursuant to the employment
agreement, Mr. Robertson was entitled to a salary of Cdn. $9,000 per month,
reviewable annually, with such increases as the Company deems appropriate. Under
the consulting agreement, Mr. Robertson is entitled to fees of Cdn. $10,833.33
per month. Mr. Robertson is also entitled to options to purchase up to 375,000
shares of the common stock of the Company, to benefits as are ordinarily made
available to employees of the Company, and to the reimbursement of reasonable
job-related expenses.
Repricing of Options
On December 22, 2000 the Board of Directors approved the Stock Option Grant
Policy (see Exhibit 10.7 to the Company's report on Form 10-KSB filed April 2,
2001). This policy was implemented on December 27, 2000. See notes to the table
"Option/SAR Grants in Last Fiscal Year" for the impact of this policy on options
held by John Robertson and Mark Godsy. H. William Brogdon was not affected by
this policy as he no longer holds options in the Company's common stock.
33
Financial Statements - Quarter ending June 30, 2001
UNITY WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(expressed in U.S. dollars)
June 30 December31
2001 2000
----------------------------------------------------------------------------------------------------------------
(unaudited) (Note 1)
$ $
ASSETS
Current assets
Cash and cash equivalents 1,448,690 2,002,084
Restricted cash (note 3) 80,000 100,000
Accounts receivable (less allowance for doubtful accounts
of $22,799 in 2001 and $4,245 in 2000) 163,875 232,591
Loan receivable 85,610 204,434
Government grant receivable 172 13,905
Inventory (note 2) 280,671 463,412
Prepaid expenses 33,830 14,309
Other receivable 30,750 61,500
----------------------------------------------------------------------------------------------------------------
2,123,598 3,092,235
Equipment, net 248,651 221,651
Goodwill 834,295 926,995
----------------------------------------------------------------------------------------------------------------
3,206,544 4,240,881
----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 3) 241,939 276,811
Accounts payable and accrued liabilities (note 4) 441,266 728,807
Loans payable 74,451 42,312
Product warranty 151,797 623,497
----------------------------------------------------------------------------------------------------------------
909,453 1,671,427
Loans payable 0 115,781
----------------------------------------------------------------------------------------------------------------
Total liabilities 909,453 1,787,208
----------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock, $0.001 par value 100,000,000 authorized,
25,768,153 (2000 - 25,743,153) issued and outstanding 25,768 25,743
Additional paid-in capital 13,393,508 13,251,498
Deferred stock compensation 0 (89,719)
Accumulated deficit (11,237,439) (10,732,275)
Other accumulated comprehensive gain (loss) 115,254 (1,574)
----------------------------------------------------------------------------------------------------------------
2,297,091 2,453,673
----------------------------------------------------------------------------------------------------------------
3,206,544 4,240,881
----------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (note 10)
See accompanying notes to consolidated financial statements
34
UNITY WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(expressed in U.S. dollars)
(Unaudited)
Three months ended June 30 Six months ended June 30
2001 2000 2001 2000
-------- -------- -------- ------
Net sales 570,559 0 1,963,506 0
Cost of goods sold (6 months data includes
stock-based compensation (recovery) expense
($350) in 2001 and $ nil in 2000) 336,802 0 1,382,802 0
---------------------------------------------------------------------------------------------------------------
233,757 0 580,704 0
---------------------------------------------------------------------------------------------------------------
Expenses:
Research and development (6 months data
includes stock-based compensation expense
$33,985 in 2001 and $10,600 in 2000) 218,304 0 312,883 0
Sales and marketing (6 months data includes
stock-based compensation expense $25,897
in 2001 and $84,800 in 2000) 139,987 0 180,672 0
Depreciation and amortization 73,250 3,022 141,483 5,802
Exchange (gain) loss (20,320) 0 (75,318) 0
Interest expense 1,151 5,375 2,219 12,827
General and administrative (6 months data
includes stock-based compensation expense
$165,183 in 2001 and $nil in 2000) 661,840 372,606 835,350 604,350
---------------------------------------------------------------------------------------------------------------
1,074,212 381,003 1,397,289 622,979
---------------------------------------------------------------------------------------------------------------
Operating loss for the period (840,455) (381,003) (816,585) (622,979)
Interest income 6,069 53,028 34,639 57,261
Other income 616 0 9,278 56
Provision for income taxes 0 0 0 0
---------------------------------------------------------------------------------------------------------------
Loss from continuing operations (833,770) (327,975) (772,668) (565,662)
---------------------------------------------------------------------------------------------------------------
Gain (loss) from discontinued operations
(note 5) 217,966 (728,809) 267,504 (1,161,805)
---------------------------------------------------------------------------------------------------------------
Loss for period (615,804) (1,056,784) (505,164) (1,727,467)
Comprehensive income (loss):
Loss for the period (615,804) (1,056,784) (505,164) (1,727,467)
Currency translation adjustment 3,948 38,968 116,828 49,815
---------------------------------------------------------------------------------------------------------------
Comprehensive loss (611,856) (1,017,816) (388,336) (1,677,652)
---------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share
(note 6):
Continuing operations (0.032) (0.015) (0.030) (0.028)
Discontinued operations 0.008 (0.032) 0.010 (0.056)
---------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (0.024) (0.047) (0.020) (0.084)
---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
35
UNITY WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in U.S. dollars)
(Unaudited)
Six months ended June 30
2001 2000
------- -------
Operating activities:
Loss for period (505,164) (1,727,466)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of patents - 26,183
Depreciation of equipment 48,783 5,802
Amortization of goodwill 92,700 -
Shares issued for service 7,000 -
Stock based compensation 225,415 95,400
Changes in non-cash working capital relating to operations:
Accounts receivable 68,716 (54,142)
Government grant receivable 13,733 (4,076)
Investment tax credit receivable - 123,245
Inventory 182,741 212,561
Prepaid expenses (19,521) (28,280)
Accounts payable and accrued liabilities (287,541) 359,089
Income taxes payable - 5,999
Product warranty (471,700) 31,192
------------------------------------------------------------------------------------------------------
Net cash used in operating activities (644,838) (954,493)
Investing activities:
Acquisition of equipment (77,278) (42,407)
Increase in patents - 6,701
Other receivables 30,750 -
Related party advances - (58)
------------------------------------------------------------------------------------------------------
Net cash used in investing activities (46,528) (35,764)
Financing activities:
Repayment of loan receivable 118,824 -
Restricted cash 20,000 -
Bank overdraft (34,872) (18,220)
Repayment of loan payable (83,642) (597,809)
Proceeds from loan payable - 497,898
Cash proceeds from issued and to be issued common shares - 6,307,394
Share issue costs - (415,431)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 20,310 5,773,832
Effect of foreign exchange rate changes on cash and cash equivalents 117,662 49,815
Increase (decrease) in cash (553,394) 4,833,390
Cash, beginning of period 2,002,084 32,970
Cash, end of period 1,448,690 4,866,360
See accompanying notes to consolidated financial statements
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. 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
and Regulation SB. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete set of annual financial statements. In the opinion of management,
all adjustments (consisting of normally recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the six-month period ending June 30, 2001 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2001.
For further information, refer to the consolidated financial statements and
footnotes thereto included in Unity Wireless Corporation's annual report on
Form 10-KSB for the year ended December 31, 2000 and the Company's report
on Form 10-QSB for the quarter ended March 31, 2001.
The Company's ability to realize the carrying value of its assets is
dependent on achieving profitable operations, and continuing development of
new technologies, the outcome of which cannot be predicted at this time.
Accordingly, the Company will require for the foreseeable future ongoing
capital infusions in order to continue its operations, fund its research
and development activities, and ensure orderly realization of its assets at
their carrying values.
2. Inventory:
The components of inventory consist of the following:
June 30 December 31
2001 2000
$ $
------------------------------------------------------------------------
Raw materials 267,704 248,863
Work in progress - 195,504
Finished goods 12,967 19,045
------------------------------------------------------------------------
280,671 463,412
------------------------------------------------------------------------
3. Bank indebtedness:
The Company has a $66,072 ($Cdn 125,000) demand revolving loan with HSBC
Bank Canada Inc. with an interest rate of Canadian prime plus 0.25% per
annum. The loan is secured by a $80,000 term deposit with the HSBC Bank
Canada Inc.
Canadian bank prime rate at June 30, 2001 was 6.25%.
On May 1, 2001, the Company replaced an existing demand revolving loan with
Royal Bank of Canada with a demand revolving loan from HSBC Bank Canada
Inc.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Accounts payable and accrued liabilities:
June 30 December 31
2001 2000
$ $
------------------------------------------------------------------------
Trade accounts payable 258,009 468,866
Accrued liabilities 183,257 259,941
------------------------------------------------------------------------
441,266 728,807
------------------------------------------------------------------------
5. Loss from discontinued operations:
During 2001, the Company focused mainly on designing, developing and
marketing high power linear RF amplifiers after it completed the sale of UW
Integration Inc. (intelligent transportation systems) on December 30, 2000.
