As filed with the Securities and Exchange Registration Statement No. 333-
Commission on February 15, 2002
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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)
7438 Fraser Park Drive, Burnaby, British
Columbia, Canada V5J 5B9 (800) 537-6642
(Address of principal place of business)
Evergreen Corporate Services, Inc.
33713 9th Avenue South
Federal Way, WA 98003 6762
(253) 874-2949
(Name, address and telephone number of agent for service)
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Copies to:
Kenneth Sam, Dorsey & Whitney LLP
1420 Fifth Avenue, Suite 3400
Seattle, WA 98101
(206) 903-8800
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Approximate date of proposed sale to the public: From time to time after the
effective date of this registration statement.
*Pursuant to Rule 429 adopted under the Securities Act of 1933, this
Registration Statement also constitutes a post effective amendment to
Registration Statements No. 333-71400 and 333-47328.
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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, please 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
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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 the 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
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Proposed Maximum
Proposed Maximum Aggregate
Title of Shares Amount to be Offering Offering Amount of
to be Registered Registered(1)(2) Price Per Share(3) Price(3) Registration Fee
---------------------------------------------------------------------------------------------------------
Common Stock issued in Private 5,147,551 $0.30 $1,544,265.30 $387
Offering
Common Stock underlying Warrants 5,147,551 $0.30 $1,544,265.30 $387
issued in Private Offering
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Total 10,295,102 $3,088,530.60 $774
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(1) Calculated pursuant to Rule 457(c) and (g) under the Securities Act of
1933.
(2) Based on the actual warrant exercise price per Rule 457(g).
(3) Estimated pursuant to Rule 457(c) solely for purposes of calculating amount
of registration fee, based on the average of the bid and ask sales prices
of the Registrant's common stock on February 11, 2002, as quoted in the
National Association of Securities Dealers Over-the-Counter Bulletin Board.
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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, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
EXPLANATORY NOTE
Unity Wireless Corporation has previously filed Registration Statements
Nos. 333-71400 and 333-47328 to register shares of its common stock, as well as
shares of its common stock underlying warrants held by certain selling
shareholders. Pursuant to Rule 429 of the Securities Act of 1933, as amended,
this Registration Statement also serves as a post-effective amendment to the
prior registration statements. This Registration Statement eliminates those
selling shareholders who have previously sold such shares pursuant to the
previous registration statements and also eliminates those selling shareholders
to whom the Company no longer has registration obligations. This Registration
Statement also registers an additional 10,295,102 shares of common stock or
shares of common stock underlying warrants which have not previously been
registered.
The information contained in this prospectus is not complete and may be changed.
The selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these shares and the selling shareholder is
not soliciting an offer to buy these shares in any state where the offer or sale
is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
February 15, 2002
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UNITY WIRELESS CORPORATION
(FORMERLY SONIC SYSTEMS CORPORATION)
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15,057,657 Shares of Common Stock
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This is a public offering of 15,057,657 shares of the common stock of Unity
Wireless Corporation.
All of the shares being offered, when sold, will be sold by selling
shareholders as listed in this prospectus on pages 8, 9 and 10. The selling
shareholders are offering:
o 9,410,106 shares of common stock acquired in private placements; and
o 5,647,551 shares of common stock issuable on exercise of the warrants.
We will not receive any of the proceeds from the sale of the shares.
Our common stock is traded on the National Association of Securities
Dealers Over-the-Counter Bulletin Board under the symbol "UTYW" and on the
Canadian Venture Exchange Inc., known as CDNX, under the symbol "UWC." On
February 11, 2002, the closing sale price for our common stock was $0.30 on the
NASD OTCBB and CDN$0.47 on the CDNX.
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 February 15, 2002.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS....................................................1
SUMMARY INFORMATION...........................................................1
RISK FACTORS AND UNCERTAINTIES................................................2
USE OF PROCEEDS...............................................................7
SELLING SHAREHOLDERS..........................................................7
PLAN OF DISTRIBUTION.........................................................12
LEGAL PROCEEDINGS............................................................12
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.................12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............14
DESCRIPTION OF SECURITIES....................................................16
NAMED EXPERTS AND COUNSEL....................................................16
THE SEC'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.........17
DESCRIPTION OF THE BUSINESS..................................................17
OVERVIEW.....................................................................24
DESCRIPTION OF PROPERTY......................................................30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................30
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................30
EXECUTIVE COMPENSATION.......................................................31
OPTION GRANTS IN 2001........................................................33
FISCAL YEAR-END OPTION VALUE.................................................33
FINANCIAL STATEMENTS FOR THE NINE MONTH AND THREE MONTH
PERIODS ENDING SEPTEMBER 31, 2001..........................................F-1
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000
AND 1999...................................................................F-9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................................II-1
INDEMNIFICATION OF DIRECTORS AND OFFICERS...................................II-2
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.................................II-2
RECENT SALES OF UNREGISTERED SECURITIES.....................................II-2
EXHIBITS....................................................................II-5
UNDERTAKINGS................................................................II-7
SIGNATURES..................................................................II-8
i
FORWARD-LOOKING STATEMENTS
We may use words like "expects," "intends," "anticipates," "plans,"
"projects" or "estimates" in this prospectus. When used, these words identify
"forward-looking" statements. We have made forward-looking statements with
respect to the following, among others:
o goals and strategies;
o our expectations related to growth of the wireless telecommunication
industry in China and the other markets in which we conduct business;
o our ability to develop, manufacture and market telecommunications
amplifiers on a competitive basis;
o our ability to earn sufficient revenues from our products;
o the pace of change in wireless telecommunications technologies;
o the demand for our products;
o competition in the wireless telecommunications industry; and
o our anticipated results of operations.
These statements are forward-looking and reflect our current expectations.
They are subject to a number of risks and uncertainties, including but not
limited to, changes in the economic and political environments in China and
other Asian markets, changes in technology, increased competition and changes in
the wireless telecommunications industry. 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.
We are making these statements only as of the date of this prospectus.
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 15,057,657 shares of our common stock,
including up to 9,410,106 shares held by certain of our security holders,
referred to in this Prospectus as the Selling Shareholders, and 5,647,551 shares
issuable upon the exercise of certain outstanding warrants issued by us to
certain of the Selling Shareholders. We will not receive any proceeds from the
sale of the shares by the Selling Shareholders, but we will receive up to
$1,689,265 in proceeds upon exercise of the warrants, if exercised. We cannot
assure you that the warrants will be exercised.
Summary of Our Business
We, Unity Wireless Corporation, are a designer, developer and manufacturer
of wireless technologies and products for a broad range of industrial and
commercial applications. Our business is primarily on UltraTech high power
linear radio frequency (RF) amplifiers.
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. We produce more than 16 different models of high power RF
amplifiers, and we are currently developing a new feed forward RF amplifier that
is designed to improve the performance of wireless telecommunications networks,
making them faster and more cost effective for our customers to build out their
next-generation 2.5 and 3G networks.
We have one subsidiary, Unity Wireless Systems Corporation, a British
Columbia Corporation.
Our principal office is at 7438 Fraser Park Drive, Burnaby, British
Columbia V5J 5B9, and our telephone number is (800) 337-6642. We maintain a
website at www.unitywireless.com. Information contained on our website is not
part of this prospectus.
1
RISK FACTORS AND UNCERTAINTIES
Readers should carefully consider the risks and uncertainties described
below before deciding whether to invest in shares of our common stock.
If we do not successfully address any of the risks and uncertainties
described below, there could be a material adverse effect on our business,
financial condition or results of operations, and the trading price of our
common stock may decline and investors may lose all or part of their investment.
We cannot assure any investor that we will successfully address these
risks.
Risks and Uncertainties Relating to Our Common Stock
You may lose your entire investment
Given our continued need for additional capital and our history of losses,
our 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 our
stock is currently "unsuitable" for a person who cannot afford to lose his
entire investment.
We have a history of losses and may never achieve profitability
Sales of our products have provided insufficient cash flow to sustain
operations. We had an accumulated deficit at September 30, 2001 of $11,638,022.
During the year ended December 31, 2000, we incurred a loss of $5,318,633 (1999
- $2,025,101) and used cash from operations of $3,097,829 (1999 - $1,760,306).
During the nine months ended September 30, 2001, we incurred a loss of $905,747
(2000 - $3,107,837) and used cash from operations of $1,341,479 (2000 -
$1,817,807). We anticipate that we will incur a loss in our fiscal year ended
December 31, 2001, and that we will continue to incur net losses during our
current year ending December 31, 2002 due to increased sales and marketing
costs, additional personnel requirements and our general growth objectives. Our
ability to earn a profit will depend on the commercial acceptance and
profitability of our products. We may never achieve profitability.
We anticipate that we may require additional capital
Our capital requirements are difficult to plan in light of our current
strategy to expand our customer base and to develop new products and
technologies. Since our inception, we have been dependent on investment capital
as our primary source of liquidity. Our operations to date have been primarily
financed by issuing equity. As of September 30, 2001, we had working capital of
$854,154. During the quarter ended December 31, 2001, we completed a private
placement of 5,147,551 units at $0.18 per unit to raise gross proceeds of
$926,559. Each unit consisted of one share of common stock and one warrant
exercisable to acquire one share of common stock at $0.30 per share. We cannot
assure you that the warrants will be exercised. We anticipate that we may
require additional working capital for inventory, components and work in process
or to expand our manufacturing capacity if we enter into contracts for large
quantities of our amplifiers. Our inability to obtain sufficient capital for
these commitments or to fund our obligations under our existing sales orders may
cause us to delay delivery of products or to default on one or more agreements.
Our inability to deliver products on a timely basis may have a material adverse
effect on our business, financial condition and results of operations.
Our auditors have expressed doubt about our ability to continue as a "going
concern"
Our 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
our liabilities in the ordinary course of business. Operations to date have been
primarily financed by long-term debt and equity transactions. Our future
operations are dependent upon the identification and successful completion of
additional long-term or permanent equity financing, the continued support of
creditors and shareholders, and, ultimately, the achievement of profitable
operations. There can be no assurances that we will be successful. If we are
not, we will be required to reduce operations or liquidate assets. We will
continue to evaluate projected expenditures relative to available cash and to
seek additional means of financing in order to satisfy our working capital and
other cash requirements. The auditors' report on our December 31, 2000
consolidated financial statements includes an explanatory paragraph that states
that as we have suffered recurring losses from operations, substantial doubt
exists about our ability to continue as a going
2
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 we be unable to continue as a going
concern.
Our common stock is subject to 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). Our common stock is considered penny stock. 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. Our stock is currently
subject to the penny stock rules, and accordingly, investors may find it
difficult to sell their shares.
We may issue additional shares in the future which would result in dilution
to our existing shareholders
Our Certificate of Incorporation authorizes the issuance of 100,000,000
shares of common stock and 5,000,000 shares of preferred stock. Our Board of
Directors have the authority to issue additional shares up to the authorized
capital stated in the certificate of incorporation, subject to the regulatory
requirements of the CDNX. Our 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 our common stock. If we do 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 our corporation.
We do not anticipate we will pay any dividends
We have never paid dividends on our common stock and do not anticipate
paying any dividends in the foreseeable future. The declaration and payment of
dividends are subject to the discretion of our 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 our Board of Directors may deem
relevant.
Exercise of warranty and stock options may cause dilution to our
shareholders
We have 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. We had options for 4,373,250
shares of common stock issued and outstanding as of January 31, 2002 (out of
6,183,140 issuable under the plan as of that date) at the following exercise
prices:
Number of Shares(1) Exercise Price ($)
---------------- ------------------
3,625,000 0.17
20,000 0.21
40,000 0.22
130,000 0.23
25,000 0.28
397,000 0.38
143,750 1.00
3
(1) These numbers do not include options for 500,000 shares at an exercise
price of $1.00 originally granted to Integrated Global Financial
Corporation. Integrated Global has sued us for a declaration that the grant
of 500,000 options is of unlimited duration. We believe the options have
expired. See "Legal Proceedings."
