U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number O-30620
UNITY WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-1940650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7438 Fraser Park Dr., Burnaby, British Columbia ,Canada , V5J 5B9
(Address of principal executive offices)
1 800 337-6642
(Issuer's Telephone Number)
Number of shares of common stock outstanding at October 31, 2001: 25,768,153
INDEX TO THE FORM 10-QSB
For the quarterly period ended September 30, 2001
Part I - Financial Information ................................................1
ITEM 1. FINANCIAL STATEMENTS ...............................................1
Unaudited Consolidated Balance Sheets ...................................1
Unaudited Consolidated Statements of Operations and
Comprehensive Income (Loss) ...........................................2
Unaudited Consolidated Statements of Cash Flows .........................3
Notes to the Unaudited Consolidated Financial Statements ................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION .........9
Part II - OTHER INFORMATION ..................................................14
ITEM 1. LEGAL PROCEEDINGS ..................................................14
ITEM 2. CHANGES IN SECURITIES ..............................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................................15
SIGNATURES ...................................................................16
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITY WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(expressed in U.S. dollars)
Sept. 30 Dec. 31
2001 2000
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(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
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1,850,531 3,092,235
Equipment, net 232,830 221,651
Goodwill 787,946 926,995
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2,871,307 4,240,881
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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
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996,377 1,671,427
Loans payable - 115,781
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Total liabilities 996,377 1,787,208
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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
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Commitments and contingent liabilities (note 10)
See accompanying notes to consolidated financial statements
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
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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
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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
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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
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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)
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Basic and diluted loss per common share (0.016) (0.058) (0.036) (0.143)
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
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
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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
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 %.
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
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.
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 $ -
-----------------------------------------------------------------------------
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.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the financial condition, changes in financial
condition, and results of operations of Unity Wireless Corporation (the
"Company") should be read in conjunction with the Company's most recent
financial statements and notes appearing elsewhere in this Form 10-QSB; and in
the SB-2A filed May 3, 2001; the 8-K's filed January 9, 2001, January 16, 2001
and February 16, 2001 (see Item 6. Exhibits and Reports on Form 8-K); and the
10-KSB for Dec. 31, 2000 filed on April 2, 2001.
OVERVIEW
The Company is in the business of designing, developing and manufacturing
high power linear RF amplifiers and specialized communications products that use
traditional wireless channels. Prior to the introduction of its RF
communications products, the Company had designed, manufactured, and sold an
acoustic-based traffic signal preemption system under the trade name "Sonem".
The Sonem product accounted for all revenues earned in the fiscal years ended
December 31, 1998 and 1999, and the quarter ending March 31, 2000. In view of
the Company's strategic repositioning toward RF wireless products during 2000,
the Company, through its subsidiary Unity Wireless Systems Corporation, sold its
Sonem business to Traffic Systems, L.L.C. on October 6, 2000. Accordingly,
revenue from acoustic products ended in the third quarter of 2000.
The Company agreed, pursuant to a term sheet dated January 31, 2001, that
warranty obligations of its subsidiary Unity Wireless Systems Corporation ("UW
Systems") for Sonem products already installed will be assumed by Traffic
Systems, L.L.C. ("Traffic Systems"), the purchaser of the Company's Sonem
business, in consideration of UW System's transfer of its equity interest in
Traffic Systems and the Company's residual interest in the Sonem patents. The
term sheet is attached as an exhibit to the Company's Form 8-K filed with the
SEC on February 16, 2001. On April 30, 2001 UW Systems and Traffic Systems
entered into a definitive agreement consummating the term sheet. The definitive
agreement is attached as an exhibit to the Company's SB-2A which was filed on
May 3, 2001.
Also in late 1999, the Company increased its marketing efforts in Asia,
resulting in a contract in the first quarter of 2000 with the Transportation
Management Systems division of Orbital Sciences ("Orbital"). Under the Orbital
contract, UW Integration, through its wholly owned subsidiary, UW Singapore,
provided systems integration support, warranty and maintenance services for the
Automatic Vehicle Management System ("AVMS") to be delivered by Orbital and
Sanyo Trading Company to Singapore Bus Services Ltd. Revenue from this contract
started in the quarter ended June 30, 2000, and continued for the rest of the
year. As the Company continued to refocus upon RF communication products, the
Orbital contract was assigned to Lyma Sales & Management Corp. on December 30,
2000, and therefore the Company has no further interest in any revenue resulting
from the contract.