On October 6, 2000, the Company also disposed of its acoustic emergency
traffic preemption business to Traffic Systems LLC ("Traffic Systems"), an
Arizona corporation. The Company sold or licensed substantially all of its
assets and undertaking involved in its acoustic emergency traffic
preemption business. As consideration, the Company received a 37% interest
in the purchaser, Traffic Systems, and was entitled to receive up to
$2,000,000, subject to certain upward adjustments, payable in quarterly
installments equal to 10% of the gross profits of Traffic Systems for the
relevant quarter.
The Company did not record the $2,000,000 consideration as it was
contingent on Traffic Systems generating gross profits. The Company also
wrote off its investments in Traffic Systems as of December 31, 2000
because of uncertainty with regard to future operations, profitability and
cash flow of Traffic Systems. Since the Company had a 37% interest in
Traffic Systems over which it could exert significant influence, the sale
of acoustic business was not considered at October 6, 2000 to be
discontinued operations. On April 30, 2001, the Company disposed of its 37%
interest in Traffic System and all remaining intellectual property related
to the acoustic business and in return the purchaser assumed the warranty
liability related to Acoustic business. The warranty as at June 30, 2001
was estimated to be $383,091. As a result, the Company has no direct or
indirect continuing interest in the acoustic business. For the three months
ended June 30, 2001, the income from operations prior to the disposition of
the Sonem business was nil and the gain on disposition of the business was
$383,091. For the six months ended June 30, 2001, the income from
operations prior to the disposition of the Sonem business was $49,538.
On June 12, 2001, the Company also disposed of its last non-amplifier
operation, the Unilinx business, to Horton Automation Inc. ( "Horton"), a
British Columbia, Canada corporation. The Company sold all of its assets
and undertakings involved in the Unilinx business. The assets involved
include inventory, equipment and intellectual property of the business. The
purchase price is being paid over time on a percentage of future sales
basis within a period of two years until June 12, 2003. The Company has not
recorded the consideration as it is contingent on Horton generating sales
for the Unilinx product. Consequently the Company recorded a loss of
$165,125 on the disposition of the Unilinx business. For the three months
and six months ended June 30, 2001, the income from operations prior to the
disposition of the Unilinx business was nil and the loss on disposition of
the business was $165,125.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Earnings per share data:
The following table sets forth the computation of basic and diluted income
(loss) per common share:
Three months ended June 30 Six months ended June 30
2001 2000 2001 2000
Numerator
Loss from continuing operations ($) (833,770) (327,975) (772,668) (565,662)
Gain (Loss) from discontinued
operations ($) 217,966 (728,809) 267,504 (1,161,805)
----------------------------------------------------------------------------------------------------------------
Loss for period ($) (615,804) (1,056,784) (505,164) (1,727,467)
Denominator
Weighted average number of common
shares outstanding 25,745,626 24,061,692 25,744,396 22,339,137
Adjusted 0 (1,562,418) 0 (1,651,429)
----------------------------------------------------------------------------------------------------------------
25,745,626 22,499,274 25,744,396 20,687,708
Basic and diluted gain (loss) per
common share ($):
Continuing operations (0.032) (0.015) (0.030) (0.028)
Discontinued operations 0.008 (0.032) 0.010 (0.056)
----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common (0.024) (0.047) (0.020) (0.084)
share ($)
For the 6-month period ended June 30, 2001, all of the Company's common
shares issuable upon the exercise of stock options and warrants were
excluded from the determination of diluted loss per share as their effect
would be anti-dilutive.
7. Stock Option Plan:
During the year ended December 31, 1998 the Company established a stock
option plan pursuant to which 3,000,000 common shares were reserved for
issuance. This plan was replaced on December 6, 1999, by a new stock option
plan pursuant to which 5,000,000 common shares were reserved for issuance.
On July 5, 2000 the shareholders approved a change in the maximum number of
options issuable under this plan to 20% of the number of common shares
outstanding including shares of common stock previously issued under the
plan. As of June 30, 2001 this maximum number was 6,442,038.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Stock Option Plan (continued):
Stock option transactions for the respective periods and the number of
stock options outstanding are summarized as follows:
Outstanding options
---------------------------------------------------------------------------------------------------
Shares available No. of common Weighted average
under option shares issuable exercise price
---------------------------------------------------------------------------------------------------
Balance, December 31, 2000 1,981,123 4,454,666 0.77
Options granted (1,493,667) 1,493,667 0.45
---------------------------------------------------------------------------------------------------
Options expired 1,730,083 (1,730,083) 1.28
Change in number of authorized options 6,249
Balance, June 30, 2001 2,223,788 4,218,250 0.45
---------------------------------------------------------------------------------------------------
8. Segmented information:
a. Segment information:
During the 6 months ended June 30, 2001 the Company was operating only
in the wireless product segment.
b. Geographic information ($000):
Substantially all assets and operations are in Canada. A summary of
sales by region is as follows:
Six months ended June 30,
---------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------
Korea $ 1,821 $ -
Canada 17 -
United States 126 -
---------------------------------------------------------------------
Total sales $ 1,964 $ -
---------------------------------------------------------------------
c. Major customers ($000):
The approximate sales to major customers is as follows:
Six months ended June 30,
---------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------
Customer A $ 852 $ -
Customer B 810 -
---------------------------------------------------------------------
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Warrants:
Under the consulting agreement between the Company and Mueller & Company,
Inc. and Ideas Inc. ("Mueller and Ideas") dated as of July 1, 2000, 500,000
shares of common stock were issuable to Mueller and Ideas upon exercise of
warrants at $2.06 per share. On January 1, 2001, the Company and Mueller
and Ideas agreed to modify this agreement such that the number of warrants
was reduced to 200,000 and the exercise price was reduced to $0.38. On
April 1, 2001 Mueller and Ideas agreed to provide additional services under
the consulting agreement. The Company agreed to increase the number of
warrants by 300,000, with the additional warrants exercisable into shares
of common stock at a price of $0.29. These warrants were valued using fair
market value under FAS 123.
10. Commitments and contingent liabilities:
a. Lease commitments
The Company has the following future minimum lease commitments for
premises and equipment:
$000
2001 44
2002 86
2003 85
2004 82
2005 53
--
350
b. Legal proceedings
The Company is currently a party to an action in the Supreme Court of
British Columbia, Vancouver Registry, brought by an optionholder
seeking a declaration that certain options to purchase shares in the
common stock of the Company held by it have a term of unlimited
duration.
The Company provides for costs related to contingencies when a loss is
probable and the amount is reasonably determinable. It is the opinion
of management, based on advice of 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 Company.
41
Financial Statements - Year ending December 31, 2000
Independent Auditors Report ......................................F-1
Balance Sheet ....................................................F-3
Statement of Operations ..........................................F-4
Statement of Shareholders' Deficit ...............................F-5
Statement of Cash Flows ..........................................F-6
Notes to Financial Statements ....................................F-7
42
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Unity Wireless Corporation
We have audited the accompanying consolidated balance sheet of Unity Wireless
Corporation (formerly Sonic Systems Corporation) as of December 31, 2000 and the
related consolidated statements of operations and comprehensive loss,
stockholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The financial statements as of and for the year
ended December 31, 1999 were audited by other auditors whose report thereon
dated March 3, 2000 expressed an unqualified opinion on those statements, before
the retroactive restatement for discontinued operations as described in note 5
to the financial statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Unity
Wireless Corporation and subsidiaries as of December 31, 2000 and the results of
its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue on a going concern. As discussed in note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We also audited adjustments for the discontinued operations as described in note
5 that were applied to restate the 1999 financial statements. In our opinion,
such adjustments are appropriate and have been properly applied.