As of January 31, 2002, we had warrants outstanding to acquire 5,647,551
shares of our common stock as follows:
Number of Shares(1) Exercise Price ($)
---------------- ------------------
5,147,551 $0.30
200,000 $0.38
300,000 $0.29
The existence of below-market options or warrants could adversely affect
the market price of our common stock and impair our ability to raise additional
capital through the sale of our equity securities or debt financing.
We cannot assure you that any of these warrants or options will be
exercised. Exercise of any such options or warrants will result in dilution of
the proportional interests of our shareholders 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, dilution of the book value per share of the common stock.
Risks and Uncertainties Related to Our Business and Operations
Lack of Prior Operations and Experience
We have a limited history of revenues from operations and have no
significant tangible assets. Accordingly, there can be no assurance that we will
operate at a profitable level. Our business involves the development,
manufacture and marketing of 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 our
products, level of product and price competition, success in setting up and
expanding distribution channels, and whether we can develop and market new
products and control costs. In addition, our 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 our future financial forecasts will be met and
that they will be similar to past results.
We depend on experienced management and key technical employees
We are a growing company dependent upon the services of certain management,
particularly John Robertson, Chief Executive Officer, Roland Sartorius, Chief
Financial Officer, Tom Dodd, Senior Vice President and General Manager and Raffi
Antepyan, Vice President Engineering. 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 our business. We have no
plans at present to obtain key person life insurance for any of our officers and
directors.
We are also dependent on highly qualified technical end engineering
personnel. Although we have has success in recruiting these employees in today's
competitive marketplace, there can be no assurance that this will continue which
may put us at risk of being able to sustain and grow our business.
We face substantial competition
The wireless communications industry is characterized by rapidly evolving
technology and intense competition. We may be at a disadvantage with other
companies having larger technical staffs, established market shares and greater
financial and operational resources. Some competitors have achieved greater
brand recognition and technologies than we have been able to as of now. There
can be no assurance that we will be able to successfully compete. There also can
be no assurance that our competitors will not continually succeed in developing
products or competing technologies that are more effective or more effectively
marketed than products marketed by us, or that render our technology obsolete.
Earlier and larger entrants into the market often obtain and maintain
significant market share relative to later entrants. We believe 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.
4
Price reductions by us in response to competitive pressure or our desire to also
successfully increase market penetration or market share could have a material,
adverse effect on our business, financial condition, and results of operations.
Our products compete on the basis of price, technology, performance,
quality, reliability, customer service and on-time delivery. Our size,
infrastructure and location allow us to provide our customers with timely
responses to their individual requests. There can be no assurance that this will
continue in the future.
We experience significant fluctuations in revenues and results on a
quarterly basis
Our revenues and operating results experience fluctuations from one quarter
to the next due to amongst other things: customers changing delivery schedules
or canceling orders, long sales cycle, availability of component parts,
competitive pressures on sales prices and discounts, delays in product
development and redesign of customer specifications, mix of products with
varying gross margins, management of our variable and fixed expenses and
warranty expenses. Our customers also provide us with varying order sizes, short
lead, tight delivery time requests and even change their orders on short notice.
We have experienced these fluctuations in the past and may continue to do
so in the future. As a result, our historical results are not a reliable
indicator of our future results. The share price of our common shares could
therefore fluctuate substantially.
We depend on protection of our proprietary technology
Our success will depend in part on our ability to preserve and protect
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. We may inadvertently fail to do so and consequently
could face infringement claims which could be costly and thus adversely affect
our business.
We do not own any patents in connection with its UltraTech products or
technologies and depend entirely on trade secrets, confidentiality agreements
and continual improvement to our products to protect our proprietary technology.
We may apply for patent protection of UltraTech products or technologies in the
future. However, there can be no assurance that our efforts to protect our
proprietary technology will be effective and this could have a material adverse
effect on our results of operation and financial condition.
We have filed applications for trade mark protection in the U.S. and
Canada.
Disputes related to our intellectual property
We are not aware of any disputes with respect to any of our intellectual
property, except as follows:
o 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
o 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.
We are working to resolve these issues and believe we will be able to so do
successfully.
We are not involved in any other litigation respecting our intellectual
property. The use of trade marks, service marks, trade names, slogans, phrases
and other expressions in the course of our business and our subsidiaries,
however, may be the subject of dispute and possible litigation. We may have to
defend ourselves 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. This could also
affect our competitive position. There is no assurance that we will have
sufficient resources to successfully protect our interests in any litigation
that may be brought. There can be no assurance that we or our 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 our
business and our financial condition.
5
We have limited manufacturing capacity
We currently assemble, tune and test our products in our manufacturing
facility located in Burnaby, British Columbia. Current models of our products
are required to be individually assembled, tuned and tested to meet the
specifications of the end-user. This process is time consuming and labor
intensive and our ability increase manufacturing output is limited by the size
of our facilities and our ability to hire, train and retain qualified personnel.
Currently, we believe we have sufficient manufacturing capacity to fill our
orders in 2002. In the future, we may be required to expand our facility, hire
additional personnel and automate the assembly, tuning and/or testing process to
increase our manufacturing capacity in order to meet future demand for our
products. Such expansion will require additional capital investments and
allocation of resources, which may affect our results of operations. We cannot
assure you that adequate resources will be available or that we will be able to
increase our manufacturing capacity in a timely manner, if at all. Our inability
to meet the demand for our products would have an adverse effect on our business
and our results of operations.
We depend on suppliers and third parties
We are a small enterprise and have yet to establish substantial internal
management, personnel and other resources. We depend substantially upon third
parties for several critical elements of our business including, among other
things, promotion and marketing, technology and infrastructure development and
distribution activities. We also depend substantially upon third party sales
agents. A substantial portion of our high power RF amplifier revenues to date
have been derived through a South Korean sales agent. The loss of any of these
resources could have a material adverse effect on our business, financial
condition and results of operations.
We rely on outside suppliers for some components and the assembly of some
portions of our 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 effect on our business, financial condition and
results of operations.
Our success will depend upon future strategic partnerships
The successful execution of our business strategy is partially dependent
upon enlisting a number of strategic partners regionally, nationally and
globally to assist in a focused marketing effort and to provide financial
strength. There is no assurance that we will be successful in developing such
strategic partnerships on a timely basis or in developing enough strategic
partnerships to successfully market our technologies and products globally.
We depend on telecommunication system providers to accept our technology
and products
There can be no assurance that our existing technologies will be
incorporated into products, or that products based on our technologies will be
marketed successfully. In addition, there can be no assurance that our
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 our 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 our
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
that the markets for our 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 our technologies and
products do not achieve or sustain market acceptance, our business, results of
operations and financial condition will be materially and adversely affected.
There are risks and uncertainties related to our development of new
products
We have only recently released additional commercial versions of some of
our technologies and products. Additional efforts and expenditures to enhance
their capabilities are critical to commercial viability. Although we invest
heavily in the research and development of new products, we cannot assure you
that the new products we develop will be commercially viable or that a
sufficient demand will develop for such products.
6
Product warranty risks and uncertainties
Our products are relatively new to their respective markets and lack
extensive field operating experience. While we have tested our products for
failure in certain circumstances, there can be no assurance that our 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 us could have a material adverse effect on our business
and financial condition. See "Recent Developments - Sale of Sonem Business."
Potential product liability related to our Sonem products
In the past, we sold emergency traffic preemption devices of our Sonem
division (sold in October 2000) which are installed at traffic intersections.
Also, we have sold some of our UniLinx(TM) devices (division sold in June 2001)
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 arise from traffic accidents resulting from such failure.
Although we maintain 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 us on reasonable terms and conditions or at
all.
Risks and uncertainties related to failure to maintain technological
advantages and risks of obsolescence
We are dependent upon what we perceive as the technological advantages of
our products and the ability to maintain trade secret protection for our
products. There can be no assurance that we will be able to obtain or maintain
such advantages; failure to do so would have substantial adverse consequences to
our business.
Technological obsolescence of our technologies and products remains a
possibility. There is no assurance that our competitors will not succeed in
developing related products using similar processes and marketing strategies
before us, or that they will not develop technologies and products that are more
effective than any which have been or are being developed by us. Accordingly,
our ability to compete will be dependent on timely enhancement and development
of our technologies and products, as well as the development and enhancement of
future products. There is no assurance that we will be able to keep pace with
technological developments or that our products will not become obsolete.
We face risks and uncertainties of foreign currency exposure
Our functional currency is the Canadian dollar, which means that most of
our operations are undertaken in Canadian dollars. We are exposed to
fluctuations in the US dollar relative to the Canadian dollar, because we
collect revenues in U.S. dollars. As we expand our operations, we may begin to
collect revenues from customers in currencies other than the US or Canadian
dollar. We do not currently engage in any hedging activities.
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares by the selling
shareholders described in this prospectus. We will, however, receive proceeds if
the warrant holders described in this prospectus exercise their warrants. We
intend to use such proceeds to fund operations and for working capital purposes.
We cannot assure you that any warrants will be executed.
SELLING SHAREHOLDERS
This prospectus covers the offering of shares of common stock by certain
Selling Shareholders, and the sale of common stock by us to certain warrant
holders upon the exercise of their warrants. This prospectus is part of a
registration statement filed in order to register, on behalf of the Selling
Shareholders and us, a total of 15,057,657 shares of common stock as follows:
(i) 5,147,551 shares of common stock issued to investors on December 24,
2001 in a private placement of Units, each Unit consisting of one
share of common stock and one warrant;
(ii) a total of 5,147,551 shares of common stock issuable by the Company
upon the exercise of certain outstanding warrants issued on December
24, 2001 in the Unit private placement;
7
(iii) 4,262,555 shares of common stock issued to investors in various
private placements;
(iv) 250,000 shares of common stock issuable to Mueller & Company, Inc.
upon the exercise of warrants issued under a consulting agreement, as
amended November 15, 2001; and
(v) 250,000 shares of common stock issuable to Ideas Inc. upon the
exercise of warrants issued. under a consulting agreement, as amended
by a letter dated November 13, 2001.
The shares issued to the Selling Shareholders 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 registered 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 registered 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 registered shares may be deemed to
be "underwriters" within the meaning of the Securities Act of 1933, as amended,
and any commissions received by them and any profit on the resale of the
registered shares may be deemed to be underwriting commissions or discounts
under the Securities Act.
We will receive no proceeds from the sale of the registered shares, and we
have agreed to bear the expenses of registration of the shares, other than
commissions and discounts of agents or broker-dealers and transfer taxes, if
any.
We 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. We do not know how much, if any, of such stock
these investors will hold or re-sell upon exercise of their warrants.
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
The following is a list of the Selling Shareholders who own or have the
right to acquire 15,057,657 of the registered shares, including 9,410,106 shares
of common stock acquired in private placements and 5,647,551 which are
acquirable upon the exercise of warrants. Some of these selling shareholders
hold or have held a position, office or any other material relationship with us
or our predecessors or affiliates within the past three years. See "Directors,
Executive Officers, Promoters, and Control Persons." At February 15, 2002, we
had 30,915,704 shares of common stock issued and outstanding.