In 1999 and 2000, the Company designed a specialized RF communication
product with the trade mark "UniLinx", which it introduced commercially in the
later part of 2000. This wireless IP (Internet Protocol) gateway was deployed in
the traffic control market and the remote POS market
9
during 2000. Sales from UniLinx commenced in the quarter ended June 30, 2000 and
continued for the rest of the year and into the first quarter of 2001. In order
to focus solely on the RF communication products, the Company sold the UniLinx
business and assets on June 12, 2001 to Horton Automation Inc. ("Horton") for
Cdn $150,000, which is payable on a percentage of unit sales by Horton.
Consequently, revenue from the Unilinx business ended in second quarter on 2001.
On November 16, 2000 the Company acquired Ultratech Linear Solutions Inc.
("Ultratech"), a designer, developer and manufacturer of linear power amplifiers
for the wireless network infrastructure industry. Its operations have been
consolidated from the date of acquisition. The revenues from sales of Ultratech
amplifiers from its inception on April 22, 1999 to December 31, 2000 were
approximately $3,200,000. The Company received revenue from the sale of RF power
amplifiers starting in the quarter ended December 31, 2000. Management expects
that the Ultratech acquisition will have a significant positive impact on
Company revenues in the current year and beyond.
The Company has incurred net losses since it became active in July 1995.
Losses resulted from low sales of the Company's Sonem traffic signal preemption
system, combined with startup manufacturing activity and engineering and
research and development costs relating to product improvement and new
technologies.
Losses continued into 2000 as the Company's revenue from Sonem sales, and
the later revenue from UniLinx and the Orbital contract, did not exceed
expenditures for research and development, marketing, and general and
administrative activities. In the first half of 2000 the Company became a
registrant with the SEC, requiring additional expenditures on legal and
accounting services. Also, up to the time of the sale of the Sonem product, the
Company made further development expenditures on this product to improve
performance and to reduce unit costs. Marketing and additional development costs
were also incurred on the UniLinx product.
With the completion of the Ultratech purchase, the discontinuance of the
contract services (Singapore) business segment, the ending of active
participation in the Sonem product, the sale of the Unilinx business, the has
Company restructured its operations and staff complement to adjust for the needs
of higher manufacturing volumes and development activities for its RF power
amplifier products. The Company has also reviewed other costs and eliminated
expenditures not directly required to implement its RF wireless focus. Given the
effectiveness of Ultratech's existing distribution channels and the potential
for increased amplifier sales as the Company introduces these products in U.S.,
European, and additional Asian markets, management believes that losses from
operations will diminish and be eliminated as the Company advances its business
plan into the current year and beyond.
Results of Operations
(All amounts are in US dollars unless otherwise stated)
As mentioned in Note 5 of the Notes to Consolidated Statements and in the
Overview Section of Management's Discussion and Analysis or Plan of Operation
above, the Company operations in
10
2001 related mainly to the designing, developing and marketing of high power
linear RF amplifiers after the discontinuance of the Sonem, Unilinx and UW
Integration operations.
Due to this restructuring of operations, there are no comparative numbers
and analysis for the periods, 3 months ended September 30, 2000 and 9 months
ended September 30, 2000.
3 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 normalized expenses due to
a higher volume of sales operation. Stock compensation expense from the variable
plan stock options was nil in the third quarter of 2001.
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
$116,050. The costs were primarily attributable to advertising & 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. The Company's
revenues are received mostly in U.S. dollars, while the majority of expenses are
incurred in Canadian dollars.
General and administrative expenses in the 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 generated $7,993. This amount
results primarily from interest earned from term deposits.
9 Months Ended September 30, 2001
Net Sales in the first 9 months of 2001 amounted to $2,935,543 from the
sales of RF amplifiers.
11
Cost of goods sold in the first9 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 9 months of 2001.
Research and development expenses in the first 9 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 9 months of 2001 .
Sales and marketing expenses in the first 9 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
travel visiting new customers and distributors. Stock compensation expense from
the variable plan stock options was $18,261 in the first 9 months of 2001.
Exchange gain in the first 9 months of 2001 was $80,979 due to fluctuations
in the currency exchange rate between the U.S. and Canada. The Company's
revenues are received mostly in U.S. dollars, while the majority of expenses are
incurred in Canadian dollars.
General and administrative expenses in the first 9 months of 2001 were
$1,224,053. The main expenses included non-recurring legal and regulatory
related costs associated with restructuring the operations of the Company 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 9 months of 2001 .
Interest income in the first 9 months of 2001 generated $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 resulted on the sale of the Sonem business from a reduction of
the warranty accrual for the Sonem product due to the replacement of previously
installed Sonem systems and the sale of the remaining interest in the Sonem
business.