/s/ KPMG LLP
Chartered Accountants
Vancouver, Canada
March 2, 2001, except as to note 4 which is as of April 30,2001 and note 5 which
is as of June 12, 2001
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Sonic Systems Corporation
We have audited the accompanying consolidated balance sheet of Sonic Systems
Corporation and subsidiaries as of December 31, 1999 and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity and cash flows for the year then ended, before the retroactive
restatement for discontinued operations as described in note 5 to the
consolidated financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1999 financial statements (before the retroactive
restatement discussed in the introductory paragraph) referred to above present
fairly, in all material respects, the consolidated financial position of Sonic
Systems Corporation as of December 31, 1999, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Chartered Accountants
Vancouver, Canada
March 3, 2000
F-2
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Consolidated Balance Sheets
(Expressed in U.S. dollars)
December 31, 2000 and 1999
================================================================================
2000 1999
-------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,002,084 $ 32,970
Restricted cash (note 13(b)) 100,000 -
Accounts receivable (less allowance for doubtful accounts of
$4,245 in 2000 and nil in 1999) 232,591 26,191
Loan receivable (note 7) 204,434 -
Government grant receivable 13,905 25,794
Investment tax credit receivable - 123,245
Inventory (note 8) 463,412 529,528
Prepaid expenses 14,309 11,003
Related party advances (note 10) - 10,024
Other receivable (note 5) 61,500 -
-------------------------------------------------------------------------------------------------------------------
3,092,235 758,755
Equipment, net (note 9) 221,651 49,664
Goodwill (note 6) 926,995 -
Patents, net (notes 4 and 11) - 493,407
-------------------------------------------------------------------------------------------------------------------
$ 4,240,881 $ 1,301,826
-------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Bank indebtedness $ 276,811 $ 18,220
Accounts payable and accrued liabilities (note 12) 728,807 455,677
Loans payable (note 13) 42,312 277,664
Product warranty (note 3(n)) 623,497 19,670
-------------------------------------------------------------------------------------------------------------------
1,671,427 771,231
Loans payable (note 13) 115,781 -
Product warranty (note 3(n)) - 49,616
-------------------------------------------------------------------------------------------------------------------
1,787,208 820,847
Stockholders' equity:
Common stock, $0.001 par value 100,000,000 authorized, 25,743,153
(1999 - 20,588,725) issued and outstanding 25,743 20,589
Additional paid-in capital 13,251,498 5,909,624
Deferred stock compensation (89,719) -
Accumulated deficit (10,732,275) (5,413,642)
Other accumulated comprehensive loss (1,574) (35,592)
-------------------------------------------------------------------------------------------------------------------
2,453,673 480,979
-------------------------------------------------------------------------------------------------------------------
$ 4,240,881 $ 1,301,826
-------------------------------------------------------------------------------------------------------------------
Commitments (note 15)
Subsequent events (note 18)
Contingent liabilities (note 19)
See accompanying notes to consolidated financial statements.
F-3
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
2000 1999
--------------------------------------------------------------------------------------------------------------
Net sales $ 474,003 $ -
Cost of goods sold 364,423 -
--------------------------------------------------------------------------------------------------------------
109,580 -
Expenses:
Sales and marketing 10,745 -
Depreciation and amortization 2,024 13,428
Exchange gain (3,036) (96,393)
Interest expense 659 20,571
General and administrative (includes stock-based
compensation $354,426 in 2000 and nil in 1999) 1,952,469 427,491
--------------------------------------------------------------------------------------------------------------
1,962,861 365,097
--------------------------------------------------------------------------------------------------------------
Operating loss for the year (1,853,281) (365,097)
Interest income 3,855 -
Other income 10,217
--------------------------------------------------------------------------------------------------------------
Loss from continuing operations (1,839,209) (365,097)
Discontinued operations:
Loss from discontinued operations (note 5) (3,479,424) (1,660,004)
--------------------------------------------------------------------------------------------------------------
Loss for the year $ (5,318,633) $ (2,025,101)
--------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Loss for the year $ (5,318,633) $ (2,025,101)
Currency translation adjustment 34,018 (43,890)
--------------------------------------------------------------------------------------------------------------
Comprehensive loss $ (5,284,615) $ (2,068,991)
--------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (note 14(c)):
Continuing operations $ (0.08) $ (0.03)
Discontinued operations (0.15) (0.12)
--------------------------------------------------------------------------------------------------------------
$ (0.23) $ (0.15)
--------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. dollars)
================================================================================
Common Other
stock Additional Deferred accumulated Total
Common issued and paid-in stock Accumulated comprehensive stockholders'
stock outstanding capital compensation deficit (loss)income equity
-----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1998 19,589,368 $ 19,589 $ 4,274,104 $ - $ (3,388,541) $ 8,298 $ 913,450
Issued for services rendered 6,500 7 12,993 - - - 13,000
Issued for cash pursuant to
private placement, net of
share issue costs of $151,480 992,857 993 1,622,527 - - - 1,623,520
Loss for the year - - - - (2,025,101) - (2,025,101)
Currency translation adjustment - - - - - (43,890) (43,890)
-----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1999 20,588,725 20,589 5,909,624 - (5,413,642) (35,592) 480,979
Issued for debt settlement 65,000 65 117,903 - - - 117,968
Issued for services rendered
(note 14(a)) 254,428 254 142,886 - - - 143,140
Issued pursuant to private
placement 3,850,000 3,850 5,771,150 - - - 5,775,000
Issued for cost of share
issuance (note 14(a)) 285,000 285 427,215 - - - 427,500
Share issue costs - - (427,500) - - - (427,500)
Shares issued on acquisition
of Ultratech 700,000 700 538,300 - - - 539,000
Compensation expense of
options and warrants - - 682,201 - - - 682,201
Deferred stock compensation - - 89,719 (89,719) - - -
Loss for the year - - - - (5,318,633) - (5,318,633)
Currency translation
adjustment - - - - - 34,018 34,018
-----------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 2000 25,743,153 $ 25,743 $13,251,498 $ (89,719) $(10,732,275) $(1,574) $2,453,673
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
2000 1999
-------------------------------------------------------------------------------------------------------------------
Operating activities:
Loss for the year $ (5,318,633) $ (2,025,101)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of patents 66,657 56,693
Depreciation of equipment 12,578 13,428
Write down of assets and investment 581,800 -
Shares issued for services rendered (note 14(a)) 143,140 13,000
Asset disposed for services - 3,319
Stock based compensation 682,201 2,000
Loss on sale of business (note 5) 80,726 -
Changes in non-cash working capital relating to operations:
Accounts receivable and government grant receivables (146,824) 199,569
Investment tax credit receivable 123,245 86,727
Inventory 27,224 (328,677)
Prepaid expenses (13,283) 3,382
Accounts payable and accrued liabilities 109,129 178,678
Product warranty 554,211 36,676
-------------------------------------------------------------------------------------------------------------------
Net cash used in operating (3,097,829) (1,760,306)
Investing activities:
Acquisition of equipment (200,941) (11,079)
Increase in patents (5,050) (50,020)
Related party advances 10,024 (10,024)
Sale of business, net cash and cash equivalents disposed of (note 5) (314,990) -
-------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (510,957) (71,123)
Financing activities:
Advance of loan (204,434) -
Bank overdraft 115,001 18,220
Restricted cash (note 13(b)) (100,000) -
Repayment of loan payable (49,603) (1,371,159)
Proceeds from loan payable - 1,381,184
Cash proceeds on issuance of common shares 5,775,000 1,775,000
Share issue costs - (151,480)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,535,964 1,651,765
Effect of foreign exchange rate changes on cash and cash equivalents 41,936 (43,890)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 1,969,114 (223,554)
Cash, beginning of year 32,970 256,524
-------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 2,002,084 $ 32,970
-------------------------------------------------------------------------------------------------------------------
Supplementary information:
Cash paid for:
Interest $ 26,749 $ 14,332
Income taxes - -
Non-cash financing and investing activities:
Shares issued in acquisition of business (note 6) 539,000 -
Shares issued for services rendered 143,140 13,000
Shares issued on settlement of debt 117,968 -
Share issue cost (note 14(a)) 427,500 -
Sale of assets for 37% interest in Traffic Systems (note 4) 150,000 -
Receivable on sale of business (note 5) 61,500 -
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
1. Nature of business:
Unity Wireless Corporation (the "Corporation") was incorporated in Delaware
on October 1, 1998 under the name Sonic Systems Corporation ("Sonic
Delaware"). Sonic Delaware changed its name to Unity Wireless Corporation
on July 17, 2000. The Corporation is a designer, developer and manufacturer
of wireless technologies and products for a broad range of industrial and
commercial applications. The Corporation's business has two primary product
focuses: its Ultratech high power linear radio frequency (RF) amplifiers
and its UniLinx(TM) wireless communications modem card. Ultratech high
power linear RF amplifiers are used in both mobile and fixed wireless
voice, Internet and data base station and repeater networks and support
Cellular, PCS (Personal Communications Services), Paging and WLL (Wireless
Local Loop) frequencies. The UniLinx(TM) wireless communications card is a
multi-purpose wireless data communications card that allows the sending and
receiving of data to and from remote locations, offering secure end-to-end
wireless communication between a host application and various remote
devices.
2. Future operations:
The Corporation is continuing to develop its products and markets,
accordingly during the year ended December 31, 2000 it incurred a loss of
$5,318,633 (1999 - $2,025,101) and used cash from operations of $3,097,829
(1999 - $1,760,306). Operations to date have been primarily financed by
equity.
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 primarily financed by long-term debt and equity
transactions. 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
shareholders, 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.
F-7
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
3. Significant accounting policies:
(a) Principles of consolidation:
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiaries, Unity Wireless Systems
Corp., ("Unity Systems") 321373 B.C. Ltd. (British Columbia, Canada),
and Unity Wireless Integration Inc. (Washington State, USA). The
Statement of Operations and Comprehensive Loss also includes the
accounts of Unity Wireless Singapore from April 1 (date of
incorporation), to December 30, 2000. All significant intercompany
accounts and transactions have been eliminated.