8
Number of Number of
Shares of Shares Total Number of
Common Stock Acquirable Total Number of Shares of Common
Owned on Upon Shares of Common Stock to be Amount to be Owned
Name of February 15, Exercise of Stock Beneficially Offered for After Offering is
Selling Shareholder 2002 Warrants Owned Security Complete(c)
Holder's Account
-------------------------------------------------------------------------------------------------------------------------
Amount % Amount %
-------------------------------------------------------------------------------------------------------------------------
John Robertson(1) 703,315 500,000 1,432,482(a) 4.56% 1,203,315(2) 517,917(a) 1.6%
Mark Godsy(3) 2,752,079 416,667 3,269,976(a) 10.4% 10,854,762(4) 2,313,984(a) 7.4%
Mirza Kassam 144,198 -- 144,198 (b) 144,198(5) -- (b)
Chris Neumann 117,262 -- 342,262(a) (b) 117,262(5) 225,000(a) (b)
Robert Fetherstonhaugh 82,363 -- 103,613(a) (b) 82,363(5) 21,250 (b)
John MacBain 43,706 -- 43,706 (b) 43,706 -- --
Louise Blouin 43,706 -- 43,706 (b) 43,706 -- --
Peter Scott Consulting 26,250 -- 26,500 (b) 26,250(5) -- --
30E Enterprises Inc.(6) 65,000 -- 65,000 (b) 25,000(5) 40,000 (b)
Jong Kil Kim(7) 50,000 -- 50,000 (b) 50,000(5) -- --
Robert Singer(8) 25,000 -- 43,750(a) (b) 25,000(5) 18,750(a) (b)
Holger Speilberg 27,500 -- 25,000 (b) 25,000(5) -- --
One Level Holdings Limited 100,000 -- 100,000 (b) 100,000(5) -- --
James Carruthers 31,000 -- 43,500(a) (b) 25,000(5) 18,500(a) (b)
Bill Calsbeck 14,970 -- 14,970 (b) 14,970(9) -- --
Christian Haines 100,000 -- 100,000 (b) 100,000(9) -- --
Mary J. Haines 25,000 -- 25,000 (b) 25,000(9) -- --
Doug Stewart 25,000 -- 25,000 (b) 15,000(9) 10,000 (b)
Bradley T. Aelicks 50,000 -- 50,000 (b) 50,000(9) -- --
AGF Equity Fund 100,000 -- 100,000 (b) 100,000(9) -- --
Bank Julius Baer & Co. Ltd. 75,000 -- 75,000 (b) 75,000(8) -- --
Bel Cal Holdings Limited 75,000 -- 75,000 (b) 75,000(9) -- --
Benitz & Partners Limited 75,000 -- 75,000 (b) 75,000(9) -- --
Morten Borch, In Trust 1,440,000 -- 1,440,000 (b) 1,440,000(9) -- --
Centrum Bank AG 50,000 -- 50,000 (b) 50,000(9) -- --
Thomas J. Deutsch 50,000 -- 50,000 (b) 50,000(9) -- --
Granne AS 80,000 -- 80,000 (b) 80,000(9) -- --
Hoissein Hakimzadeh 29,600 -- 29,600 (b) 29,600(9) -- --
Haywood Securities 50,000 -- 50,000 (b) 50,000(9) -- --
ITF David Lyall
Intarsia AS 80,000 -- 80,000 (b) 80,000(9) -- --
Keren MYCB Elias Foundation 218,700 -- 50,000 (b) 50,000(9) -- --
9
Number of Number of
Shares of Shares Total Number of
Common Stock Acquirable Total Number of Shares of Common
Owned on Upon Shares of Common Stock to be Amount to be Owned
Name of February 15, Exercise of Stock Beneficially Offered for After Offering is
Selling Shareholder 2002 Warrants Owned Security Complete(c)
Holder's Account
-------------------------------------------------------------------------------------------------------------------------
Amount % Amount %
-------------------------------------------------------------------------------------------------------------------------
Afzal Mangalji 45,000 -- 45,000 (b) 45,000(9) -- --
Chris Pruzinsky 75,000 -- 75,000 (b) 75,000(9) -- --
RBC Dominion Securities FBO 76,200 -- 72,200 (b) 72,200(9) -- --
Karl Heinz Spoddig
Pamela & Philip Roeske 50,000 -- 50,000 (b) 50,000(9) -- --
Jeffrey Rubin 50,000 -- 50,000 (b) 50,000(9) -- --
Singapore Trading & 100,000 -- 100,000 (b) 100,000(9) -- --
Investment Ltd. 152,000
Temple Securities Ltd. 152,000 -- 152,000 (b) 152,000(9) -- --
Martin L. Truax 50,000 -- 50,000 (b) 50,000(9) -- --
Hans Wick 33,500 -- 33,500 (b) 33,500(9) -- --
Paul Uppal 30,000 -- 30,000 (b) 30,000(9) -- --
Trent McKeen 20,000 -- 20,000 (b) 20,000(9) -- --
Robert Carriere 160,000 -- 160,000 (b) 60,000(9) -- --
Roland Sartorius(11) 350,000 350,000(10) 934,167(a) 3.0% 700,000(10) 234,157(a) (b)
Halkin Management Ltd. FBO 416,667 416,667(10) 833,334(a) 2.7% 833,334(10) -- --
Ilan Kenig
Hugh Notman 645,000 645,000(10) 1,290,000(a) 4.1% 290,000(10) -- --
John Leslie 607,651(12) 407,651(10) 1,015,302(a) 3.2% 815,302(10) 200,000 (b)
Wayne Gambell 1,206,434(13) 833,234(10) 2,039,668(a) 6.4% 1,666,468(10) 373,200 (b)
Patrick Robinson 446,112 361,112(10) 807,224(a) 2.3% 722,224(10) 85,000 (b)
James Fletcher 507,500(14) 345,000(10) 862,500(a) 2.7% 690,000(10) 172,500 (b)
Jeffery Rubin 115,555(15) 55,000(10) 170,555(a) (b) 110,000(10) 60,555 (b)
Rachel Mendelovitz 83,333 83,333(10) 166,666(a) (b) 166,666(10) -- --
Beth Medrash Govohah of 333,333 333,333(10) 666,666(a) 2.1% 666,666(10) -- --
America
Ben Rosenblum 55,555 55,555(10) 111,110(a) (b) 111,110(10) -- --
Van Wyck Window Fashions Inc. 100,000 100,000(10) 200,000(a) (b) 200,000(10) -- --
Michael Hammerstone 44,444 44,444(10) 88,888(a) (b) 88,888(10) -- --
Mark Hammerstone 22,222 22,222(10) 44,444(a) (b) 44,444(10) -- --
Karen MYCB Elias Foundation 138,889 138,889(10) 277,778(a) (b) 277,778(10) -- --
Murray Weitman 38,889 38,889(10) 77,778(a) (b) 77,778(10) -- --
Mueller & Company, Inc. 250,000(16)(17) 250,000(a) (b) 250,000(16) -- --
Ideas Inc. 250,000(16) 250,000(a) (b) 250,000(16) -- --
-------------------------------------------------------------------------------------------------------------------------
TOTAL 5,647,551 15,057,657
10
(a) Includes shares of common stock acquirable upon exercise of Warrants by the
Selling Shareholder and options exercisable to acquire common stock within
60 days of February 15, 2002. See, "Security Ownership of Certain
Beneficial Owners and Management" for additional information regarding
warrants and options held by management.
(b) Less than 1%.
(c) Assuming all shares registered for the benefit of the Selling Shareholder
are sold.
(1) Mr. Robertson is our President, Chief Executive Officer and a Director.
(2) Includes 203,315 shares of common stock owned by Mr. Robertson which were
previously registered on a registration statement on Form SB-2/A filed with
the Securities and Exchange Commission on October 18, 2001.
(3) Mr. Godsy is our Chairman and a Director.
(4) Includes 21,428 shares of common stock owned by Mr. Godsy which were
previously registered on a registration statement on Form SB-2/A filed with
the Securities and Exchange Commission on October 18, 2001.
(5) These shares were previously registered on a registration statement on Form
SB-2 filed with the Securities and Exchange Commission on October 18, 2001.
(6) Includes 40,000 shares owned directly or indirectly by Norm Dowds, the
principal of 3OE Enterprises.
(7) Mr. Kim is a sales agent for the Company responsible for sales in Korea.
(8) Mr. Singer is a Director of the Company.
(9) These shares were previously registered on a registration statement on Form
SB-2/A filed with the Securities and Exchange Commission on May 3, 2001.
(10) Includes shares issuable upon exercise of warrants are registered on a
registration statement on Form SB-2 filed with the Securities and Exchange
Commission on February 15, 2002.
(11) Mr. Sartorius is our Chief Financial Officer and a Director.
(12) Includes 407,651 shares which are registered on a registration statement on
Form SB-2 filed with the Securities and Exchange Commission on February 15,
2002.
(13) Includes 833,234 shares which are registered on a registration statement on
Form SB-2 filed with the Securities and Exchange Commission on February 15,
2002.
(14) Includes 345,000 shares which are registered on a registration statement on
Form SB-2 filed with the Securities and Exchange Commission on February 15,
2002.
(15) Includes 55,000 shares which are registered on a registration statement on
Form SB-2 filed with the Securities and Exchange Commission on February 15,
2002.
(16) Including 100,000 shares issuable upon exercise of warrants registered on a
registration statement on Form SB-2/A filed on May 3, 2001, and 200,000
shares issuable upon exercise of warrants registered on a registration
statement on Form SB-2/A filed on October 18, 2001.
(17) 100,000 shares are acquirable by Mueller upon the exercise of warrants at
$0.38 per share, 81,250 of which are fully vested and the balance of which
vest quarterly beginning March 31, 2002; and 150,000 shares are acquirable
by Mueller upon the exercise of warrants at $0.29 per share, of which
37,500 are fully vested and the balance of which vest quarterly beginning
March 31, 2002.
11
PLAN OF DISTRIBUTION
It is anticipated that the registered 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 registered 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.
We will issue the shares of common stock underlying the warrants if and
when holders exercise such 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
We, along with Sonic Systems Corporation and M&M Realty Incorporated, have
been sued in the Supreme Court of British Columbia, Canada, by Integrated Global
Financial Corporation. The action is dated January 5, 2001. Integrated Global
alleges it has options to purchase 500,000 shares at an alleged exercise price
of $1.00 per share, plus unspecified damages. We dispute the allegations and are
defending the claim vigorously. 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 our view that the claim has little, if any, merit and
we do not expect the proceeding to have any material adverse effect on us. It is
our belief that these options are expired and we have not included such options
in our outstanding options at January 31, 2002.
We have filed a lawsuit against Cobratech Industries Inc. in the Supreme
Court of British Columbia, Canada to recover $88,000 owed to us by Cobratech.
The action is dated October 24, 2001. We made a bridge loan of $200,000 to
Cobratech in November 2000, secured by a security interest in all of the
personal and real property of Cobratech. The obligation was evidenced by a
promissory note bearing interest at the rate of 1% per month. Cobratech owes us
approximately $88,000 under the note. The action has been stayed until May 2002
on the condition that Cobratech Industries Inc. pays 10 percent of all funds
received from financing until May 2002, in excess of $100,000, until the
outstanding amount has been paid. Two of our former directors were also
directors of Cobratech. See, "Certain Relationships and Related Transactions"
below for further details.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our directors, executive officers, and significant employees and the
significant employees of our subsidiary, Unity Wireless Systems Corporation (UW
Systems), are as follows:
NAME POSITION APPOINTMENT
---- -------- -----------
Mark Godsy Director and Chairman of Board of Directors February 22, 2000
Director and Chairman of Board of Directors of UW Systems
John Robertson Director, President and Chief Executive Officer November 17, 2000
Director, President and Chief Executive Officer of UW Systems
12
NAME POSITION APPOINTMENT
---- -------- -----------
Roland Sartorius Director, Chief Financial Officer and Secretary August 15, 2000
Director, Chief Financial Officer and Secretary of UW Systems
Thomas Dodd Director, Senior Vice President February 22, 2000
Director, Senior Vice President of UW Systems
Raffi Antepyan Vice President of UW Systems February 19, 2001
Ken Maddison Director October 29, 1998
Robert W. Singer Director June 22, 2001
Robert Fetherstonhaugh Director June 22, 2001
Mark Godsy - Age 47. Mr. Godsy is a Director and the Chairman of the Board
of Directors of Unity Wireless 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 the Chief Executive
Officer from February 2000 until November 17, 2000. His term as a Director of
Unity Wireless 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 of
which are 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 50. Mr. Robertson is a Director of Unity Wireless and
the Chief Executive Officer of Unity Wireless and of UW Systems. His term as
Director of Unity Wireless 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. He founded Ultratech Linear Solutions ("Ultratech") in mid-1999.
Ultratech was acquired in November 2000 by Unity Wireless.
Roland Sartorius - Age 49. Mr. Sartorius is a Director of Unity Wireless
and the Chief Financial Officer and Secretary of Unity Wireless and of UW
Systems. His term as Director of Unity Wireless 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 equity funds, 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 51. Mr. Dodd is a Director of Unity Wireless and Senior
Vice President of Unity Wireless and of UW Systems. His term as a Director of
Unity Wireless 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.