Liquidity and Capital Resources
Since its inception, the Company has been dependent on equity capital as
its primary source of funding. Prior to December 31, 2000, sales of the
Company's Sonem traffic signal priority product, and sales of its UniLinx
product, has provided insufficient cash flow to sustain operations. The Company
had an accumulated deficit at September 30, 2001 of $11,638,022. During the
first 9 months ended September 30, 2001 the Company focused entirely on the
wireless product segment, primarily its amplifier products, and incurred a net
loss, after stock-based compensation expense, of $905,747 (2000 - loss of
$3,107,837). The Company also used
12
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. The Company's
future operations are dependent upon the identification and successful
completion of additional long-term or permanent equity financing, the continued
support of creditors and shareholders, and, ultimately, the achievement of
profitable operations. There can be no assurances that the Company will be
successful. If it is not, the Company will be required to reduce operations or
liquidate assets. The Company will continue to evaluate its projected
expenditures relative to its available cash and to seek additional means of
financing in order to satisfy its working capital and other cash requirements.
The auditors' report on the December 31, 2000 consolidated financial statements
includes an explanatory paragraph that states that as the Company has suffered
recurring losses from operations, substantial doubt exists about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability of assets and
classification of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern.
During the first 9 months of 2001, the Company's 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 was comprised of a net loss $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 9 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
the Company contributed to the replacement of previously installed Sonem
systems.
The Company's investing activities during the first 9 months of 2001
amounted to $68,981, which was mainly attributable to increased purchases of
computing hardware and software.
Financing activities during the first 9 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. The operating loan was replaced in April, 2001 by 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, the Company has no material
commitments, including capital commitments, outstanding September 30, 2001.
INFLATION
The Company does not believe that inflation has had a significant impact on
its consolidated results of operations or financial condition. However, the
Company has recently experienced some significant price increases for certain
components that are used in the wireless industry.
13
FORWARD LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements. The words anticipate,
believe, expect, plan, intend, estimate, project, could, may, foresee, and
similar expressions are intended to identify forward-looking statements. These
statements include information regarding expected development of the Company's
business, lending activities, relationships with customers, and development of
the industry in which the Company will focus its marketing efforts. Such
statements reflect the Company's current views with respect to future events and
financial performance and involve risks and uncertainties. Should one or more of
these risks or uncertainties occur, or should underlying assumptions prove
incorrect, actual results may vary materially and adversely from those
anticipated, believed, estimated or otherwise indicated.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
The Company, along with Sonic Systems Corporation and M&M Realty
Incorporated, has been sued in the Supreme Court of British Columbia, Canada, by
Integrated Global Financial Corporation ("IGF"). The action is dated January 5,
2001. The Plaintiff alleges it has options to purchase 500,000 shares at an
alleged exercise price of $1.00 per share, plus unspecified damages. The Company
disputes the allegations and is defending the claim vigorously.
No trial date has been set. No Examinations for Discovery have been
conducted or are even set down. The matter is at a very preliminary stage.
It is the Company's view that the claim has little, if any, merit and does
not expect the outcome of the proceedings to have any material adverse effect on
the Company.
Item 2. Changes in Securities
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.
On June 22, 2001 the Company and Robert W. Singer ("Singer") entered into a
consulting agreement under which Singer agreed to provide services in exchange
for an up front consulting fee of US $7,000, which was paid through the issuance
of 25,000 restricted shares in the common stock of the Company at a value of US
$0.28 per share.
14
Item 6. Exhibits and Reports on Form 8-K
a) 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)
10.1 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-2/A filed on May 3, 2001)
10.2 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)
10.3 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)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 2001.
15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
cause this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITY WIRELESS CORPORATION
(Registrant)
/s/ ROLAND SARTORIUS
---------------------------
Roland Sartorius, Chief Financial Officer
and Secretary
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
Date: November 14, 2001
16
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Certificate of Incorporation of Unity
Wireless Corporation (incorporated by reference to Exhibit 3.1 to
the Company's Form SB-2 filed on October 4, 2000)
3.2 Amended and Restated Bylaws of Unity Wireless Corporation
(incorporated by reference to Exhibit 3.2 to the Company's Form
SB-2 filed on October 4, 2000)
4.1 Consulting agreement among Mueller & Company, Inc., Ideas, Inc.,
Mark Mueller, Aaron Fertig and Unity Wireless Corporation dated
January 1, 2001 (incorporated by reference to Exhibit 4.2 to the
Company's Form 10-KSB filed on April 2, 2001)
10.1 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-2/A filed on May 3, 2001)
10.2 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)
10.3 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)