The Corporation accounts for its investment in companies in which it
has significant influence by the equity method. The Corporation's
proportionate share of income (loss) as reported, net of amortization
of the excess purchase price over the net assets acquired, is included
in income and is added (deducted from) the cost of the investment.
On December 31, 2000 the Corporation amalgamated three Canadian
subsidiaries: Unity Wireless Systems Corp., Ultratech Linear Solutions
Inc., and 568608 B.C. Ltd., with Unity Wireless Systems Corp. the
surviving entity.
(b) Use of estimates:
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets, particularly the recoverability of property and equipment,
goodwill patents and liabilities particularly product warranty and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
(c) Financial instruments:
At December 31, 2000, the Corporation has the following financial
instruments: cash and cash equivalents, accounts receivable, other
receivables, accounts payable and accrued liabilities, and loans
payable (1999 - cash and cash equivalents, accounts receivables, other
receivables, investment tax credit receivable, accounts payable and
accrued liabilities and loans payable). The carrying value of these
financial instruments is considered to approximate fair value based on
their short-term nature.
(d) Cash and cash equivalents:
Cash equivalents include short-term deposits, which are all highly
liquid securities with a term to maturity of three months or less when
acquired. Short-term deposits are valued at cost.
F-8
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
3. Significant accounting policies (continued):
(e) Inventory:
Inventory is carried at the lower of cost, determined on an average
cost method, and market. Market is considered to be replacement cost
for raw materials and net realizable value for work in progress and
finished goods. The cost of work in progress and finished goods
includes the cost of raw material, direct labour, and an appropriate
allocation of related overhead.
(f) Equipment:
Equipment is stated at cost. Depreciation is computed on a declining
balance basis over the estimated useful lives of the assets as
follows:
-------------------------------------------------------
Asset Rate
-------------------------------------------------------
Computer equipment and software 30%
Furniture and fixtures 20%
Production and R&D equipment 20%
-------------------------------------------------------
Leasehold improvements are stated at cost and depreciated over the
five-year term of the lease on a straight line basis.
(g) Patents:
Legal costs incurred for the registration of patents have been
capitalized. Patent costs are being amortized on a straight-line basis
over their legal life of 10 years. If it is determined that
undiscounted future cash flows do not exceed the carrying value of the
patents, an impairment charge is recorded to the extent that the
carrying value exceeds the asset's fair value.
(h) Goodwill:
Goodwill arising on business combinations represents the excess of the
purchase price over the fair values of net identifiable assets
acquired, and is amortized on a straight-line basis over 5 years.
Management periodically reviews the valuation and amortization of
goodwill, taking into consideration any events and circumstances which
may impair its value. If it is determined that undiscounted future
cash flows do not exceed the carrying value of goodwill, an impairment
charge is recorded to the extent that the carrying value exceeds the
asset's fair value.
F-9
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
3. Significant accounting policies (continued):
(i) Impairment of long-lived assets:
The Corporation accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(j) Income taxes:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. To the extent that it is not more likely than not that
a deferred tax asset will be realized, a valuation allowance is
provided.
(k) Advertising costs:
Advertising costs are expensed as incurred. The Corporation incurred
advertising expenses of $19,022 in 2000 and $16,940 in 1999.
(l) Foreign currency translation:
The functional currency of the Corporation and its subsidiaries is the
Canadian dollar, while the reporting currency in the consolidated
financial statements is the United States dollar. Asset and liability
accounts are translated into United States dollars at the exchange
rate in effect at the balance sheet date. Revenue and expense amounts
are translated at the average exchange rate for the year. Gains or
losses resulting from this process are recorded in stockholders'
equity as an adjustment to other accumulated comprehensive loss.
F-10
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
3. Significant accounting policies (continued):
(m) Revenue recognition:
Revenue from products is recognized once a sale arrangement exists,
delivery has occurred, the revenue is determinable and collectibility
is reasonably assured which is upon later of shipment or when title
passes to the customer depending on the contractual terms. The
Corporation records deferred revenue when cash is received in advance
of the revenue recognition criteria being met.
(n) Product warranty:
A liability for estimated warranty expense is established by a charge
against cost of goods sold at the time products are sold. The
subsequent costs incurred for warranty claims serve to reduce the
product warranty liability. The actual warranty costs the Corporation
will ultimately pay could differ materially from this estimate.
(o) Investment tax credits:
Investment tax credits are recorded using the cost reduction method
whereby the credits are deducted from the cost of the related assets
or expenditures.
The Corporation earns investment tax credits for qualifying scientific
research and development expenditures which are available in future
years to reduce income taxes payable. The investment tax credits are
recorded when there is a reasonable assurance that the Corporation
will have taxable income in the near future.
(p) Research and development:
Research and development costs are expensed as incurred.
(q) Stock option plan:
The Corporation applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations including FASB Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation an interpretation of
APB Opinion No. 25" issued in March 2000, to account for its employee
plan stock option grants. Under this method, compensation expense is
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation," established accounting and
disclosure requirements using a fair value-based method of accounting
for stock-based employee compensation plans. As allowed by SFAS No.
123, the Corporation has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123. Stock compensation granted to
non-employees is recognized at its fair value as the services are
provided and the compensation is earned.
F-11
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
3. Significant accounting policies (continued):
(r) Net loss per common share:
The basic loss per share is computed by dividing the loss attributable
to common stockholders by the weighted average number of common shares
outstanding for that period. The Corporation has not included
potential common shares representing performance shares in the basic
loss per share computation. Escrow shares with time-based vesting
which are non-contingent returnable are included in the basic loss per
share computation. Diluted loss per share is computed using the
treasury stock method, giving effect to all dilutive potential common
shares that were outstanding during the period except to the extent
where anti-dilutive.
(s) Comprehensive (loss) income:
Comprehensive income measures all changes in stockholders' equity
excluding capital transactions. For the periods presented, other
comprehensive income comprises only foreign currency translation.
(t) Recent pronouncements:
Statement of Financial Accounting Standards No. 133 ("FAS 133")
"Accounting Derivative Instruments and Hedging Activities" and
Statement of Financial Accounting Standards No. 138 (FAS 138)
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," an amendment of FAS 133, are effective for the
Corporation's fiscal year ending December 31, 2001. These standards
require that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure these
instruments at fair value. The Corporation did not hold any derivative
instruments and was not involved in any hedging activities at December
31, 2000.
(u) Comparative figures:
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.
4. Disposal of Sonem business:
On October 6, 2000, the Corporation disposed of its acoustic emergency
traffic preemption business to Traffic Systems LLC ("Traffic Systems"), an
Arizona corporation. Unity Systems sold or licensed substantially all of
its assets and undertakings involved in its acoustic emergency traffic
preemption business. The assets included equipment, inventory, distribution
contracts, customer lists, marketing materials and the goodwill of the
business. Unity Systems retained ownership of the intellectual property
used in connection with the acoustic emergency traffic preemption business,
including software, patents and know-how, other than certain trade marks.
The intellectual property was being licensed to Traffic Systems under an
intellectual property license agreement dated October 6, 2000. The license
was royalty-free and had a term expiring on the earlier of October 5, 2020
and the date of the final payment of the purchase price at which time the
intellectual property will be transferred to Traffic Systems.
F-12
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
4. Disposal of Sonem business (continued):
As consideration for the sale of the traffic preemption business, Unity
Systems received a 37% interest in the purchaser, Traffic Systems, and was
entitled to receive up to $2,000,000, subject to certain upwards
adjustments, payable in quarterly installments equal to 10% of the gross
profits of Traffic Systems for the relevant quarter. The Corporation did
not record the $2,000,000 consideration as it was contingent on Traffic
Systems generating gross profits. The Corporation also wrote off its
investment of $150,000 in Traffic Systems as of December 31, 2000 because
of uncertainty with regard to future operations, profitability and cash
flows of Traffic Systems.
The net book value of assets disposed off are as follows:
Inventory $ 150,000
--------------------------------------------------------------------
Since the Corporation has a 37% interest in Traffic Systems over which it
can exert significant influence, the sale of the Sonem business was not
considered at October 6, 2000 to be a discontinued operation.
Also under the Asset Purchase Agreement, Traffic Systems was responsible
for warranty work on Unity Systems' acoustic emergency traffic preemption
products already installed, except Unity Systems had advanced $100,000 for
costs in connection with such work. Traffic Systems is responsible for any
costs in excess of $100,000, but Unity Systems will fund such costs
initially and Traffic Systems will reimburse Unity Systems by adding the
costs over the initial $100,000 to the $2,000,000 otherwise payable as part
of the purchase price. The $100,000 for the initial warranty costs was paid
by Unity Systems on closing and is non-refundable regardless of the costs
incurred by Traffic Systems.