Raffi Antepyan - Age 43. Mr. Antepyan is an Executive and Vice President of
Engineering. He has over 20 years of wireless experience. Recently he was Vice
President and managing Director of privately held Wavesat Telecom, which
specialized in the development and manufacture of wireless components and
systems including Cellular and PCS (personal communication service) amplifier
for base station and repeater applications. Mr. Antepyan has also held
engineering and
13
management positions with and northern Telecom (Nortel Networks), Wavefront
Precision Technologies, Advantech Advanced microwave Technologies Inc., and
Harris Farinon Canada. Mr. Antepyan holds a Master's Degree in Electrical
Engineering from Montreal's Concordia University.
Ken Maddison - Age 61. Mr. Maddison is a Director of Unity Wireless . 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 54. Senator Singer is a director of Unity Wireless.
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.
Robert Fetherstonhaugh - Age 46. Mr. Fetherstonhaugh is a director of Unity
Wireless and 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, the United States, Holland, and
Russia, and closed three such acquisitions in 1999. He is also responsible for
coordinating Trader.com'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.
Our directors 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 our 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 our directors or executive
officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of our shares of common stock as of January 31, 2002 by (i) each
person who is known by us to beneficially own more than 5% of our issued and
outstanding shares of common stock; (ii) our chief executive officer and our two
former chief executive officers during our last fiscal year, individually named
in the executive compensation table below; (iii) our directors; and (iv) all of
our 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 January 31, 2002, there were 30,915,704 of our shares of
common stock issued and outstanding. Each common share entitles the holder
thereof to one vote in respect of any matters that may properly come before our
shareholders. To the best of our knowledge, there exist no arrangements that
could cause a change in voting control of our corporation.
14
SHARES
BENEFICIALLY PERCENT
TITLE OF CLASS NAME AND ADDRESS OF OWNER RELATIONSHIP TO COMPANY OWNED OWNED(1)
-------------- ------------------------- ----------------------- ----- --------
Common Stock Mark Godsy Chairman, Director, 5% 3,269,976 10.58%
7575 Carnarvon Street Shareholder and Past CEO
Vancouver, B.C. V6N 1K6 (February 22, 2000 -
November 17, 2000)
Common Stock John Robertson Director and current CEO 1,432,482 4.63%
#203 - 728 Farrow Street (November 17, 2000 -
Coquitlam, B.C. V3J 3S6 present)
Common Stock Roland Sartorius Director and Executive 934,167 3.02%
4172 Yuculta Crescent Officer
Vancouver, B.C. V6N 3RS
Common Stock Thomas Dodd Director and Executive 249,167 0.81%
808 Seymour Blvd. Officer
North Vancouver, B.C.
V7J 2J6
Common Stock Ken Maddison Director 56,250 0.18%
2591 Lund Avenue
Coquitlam, B.C. V3K 6J8
Common Stock Robert W. Singer Director 43,750 0.14%
2110 West County Line Road
Jackson, NJ 08527
Common Stock Robert Fetherstonhaugh Director 82,303 0.27%
20 Avenue Lilas
Dorval, Quebec H9S 3L9
Common Stock H. William Brogdon Past CEO (February, 1999 to 103,613 0.34%
1817 Sleepy Hollow Lane February 22, 2000)
Petaluma, CA 94954
Common Stock Raffi Antepyan Executive 125,000 0.40%
2192 Loiseau
St. Laurent,
Quebec H2K 2K7
Common Stock Wayne Gambell 5% Beneficial Owner 2,039,668 6.60%
1040 Memorial Dr., NW
Calgary, AB T2N 3E1
-------------------- ----------------------------- ----------------------------- --------------- -------------
Common Stock All directors and executive 6,214,425(1) 20.10%
officers as a group (8
individuals)
(1) Includes for each beneficial owner or group the following numbers of shares
of common stock that may be acquired by the exercise of stock options or
warrants that are now exercisable or will become exercisable within 60 days
of January 31, 2002:
15
o Mark Godsy - 517,917 shares, including 416,667 shares acquirable upon
exercise of warrants and 101,250 shares exercisable upon the exercise
of options.
o John Robertson - 729,167 shares, including 500,000 shares acquirable
upon the exercise of warrants and 229,167 shares acquirable upon the
exercise of options.
o Roland Sartorius - 584,167 shares, including 350,000 shares acquirable
upon the exercise of warrants and 234,167 shares acquirable upon the
exercise of options.
o Thomas Dodd - 229,167 shares acquirable upon the exercise of options.
o Ken Maddison - 56,250 shares acquirable upon the exercise of options.
o Robert Singer - 18,750 shares acquirable upon the exercise of options.
o Robert Fetherstonhaugh - 21,250 shares acquirable upon the exercise of
options.
o Raffi Antepyan - 125,000 shares acquirable upon the exercise of
options.
o Wayne Gambell - 833,284 shares acquirable upon the exercise of
warrants.
DESCRIPTION OF SECURITIES
General Provisions of Common Stock
All outstanding shares of our common stock are duly authorized, validly
issued, fully paid and non-assessable. Upon liquidation, dissolution or winding
up of the corporation, 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 our 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. We have not paid any dividends on our common stock and
do not anticipate paying any cash dividends on such stock in the foreseeable
future.
In the event of a merger or consolidation, all holders of common stock will
be entitled to receive the same per share consideration.
General Provisions of Preferred Stock
Our Board of Directors is authorized by the Certificate of Incorporation of
the corporation 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
corporation 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.
NAMED EXPERTS AND COUNSEL
Our auditors are KPMG LLP, Chartered Accountants, of Suite 900, 777
Dunsmuir Street, Vancouver, British Columbia, Canada V7Y 1K3. 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 the registration statement on Form SB-2
filed with the Securities and Exchange Commission have been audited before the
retroactive restatement for discontinued operations 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.
Unity Wireless Corporation is represented by Dorsey & Whitney LLP, Seattle,
Washington, on legal matters.
16
THE SEC'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our bylaws provide that directors and officers shall be indemnified by us
to the fullest extent authorized by the Delaware Business Corporation Act
(DBCA), against all expenses and liabilities reasonably incurred in connection
with services for us or on our behalf. The bylaws also authorize the board of
directors to indemnify any other person who we have 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 our directors, officers
and controlling persons, we have 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.
DESCRIPTION OF THE BUSINESS
General
We are a designer, developer and manufacturer of wireless technologies and
products for a broad range of industrial and commercial applications. Our
business is focused on developing, marketing and selling our UltraTech high
power linear radio 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
We were founded to commercialize the Sonem technology, traffic system
devices. Based on our knowledge of intersection controllers gained in the
traffic signal preemption business, specifically the specialized computers that
control the signal lights, we developed our "UniLinx(TM)" technology. With
further development of the UniLinx(TM) technology, management came to believe
that the 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, we sold our Sonem business 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, under the terms of an Asset Purchase Agreement among UW Systems,
Traffic Systems and others. Under the 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 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. We believe
that the costs of such obligations in the future may be substantial, and have
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 our residual interest in the Sonem
patents. On April 30, 2001, UW Systems and Traffic Systems signed a definitive
agreement consummating 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 our continuing operations in this Prospectus
exclude the Sonem business.
17
Acquisition of Ultratech
Also as part of our strategy to focus on wireless technologies, we acquired
Ultratech Linear Solutions, Inc., of Burnaby, British Columbia, Canada, in a
share purchase transaction that was completed on November 16, 2000. Ultratech is
a wireless communications technology designer, developer and marketer
specializing in high power linear RF amplifiers. In consideration of the
Ultratech shares, we paid to the shareholders of Ultratech Cdn.$72,000 ($48,000)
on account of shareholder loans, and issued 700,000 shares of our common stock.
We had loaned Cdn.$300,000 ($200,000) to Ultratech before closing.
Disposition of Integration Services Business
To complement internally developed Sonem technology, we formed wholly owned
UW Integration (and its wholly owned subsidiary Unity Wireless Integration (S)
Pte Ltd.) in early 2000 to pursue alliances, licensing agreements and marketing
partnerships in the ITS (intelligent transportation systems) and communications
markets. In order to better focus on our new high power linear amplifier
business, we 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 ours, on December 30, 2000.
Change of Auditor
Ernst & Young LLP was dismissed from its position as our certifying
accountant on December 31, 2000. KPMG LLP was appointed as our new certifying
accountant on the same day.
Ernst & Young'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 our recurring losses from operations raised substantial doubt about our
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 our board of directors
pursuant to a consent board resolution dated December 31, 2000. We have an audit
committee, but the decision to change accountants was not considered by this
committee.
During our fiscal years ended December 31, 1999 and 1998 and the subsequent
interim period preceding the dismissal of Ernst & Young, there were no
disagreements with Ernst & Young on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
KPMG was engaged as our new principal accountant to audit our financial
statements. The date of engagement was December 31, 2000.
Corporate History
We, Unity Wireless Corporation, were incorporated in the State of Delaware
on October 1, 1998, under the name Sonic Systems Corporation. We are 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 Unity Wireless Corporation as the surviving corporation. Before the
merger, the Florida corporation had no material commercial activity. On December
11, 1998, we acquired all of the issued and outstanding stock of UW Systems in
exchange for 11,089,368 shares of our common shares. As a result, the former
shareholders of UW Systems owned a majority of our outstanding stock. Therefore,
for accounting purposes, UW Systems was deemed to have acquired Unity Wireless
Corporation.
In connection with the acquisition of UW Systems, we 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.
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In keeping with its decision to focus on wireless technologies, we changed
our 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. We
began using the new name as a "dba" in March, 2000.
Our fiscal year end is December 31.
Principal Products & Services
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 and interference of adjacent
channels in a cell increases.
We produce amplifiers in a variety of frequency bands and output power
levels, tuned for optimal performance with certain network protocols. In
general, our products fall into 3 frequency bands for cellular telephone
infrastructures (800-900 MHz, also known as "cellular band" or 1st generation;
18-1900 MHz, aka "PCS" or 2nd generation; and 2.1GHz, aka "3G" or 3rd generation
networks). Collectively, these are all known as cellular networks. We also
manufacture one amplifier family for use in Digital TV broadcasting, which
operates in the frequency range of 460-870 MHz.
Within the cellular network bands, products can be tuned for optimal
operation with code Division Multiple access ("CDMA"), Time Division multiple
Access ("TDMA"), Global System for Mobile Communications ("GSM"), Wideband CDMA
("W-CDMA") and other network protocols. Not all protocols are used in all bands;
some amplifiers support multiple protocols and/or multiple channels within a
band.
Our products range from 2 watts output power to 50 watts (sometimes
expressed as "dBm" (deci-bell milliwatts, where 33dBm =2W and 47dBm=50W).
The table below lists our current Ultar Tech product line of amplifiers,
showing the frequency band, protocol and output power for each.