On April 30, 2001, the Company disposed of its 37% interest in Traffic
System and all remaining intellectual property related to the acoustic
business and in return the purchaser assumed the warranty liability related
to Acoustic business. The warranty as at June 30, 2001 was estimated to be
$383,091. As a result, the Company has no direct or indirect continuing
interest in the acoustic business.
F-13
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
5. Discontinued operations:
Effective December 30, 2000, Unity Wireless Integration Corporation
("UWIC"), a wholly owned subsidiary of the Corporation, disposed of all of
its assets and obligations, including its 100% shareholding interest in
Unity Wireless Integration (S) Pte Ltd., a Singapore company ("UW
Singapore") to Lyma Sales & Management Corp. ("Lyma"), a British Columbia,
Canada company. Unity Wireless Integration (S) Pte Ltd. commenced its
operations during 2000.
Under the terms of the Asset Purchase Agreement, UWIC sold all its assets
in return for $61,500 ($Cdn. 92,000), payable within one year of closing,
in equal semi-annual installments of $30,730 ($Cdn. 46,000), plus interest
on the unpaid balance at a rate equal to the prime rate of HSBC Canada per
annum. Also in consideration of the purchase of assets, Lyma agreed to
repay a $37,100 ($Cdn. 54,000) demand loan within ten business days of
closing. The loan has been repaid as agreed.
The disposition price was arrived at through arm's length negotiations and
management's determination that the purchase price of $61,500 ($Cdn.
92,000) represented a fair disposition price for the included assets.
The net book value of assets disposed of are as follows:
---------------------------------------------------------------------------
Cash and cash equivalents $ 314,990
Accounts receivable 20,396
Prepaid expenses 9,977
Equipment 26,178
Accounts payable (229,315)
---------------------------------------------------------------------------
$ 142,226
---------------------------------------------------------------------------
Lyma is wholly-owned by an ex-director of the Corporation who was also
responsible for management of the operations of UWIC and its wholly owned
subsidiary UW Singapore.
Net sales and income from discontinued operation for the disposal of Unity
Wireless Integration is as follows ($000):
2000 1999
------------------------------------------------------------------------
Net sales $ 383 $ -
Loss from discontinued operations (56) -
Loss on disposal of business segment - -
------------------------------------------------------------------------
As discussed in note 4 , on April 30,2001, the Company disposed of its
remaining interest in Sonem. As a result, these consolidated financial
statements have been retroactively restated to present the results of
operations of the Sonem business as a discontinued operation.
F-14
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
5. Discontinued operations (continued):
On June 12, 2001, the Company also disposed of its last non-amplifier
operation, the Unilinx business, to Horton Automation Inc. ( "Horton"), a
British Columbia, Canada corporation. The Company sold all of its assets
and undertakings involved in the Unilinx business. The assets involved
include inventory, equipment and intellectual property of the business. The
purchase price is being paid over time on a percentage of future sales
basis within a period of two years until June 12, 2003. The Company has not
recorded the consideration as it is contingent on Horton generating sales
for the Unilinx product. Consequently the Company recorded a loss on the
disposition of the Unilinx business.
Therefore, in summary, the loss from discontinued operations presented in
the consolidated statements of operations are comprised of the following:
2000 1999
Sonem 1,619,806 1,660,004
Unilinx 1,803,986 -
Services (UW Integration) 55,632 -
----------- -----------
$3,479,424 $1,660,004
6. Business acquisition:
On November 16, 2000, the Corporation acquired all the issued and
outstanding shares of Ultratech Linear Solutions Inc. ("Ultratech").
Ultratech, founded in May, 1999 and based in Burnaby, British Columbia,
Canada, is a wireless communications technology designer, developer,
manufacturer and marketer specializing in radio frequency high power linear
amplifiers.
The acquisition was recorded by the purchase method with the results of
Ultratech included in the financial statements from the date of acquisition
(November 16, 2000). The total consideration paid was allocated, based on
estimated fair values of the assets acquired and the liabilities assumed on
November 16, 2000 as follows:
-------------------------------------------------------------------------------------
Net assets acquired at assigned values:
Bank indebtedness $ (143,590)
Accounts receivable 68,083
Inventories 111,108
Intellectual property 606
Equipment 17,114
Accounts payable and accrued liabilities (393,316)
Loans payable (48,000)
Goodwill 926,995
-------------------------------------------------------------------------------------
$ 539,000
-------------------------------------------------------------------------------------
Consideration:
Issuances of shares (700,000 common shares at $0.77 per share) $ 539,000
-------------------------------------------------------------------------------------
Shares issued on the combination were valued at $0.77, the market price of
the shares at the date the acquisition was announced to the public.
F-15
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
6. Business acquisition (continued):
All of Ultratech's management and key employees have been retained.
Ultratech has combined its operations with Unity Systems through an
amalgamation on December 31, 2000 (note 3(a)).
The following table reflects, on an unaudited pro forma basis, the combined
results of the Corporation as if the above acquisition had taken place at
the beginning of the respective year presented. Appropriate adjustments
have been made to reflect the depreciation of the accounting bases used in
recording these acquisitions. This pro forma information does not purport
to be indicative of the results of operations that would have resulted had
the acquisitions been in effect for the entire years presented, and is not
intended to be a projection of future results or trends.
2000 1999
---------------------------------------------------------------------------
Revenues $ 1,982,512 $ 1,582,273
Loss for the year 5,703,972 2,340,813
Loss per share 0.241 0.163
---------------------------------------------------------------------------
7. Loan receivable:
The Corporation has a loan receivable from Cobratech Industries Inc.
("Cobratech"), a company with two common directors, in the principal amount
of $200,000. Interest is payable to the Corporation at 1% per month,
calculated monthly not in advance. The loan is secured by a general
security agreement which includes all of the personal and real property of
Cobratech. The loan is repayable upon demand. Cobratech repaid the
Corporation $100,000 on January 10, 2001, and has agreed to repay the
balance in 2001.
8. Inventory:
2000 1999
---------------------------------------------------------------------------
Raw materials $ 248,863 $ 195,364
Work in progress 195,504 -
Finished goods 19,045 334,164
---------------------------------------------------------------------------
$ 463,412 $ 529,528
---------------------------------------------------------------------------
F-16
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
9. Equipment:
Equipment consists of the following:
2000 1999
-------------------------------------------------------------------------------------------------
Accumulated Accumulated
Cost depreciation Cost depreciation
-------------------------------------------------------------------------------------------------
Computer equipment $ 150,475 $ 38,331 $ 52,165 $ 28,931
Computer software 27,073 - - -
Furniture and fixtures 33,784 6,825 10,869 5,388
Leasehold improvements 12,172 - - -
Production and R&D equipment 56,783 13,480 30,108 9,159
-------------------------------------------------------------------------------------------------
$ 280,287 $ 58,636 $ 93,142 $ 43,478
-------------------------------------------------------------------------------------------------
Net book value $ 221,651 $ 49,664
-------------------------------------------------------------------------------------------------
10. Related party advances:
Advances of nil (1999 - $10,024) are due from an employee and a previous
employee who is now a distributor of the Corporation.
11. Patents:
2000 1999
--------------------------------------------------------------------------------------------
Accumulated Accumulated
Cost amortization Cost amortization
-----------------------------------------------------------------------------------------
Patents $ - $ - $ 570,280 $ 76,873
--------------------------------------------------------------------------------------------
Net book value $ 493,407 $ 493,407
--------------------------------------------------------------------------------------------
The Corporation has written down the patents to nil as of December 31, 2000
since there are no future cash flows expected to be generated from the
patents.
12. Accounts payable and accrued liabilities:
2000 1999
--------------------------------------------------------------------------
Trade accounts payable $ 468,866 $ 349,179
Employee compensation payable - 57,287
Accrued liabilities 259,941 49,211
--------------------------------------------------------------------------
$ 728,807 $ 455,677
--------------------------------------------------------------------------
F-17
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
13. Loans payable:
----------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------------------------
British Columbia Advanced Systems Institute $ - $ 77,115
Royal Bank of Canada 83,642 130,365
Government of Canada - Ministry of Western Economic
Diversification 74,451 70,184
----------------------------------------------------------------------------------------------
158,093 277,664
Current portion 42,312 277,664
----------------------------------------------------------------------------------------------
$ 115,781 $ -
----------------------------------------------------------------------------------------------
(a) Government of British Columbia:
British Columbia Advanced Systems Institute ("ASI"):
The Corporation agreed to perform certain specified research and
development work and ASI agreed to assist in the funding of this
work up to $69,286 ($Cdn. 100,000). As of February 22, 2000, ASI
had advanced the maximum amount under this agreement. In
addition, $24,250 (Cdn. $35,000) became payable on March 31,
2000.
The Corporation discharged all of its obligations under this loan
by converting the outstanding balance $93,536 ($Cdn. $135,000) to
equity by issuing 45,000 shares to ASI on February 22, 2000.
(b) Royal Bank of Canada:
The Corporation has a $83,642 ($Cdn. 125,288) loan with the Royal Bank
of Canada with an interest rate of Canadian prime plus 1%. Scheduled
principal repayments are $3,526 ($Cdn. 5,239) per month over 5 years
from the initial drawdown date of January 23, 1998.
The loan is secured by a $100,000 term deposit with the Royal Bank.
There are also various covenants, financial reporting requirements,
and conditions precedent associated with the above loan. The
Corporation is in compliance with these covenants as at December 31,
2000.
Canadian bank prime rate at December 31, 2000 was 6.0 % (1999 - 6.5%).
(c) Government of Canada:
Ministry of Western Economic Diversification:
The Corporation, through its subsidiary 321373 B.C. Ltd., entered
into an unsecured loan agreement with the Federal Ministry of
Western Economic Diversification, whereby the Ministry agreed to
make financial contributions to assist in the development of
certain research and development projects. Under the terms of the
original agreement, the total loan was to be repaid in five equal
semi-annual installments commencing October 30, 1993. If not
repaid, each installment will incur interest compounded monthly
at the Bank of Canada's prime rate plus 3%.
F-18
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
13. Loans payable (continued):
(c) Government of Canada (continued):
Ministry of Western Economic Diversification (continued):
321373 B.C. Ltd. had agreed to repay this loan by allocating 40%
of royalty payments from Unity Systems. Royalties were payable by
Unity Systems at the rate of 3.5% of net sales of Sonem by Unity
Systems, including a deduction for warranty or replacement costs.
As of the date of the disposal of the Sonem business by Unity
Systems (see note 4), royalties owing to 321373 B.C. Ltd. did not
exceed accumulated warranty or replacement costs, and following
this date no further royalties became payable. 321373 B.C. Ltd.
has assets valued at $Cdn. 1 and is in the process of being
liquidated.
14. Common stock:
Authorized share capital:
100,000,000 common stock at par value of $0.001 per share
5,000,000 preferred stock at par value of $0.001 per share
(a) Shares issued for services:
In 2000, the Corporation issued 254,428 (1999 - 6,500) common shares
for services rendered at $143,140 (1999 - $13,000). The shares were
issued and assigned a value equal to their market value, determined by
the closing trading price of the common stock on the date of issuance.
The value assigned has been recorded by a charge against operations.
285,000 shares were issued to consultants providing services in
connection with the private placement of $5,775,000 in April, 2000.
The shares were issued and assigned a value equal to the value of the
shares issued in the private placement. The value assigned has been
recorded by a charge against the proceeds pursuant to the private
placement.
(b) Escrowed shares:
(i) 700,000 escrowed shares ("Indemnity Shares") were held in Escrow
pursuant to the terms of the Escrow Agreement until the 11th day
of June, 2000, at which time 420,000 Indemnity Shares were
released from the terms of this Escrow Agreement and thereafter
an additional 70,000 Indemnity Shares were released from the
terms of this Escrow Agreement on and after each of the 11th day
of September, 2000, and December, 2000. 70,000 Indemnity Shares
may be released on each of the 11th day of March, 2001 and June,
2001;
F-19
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
14. Common stock (continued):
(b) Escrowed shares (continued):
(ii) 1,800,000 escrowed shares were held in escrow pursuant to the
terms of the Escrow Agreement until December 11, 1999, at which
time 720,000 escrowed shares were released from the terms of this
Escrow Agreement and thereafter an additional 180,000 escrowed
shares were released from the terms of this Escrow Agreement on
and after each of the 11th day of March, 2000, June, 2000,
September, 2000, and December, 2000, 180,000 Indemnity Shares may
be released on each of the 11th day of March, 2001 and June,
2001.
(c) Loss per share:
The following table sets forth the computation of basic and diluted
loss per share:
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Numerator:
Loss from continuing operations $ (1,839,209) $ (365,097)
Loss from discontinued operations (3,479,424) (1,660,004)
Denominator:
Weighted average number of:
Common shares outstanding 23,680,518 19,795,202
Adjusted - 14,398,734
--------------------------------------------------------------------------------
Basic and diluted loss per common share:
Continuing operations $ (0.08) $ (0.03)
Discontinued operations (0.15) (0.12)
--------------------------------------------------------------------------------
For the year ended December 31, 2000 all of the Corporation's common
shares issuable upon the exercise of stock options were excluded from
the determination of diluted loss per share as their effect would be
anti-dilutive.
(d) Stock option plan:
During the year ended December 31, 1998 the Corporation established a
stock option plan pursuant to which 3,000,000 common shares were
reserved for issuance. This plan was replaced and on December 6, 1999,
the Corporation adopted a new stock option plan pursuant to which
5,000,000 common shares were reserved for issuance. On July 5, 2000
the stockholders approved a change in the maximum number of options
issuable under this plan to 20% of the number of common shares
outstanding including shares of common stock issuable under the plan.
As of December 31, 2000 this maximum number was 6,435,788.
F-20
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
14. Common stock (continued):
(d) Stock option plan (continued):
During the year, certain options granted were cancelled and were
replaced with new options at a lower exercise price. Since the options
were granted within six months of the cancellation, the new options
are considered for accounting purposes to be variable in nature and
compensation expense will be recorded equal to changes in the market
value of the underlying common shares. The variable plan accounting
has been applied prospectively for market value changes subsequent to
the date of the repricing. In addition, compensation expense is
recognized to the extent that options are granted having an exercise
price less than the market price of the underlying share on the date
of grant.
Stock option transactions for the respective periods and the number of
stock options outstanding are summarized as follows:
-------------------------------------------------------------------------------------------------------
Outstanding options
-------------------------------------
Shares
available Number of Weighted
to be granted common average
under option shares issuable exercise price
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 388,000 2,387,000 $ 1.00
Options granted (150,000) 150,000 1.10
Options expired 152,500 (152,500) (1.00)
Increase in reserved for issuance 2,000,000 - -
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 2,390,500 2,384,500 1.01
Options granted (5,912,958) 5,912,957 1.24
Options expired 3,842,791 (3,842,791) (1.65)
Increase in reserved for issuance 1,660,789 - -
-------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 1,981,122 4,454,666 $ 0.77
-------------------------------------------------------------------------------------------------------
F-21
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
14. Common stock (continued):
(d) Stock option plan (continued):
The following table summarizes information about stock options under
the plan outstanding at December 31, 2000:
--------------------------------------------------------------------------------------------------------
Options outstanding Options exercisable
----------------------------------------------- ----------------------------
Weighted
Number average Weighted Number Weighted
outstanding at remaining average outstanding at average
Range of December 31, contractual exercise December 31, exercise
exercise prices 2000 life (yrs) price 2000 price
--------------------------------------------------------------------------------------------------------
$0.38 2,406,458 5.00 $0.38 605,208 $0.38
$0.50 85,000 4.99 $0.50 - $0.50
$1.00 1,505,416 1.03 $1.00 1,428,208 $1.00
$2.06 445,292 2.43 $2.06 254,875 $2.06
$2.53 10,000 3.32 $2.53 5,833 $2.53
$3.90 2,500 0.29 $3.90 2,500 $3.90
--------------------------------------------------------------------------------------------------------
4,454,666 3.39 $0.77 2,296,624 $0.96
--------------------------------------------------------------------------------------------------------
Stock options become exercisable at dates determined by the Board of
Directors at the time of granting the option.
Stock options have initial terms of five years.
Had compensation cost been determined based on the fair value at the
grant dates for those options issued to employees and consultants,
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:
--------------------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------------------
Loss for the year, as reported $ 5,318,633 $ 2,025,101
Add SFAS 123 expense 1,740,746 64,589
--------------------------------------------------------------------------------------------------------
Pro forma $ 7,059,379 $ 2,089,690
--------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share, net as reported $ 0.22 $ 0.14
Pro forma 0.30 0.15
--------------------------------------------------------------------------------------------------------
F-22
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
14. Common stock (continued):
(d) Stock option plan (continued):
The fair value of each option granted in 2000 and 1999 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 was based on weekly stock price; risk-free interest rate of
5% (1999 - 5%) and an expected life of four and one-half years.
The weighted-average fair value of options granted during 2000 and
1999 was $0.95 and $0.58 respectively.
(e) Warrants:
The Corporation has warrants outstanding to purchase 4,450,000 common
shares at $2.06 to $3.25 per share. 3,850,000 warrants may be callable
for exercise by the Corporation at any time after the average bid-ask
price, or closing price, as applicable, for the Corporation's common
stock is equal to or exceeds $5.00 for at least ten consecutive
trading days. These warrants expire in October 2001. Of the remaining
600,000 warrants, 100,000 warrants vest after April 2001 and expire in
April 2005, and 500,000 warrants vest until July 2002 and expire in
July 2003.