Product Frequency
------- ---------
800 (CDMA) 2-tone 2W 27V Series 870-880 MHz or 825-835 MHz
800(CDMA)2-tone 5W 27V Series 870-880 MHz or 825-835 MHz
800(CDMA)2-tone 10W 27V Series 870-880 MHz
800(CDMA)2-tone 16W 27V Series 870-880 MHz
800(CDMA)2-tone 20W 27V Series 870-880 MHz
800(CDMA)2-tone 25W 27V Series 870-880 MHz
1900(CDMA)2-tone 5W 27V Series 1930-1990 MHz
1900(CDMA)2-tone 10W 27V Series 1930-1990 MHz
1900(CDMA)2-tone 20W 27V Series 1930-1990 MHz
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Product Frequency
------- ---------
900(GSM)2-tone 2W 27V Series 890-915 MHz or 935-960 MHz
900(GSM)2-tone 5W 27V Series 890-915 MHz or 935-960 MHz
900(GSM)2-tone 10W 27V Series 935-960 MHz
900(GSM)2-tone 20W 27V Series 935-960 MHz
1800(GSM)2-tone 2W 27V Series 1840-1850 MHz
1800(GSM)2-tone 5W 27V Series 1840-1850 MHz
1900(GSM) 12W 12V Series 1965-1970 MHz
2110-2170(3G WCDMA)10W 27V Series 2110 - 2170 MHz
2110-2170(3G WCDMA)15W 27V Series 2110 - 2170 MHz
2110-2170(3G WCDMA)30W 27V Series 2110 - 2170 MHz
800(CDMA) 10W 27V Series 869-894 MHz
800(CDMA) 16W 27V Series 870-880 MHz
800(CDMA) 20W 27V Series 870-880 MHz
800(CDMA) 30W 27V Series 869-894 MHz
1800(CDMA) 20W 12V Series 1840-1870 MHz
1800(CDMA) 25W 12V Series 1840-1870 MHz
1800(CDMA) 30W 12V Series 1840-1870 MHz
1800(CDMA) 30W 27V Series 1840-1870 MHz
1900(CDMA) 5W 27V Series 1930-1990 MHz
1900(CDMA) 10W 27V Series 1930-1990 MHz
1900(CDMA) 14W 27V Series 1930-1990 MHz
1900(CDMA) 20W 12V Series 1930-1990 MHz
1900(CDMA) 20W 27V Series 1930-1990 MHz
1900(CDMA) 30W 27V Series 1930-1990 MHz
Wireless communications infrastructure is one of 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:
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o Consumers and businesses worldwide are driving up penetration rates
and therefore increasing the demands for voice, Internet and data
wireless communication networks.
o Affordable telecommunication infrastructure is becoming necessary in
developing countries and the construction of wireless local loops is
one of the quickest and most cost-effective solution.
o Telecommunication service providers are starting to incorporate and
bundle wireless technology into their suite of offerings.
o Applications such as video demand higher bandwidths.
o The move to one or a small number of global standards for 3G or
third-generation wireless will cause most current infrastructure to be
upgraded or replaced.
We expect 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 2004.
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. We currently have
strong agent representation in 19 countries around the world, and we are
building our 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. Our 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
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 us to provide quality products for specialty
applications.
The large, conventional amplifier suppliers will continue to deliver
approximately 70% 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 and Development
We have recently augmented our research and development capabilities in the
area of our Ultratech High Power Linear Amplifiers, with the addition of RF
design engineers and the leasing of additional test and measurement equipment.
We have devoted and will continue to devote a large portion of our research and
development resources towards next generation products, using leading edge
design techniques and other progressive technologies.
We 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).
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Sales and Marketing
We plan to build strategic alliances and partnerships to assist in
technology development which will help to extend our position in the wireless
communications market.
We sell our high power linear RF amplifiers primarily through sales agent
channels and on-site visits with customers. The majority of UltraTech amplifier
sales to date have been in South Korea through one agent. The agent is under
contract with us for sales commissions, and has been granted a significant
number of options (vesting over three years) in our stock as a longer-term
incentive.
We have expanded our 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 our name and brand in front of the
wireless network infrastructure market.
An experienced vice-president of Marketing has been hired for our 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. Our positioning will be
built around our 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.
A third, longer-term component of our marketing strategy for the 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 and Suppliers
We subcontract our 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 is also
subcontracted. Alternate contract manufacturers are available, should any of our
existing contract manufacturers cease providing services to us.
We currently assemble, configure, tune and test our products and RF
circuitry in our facility located in Burnaby, British Columbia. We have limited
manufacturing capacity, and the process to assemble, test and tune our current
products is labor intensive. We believe our manufacturing capacity is sufficient
to meet our requirements during 2002. In the future, we may be required to
expand our manufacturing facilities, hire additional personnel and/or automate
assembling, tuning and testing processes to meet future demand for our products.
We may also subcontract certain manufacturing functions.
The principal raw materials used in the production of our products are
mostly standard electronic, plastic and hardware components. We have, from time
to time, experienced difficulties in obtaining raw materials and we reduce
supply risk by using alternate suppliers.
Competition
We believe that there are two sizes and types of competitors in the RF
amplifier business: (1) large-scale manufacturers with annual sales ranging from
$100,000,000 to $500,000,000, specializing in large volume production runs and
mainstream type products; and (2) smaller companies with annual sales ranging
from $1,000,000 to $30,000,000, specializing in custom order markets. The large
and dominant RF amplifier companies are Powerwave Technologies Inc., Spectrian
Inc., Andrew Corporation, Celiant Corporation and Microwave Power Devices Inc.
Microwave Power Devices Inc. was recently purchased by Ericsson. The dominant
smaller companies are Amplidyne Inc., Stealth Microwave Inc. and AML
Communications.
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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 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.
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.
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.
AML Communications, located in Camarillo, California, designs and
manufactures high power linear amplifiers for cellular, PCS and satellite
markets. AML Communications is also involved in the design and manufacture of
low noise amplifiers.
Intellectual Property
Trade Marks
We 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. We have 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 our Sonem division, we do not intend to
formally register this trade mark. We are also using the unregistered trade mark
"Unity Wireless(TM)". We intend to register this mark in the U.S., Canada and,
possibly, other countries.
Our Sonem business was sold on October 6, 2000, to Traffic Systems LLC, an
Arizona limited liability corporation owned 37% by UW Systems and 63% by one of
the Sonem contractors of UW Systems. The US and Canadian siren detector patents
and trade marks related to our Sonem business, except for the trade mark Sonic
Solution(R), were licensed on an exclusive basis to Traffic Systems, and all
rights to the trade mark Sonic Solution(R) were sold to Traffic Systems in
connection with the sale. See "Recent Developments -- Sale of Sonem Business."
Patents
We do not have any patents with respect to our Ultratech technology. We
have an immaterial residual interest in several patents associated with the
Sonem technology, substantially all of which we have transferred to Traffic
Systems. See "Recent Developments -- Sale of Sonem Business."
Service and Product Warranty
We offered a standard warranty on our Sonem products covering parts and
labor for a fixed period, either one year or two years, depending on the product
and application. Our warranty obligations for Sonem products were assumed by
Traffic Systems. See "Recent Developments -- Sale of Sonem Business."
We installed a one-off system for audible tornado warnings in Batesville,
Arkansas in 1998. These systems were sold with a 5 year warranty. There are
about 18 months remaining on that warranty and no failures have been reported
recently.
We offer a standard warranty of one year on parts and labor from date of
shipment on our 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.
23
We will repair units under warranty at our 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.
Our 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 our ability to limit our liability or exclude certain types of damages.
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. We do not test our amplifier
products for compliance at the component level.
Management and Employees
Our senior management team has experience in exploiting technologies in
emerging markets and our technical team is proficient in wireless technologies.
Currently each of our employees and managers holds stock and/or options with
future vesting dates to encourage continued commitment and focus for several
years. As of January 31, 2002, we had approximately50 full-time employees and 10
contract or part-time employees. Our employees are not represented by a
collective bargaining agreement and we consider our relationship with our
employees to be good.
Reports to Security Holders
We are a reporting company under the Exchange Act. We file an annual report
(10-KSB) and quarterly statements (10-QSB) with the SEC. We must also file other
reports, such as Form 8-K, as applicable. In addition, we file a proxy statement
for our annual shareholders meeting (and, if applicable, any special meetings).
The public may read and copy any materials filed by us 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. We are 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 or Plan of Operation
The following discussion of our financial condition, changes in financial
condition, and results of operations should be read in conjunction with our
consolidated financial statements and the accompanying notes.
OVERVIEW
We are 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 our RF
communications products, we 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
our strategic repositioning toward RF wireless products during 2000, we, through
our subsidiary Unity Wireless Systems Corporation (UW Systems), sold our Sonem
business to Traffic Systems, L.L.C. on October 6, 2000. Accordingly, revenue
from acoustic products ended in the third quarter of 2000.
We agreed, pursuant to a term sheet dated January 31, 2001, that warranty
obligations of UW Systems for Sonem products already installed were assumed by
the purchaser of the Sonem business, in consideration of UW System's transfer of
its equity interest in Traffic Systems and our residual interest in the Sonem
patents.
Also, in late 1999, we increased our marketing efforts in Asia, resulting
in a contract in the first quarter of 2000 with the Transportation Management
Systems division of Orbital Sciences. Under the Orbital contract, UW
Integration, through our
24
wholly owned subsidiary, UW Singapore, provided systems integration support,
warranty and maintenance services for the Automatic Vehicle Management System 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 we continued to refocus upon RF
communication products, the Orbital contract was assigned to Lyma Sales &
Management Corp. on December 30, 2000, and therefore we had no further interest
in any revenue resulting from the contract.
In 1999 and 2000, we designed a specialized RF communication product with
the trade mark "UniLinx", which we 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, we sold the UniLinx business and assets on June 12, 2001
to Horton Automation Inc. 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 we acquired Ultratech Linear Solutions Inc., a
designer, developer and manufacturer of linear power amplifiers for the wireless
network infrastructure industry. Ultratech's 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. We 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 our revenues in the
current year and beyond.
We have incurred net losses since we became active in July 1995. Losses
resulted from low sales of our 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 our 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, we 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, we 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 and the sale of the Unilinx business, we have
restructured our operations and staff complement to adjust for the needs of
higher manufacturing volumes and development activities for RF power amplifier
products. We have also reviewed other costs and eliminated expenditures not
directly required to implement our RF wireless focus.
Results of Operations
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, our 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 three-month period ended September 30, 2000 and nine-month
period ended September 30, 2000.
Three Months Ended September 30, 2001
Net Sales in the third quarter of 2001 from sales of RF amplifiers were
$972,037.
Cost of goods sold in the third quarter of 2001 amounted to $632,979. The
gross margin of $339,058 or 35% of Net Sales reflects a higher volume of sales
operation. Stock compensation expense from the variable plan stock options was
nil in the third quarter of 2001.
25
Research and development expenses in the third quarter of 2001 were
$213,647. This amount was primarily due to the focus on R&D activities in the
third 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 $3,558 in the
third quarter of 2001.
Sales and marketing expenses in the third quarter of 2001 amounted to
$116,050. The costs were primarily attributable to advertising and promotional
activities as well as travel expenses to visit new customers and distributors.
Stock compensation expense from the variable plan stock options was $(7,636) in
the third quarter of 2001 .
Exchange gain in the third quarter of 2001 was $5,661 due to fluctuations
in the currency exchange rate between the U.S. and Canada. Our revenues are
received mostly in U.S. dollars, while the majority of expenses are incurred in
Canadian dollars. As we measure our financial results in Canadian dollars,
strength of the United States dollar results in exchange rate gains.
General and administrative expenses in the third quarter of 2001 were
$388,703. The majority of expenses included legal, regulatory, investor
relations, corporate finance and general operating overhead activities
associated with the leased premises. Stock compensation expense from the
variable plan stock options was $(45,606) in the third quarter of 2001.
Interest income in the third quarter of 2001 was $7,993. This amount
results primarily from interest earned from term deposits.
Nine Months Ended September 30, 2001
Net Sales in the first nine months of 2001 amounted to $2,935,543 from the
sales of RF amplifiers.
Cost of goods sold in the first nine months of 2001 was $2,015,781. The
gross margin amounted to $919,762 or 31% of Net Sales. Stock compensation
expense from the variable plan stock options was $(350) in the first nine months
of 2001.
Research and development expenses in the first nine months of 2001 were
$526,530. 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 $37,543 in
the first nine months of 2001.
Sales and marketing expenses in the first nine months of 2001 amounted to
$296,722. 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 as well as
travel expenses incurred in visiting new customers and distributors. Stock
compensation expense from the variable plan stock options was $18,261 in the
first nine months of 2001.
Exchange gain in the first nine months of 2001 was $80,979 due to
fluctuations in the currency exchange rate between the United States and Canada.
Our revenues are received mostly in U.S. dollars, while the majority of expenses
are incurred in Canadian dollars. As we measure our financial results in
Canadian dollars, strength of the United States dollar results in exchange rate
gains.
General and administrative expenses in the first nine months of 2001 were
$1,224,053. The main expenses included non-recurring legal and regulatory
related costs associated with restructuring our operations in 2001 as well as
regular legal, audit, regulatory, investor relations and corporate finance
activities as well as general operating overhead expenses associated with the
leased premises. Stock compensation expense from the variable plan stock options
was $119,577 in the first nine months of 2001.
Interest income in the first nine months of 2001 was $42,632. This amount
results primarily from interest earned from 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 resulting from the sale of the Sonem business from a reduction
of the
26
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
business.