15. Commitments:
The Corporation has the following future minimum lease commitments for
premises and equipment:
---------------------------------------------------------------------------
2001 $ 84,918
2002 83,029
2003 81,413
2004 78,239
2005 52,159
Thereafter -
---------------------------------------------------------------------------
$ 379,758
---------------------------------------------------------------------------
In 2000, rent expense was $43,526 (1999 - $58,136).
16. Income taxes:
At December 31, 2000, the Corporation has U.S. tax net operating losses
approximating $1,796,000, which will begin to expire in 2018. The
Corporation may have incurred "ownership changes" pursuant to applicable
Regulations in effect under Section 382 Internal Revenue Code of 1986, as
amended. Therefore, the Corporation's use of losses incurred through the
date of these ownership changes may be limited during the carryforward
period.
F-23
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
16. Income taxes (continued):
The Corporation has Canadian tax net operating losses of approximately
$7,688,000 which expire as follows:
-----------------------------------------------------------------------
2001 $ 105,000
2002 522,000
2003 636,000
2004 1,516,000
2005 1,282,000
2006 3,627,000
-----------------------------------------------------------------------
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Corporation has recognized a valuation allowance equal to the deferred tax
assets due to the uncertainty of realizing the benefits of the assets.
Significant components of the Corporation's deferred tax assets and
liabilities as of December 31 are as follows:
2000 1999
---------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carry forwards $ 4,150,672 $ 1,814,000
Depreciation/amortization 121,713 (1,000)
Other 40,129 387,000
---------------------------------------------------------------------------
Total deferred tax assets 4,312,514 2,200,000
Valuation allowance (4,312,514) (2,200,000)
---------------------------------------------------------------------------
Net deferred taxes $ - $ -
---------------------------------------------------------------------------
17. Segmented information:
(a) Segment information ($000):
During the year, the Corporation sold its contract services business
(note 5). As at December 31, 2000, the Corporation is operating in the
wireless product and acoustic product segments. The Corporation
reports revenues and gross profit to its chief executive officer as
follows:
Industry information related to the Corporation's continuing
operations is as follows:
-----------------------------------------------------------------------------
Sonem
Wireless Acoustic
Products Products Other Total
-----------------------------------------------------------------------------
Sales to external customers 599 121 - 720
Gross profit (loss) 44 (1,101) - (1,057)
Segment assets 1,879 95 2,267 4,241
-----------------------------------------------------------------------------
F-24
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
17. Segmented information (continued):
During 1999, the Corporation was only operating in the acoustic
product segment.
(b) Geographic information ($000):
Substantially all assets and operations are in Canada. A summary of
sales by region is as follows:
---------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------
Korea $ 474 $ -
Canada 34 79
United States 212 122
---------------------------------------------------------------------
Total sales $ 720 $ 201
---------------------------------------------------------------------
F-25
UNITY WIRELESS CORPORATION
(Formerly Sonic Systems Corporation)
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars)
Years ended December 31, 2000 and 1999
================================================================================
17. Segmented information (continued):
(c) Major customers ($000):
The approximate sales to major customers is as follows:
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
Customer A $ 409 $ -
Customer B 65 -
----------------------------------------------------------------------
18. Subsequent events:
(a) Mueller and Ideas warrants:
Under the consulting agreement between the Corporation and Mueller &
Company, Inc. and Ideas Inc. ("Mueller and Ideas") dated as of July 1,
2000, 500,000 shares of common stock were issuable to Mueller and
Ideas upon exercise of warrants at $2.06 per share. On January 1,
2001, the Corporation and Mueller and Ideas agreed to modify this
agreement such that the number of warrants was reduced to 200,000 and
the exercise price was reduced to $0.38.
(b) Stock option grant:
On February 6, 2001, the Corporation granted 782,500 options to
employees and contractors.
19. Contingent liabilities:
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 certain 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 on advice of 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-26
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Ernst & Young LLP ("E&Y") was dismissed from its position as the certifying
accountant of the registrant on December 31, 2000. KPMG LLP ("KPMG") was
appointed the new certifying accountant of the registrant on the same day.
E&Y's report on the financial statements for the years ended December
31,1999 and 1998 did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified or modified as to uncertainty, audit scope, or accounting
principles, except for the report on the 1998 financial statement, which
contained an explanatory paragraph (after the opinion paragraph) that stated the
Company's recurring losses from operations raised substantial doubt about its
ability to continue as a going concern. The 1998 financial statements did not
include any adjustments that might result from the outcome of this uncertainty.
The report on the 1999 financial statement did not contain any such explanatory
paragraph as to uncertainty.
The decision to change accountants was approved by the board of directors
of the Company pursuant to a consent board resolution dated December 31, 2000.
The Company has an audit committee, but the decision to change accountants was
not considered by this committee.
During the Company's years ended December 31, 1999 and 1998 and the
subsequent interim period preceding the dismissal of E&Y, there were no
disagreements with E&Y on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
KPMG was engaged as the new principal accountant of the Company to audit
the Company's financial statements. The date of engagement was December 31,
2000.
F-27
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's by-laws provide that directors and officers shall be
indemnified by the Company to the fullest extent authorized by the Delaware
Business Corporation Act ("DBCA"), against all expenses and liabilities
reasonably incurred in connection with services for or on behalf of the Company.
The by-laws also authorize the board of directors to indemnify any other person
which the Company has the power to indemnify under the DBCA, including for
indemnification greater or different from that provided in the by-laws. To the
extent that indemnification for liabilities arising under the Securities Act may
be permitted for directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than
underwriting discounts (if any), payable by the registrant in connection with
the offering of the securities being registered.
SEC registration fee................................ $ 80
NASD filing fee..................................... 0
Printing and engraving expenses..................... 0
Transfer Agent and registrar fee.................... 0
Legal fees and expenses............................. 2,500
Accounting fees and expenses........................ 4,000
Miscellaneous fees and expenses..................... 1,000
Total......................................... $ 7,580
RECENT SALES OF UNREGISTERED SECURITIES
On approximately December 4, 1998, the Company completed a private offering
to accredited investors under Rule 504. The Company issued 7,500,000 common
shares in consideration of gross proceeds of $975,000. No underwriting discounts
were given or commissions paid.
On December 11, 1998, in connection with the acquisition of UW Systems, the
Company issued a total of 11,089,368 common shares to the shareholders of UW
Systems, who were non-U.S. persons, residing outside of the U.S., or accredited
investors, pursuant to Rule 903 of Regulation S and Rule 506 of Regulation D.
The acquisition transaction occurred outside of the U.S. The consideration
received by the Company was all of the issued stock of UW Systems. No
underwriting discounts were given or commissions paid.
In May/June 1999, the Company issued 6,500 shares to a non-U.S. person,
residing outside of the U.S., in payment of $13,000 owing by Unity Systems to
the person. No underwriting discounts were given or commissions paid.
In the period July to October 1999, the Company completed an offering under
Regulation S, as contemplated by the acquisition agreement with UW Systems. The
sale was to a non-U.S. person, residing outside of the U.S., and took place
outside of the U.S. The Company issued 500,000 shares in consideration of gross
proceeds of $1,500,000. The Company paid $150,000 in commission.
II-1
In November 1999, the Company completed a private offering under Regulation
S to a non-U.S. person, residing outside of the U.S. The Company issued 350,000
common shares in consideration of gross proceeds of $175,000. No underwriting
discounts were given or commissions paid.
In December 1999, the Company completed a private offering under Regulation
S to a non-U.S. person, residing outside of the U.S. The Company issued 142,857
common shares in consideration of gross proceeds of $100,000. No underwriting
discounts were given or commissions paid.
In April 2000 the Company issued common shares to non U.S. persons,
residing outside of the U.S., in partial settlement of debts owed by Unity
Systems to such persons. The Company issued 65,000 shares in consideration for
$117,968 of debt forgiveness. No underwriting discounts were given or
commissions paid.
In April 2000 the Company completed an equity financing through a private
offering under Regulation D and Regulation S of the Securities Act. The Company
accepted subscriptions for 3,850,000 units resulting in gross proceeds of
$5,775,000. Each unit consisted of one share of common stock and one
non-transferable, callable warrant to purchase one share of common stock at an
exercise price of $3.25. The warrant is exercisable for up to 18 months from
closing, unless earlier called by the Company. The Company may call the warrants
for exercise at any time after the average of the bid-ask prices or closing
prices, as applicable, for the Company's common stock has equaled or exceeded
$5.00 for at least ten consecutive trading days. If determined by the Board of
Directors of the Company that it would be in the best interests of the
shareholders of the Company, and if any underwriter or underwriters of the
Company's securities determine, in their discretion, that it would be in the
best interests of the Company, the Company has agreed it will use its reasonable
efforts to cause the shares comprising the units to be included in a
registration statement under the Securities Act, at such time as such
registration is reasonably practicable for the Company to accomplish. The
Company also agreed it will use its reasonable efforts to maintain the
effectiveness of any such registration statement for at least one year after the
Closing of this offering. This registration statement is being filed pursuant to
that agreement. The Company issued 285,000 shares as commissions or fees to
qualified persons.