Years Ended December 31, 2000 and 1999
Net Sales in fiscal 2000 totaled $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 our 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. Our 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 inception, we have been dependent on equity capital as our primary
source of funding. Prior to December 31, 2000, sales of our Sonem traffic signal
priority product, and sales of our UniLinx product, provided insufficient cash
flow to sustain operations. We had an accumulated deficit at September 30, 2001
of $11,638,022. During the first nine months ended September 30, 2001, we
focused entirely on the wireless product segment, primarily our amplifier
products, and incurred a net loss, after stock-based compensation expense, of
$905,747 (2000 - loss of $3,107,837). We also used cash from operations of
$1,341,723 (2000 - $1,817,807 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. Our future
operations are dependent upon the identification and successful completion of
additional long-term or permanent equity financing, the continued support of
creditors and shareholders, and, ultimately, the achievement of profitable
operations. There can be no assurance that we will be successful. If we are not,
we will be required to reduce operations or liquidate assets. We will continue
to evaluate our projected expenditures relative to our available cash and to
seek additional means of financing in order to satisfy working capital and other
cash requirements. Our auditors' report on the December 31, 2000 consolidated
financial statements includes an explanatory paragraph that states that as we
have suffered recurring losses from operations, substantial doubt exists about
our ability to continue as a going concern. The 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 we be unable to continue as a going concern.
During the first nine months of 2001, our cash position decreased by
$1,201,777 to $800,307 on September 30, 2001 from $2,002,084 on December 31,
2000. The $1,341,723 used by operations comprised a net loss of $905,747, and
non-cash charges including $76,572 in depreciation and $139,049 in goodwill
amortization and $175,031 in stock-based compensation expense. Other significant
non-cash working capital changes included accounts receivable, which increased
by $168,013. Ongoing operations during the first nine months resulted in an
inventory decrease of $40,159 and a decrease in accounts payable and accrued
liabilities of $78,742. The product warranty accrual decreased by $591,792 as we
contributed to the replacement of previously installed Sonem systems.
27
Our investing activities during the first nine months of 2001 amounted to
$68,981, which was mainly attributable to increased purchases of computing
hardware and software.
Financing activities during the first nine months included a decrease in
the Cobratech loan receivable of $152,712 and the bank overdraft decreased by
$36,655 due to a lower level of cheques outstanding at September 30, 2001 than
at December 31, 2000. In May 2001, we replaced an existing demand revolving loan
with Royal Bank of Canada with a US $79,263 (Cdn $125,000) operating line of
credit from HSBC Bank Canada, at an interest rate of HSBC prime, and secured by
an $80,000 guaranteed investment certificate.
Other than operating loan commitments, we have no material commitments,
including capital commitments, outstanding September 30, 2001.
Subsequent Events
In October 2001, we announced the creation of our Linear Power Amplifier &
Advanced Technology Development Group. This group is a unique engineering team
within our company and is charged with developing new RF power amplifier
technologies for use in wireless telecommunications network.
In November 2001 we received the first stage of a Canadian government grant
towards research and development of our October 2001 announced linear power
amplifier program.
In December 2001, we reported the delivery of new RF power amplifiers to
potential new customers and that projects currently underway had combined
revenue potential in excess of US$ 26 million. Sixteen new RF power amplifiers
have been designed and manufactured this year in addition to the ongoing
development of another 20 projects for new and existing customers. Most of the
growth has been driven by response to our sales and marketing activities that
began in March 2001.
Also on December 24, 2001, common shares of our company were co-listed on
the Canadian Venture Exchange (CDNX) in Canada.
In January 2002, we announced our first three customers in China. All three
of which have placed initial orders and two have signed supply agreements for
the development and delivery of our RF power amplifiers. We also announced the
first commercial sales of our new power amplifier for base station applications
which is a new market for us. As well, we announced purchase orders for RF power
amplifiers worth US$ 640,930 destined for export to Korean customers and that we
had a 26% increase to our technical and engineering staff, now in excess of 35
people.
Trends and uncertainties
The wireless infrastructure market is in various stages of maturity
throughout the world. Developed countries generally have an established system
of cell phone capabilities, usually with more than one service provider
competing for subscribers. In some places competing technologies have been
deployed. Developing countries are continuing to build out 1st and 2nd
generation networks to complete their coverage footprints, often in place of
wired phone systems.
There are 2 main sources of future growth: First, ever-growing numbers of
subscribers require more infrastructure to support the number of simultaneous
calls (compounded by the increasing length of calls) all driven by aggressive
rate programs offered by the carriers as well as by new features and services
being offered to subscribers. Second, new network technologies (2.5G and 3G) are
being or about to be deployed, which will require significant new investment in
infrastructure. These new network technologies are being driven by their ability
to handle more simultaneous calls and offer more features, which will attract
even more subscriber-minutes to the carriers
Some examples of new features being offered by the 2.5G and 3G networks
are: wireless access to the Internet for e-mail, stock quotes, weather/traffic
reports, etc.; SMS short message services, particularly popular with young
people; location-based services; and the growing wireless connectivity offered
by PDA manufacturers. Longer calls are being encouraged by million-minute plans,
free weekend calls, free roaming, and other billing incentives, as well as by
increased coverage footprints.
28
Wireless infrastructures will continue to expand for some time to come in
order to accommodate the increasing number of subscribers, increasing number of
features, and increasing bandwidth required by many of the new features. The 3G
networks typically operate at higher frequencies, so their coverage area tends
to be smaller per base station, requiring more base station and repeater
equipment to be deployed to achieve the same geographic coverage (although a
larger number of subscribers can be supported on each 3G base station).
In an effort to further increase subscriber-minutes, a growing number of
repeater systems (both high power repeaters and "pico-repeaters" for indoor use)
will be deployed to fill in coverage gaps in wireless network footprints.
Wireless technology is getting more complex as the newer network
technologies use limited bandwidth (capacity) more efficiently. And the market
is getting more competitive, as a small but growing number of amplifier
companies chase the business worldwide. This causes intense price competition
and resulting lower gross profit margins. If we cannot continue to reduce our
manufacturing costs on all our products, our gross margins will decline.
There are a number of emerging technologies that promise to increase the
efficiency of the RF systems which carry the wireless signals in cellular and
wireless communications networks. Some of these have the potential to be built
into the amplifiers, transparently increasing performance; others require larger
system-level changes to the base station equipment. It is not clear which, if
any, of these technologies will catch on, or what effects they will have on the
suppliers of RF amplifiers.
However, the primary uncertainty in this market revolves around the timing
of the infrastructure build-out and the network type(s) that will be built. We
are aware of the timing issue and are developing products, establishing
alliances in order to secure the potential and/or technical ability to react to
current and planned network architectures and amplifier technologies.
The timing of major network build-outs is uncertain, in different parts of
the world, for different reasons. In North America, where a number of competing
network technologies coexist, the move to 3G is expected to be slower than in
other geographies. In Europe, where a unified GSM system already exists, several
large carriers have committed huge amounts of money for 3G spectrum allocation,
but now they may not be able to afford to build it out quickly, and the GPRS
2.5G system offers many of the benefits. In Asia, China is beginning a very
large push to expand their 2G networks with virtually all suppliers in the world
competing for the business, and Korea is planning a 3G push this year (2002).
There is general consensus that the 3G networks will prevail within a few
years, but there have been some disappointments in the early technology trials,
and most of the currently-envisioned applications can run well enough on 2.5G
networks.
The overall trend is for continued growth of the wireless communications
infrastructure worldwide, driven primarily by increasing numbers of
subscriber-minutes and by new features which require more bandwidth. The primary
uncertainty in the market is the pace at which the new generation networks will
roll out, and the geographic sequence of the roll out. Uncertainty of a lesser
concern surrounds the technology itself.
We believe that our company is well positioned to compete aggressively in
the worldwide buildup of the wireless infrastructure. Although we have had
recent success in Asia , there can be no assurance that this trend will continue
and that the Chinese market buildup will be fast as first expected. A slow down
of the build-up could be a result from a mixture of political, economic,
regulatory, technical or market driven conditions. Since a significant portion
of our revenues originate in Asia, our success could be negatively materially
affected.
Our operations have been successfully funded to date by cashflow, equity
funding and to a certain extent debt financing. We are relying on these sources
of funding in order to provide our company with sufficient capital to continue
our fast growth strategy. The can be no assurance that the past trend will
continue, which would significantly affect the financial condition.
Current models of our products are required to be individually assembled,
tuned and tested in our manufacturing facility to meet the specifications of the
end-user. This process is time consuming and labor intensive and our ability
increase manufacturing output is limited by the size of our facilities and our
ability to hire, train and retain qualified personnel. Currently, we believe we
have sufficient manufacturing capacity to fill our orders in 2002. In the
future, we may be required to expand our facility, hire additional personnel and
automate the assembly, tuning and/or testing process to increase our
manufacturing capacity to meet demand for our products. Such expansion will
require additional capital investments and
29
allocation of resources, which may affect our results of operations. We cannot
assure you that adequate resources will be available or that we will be able to
increase our manufacturing capacity in a timely manner, if at all.
Inflation
We do not believe that inflation has had a significant impact on our
consolidated results of operations or financial condition. However, we have
recently experienced some significant price increases for certain components
that are used in the wireless industry.
DESCRIPTION OF PROPERTY
We currently lease 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:
(a) years 1 and 2 - Cdn$10.00 ($6.70) per square foot per annum;
(b) year 3 - Cdn$10.25($6.87) per square foot per annum; and
(c) years 4 and 5 - Cdn$10.50 ($7.04) per square foot per annum.
We do not currently maintain any investments in real estate, real estate
mortgages or persons primarily engaged in real estate activities, nor do we
expect to do so in the foreseeable future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have a November 2000 loan receivable from Cobratech Industries Inc., a
company with which we had two former directors in common, in the principal
amount of $200,000. Interest is payable to us 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. As of January 31, 2001, Cobratech has repaid $111,112. We
have sued Cobratech in the Supreme Court of British Columbia, Canada for some
$88,000 in respect of the remaining balance. The action has been stayed until
May 2002 on the condition that Cobratech Industries Inc. pays ten percent (10%)
of all funds received from financing until May 2002, in excess of $100,000,
until the outstanding amount has been paid. See "Legal Proceedings."
The Board of Directors agreed to advance $90,000 to John Robertson, our
President, CEO and director to enable him to subscribe for 500,000 units in
conjunction with the private placement completed on December 24, 2001. The Loan
principal plus interest is due on December 24, 2003, bears interest at 4% per
annum and is secured by the subscribing shares. On maturity, the Loan and all
interest owing on the loan may be repaid either in cash or by John Robertson
transferring to us, all of the securities comprising of the units he subscribed
to. For financial statement reporting purposes, this loan will be recorded as a
reduction in shareholders' equity.
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
In Canada, our common stock traded on the Canadian Venture Exchange (CDNX)
under the symbol "UWC". Our common stock is traded on the NASD over-the-counter
or "Bulletin Board" market under the symbol "UTYW." Between February 6, 1999 and
August 17, 2000, our common stock traded under the symbol "ZSON." Before
February 6, 1999, our common stock traded under the symbol "MMIM." The following
comprises the high and low bid prices for our 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:
30
Period High Bid Low 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 0.9000
(No Bid/Ask - High Trade) (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
July 01- September 30, 2001 0.30 0.11
October 1, 2001 to December 31, 2001 0.35 0.15
Source: Nasdaq Trading & Marketing Services
* Our common shares 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.
Over-the-counter market quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Our common stock began trading on the CDNX on December 24, 2001. On January
31, 2002, the closing price of our common stock was Cdn $0.51 on the CDNX and
$0.32 on the OTCBB.
As of January 31, 2002 there were approximately 150 holders of record of
our common stock. We have never declared a cash dividend on our common stock.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned by all persons
serving as our Chief Executive Officer during the fiscal years ended December
31, 2001, 2000 and 1999. None of our other officers or those of any of our
subsidiaries earned greater than $100,000 in total salary and bonus during 2001,
2000 or 1999.
Summary Compensation Table
Annual Compensation Long Term Compensation
----------------------------------------------------------------------------------
Awards Payouts
-----------------------------------------
Other Securities Restricted
Fiscal Annual under Shares or
Year Compensation Option/SAR Restricted LTIP All Other
Name and Principal Ended Salary Bonus (US$) Granted (#) Share Units Payouts Compensation
Position (US$) (US$) (US$) (US$)
---------------------------------------------------------------------------------------------------------------------
John Robertson, 2001 107,137 0 0 100,000 0 0 0
Chief Executive 2000 10,300 0 275,000(2) 0 0 0
Officer(1) 1999
Mark Godsy,
Chief Executive 2000 0 0 200,000(4) 72,000 0 0
Officer(3) 1999
William Brogdon,
Chief Executive 1999 38,756 0 0 0 0 0 0
Officer(5)
31
Annual Compensation Long Term Compensation
Securities
Restricted Stock Underlying
Name and Position Year Salary Award($) Options(#)
--------------------------------------------------------------------------------
John Robertson 2001 107,137 0 100,000(2)
2000(1) 10,300 0 275,000(2)
Mark Godsy 2001 0 0 5,000(4)
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 our company, served
as Chief Executive Officer during the period November 17 - December 31,
2000.
(2) Mr. Robertson received 200,000 options in December 2000 and 100,000 options
in February 2001 as partial compensation for serving as Chief Executive
Officer of our company. He also received 75,000 options in December 2000 as
compensation for serving as a director of our company.
(3) Mr. Godsy served as Chief Executive Officer of our 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 our company and 5,000 options in
June 2001 as compensation for serving on the Compensation Committee.
(5) Mr. Brogdon served as Chief Executive Officer of UW Systems from February
1, 1998 and our company from December, 1998. Both appointments concluded on
February 22, 2000.
(6) In accordance with the rules of the SEC, no amounts are shown with respect
to certain "perquisites" where such amounts do not exceed the lesser of
$50,000 or 10% of any named executive officer's salary and bonus.
At the end of 2001, the named executive officers held restricted stock of
our company as follows. The value of these holdings is calculated at $0.35,
which was the price of our stock on December 31, 2001.
Restricted shares held Value of restricted shares held
---------------------- -------------------------------
John Robertson 622,065 $217,723
Mark Godsy 2,444,928 $855,725
William Brogdon 0 $ 0
As of December 31, 2001, Mark Godsy also owned 307,151 unrestricted shares
for a total of 2,752,079 shares.
32
OPTION GRANTS IN 2001
Option/SAR Grants in Last Fiscal Year
Option Grants
Individual Grants
--------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Number of Securities Options/SARs Granted
Underlying Options/SARs to Employees in Fiscal Exercise or Base Expiration
Name Granted (#) Year* Price ($/Sh) Date
--------------------------------------------------------------------------------------------------
John Robertson, 100,000(2) 6.1% $0.17 Dec. 31, 2005
Chief Executive
Officer
Mark Godsy, 5,000(3) 0.3% $0.17 June 30, 2006
Chief Executive
Officer
------------------------
(1) The denominator (of 1,629,500) was arrived at by calculating the net total
number of new options awarded during the year.
(2) John Robertson received 100,000 options at $0.51 (time-based vesting) on
February 6, 2001. These options were re-priced on December 11, 2001 to
$0.17.
(3) Mark Godsy received 5,000 options at $0.38 (time-based vesting) on June 22,
2001. These options were re-priced on December 11, 2001 to $0.17.
FISCAL YEAR-END OPTION VALUE
The following table presents the value of unexercised options held as of
December 31, 2001 by each of the named executive officers appearing in the
Summary Compensation Table in this section. None of these named executive
officers exercised any of their options in 2001. Mr. Brogdon held no options as
of December 31, 2001.
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
Aggregated Options Exercised
During the Financial Year Ended December 31, 2001
and Financial Year-End Option Values
---------------------------------------------------------------------------------------------------------------------
Name Securities Aggregate Unexercised Options Value of Unexercised in the
Acquired on Value At FY-End (#) Money-Options at FY-End
Exercise (#) Realized ($) Exercisable(2)/ ($) Exercisable/
Unexercisable Unexercisable (1)
---------------------------------------------------------------------------------------------------------------------
John Robertson, Nil Nil 206,250 (exercisable) $72,188 (exercisable)
Chief Executive Officer 168,750 (unexercisable) $59,063 (unexercisable)
Mark Godsy, Nil Nil 84,166 (exercisable) $29,458 (exercisable)
Chief Executive Officer 120,834 (unexercisable) $42,292 (unexercisable)
---------------------------------------------------------------------------------------------------------------------
(1) Based on NASD OTCBB closing price of $0.35 on December 31, 2001.
33
Compensation of Directors
Our directors do not receive salaries or fees for serving as directors, nor
do they receive any compensation for attending meetings of the Board of
Directors or serving on committees of the Board of Directors. We may, however,
determine to compensate its directors in the future. Directors are entitled to
reimbursement of expenses incurred in attending meetings. In addition, our
directors are entitled to participate in our stock option plan. We have 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 us or any of our subsidiaries
and William Brogdon or Mark Godsy. We had an employment agreement with John
Robertson, dated November 16, 2000, which was replaced with a consulting
agreement on February 1, 2001 and further replaced with a five year employment
agreement dated November 1, 2001. Mr. Robertson is entitled to, amongst other
things, an annual salary of Cdn $190,000 ($119,700) reviewable annually, with
such increases as we deem appropriate. Mr. Robertson is also entitled to options
to purchase up to 375,000 shares of our common stock, benefits that are
ordinarily made available to our employees, and the reimbursement of reasonable
job-related expenses.
Repricing of Options
Report on Repricing of Options - December 22, 2000
On December 22, 2000, our Board of Directors determined that it was in the
best interest of the corporation to reprice issued and outstanding stock options
held by our employees, officers and directors. Our Board of Directors approved a
stock option repricing program effective December 27, 2000. Under the program,
each holder of stock options (employed by us at that time) granted under our
Stock Option Plan, including options held by directors and officers, was
entitled to exchange their existing stock option for a repriced stock option to
purchase the same number of shares at an exercise price of $0.38 per share. The
new exercise price was equal to the then market price of $0.38 per share of
common stock. Other than the lower exercise price, each repriced stock option
under the repricing program has terms substantially equivalent to the terms of
the original grant, including the same vesting terms, number of shares and
expiration date. Options to purchase a total of 2,406,458 shares of common stock
were eligible to participate in the program, all of which were repriced. The
Board of Directors approved the stock option repricing program as a result of
the significant reduction in the price of our common stock in fiscal 2000. The
Board determined that our existing stock options no longer provided meaningful
incentive to the option holders to remain in our employ and to maximize
shareholder value. The existing stock options had exercise prices of $1.00 to
$5.00 per share, which exercise price exceeded the trading prices of our common
stock prior to the date the option repricing program was approved. The Board
determined that the exchange of new stock options with a lower exercise price
for our existing stock options would once again provide incentive to our
officers, directors and employees to continue to provide services to us and to
maximize shareholder value.
For financial reporting purposes, the repriced options will be accounted
for as variable plan options with increases in the market price of the
underlying common stock reflected as compensation expense until the options are
exercised, expire or are forfeited.
34
The following named executive officers held the following options that were
repriced:
Name Number of securities Exercise Price under Reprice
underlying options Original Grant Exercise Price
--------------- ------------------ -------------- --------------
John Robertson 200,000 $1.00 $0.38
Mark Godsy 500,000 $2.06 $0.38
(1) Mr. Godsy received 500,000 options exercisable at $2.06 per share. These
options were renounced under the repricing program in return for 200,000
options exercisable at $0.38 per share.
Report on Repricing of Options - December 11, 2001
On December 11, 2001, our Board of Directors determined that it was in
the best interest of the corporation to reprice issued and outstanding stock
options held by most of our employees, officers and directors. Our Board of
Directors approved a stock option repricing program effective December 11, 2001.
Under the program, each eligible holder of stock options (employed by us for the
majority of the period between July 1, 2001 and December 11, 2001) granted under
our Stock Option Plan, including options held by directors and officers, was
entitled to exchange their existing stock option for a repriced stock option to
purchase the same number of shares at an exercise price of $0.17 per share. The
new exercise price was equal to the then market price of $0.17 per share of
common stock. Other than the lower exercise price, each repriced stock option
under the repricing program has terms substantially equivalent to the terms of
the original grant, including the same vesting terms, number of shares and
expiration date. Options to purchase a total of 4,253,250 shares of common stock
were eligible to participate in the program, all of which were repriced. The
Board of Directors approved the stock option repricing program as a result of
the significant reduction in the price of our common stock in fiscal 2001. The
Board determined that our existing stock options no longer provided meaningful
incentive to the option holders to remain in our employ and to maximize
shareholder value. The eligible existing stock options had exercise prices of
$0.38 to $1.00 per share, which exercise price exceeded the trading prices of
our common stock prior to the date the option repricing program was approved.
The Board determined that the exchange of new stock options with a lower
exercise price for our existing stock options would once again provide incentive
to our officers, directors and employees to continue to provide services to us
and to maximize shareholder value.
For financial reporting purposes, the repriced options will be
accounted for as variable plan options with increases in the market price of the
underlying common stock reflected as compensation expense until the options are
exercised, expire or are forfeited.