On August 15, 2000, the Company issued 15,000 shares of common stock to
Doug Stewart in return for consulting services valued at approximately $22,500.
The exemption from registration relied upon was Regulation S; the share
recipient was a non-U.S. person, residing outside of the U.S.
On August 15, 2000, the Company issued 18,000 shares of common stock to
Hugh Notman in return for consulting services valued at approximately $26,900.
The exemption from registration relied upon was Regulation S; the share
recipient was a non-U.S. person, residing outside of the U.S.
On November 16, 2000, the Company issued 700,000 shares of common stock in
exchange for all the issued and outstanding securities of Ultratech Linear
Solutions Inc. ("Ultratech"), as described in the Ultratech Share Purchase
Agreement. Pursuant to the Ultratech Share Purchase Agreement, the Company
purchased the business of Ultratech as a going concern. The purchase price
comprised $48,000 on account of shareholder loans and 700,000 shares of common
stock of the Company. The Company had previously loaned Ultratech $200,000. The
persons receiving shares of the Company in the transaction were as follows: John
Roberston, Mirza Kassam, Chris Neumann, Robert Fetherstonhaugh and Stirling
Mercantile Corporation. The exemption from registration relied upon was
Regulation S; the share recipients were all non-U.S. persons, residing outside
of the U.S.
On December 4, 2000, the Company issued 25,000 shares of common stock to
3OE Enterprises Inc. ("3OE") in return for consulting services rendered by 3OE,
as provided under the Consulting Agreement (the "Consulting Agreement") between
the Company and 3OE dated August 1, 2000. The consulting services did not have
an agreed value; the shares were to be issued to 3OE upon the achieving of an
agreed milestone. The
II-2
exemption from registration relied upon was Regulation S; the share recipient
was a non-U.S. person, residing outside of the U.S., and the consulting services
were performed outside the U.S.
On December 15, 2000, the Company issued 171,428 shares of common stock to
Mark Godsy in return for employment services rendered by Mr. Godsy as Chief
Executive Officer and valued at $72,000. The exemption from registration relied
upon was Regulation S; the share recipient was a non-U.S. person, residing
outside of the U.S., and the services were performed outside the U.S.
On December 15, 2000, the Company issued 25,000 shares of common stock to
Jong Kil Kim in return for consulting services rendered by Mr. Kim and valued at
$10,500. The exemption from registration relied upon was Regulation S; the share
recipient was a non-U.S. person, residing outside of the U.S., and the services
were performed outside the U.S.
On June 22, 2000, the Company issued 25,000 shares of common stock to
Robert Singer in return for consulting services rendered by Mr. Singer and
valued at $7,000. This issuance was exempt from registration pursuant to Rule
701 and Section 4(2) under the Securities Act of 1933.
In addition to the 3,850,000 warrants issued under the April 2000
financing, the Company issued in January, 2001 to Mueller and Ideas 200,000
warrants at an exercise price of $0.38, which vest until December 31, 2002 and
expire up to March 31, 2005. In April, 2001 the Company issued to Mueller and
Ideas 300,000 warrants an exercise price of $0.29, which vest until March 31,
2004 and expire up to March 31, 2005. The Company also issued 100,000 warrants
at an exercise price of $2.06 to Crescent Communications Inc. which vest until
April 2001 and expire in April 2005.
II-3
EXHIBITS
Pursuant to Rule 601 of Regulation SB, the following exhibits are included
herein or incorporated by reference.
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation of Unity
Wireless Corporation (incorporated by reference to Exhibit 3.1 to
the Company's Form SB-2 filed on October 4, 2000)
3.2 Amended and Restated Bylaws of Unity Wireless Corporation
(incorporated by reference to Exhibit 3.2 to the Company's Form
SB-2 filed on October 4, 2000)
4.1 Consulting agreement among Mueller & Company, Inc., Ideas, Inc.,
Mark Mueller, Aaron Fertig and Unity Wireless Corporation dated
January 1, 2001 (incorporated by reference to Exhibit 4.2 to the
Company's Form 10-KSB filed on April 2, 2001)
4.2 Consulting agreement amendment among Mueller & Company, Inc.,
Ideas, Inc., Mark Mueller, Aaron Fertig and Unity Wireless
Corporation dated April 1, 2001
4.3 Warrant from Unity Wireless Corporation to Crescent
Communications Inc. dated June 26, 2000 (incorporated by
reference to Exhibit 4.3 to the Company's Form SB-2 filed on
October 4, 2000)
5.1 Opinion of Dorsey & Whitney LLP
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 (incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K filed on October 23, 2000)
10.2 Intellectual Property License Agreement dated October 6, 2000
between Unity Systems as licensor and Traffic Systems as licensee
(incorporated by reference to Exhibit 2.2 to the Company's Form
8-K filed on October 23, 2000)
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 (incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K filed on
December 4, 2000)
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 (incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K filed on January 16, 2001)
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
(incorporated by reference to Exhibit 10.5 to the Company's Form
SB-2A filed on May 3, 2001)
10.6 1999 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.6 to the Company's Form 10-KSB filed on April 2, 2001)
II-4
Exhibit
Number Description
------ -----------
10.7 Recommended Stock Option Grant Policy for the Company
(incorporated by reference to Exhibit 10.7 to the Company's Form
10-KSB filed on April 2, 2001)
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Company's Form 10-KSB filed on April 2, 2001.)
23.1 Consent of KPMG LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page to Amendment
No. 1 to the Registration Statement)
UNDERTAKINGS
The Company hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) or any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (ss.230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-5
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of
Vancouver, Province of British Columbia, Canada, on October 17, 2001.
Registrant: UNITY WIRELESS CORPORATION
By: /s/ Roland Sartorius
---------------------------------------
Roland Sartorius, Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John Robertson and Roland Sartorius, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorneys-in-fact and agents of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Mark Godsy Director and Chairman of October 17, 2001
------------------------- the Board
Mark Godsy
/s/ John Robertson Director, President, and Chief October 17, 2001
------------------------- Executive Officer (Principal
John Robertson Executive Officer)
/s/ Roland Sartorius Director, Secretary and October 17, 2001
------------------------- Chief Financial Officer
Roland Sartorius (Principal Financial Officer
and Principal Accounting Officer)
/s/ Robert Fetherstonhaugh Director October 17, 2001
-------------------------
Robert Fetherstonhaugh
/s/ Ken Maddison Director October 17, 2001
-------------------------
Ken Maddison
II-6
EXHIBIT INDEX
-------------
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation of Unity
Wireless Corporation (incorporated by reference to Exhibit 3.1 to
the Company's Form SB-2 filed on October 4, 2000)
3.2 Amended and Restated Bylaws of Unity Wireless Corporation
(incorporated by reference to Exhibit 3.2 to the Company's Form
SB-2 filed on October 4, 2000)
4.1 Consulting agreement among Mueller & Company, Inc., Ideas, Inc.,
Mark Mueller, Aaron Fertig and Unity Wireless Corporation dated
January 1, 2001 (incorporated by reference to Exhibit 4.2 to the
Company's Form 10-KSB filed on April 2, 2001)
4.2 Consulting agreement amendment among Mueller & Company, Inc.,
Ideas, Inc., Mark Mueller, Aaron Fertig and Unity Wireless
Corporation dated April 1, 2001
4.3 Warrant from Unity Wireless Corporation to Crescent
Communications Inc. dated June 26, 2000 (incorporated by
reference to Exhibit 4.3 to the Company's Form SB-2 filed on
October 4, 2000)
5.1 Opinion of Dorsey & Whitney LLP
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 (incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K filed on October 23, 2000)
10.2 Intellectual Property License Agreement dated October 6, 2000
between Unity Systems as licensor and Traffic Systems as licensee
(incorporated by reference to Exhibit 2.2 to the Company's Form
8-K filed on October 23, 2000)
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 (incorporated by
reference to Exhibit 2.1 to the Company's Form 8-K filed on
December 4, 2000)
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 (incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K filed on January 16, 2001)
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
(incorporated by reference to Exhibit 10.5 to the Company's Form
SB-2A filed on May 3, 2001)
10.6 1999 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.6 to the Company's Form 10-KSB filed on April 2, 2001)
10.7 Recommended Stock Option Grant Policy for the Company
(incorporated by reference to Exhibit 10.7 to the Company's Form
10-KSB filed on April 2, 2001)
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit
21.1 to the Company's Form 10-KSB filed on April 2, 2001.)
23.1 Consent of KPMG LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on the signature page to Amendment
No. 1 to the Registration Statement)