The following named executive officers held the following options that
were repriced:
Name Number of securities Exercise Price under Reprice
underlying options Original Grant Exercise Price
--------------- ------------------ -------------- --------------
John Robertson 375,000 $0.38 $0.17
Mark Godsy 205,000 $0.38 $0.17
35
FINANCIAL STATEMENTS FOR THE NINE MONTH AND THREE MONTH PERIODS
ENDING SEPTEMBER 31, 2001
(UNAUDITED)
UNITY WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(expressed in U.S. dollars)
(UNAUDITED)
Sept. 30 Dec. 31
2001 2000
-----------------------------------------------------------------------------------------------------------
(unaudited) (Note 1)
$ $
ASSETS
Current assets
Cash and cash equivalents 800,307 2,002,084
Restricted cash (note 3) 80,000 100,000
Accounts receivable (less allowance for doubtful accounts
of $21,880 in 2001 and $4,245 in
2000) 400,604 232,591
Loan receivable 51,722 204,434
Government grant receivable 37,111 13,905
Inventory (note 2) 423,253 463,412
Prepaid expenses 26,343 14,309
Other receivable 31,191 61,500
-----------------------------------------------------------------------------------------------------------
1,850,531 3,092,235
Equipment, net 232,830 221,651
Goodwill 787,946 926,995
-----------------------------------------------------------------------------------------------------------
2,871,307 4,240,881
-----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness (note 3) 240,156 276,811
Accounts payable and accrued liabilities (note 4) 650,065 728,807
Loans payable 74,451 42,312
Product warranty 31,705 623,497
-----------------------------------------------------------------------------------------------------------
996,377 1,671,427
Loans payable - 115,781
-----------------------------------------------------------------------------------------------------------
Total liabilities 996,377 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 13,343,824 13,251,498
Deferred stock compensation 0 (89,719)
Accumulated deficit (11,638,022) (10,732,275)
Other accumulated comprehensive gain (loss) 143,360 (1,574)
-----------------------------------------------------------------------------------------------------------
1,874,930 2,453,673
-----------------------------------------------------------------------------------------------------------
2,871,307 4,240,881
-----------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (note 10)
See accompanying notes to consolidated financial statements
F-1
UNITY WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(expressed in U.S. dollars)
(Unaudited)
Three months ended September 30 Nine months ended September 30
2001 2000 2001 2000
Net sales 972,037 0 2,935,543 0
Cost of goods sold (3 months data includes stock-based
compensation expenses $nil in 2001 and $nil in 2000;
9 months data includes stock-based compensation (recovery)
expense $(350) in 2001 and $ nil in 2000) 632,979 0 2,015,781 0
-----------------------------------------------------------------------------------------------------------------------------------
339,058 0 919,762 0
-----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Research and development (3 months data includes stock-based
compensation expenses $3,558 in 2001 and $nil in 2000;
9 months data includes stock-based compensation expense
$37,543 in 2001 and $nil in 2000) 213,647 0 526,530 0
Sales and marketing (3 months data includes stock-based
compensation expenses $(7,636) in 2001 and $nil in 2000;
9 months data includes stock-based compensation expense
$18,261 in 2001 and $nil in 2000) 116,050 0 296,722 0
Government grant (37,908) 0 (37,908) 0
Depreciation and amortization 74,382 5,357 215,865 11,159
Exchange (gain) loss (5,661) 0 (80,979) 0
Interest expense 1,222 4,846 3,441 17,673
General and administrative (3 months data includes stock-based
compensation expenses $(45,606) in 2001 and $659,111 in 2000;
9 months data includes stock-based compensation expense
$119,577 in 2001 and $659,111 in 2000) 388,703 1,020,841 1,224,053 1,625,190
-----------------------------------------------------------------------------------------------------------------------------------
750,435 1,031,044 2,147,724 1,654,022
-----------------------------------------------------------------------------------------------------------------------------------
Operating loss for the period (411,377) (1,031,044) (1,227,962) (1,654,022)
Interest income 7,993 49,152 42,632 106,413
Other income 2,801 0 12,079 56
Provision for income taxes 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (400,583) (981,892) (1,173,251) (1,547,553)
-----------------------------------------------------------------------------------------------------------------------------------
Gain (loss) from discontinued operations (note 5) 0 (398,477) 267,504 (1,560,284)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Loss for the period (400,583) (1,380,369) (905,747) (3,107,837)
Comprehensive income (loss):
Loss for the period (400,583) (1,380,369) (905,747) (3,107,837)
Currency translation adjustment 28,106 57,610 144,934 107,425
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss (372,477) (1,322,759) (760,813) (3,000,412)
-----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (note 6):
Continuing operations (0.016) (0.041) (0.046) (0.071)
Discontinued operations - (0.017) 0.010 (0.072)
-----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share (0.016) (0.058) (0.036) (0.143)
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-2
UNITY WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in U.S. dollars)
(Unaudited)
Nine months ended September 30
2001 2000
Operating activities:
Loss for period (905,747) (3,107,837)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of patents - 40,136
Depreciation of equipment 76,816 11,159
Amortization of goodwill 139,049 -
Write down of inventory - 282,416
Shares issued for service 7,000 49,390
Stock based compensation 175,031 726,242
Changes in non-cash working capital relating to operations:
Accounts receivable (168,013) (29,463)
Government grant receivable (23,206) 2,417
Investment tax credit receivable - 123,245
Inventory 40,159 (29,224)
Prepaid expenses (12,034) (66,964)
Accounts payable and accrued liabilities (78,742) (169,199)
Deferred revenue - 301,080
Income taxes payable - 17,729
Product warranty (591,792) 31,066
-------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,341,479) (1,817,807)
Investing activities:
Short term deposits - (300,000)
Acquisition of equipment (99,290) (145,810)
Decrease in patents - 14,932
Other receivables 30,309 -
-------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (68,981) (430,878)
Financing activities:
Repayment of loan receivable 152,712 -
Restricted cash 20,000 -
Repayment of bank indebtedness - (18,220)
Bank overdraft (36,655) -
Repayment of loan payable (83,642) (515,533)
Proceeds from loan payable - 496,463
Cash proceeds from issued and to be issued common shares - 5,775,000
-------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 52,415 5,737,710
Effect of foreign exchange rate changes on cash and cash equivalents 156,268 107,484
Increase (decrease) in cash (1,201,777) 3,596,509
Cash, beginning of period 2,002,084 32,970
Cash, end of period 800,307 3,629,479
See accompanying notes to consolidated financial statements
F-3
UNITY WIRELESS CORPORATION
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 nine-month period
ending September 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 quarters ended March 31, 2001 and June 30, 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. There can be no assurance that adequate capital infusion will be
available.
2. Inventory:
The components of inventory consist of the following:
September 30 December 31
2001 2000
$ $
--------------------------------------------------------------------------------
Raw materials 313,622 248,863
Work in progress 60,535 195,504
Finished goods 49,096 19,045
--------------------------------------------------------------------------------
423,253 463,412
--------------------------------------------------------------------------------
3. Bank indebtedness:
The Company has a $79,263 ($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 September 30, 2001 was 5.25 %.
F-4
UNITY WIRELESS
CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On May 1, 2001, the Company replaced an existing demand revolving loan with
Royal Bank of Canada with the demand revolving loan from HSBC Bank Canada Inc.
4. Accounts payable and accrued liabilities:
September 30 December 31
2001 2000
$ $
--------------------------------------------------------------------------------
Trade accounts payable 492,986 468,866
Accrued liabilities 157,075 259,941
--------------------------------------------------------------------------------
650,061 728,807
--------------------------------------------------------------------------------
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 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 September 30, 2001 was estimated to be $nil. As a
result, the Company has no direct or indirect continuing interest in the
acoustic business. For the nine months ended September 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
F-5
UNITY WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 nine months ended September 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 $165,125.
6. Earnings per share data:
The following table sets forth the computation of basic and diluted income
(loss) per common share:
Three months ended September 30 Nine months ended September 30
2001 2000 2001 2000
Numerator
Loss from continuing operations ($) (400,583) (981,892) (1,173,251) (1,547,553)
Gain (Loss) from discontinued operations ($) - (398,477) 267,504 (1,560,284)
-----------------------------------------------------------------------------------------------------------------------------------
Loss for period ($) (400,583) (1,380,369) (905,747) (3,107,837)
Denominator
Weighted average number of common shares outstanding 25,768,153 24,801,182 25,752,402 23,165,809
Adjusted - (948,370) (128,205) (1,386,241)
-----------------------------------------------------------------------------------------------------------------------------------
25,768,153 23,852,812 25,624,197 21,779,568
Basic and diluted income (loss) per common share ($):
Continuing operations (0.016) (0.041) (0.046) (0.071)
Discontinued operations - (0.017) 0.010 (0.072)
-----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per common share ($) (0.016) (0.058) (0.036) (0.143)
For the 9-month period ended September 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.
F-6
UNITY WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2001 this
maximum number was 6,442,038.
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 (1,668,667) 1,668,667 0.45
Options expired 1,922,583 (1,922,583) 1.19
Change in number of authorized options 6,249
--------------------------------------------------------------------------------------------------
Balance, September 30, 2001 2,241,288 4,200,750 0.45
--------------------------------------------------------------------------------------------------
8. Segmented information:
a. Segment information:
During the 9 months ended September 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:
Nine months ended September 30,
-----------------------------------------------------------------------------
2001 2000
-----------------------------------------------------------------------------
Korea $ 2,733 $ -
Canada 13 -
United States 190 -
-----------------------------------------------------------------------------
Total sales $ 2,936 $ -
-----------------------------------------------------------------------------
F-7
UNITY WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
c. Major customers ($000):
The approximate sales to major customers is as follows:
Nine months ended September 30,
-----------------------------------------------------------------------------
2001 2000
-----------------------------------------------------------------------------
Customer A $ 1,509 $ -
Customer B 851 -
-----------------------------------------------------------------------------
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 105
2002 199
2003 85
2004 82
2005 53
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.
11. Subsequent events:
a. Further to Note 7 above, in October 2001, the Company granted further 70,000
stock options to newly hired engineering staff.
F-8
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
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
F-9
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-10
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-11
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-12
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-13
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-14
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-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
================================================================================
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-26
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-27
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-28
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-29
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-30
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-31
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-32
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-33
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-34
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-35
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.
II-1
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our by-laws provide that directors and officers shall be indemnified by us
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 our company. The by-laws also authorize the
board of directors to indemnify any other person which we have 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 our company, we have 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 $774
NASD filing fee 0
Printing and engraving expenses 0
Transfer agent and registrar fee 0
Legal fees and expenses 4,000
Accounting fees and expenses 4,000
Miscellaneous fees and expenses 1,000
Total $9,774
RECENT SALES OF UNREGISTERED SECURITIES
On approximately December 4, 1998, we completed a private offering to
accredited investors under Rule 504 of the Securities Act of 1933, as amended
(the "Securities Act"). We 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, we
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 promulgated
under the Securities Act. The acquisition transaction occurred outside of the
U.S. The consideration we received was all of the issued stock of UW Systems. No
underwriting discounts were given or commissions paid.
In May/June 1999, we 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, we 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. We issued 500,000 shares in consideration of gross proceeds
of $1,500,000. We paid $150,000 in commission.
In November 1999, we completed a private offering under Regulation S to a
non-U.S. person, residing outside of the U.S. We issued 350,000 common shares in
consideration of gross proceeds of $175,000. No underwriting discounts were
given or commissions paid.
In December 1999, we completed a private offering under Regulation S to a
non-U.S. person, residing outside of the U.S. We issued 142,857 common shares in
consideration of gross proceeds of $100,000. No underwriting discounts were
given or commissions paid.
II-2
In April 2000 we 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. We issued 65,000 shares in consideration for $117,968 of debt
forgiveness. No underwriting discounts were given or commissions paid.
In April 2000 we completed an equity financing through a private offering
under Regulation D and Regulation S of the Securities Act. We 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 until October 2001. The warrants expired unexercised. If determined by our
Board of Directors that it would be in the best interests of our shareholders,
and if any of our underwriter or underwriters of the securities determine, in
their discretion, that it would be in our best interests, We 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 us to accomplish. We also agreed to
use reasonable efforts to maintain the effectiveness of any such registration
statement for at least one year after the Closing of this offering. We filed a
registration on Form SB-2/A to register the securities for resale in May. We
issued 285,000 shares as commissions or fees to qualified persons.
On August 15, 2000, we 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 under the Securities Act; the
share recipient was a non-U.S. person, residing outside of the U.S.
On August 15, 2000, we 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 under the Securities Act; the
share recipient was a non-U.S. person, residing outside of the U.S.
On November 16, 2000, we 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, we 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 our common stock. We had previously
loaned Ultratech $200,000. The persons receiving our shares of the Company in
the transaction were as follows: John Robertson, Mirza Kassam, Chris Neumann,
Robert Fetherstonhaugh and Stirling Mercantile Corporation. The exemption from
registration relied upon was Regulation S under the Securities Act; the share
recipients were all non-U.S. persons, residing outside of the U.S.
On December 4, 2000, we 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 us
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 exemption from registration relied upon was Regulation S under
the Securities Act; 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, we 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, we 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, we 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.
We issued in January, 2001 to Mueller and Ideas 200,000 warrants (100 000
for each party) at an exercise price of $0.38, which vest until December 31,
2002 and expire up to March 31, 2005. In April 2001, we 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. On December
II-3
15, 2001, the consulting arrangements with Ideas was terminated and the 250,000
warrants allocated to Ideas became fully vested on that date and expire on
December 14, 2002.
On December 24, 2001, we completed an equity financing through private
offering of 5,147,551 units at $0.18 per unit in reliance upon Regulation D and
Regulation S. Each unit consisted of one share of common stock and one warrant
exercisable to acquire one additional common share at $0.30 per share until
December 25, 2003. We agreed to use our reasonable efforts to cause the shares
and the shares acquirable upon exercise of the warrants to be registered under
the Securities Act. This registration agreement is being filed pursuant to that
agreement.
II-4
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. and
Unity Wireless Corporation dated November 15, 2001
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)
-------------------
* Previously filed
II-5
UNDERTAKINGS
We hereby undertake that we will:
(1) File, during any period in which we 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-6
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 February 15, 2002.
Registrant:
UNITY WIRELESS CORPORATION
By: /s/ Roland Sartorius
------------------------------------
Roland Sartorius, Secretary
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 February 14, 2002
------------------------- the Board
Mark Godsy
/s/ John Robertson Director, President, and Chief February 14, 2002
------------------------- Executive Officer
John Robertson
/s/ Roland Sartorius Director, Secretary and February 14, 2002
------------------------- Chief Financial Officer
Roland Sartorius
/s/ Tom Dodd Director February 14, 2002
-------------------------
Tom Dodd
/s/ Ken Maddison Director February 14, 2002
-------------------------
Ken Maddison
II-7
EXHIBIT INDEX
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Exhibit
Number Description
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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. and
Unity Wireless Corporation dated November 15, 2001
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)
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* Previously filed